Regulatory impact statement: Towards a Sustainable New Zealand – Proposals for Product Stewardship
Product stewardship schemes require people and organisations involved in designing, producing, manufacturing, transporting, selling, using, collecting, recovering and disposing of a product to share responsibility for the environmental impacts of that product arising at the end of the product’s useful life. Such schemes would be required for specified priority products. Regulatory measures are proposed to provide back-up for these schemes.
The Ministry for the Environment will work with producers and other stakeholders to design a scheme for each priority product. Schemes for each product type will be customised to address the particular environmental harm or disposal problems posed by the product (or material that it contains) at the end of its useful life. Schemes for priority products will be subject to accreditation. A list of measures that may be regulated for schemes will be provided in legislation. Such regulatory back-up will only be applied when needed to make schemes effective.
The Ministry for the Environment considers this RIS to be adequate. Any use of a regulatory instrument that is provided for in the legislation will be subject to its own regulatory impact analysis and regulatory impact statement at the time. In response to direction provided by the Cabinet Policy Committee on 16 May, the RIS has since been reviewed, in consultation with the RIAU, to provide further detail about criteria for assessing both priority products and regulatory measures to support product stewardship schemes.
The Ministry for the Environment notes that while the proposal differs in some respects from the option consulted on in 2005 the bulk of the regulatory instruments were discussed then and have been subject to submissions to the Select Committee on the Waste Minimisation (Solids) Bill. The proposal to empower the responsible Minister to direct provisions in councils’ waste management plans has not been consulted on by the Ministry and as it is not in the Bill it has not be consulted on by the Select Committee.
Status Quo and Problem
New Zealand relies heavily on landfill disposal for the management of its wastes, including many of the special wastes suited to product stewardship. A targeted product stewardship approach offers scope for reducing the volume of some problem waste streams and in improving the management of other special wastes. While modern methods of landfill design and operation mean there is less impact per tonne of waste this does not remove all waste impacts. Not all landfills are modern. Management of landfills to a consistently high standard is difficult, especially when the landfill contains a mix of wastes including some hazardous and active components. There are increasing volumes of difficult end-of-life products to manage. Electrical waste for example, is rapidly increasing in volume and has the problem that it contains small volumes of heavy metals (such as lead, cadmium and mercury) that can become mobile under landfill conditions.
Providing new landfill space for the growing volumes of waste and managing the environmental risks of these landfills will be continuing and increasing in cost. Landfills are also seen by communities as being undesirable and there is often opposition to new landfill sites. Where the local authority waste system is left to manage the wastes, the costs of management and environmental damage (externalities) fall on the community. When the costs associated with end-of-life products are not reflected in price they are not considered when consumption decisions are made. Products that cause particular environmental harm or disposal problems at point of recovery or disposal (such as computers or used oil) require specific management.
When the costs of disposal are met at the end of a product’s life there is an incentive for some to dispose of the product cheaply, in ways that cause harm to the environment and the costs passed on to others. A lack of information and knowledge on the materials in products hampers effective waste management. In addition, consumers lack knowledge about safe handling and disposal of the materials in used products.
Product stewardship schemes provide a flexible approach to waste minimisation and management. Such schemes enable producers and other stakeholders to consider the best means of minimising the environmental risks of a product at the most appropriate stage of its lifecycle. For some products, this may be at the initial design stage or through the manufacturing process, while for others it may be through the collection and management of the product at the end of its useful life.
Product stewardship arrangements are currently developed at industry’s initiative. Voluntary schemes that have been developed include the Packaging Accord, recovery of used oil, Fisher and Paykel’s recovery of whiteware, recovery of used agricultural chemical containers and the recovery of old cell phones. While some of these have had financial assistance from government to get established, others have received no assistance. Firms have great flexibility in developing and implementing these schemes. Voluntary schemes must comply with current legislation, including the competition aspects which are covered by the Commerce Act. The strength of voluntary schemes lies in their flexibility and the opportunity for industry leadership and commitment.
