In early March a feud erupted between various stakeholders whose packaging materials are managed via Ontario’s blue box curbside recycling program. The battle was over how much each industry group should pay as its fair share.
Some of the lobbying letters sent to policymakers make for fascinating reading; it’s an insider’s guide to how the blue box functions economically. The minutiae of who pays for what, and how costs are assessed, is the proving ground for recycling economics. It’s important stuff, too, because in Ontario what was once an opaque and almost entirely taxpayer funded scheme ridden with subsidies and cross-subsidies is slowly evolving toward something much more transparent.
The initial funding formula, developed by Stewardship Ontario (the industry funding organization) is commonly called the “40/40/20 formula” because of the way it assigns costs proportionately for recovery, net cost and equalization. Early this year a new methodology was proposed by Stewardship Ontario for 2007 with different weightings, such that costs would increase for suppliers of materials that are expensive to recycle — and that are well below the provincial 60 per cent diversion goal (e.g., plastics) — and be reduced for lower-cost materials that have already exceeded the diversion target (e.g., paper).
The paper and paperboard people favored the new formula because it strengthens the “nexus” test through the partial disaggregation of material fees. (“Nexus” occurs when fees reflect the cost of the actual service delivered.) But within days of the deadline for comments (March 1), a Stewardship Ontario subcommittee reversed itself and recommended more or less the old formula.
The arguments for and against the different funding formulae publicized certain costs and data that allows for interesting analysis. For instance, a more apples-to-apples comparison can now be made between Ontario’s blue box recycling system and others; for example, Germany’s Green Dot extended producer responsibility program, considered a leader in waste diversion. Some critics say the German program is expensive. This is no doubt true, but think about what Germany is getting for its money. Germany’s program is strictly for packaging (i.e., the expensive stuff), so it’s numbers don’t include the blue box’s lower-cost paper and newsprint component. The German system has a very high capture rate for packaging materials. Best of all, while industry can contract with municipalities to collect its stuff, industry, not government, pays the bill (and not just 50 per cent, like in Ontario).
According to Clarissa Morawski of CM Consulting, packaging diversion in Germany costs about 1.5-billion Euros in total; 5.2-million tonnes is recovered (remember, this doesn’t include newspaper) at a cost of $288 Euros per tonne, or CDN $393/tonne. This sounds expensive compared to Ontario’s system that nets out at only $129 per tonne.
But now let’s take out the newsprint and paper. Stewardship Ontario uses activity-based costing to estimate the net packaging costs material by material. In Ontario, corrugated cardboard costs a net $335 per tonne to collect and recycle; gable-top containers cost $746/tonne; PET is $777/tonne; plastic film is $1,446/tonne and polystyrene costs $1,708/tonne. As we would expect, aluminum turns a profit of $563/tonne, which is believed to offset some of the cost of recycling plastic bottles; wine and liquor bottles cost $154/tonne for clear and $149/tonne for colored glass.
Suddenly German system doesn’t look so expensive!
Digging further reveals even more startling numbers, especially for plastics. The Canadian Plastics Industry Association (CPIA) recently conducted an analysis as part of its critique of the proposed stewardship fee changes. Using 2006 data estimates, the combined generation total for all six plastics types in Ontario is 221,700 tonnes, of which 39,803 tonnes is assumed to be captured for recycling (a recovery rate of around 18 per cent). Municipalities pay $33.67 million to recycle this material ($846 per tonne). The CPIA points out that its members will pay $23.78 million in fees, which is not 50 per cent of municipal costs, but rather 70 per cent.
CPIA’s examination of disaggregated numbers is interesting. Industry fees of $4.03 million for recycling 20,143 PET bottles cover only 26 per cent of municipal costs ($15.65 million). The numbers are similar for HDPE bottles. But the story is completely different for the difficult-to-recycle materials for which diversion rates are low. Industry fees range from 100 per cent of municipal costs for plastic film to 390 per cent for polystyrene and an astronomical 750 per cent for plastic laminates. In this last instance, industry will pay $6.38 million to divert just 581 tonnes of plastic laminates, (that’s $10,991 per tonne!) which is slightly more than it pays toward recycling 32,276 tonnes of combined PET and HDPE bottles.
This is absurd, and the proposed amended formula would have driven such fees even higher. Now you know why the plastics industry opposed the formula change!
I point this out not to defend the plastics industry or to say that it should pay less. Instead, I’m simply recognizing that forcing industry to pay for the blue box (even just half its net costs) is generating useful data and pointing up perverse consequences that may trigger consideration of a new and more efficient integrated waste system — one in which some materials will likely find their way out of the blue box and the funding formula altogether. An Industry Stewardship Plan could recycle plastic grocery bags via a return-to-retail program, and contaminated food wrap could be exempted from the regs and incinerated.
NOTE: We offer readers an in-depth article as our cover story. (See page 8.) We’ve also posted several relevant documents and letters on our website atwww.solidwastemag.com
Guy Crittenden is editor of this magazine. Email Guy at email@example.com
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