Extended Producer Responsibility—Three Little Words That Make A Big Difference

If you follow economic trends in the solid waste industry, as well as related public policy, you know that New York City‘s waste management decisions have affected the bottom lines of a number of industry players, prompted defensive legislation in surrounding states and presented challenges to more than one well-meaning politician.

In February, the Citizens Budget Commission of New York (CBC) released the fourth in its recent series of reports, which focus on the staggering $1.5 billion annual sanitation budget and far-reaching impact of New York City’s current solid waste management system.  The CBC is a nonprofit watchdog group that studies the financial and management practices of New York City and the state of New York.

Collectively, the CBC reports are a good read on many levels. The latest release, A Better Way to Pay for Solid Waste Management, points out the dangers of financing the ever-growing cost of waste management covered in its entirety by general city tax revenues. It also offers a glimpse of the costs for similar services in other major cities, and compares their use of direct user fees as a funding alternative to New York City’s tax-based system. 

The CBC reports come at a time when mounting scrutiny of the core components of the municipal waste stream has surfaced (specifically on packaging waste and printed paper). The concern is the direct correlation between these items and the costs realized by consumers and municipal governments who currently manage discarded materials. The proposition raised in a growing amount of circles is that the manufacturers, importers, distributors and retailers, aka the producers of these consumer goods, should be the ones responsible for funding the overall collection and processing system.

Extended Producer Responsibility (EPR) is not new. A number of states, Canadian provinces and the European Union have EPR laws. Current legislation commonly targets products, i.e. mattresses, appliance, electronics, paint, etc. Broader implementation of EPR that could include packaging and paper is a growing concern for U.S. producers, who could be subjected to such legislation.  

Although not its intent, the CBC reports illustrate why there is pushback. According to CBC, the city’s Department of Sanitation’s operating expenses are twice the rate of private sector service providers in the same area. For comparison, a number of cities are offered as good examples. Even in all but a few of those scenarios, operating costs significantly exceeded revenues, unless franchise fees and business taxes subsidized the program. Not hardly what you want to hear if you’re a producer who, through EPR legislation, could be asked to foot that bill.  

Producers are used to controlling internal, upstream and downstream factors that influence their ability to deliver a profitable product. In typical EPR programs, producers are held accountable for the cost of recovery, yet are granted little influence on the mechanisms, processes and overhead in that system. Inconsistencies, inefficiencies, lack of productivity and performance are inherent in a patchwork infrastructure like ours. It is understandable why producers fear being asked to write a blank check to perpetuate what would be considered a logistical and quality control nightmare in their own businesses.

 Where does consumer choice end and producer responsibility kick in? That is a chicken vs. egg question if there ever was one. This much we do know. Whether the cost for the management of goods once they stop being useful to the consumer is a separate fee paid at the time of purchase, bundled into the price of the product or a fee charged for collection, the consumer pays.

Ironically, we have come full circle. To compensate for the transition from local bottling and returnable containers to a centralized distribution system, those most fearful of legislated responsibility for the curbside recycling system as we know it, quite frankly were its strongest advocates. Corporate monies were thrown into grants that supported purchase of primarily recycling bins and infrastructure expenditures. (Sound familiar?)  Thus, the costs of managing the reverse logistics of empty bottles and cans was shifted from the producers to local municipal governments.  Is it time for local governments to pass that torch back to its source?

An interesting proposal was made by Nestle’ Waters of North America (NWNA) a few years back, which suggested that producers unite across brand and product lines to develop and control the recovery system in its entirety. Other than similar sentiments raised by Coca-Cola, it fell flat. In spite of the benefits that could be derived from more direct input, the concept was stalled by competing interests.

The premise was that a newly formed producer responsibility organization (PRO) would force efficiencies in the recycling system and reduce costs by entering into contracts with waste haulers, recycling facilities and municipalities across the nation to collect and process recyclable packaging. The PRO would allocate the cost of recycling to the companies based not only on sales, but also on criteria such as the recyclability of the products.

I have to confess that when I first heard Michael Washburn, former vice president of sustainability for NWNA present this idea, I thought there must be something more in his plastic bottle than spring water.  The more closely I examine my own clients’ growing costs of recycling collection, it becomes clearer to me that we must find a way to make the system more effective and sustainable. The current excess in disposal capacity and its subsequently cheap cost could easily become a strong contender once again as municipal officials are forced to make budgetary choices.

The Closed Loop Fund is reminiscent of the Nestle’ Waters concept to some degree, in that it has recruited a number of strange but well-heeled bedfellows to form a team. It falls short of Nestlé’s EPR concept however because it simply funds equipment and brick-and-mortar needs.

 Granted, getting a break on equipment, which requires significant capital outlays, is nothing to dismiss. However, in systems where cost overruns exist, it’s the operational issues like labor, benefits, fuel, repairs and maintenance that are typically the true sources of the losses. The CBC reports are real eye openers in illustrating those facts.

When producers have a more direct responsibility for those operational costs, combined with the control to make systemwide improvements, including product design, everybody benefits, not just select locales.  

Michele Nestor is the President of Nestor Resources Inc., based in the Greater Pittsburgh area, and chair of the board of directors, of the Pennsylvania Recycling Markets Center, Penn State, Harrisburg. She helps private and public sector organizations develop strategic plans to survive in a transitioning marketplace.