The main limitation of voluntary schemes is that robust scheme development can be slow or offer limited coverage of the products because of the risk of non-participants gaining a market advantage through having lower costs than those participating. Voluntary schemes also maintain the separation of production and consumption from consideration and management of waste.
The policy objective is to support the effective use of the product stewardship approach in managing end-of-life products where existing disposal arrangements have the potential to cause environmental harm. Such an approach will help to lower the costs and risks of wastes to society, reduce the environmental damage from the generation and disposal of wastes and increase economic benefit by using material more efficiently.
Alternative 1 - Industry-led schemes with the regulation of free-riders
This approach would involve new legislation to provide the opportunity to regulate in circumstances only where the presence (or potential presence) of free-riders threatens the successful development of an efficient and effective voluntary scheme. The development of the schemes would be undertaken by industry. The establishment of a product stewardship agreement would provide the basis for an approved industry product stewardship scheme (or schemes). Agreements could include a commitment to regulate those that do not join the scheme so government would be involved in setting up any stewardship agreement where regulation could be sought. The regulatory intervention would be limited to controlling free-riders and would compel them to join the scheme and to comply with the rules designed by others in the industry.
This approach will not be able to force an unwilling industry, where the whole industry is unwilling to engage in waste issues, into product stewardship schemes. Nor will it enable the government to set targets for schemes.
Alternative 2 - Mandatory approach to the establishment of product stewardship schemes
This would involve new legislation and regulation to make the establishment of product stewardship programmes for specific products or product categories mandatory. For these products the regulations developed by government could cover matters such as product design requirements, mandatory consumer information, collection and recycling targets, mandatory financing mechanisms, deposit-refund schemes, advance disposal fee schemes and materials taxes.
This approach loses some of the flexibility that schemes initiated and led by industry have. The option would provide the same rules for all producers supplying the New Zealand market. It would provide for the regulation of products where there is no agreement among the producers as to whether or how a scheme should be designed.
Preferred Option – Regulatory back-up for industry-led schemes
The preferred option is to provide regulatory back-up for product stewardship schemes that are required to be developed for priority products.
The list of ‘priority products’ would be developed in consultation with stakeholders and the public. The advisory board on waste policy will have a role in advising on priority products. The list would include products where:
- Significant environmental harm arises at the end of the product’s useful life, or there is the potential for significant harm following disposal of the product; or
- There is significant public concern about problems arising at the end of the product’s useful life; or
- There are net benefits to society from the recovery, recycling, or reuse of the materials subject to a scheme; and
- Consultation with stakeholders and the public has identified a desire for action to address those problems; and
- It has been determined that the product could be managed effectively through a product stewardship scheme.
When a product is established and notified by Gazette notice as a priority product, the Ministry for the Environment will work with producers and other stakeholders to design a scheme for the product. This could involve the appointment of a representative group and a lead organisation for each product. Schemes for each product type will be customised to address the particular environmental harm or disposal problems posed by the product (or material that it contains) at the end of its useful life. There is a wide range of measures that could be used to give effect to a scheme. Some measures may require regulatory backing.
Once a proposed scheme is agreed by the Ministry for the Environment and the relevant parties, and stakeholders consulted (to be prescribed in the new legislation), it will be submitted to the responsible Minister for accreditation.
The legislation will provide for a scheme to be accredited if the scheme:
- will achieve the outcome specified for the product (or products) in a reasonable time
- provides for reduction in environmental impacts of the product when it becomes waste or when waste is produced as a by-product (eg, packaging). This could be through the collection and management of the product and its packaging at the end of their useful life, or by other methods of reduction throughout the product’s life-span – such as redesigning the product to avoid the harm, or ensuring that recovery of the product is economically viable
- proposes a registration system to enable relevant parties to know which products are covered by the scheme
- does not result in less competition in the market for the product covered by the scheme
- provides for enforcement and compliance
- makes clear the role of retailers, local authorities, recyclers and all others who have a role in the selling, distribution or recovery of a product
- provides for making consumers aware of the scheme and how to manage the product in a safe way
- provides for assessing and reporting performance of the scheme
- will not cause breaches of other domestic or international laws.
Product stewardship schemes will be implemented using one or more measures from a list of legislative and voluntary measures. The list of measures will include:
- Establishing waste minimisation, recovery and recycling objectives for industry, and responsibilities for meeting these objectives
- Disposal bans – to prevent certain materials being disposed of in landfills, cleanfills and/or incinerators
- Material controls – to restrict the use of specified materials in certain products or processes
- Ministerial powers to specify provisions in councils’ waste management plans. This could require councils to support particular product stewardship schemes by:
- providing drop off space at transfer stations for the products
- collecting the products through existing collection services or facilities
- Take back schemes – where producers, brand-owners, importers and/or retailers accept a product back for recovery or disposal at the end of the product’s useful life
- Advance disposal fees – where the costs of disposal are paid when a product is purchased
- Deposit/refund schemes – where a consumer receives a refund of a deposit when they return the product for recycling or disposal at the end of its useful life
- Labelling – this could be used to inform consumers about: the environmental harm caused by the product during its life-cycle and how to avoid or reduce that harm; provisions for recycling (including codes to aid separation); or safe disposal of the product at the end of its useful life
- Recycling standards – standards on the quality of materials or products delivered by collectors and recyclers for reuse in the same, or a different, form
- Product design – requirements specified at point of design to reduce the waste produced and encourage recycling.
The legislation will provide that a scheme can only be given effect to by regulations if:
- It is reinforced by other waste minimisation activities (such as education campaigns)
- The responsible Minister considers there has been adequate consultation with the stakeholders
- The responsible Minister considers the measure is necessary and will be effective in the circumstances
- The responsible Minister considers the objectives of the scheme cannot be met otherwise
- The responsible Minister considers that there will be a net benefit from use of the regulatory mechanism
- Councils, businesses and consumers have been given adequate notice of the proposal for regulations
- Regulations are consistent with international trade obligations.
Any regulations will require a Regulatory Impact Assessment to be prepared.
Regulations will be implemented through an order in council, on the recommendation of the responsible Minister.
Complying with these criteria will mean that any measures would need to be costed and have the benefits assessed as schemes are being designed. Once a proposed scheme is agreed, it will be put forward to the responsible Minister for approval. Regulation will then be enacted to put in place any regulatory measures needed to give effect to the particular scheme. This would involve a Cabinet decision and an evaluation of a regulatory impact statement.
Administration of the programme will be the responsibility of the Ministry for the Environment.
Industry groups or individual businesses may also opt to develop schemes for non-priority products. Such schemes could apply to a specified brand, or several brands of the same product. Proponents may be motivated to develop such schemes with a view to seeking:
- accreditation for the scheme, and the benefits that attach to this (see ‘Industry Benefits, page 7 below)
- some other form of government endorsement (such as recognition under the government’s new ‘enhanced eco-verification’ initiative)
- regulatory back-up for their scheme, using one of the regulatory measures specified in the legislation.
The process for designing a scheme will be the same for both priority and non-priority products.
Why it is the preferred option
The preferred approach provides government with a tool to ensure that environmental problems resulting from particular problem wastes are reduced. It also provides scope for this to be done efficiently and effectively through industry designed product stewardship schemes, with regulatory back-up if necessary. More uniform compliance with other environmental and safety rules has been noted overseas as an added benefit of product stewardship schemes.
Product stewardship schemes will help internalise the cost of waste and bring about the effective management of waste. For some products there will be an increase in price of that product relative to others, so that unavoidable waste is properly managed rather than being passed on to the community. Consumers will know the true cost of the product when deciding to consume. Off-setting the higher prices for some goods would be decreases in the costs faced at disposal of end-of-life products. Internalising costs will have flow-on effects for other areas including health and amenity, and there will be cost savings in the future when managing waste.
Reducing waste volume
Effective product stewardship schemes should reduce the volume of difficult wastes that councils must deal with through litter, public bins, kerbside collections, transfer stations and landfills. This will reduce the cost to councils of the collection and management of waste and litter. The proportional reduction in future costs would be greater than the volume reduction where more difficult to manage wastes are targeted. A reduction in waste going to landfill will also reduce the need for new landfills, which often face considerable community opposition.
Consumers would be better informed about and have options for assisting in the management of end-of-life waste.
There will be benefits to some parts of industry as materials recovery, efficient design and waste management will be encouraged. This will apply particularly to firms working in the materials recovery industry.
The accreditation process outlined above will accelerate industry-led action on a wider range of product types, and motivate free-riders to participate in industry-led schemes for non-priority products.
Accreditation will confer a competitive advantage for producers who are party to the scheme. They will be able to label and promote their product as being ‘government-endorsed’, in relation to the scheme’s specific waste minimisation requirements.
Products covered by accredited schemes will be purchased on a preferential basis by government agencies participating in the government’s ‘sustainable procurement’ initiative. Accreditation may also confer on parties to a scheme, an advantage in seeking financial support for further or ongoing waste minimisation activities – eg, through the waste levy contestable fund.
Costs to industry
Product stewardship regulation will involve some additional costs for those industries whose products are subject to regulation. All businesses involved in producing, distributing, servicing or using the priority products could face some costs.
The additional compliance costs would be:
- The cost to industry of preparing a stewardship scheme
- The costs of implementing the scheme once it is approved
- The costs of administration and reporting on the scheme.
All of those supplying the priority product will have to undertake similar activity so the costs should be internalised and reflected in price throughout the supply chain. Wholesalers and retailers will be involved as they are with other aspects of product servicing distribution and may face some costs as a result.
Indicators of costs to those compelled to undertake product stewardship activities could be derived from the costs of existing voluntary schemes. For example, the recovery of used agricultural chemical containers costs around $1 million and is to be met by 13c a litre charge on chemicals. If regulation were used then non-participants would also have to collect empty containers and, with the likely cost advantage of shared facilities, they would most likely become parties to the scheme. At this stage it appears that an increase in total costs of only 20% would double the coverage of the scheme from around half of the chemical containers sold to full coverage.
Recent work on a product stewardship scheme involving advance disposal fees for tyres, provides an estimate of what the costs would be. The administration of the scheme by an industry organisation, including reporting, would be around $400,000 per year and the operating costs would be under $2 per tyre sold (or around $7.6 million per year based on the current market size). Such a scheme would involve importers and manufactures facing increased costs for the collection and administration of the fund. Retailers and garages would not be expected to face any additional charges as the model would see business as usual for them. Recyclers or cartage contractors would incur additional administrative costs of being reimbursed from the advanced disposal fund.
Any proposal for regulation of a product would involve more detailed costing and an evaluation of whether regulation would give a net benefit. For some measures, such as mandatory deposits on containers, the costs can be variable depending on scheme design and coverage. There is a wealth of experience with such schemes overseas that highlight the variation possible. There are cases, usually involving re-useable glass bottles, where deposits were brought in by producers as being an economic way of recovering bottles for reuse. Such schemes still operate in a regulated environment, usually where there are standard bottles and a simple distribution chain as is often the case for bottled beer. Other schemes involve a wide range of beverage containers and a stewardship organisation that administers the deposits and recovery of the used containers. In developing any scheme involving regulation, a net benefit would need to be shown which puts consideration of both costs and benefits at the centre of the design of any scheme.
Ineffective product stewardship is more likely when a voluntary approach is solely relied upon. Experience with voluntary schemes shows that much time is spent getting agreement on the scope of the scheme, and on how far it seeks to push targets. Having regulatory instruments available will ensure that targets are not undermined by non-participants.
The risks with the preferred approach relate to the potential for poor, ineffective regulation. Poor regulation in this case would not address the environmental issues relating to the product, unnecessarily add to costs or promote anti-competitive behaviour.
The legislation will provide a clear process for development of regulations. Any regulation under the new approach will be discussed and developed in conjunction with industry and other stakeholders. This will ensure any regulation is effective, does not add unnecessarily to costs and will not encourage anticompetitive behaviour prior to it being implemented. The criteria to be met for regulatory measures to be considered, and the requirement for a regulatory impact statement to be undertaken, also provide protection against ineffective regulation.
Regulations will also need to be compliant with international agreements, including those connected to the World Trade Organisation (WTO) which relate to trade and regulations that affect trade. These agreements do not preclude use of regulation for product stewardship but they do affect what regulations can be used. The WTO Agreement on Technical Barriers to Trade (TBT) says that we must treat foreign produced "like products" no less favourably than domestic "like products". It is possible that some product stewardship regulations may need to be notified to the WTO’s Technical Barriers to Trade Committee.
Product stewardship schemes will, in their operation and in undertaking any action that is not specified in regulation, need to comply with other domestic law. This includes the law relating to competition and anti-competitive activity in legislation such as the Commerce Act.
Steps to minimise compliance costs
Compliance costs will vary between products and the form of the product stewardship scheme developed by industry. Steps taken to minimise compliance costs will include:
- The provision of guidance to industry on the legislation and how it works.
- The involvement of industry and other stakeholders in preparing schemes for priority products.
- Assisting with promotion of industry schemes and networking in setting up schemes.
For those firms already undertaking product stewardship activities the compliance costs will only be the incremental cost between what is being spent now and what is spent in the future under approved schemes that have regulatory support.
The proposal is designed to complement existing regulation.
Product stewardship provides a new approach to managing some wastes that complements the disposal and regulatory mechanisms that are currently provided for in the Local Government Act 1974. The act requires councils to provide and manage solid waste disposal from households. Councils can also develop local bylaws governing waste. Product stewardship has a more national focus and effectively deals with issues relating to individual products.
The Resource Management Act 1991 manages the effects of activities, including the effects of the management and disposal of waste. It does not have a product focus and cannot bring about the active involvement of producers and others in managing products throughout their life cycle to minimise their end-of-life impacts.
The Hazardous Substances and New Organisms Act provides for regulation of hazardous substances. Most wastes and end-of-life products do not meet the thresholds for regulation under the act’s processes. Any product stewardship activity will need to comply with both the RMA and the HSNO Act.
Implementation and review
Administration of the product stewardship programme will be the responsibility of the Ministry for the Environment. This will involve:
- Developing and maintaining the list of priority products
- Working with businesses on the design of proposed product stewardship schemes
- Providing advice to businesses and the responsible Minister on proposed schemes, and the appropriateness of measures proposed for giving effect to them
- Coordinating consultation on proposed schemes
- Submitting schemes to the responsible Minister for accreditation
- Servicing the ministerial approval process for schemes and any regulatory instruments used
- Monitoring schemes and undertaking enforcement of regulations.
The Ministry for the Environment will require an additional $0.7m per annum from 2008/09 for developing, accrediting, and enforcing product stewardship schemes.
Notifying affected parties
Before products become ‘priority products’ (which is when product stewardship action will be required), those involved in making, selling and using them, will be consulted. Once a product is listed as being a priority product the Ministry for the Environment will seek input from those involved in developing a product stewardship scheme for accreditation. The waste advisory board will assist in this.
Once a scheme has been developed it will be accredited. Accreditation will require that the scheme involves all producers and relevant parties, and that consumers are informed. Any use of regulation will require consultation and adequate notice. Regulation is by way of order in council so regulatory impact assessments are required for each use of regulation.
Enforcement will be undertaken by the Ministry for the Environment. The legislation will provide for enforcement officers to be appointed, and define their powers. Powers will include the right to enter places of sale and to require disclosure of information.
Legislation will also provide for customs import data collected from importers of regulated products to be provided by Customs to the enforcement agency, for enforcement purposes.
The legislation will contain penalties for failure to comply with regulatory requirements. The requirements and any penalties will fall on:
- Producers and sellers – failure to comply with product stewardship requirements when selling priority products covered by an accredited scheme, breaching material control regulations, breaching take-back regulations, breaching advance disposal fees regulations and breaching mandatory deposits regulations. Brand-owners will be liable for any breaches of labelling regulations.
- Disposers, waste handlers and disposal facility operators – breaches of disposal ban regulations, breaching recycling standards and for collectors and recyclers false reporting for container deposits and any advance disposal fee.
The legislation will allow the responsible Minister to establish waste minimisation, recovery and recycling objectives for accredited schemes for priority products. Failure to meet these objectives will not be an offence. If a party does not achieve an objective, the responsible Minister may modify the accredited scheme, including by introducing new or additional measures from the range of measures available.
Failure by territorial authorities to comply with a Ministerial direction for waste management plans will not be an offence. If a council does not comply with a direction, the responsible Minister may withhold government funds, including funds delivered through the proposed waste levy.
Monitoring and evaluation
Individual schemes will be required to report annually on their activities and achievement of their objectives. These reports will be provided to the Minister and will be publicly available. The Ministry for the Environment will monitor progress through the reports.
In addition, each scheme will need to be reviewed at intervals of not more than 5 years. This will include the Ministry for the Environment and those involved in the scheme reviewing its operation and any implementation mechanisms used by the scheme, including supporting regulation.
The Ministry for the Environment will also review the product stewardship framework periodically. This will include a review of the list of priority products and progress on dealing with wastes that are end-of-life priority products.
In July 2005, the Ministry for the Environment released a discussion document for public consultation on Product Stewardship and Water Efficiency Labelling. During the submission period a series of public and industry meetings was held in the main centres. Of the 117 submissions received on product stewardship, the greatest support was for voluntary schemes with a regulatory backstop for areas where there are problems. Submitters indicated that there is a limit to relying on purely voluntary approaches as there are economic incentives to free-ride which limit both the scope and effectiveness of voluntary product stewardship schemes. Submitters also commented on products that are priorities for product stewardship (either voluntary or mandatory) in their view. The most commonly mentioned priorities were used oil and filters, electronic waste, tyres and packaging.
The imposition of regulation was a concern to firms that are involved in existing schemes, such as the Packaging Accord. The Packaging Accord was signed in 2004 and is only part way through its five year programme. Imposition of regulation would be seen as not giving schemes such as the Accord time to deliver on their targets.
The 2005 discussion paper invited comment on a range of regulatory instruments including design requirements, information requirements, collection and recycling targets, minimum treatment standards, financing mechanisms, deposit-refund systems, advance disposal fee schemes, material taxes and specified minimum recycling content. The current proposal includes some of these plus two instruments that have not been consulted on by the Ministry directly. These two instruments are disposal bans and powers relating to territorial authority waste management plans.
The Waste Minimisation (Solids) Bill includes, amongst other things, similar proposals to these. The Bill is a Member’s Bill and has not been developed, or consulted on, by the Ministry for the Environment. The Bill is, however, being consulted on by the Select Committee considering the Bill and 315 submissions have been received. While these are still being heard the written comment has been used to assist in developing these proposals. The Bill includes a part on product stewardship and one that covers disposal bans. Of the submissions commenting on product stewardship over two thirds support the proposals in the Bill or an amended version of it and less than 30% oppose it. Of those commenting on disposal bans over 80% supported there being legislation to support this and only 13% opposed it.
Government Departments/Agencies Consultation
The Ministry for the Environment has consulted the Treasury, Department of Prime Minister and Cabinet, Ministry of Economic Development, Customs, Department of Internal Affairs, Department of Building and Housing, State Services Commission, Internal Revenue Department, Ministry of Transport, Te Puni Kokiri, Ministry of Justice, Ministry of Foreign Affairs and Trade, and the Ministry of Agriculture and Forestry.