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5 Design and Implementation Issues

 

5.1 Introduction

This section outlines a number of issues relating to, and aims to stimulate comment on, the design of product stewardship schemes for New Zealand.

The preferred approach seeks the advantages of industry initiated and led approaches to the development of product stewardship schemes while providing greater certainty that waste priorities will be successfully addressed through a regulatory backstop.

The approach would reflect a preference for industry-initiated and -run voluntary product stewardship schemes. This continues the current approach and takes advantage of the flexibility of voluntary approaches and the knowledge that industry has about its own products and business. Effective actions that reduce wastes and improve resource recovery may vary widely between products. In some, redesign could be critical to any waste reduction; in others, little change in design may be undertaken and more effort put into recovery and recycling.

Regulation would be used sparingly and in priority areas only. It could be used to improve the operation of product stewardship agreements by regulating free-riders or to ensure the essential management of waste where there is no likelihood of voluntary action.

The Government has not finally approved this policy approach. The final shape of a product stewardship policy and its adoption by the Government will be determined after consultation on this document has been completed.

5.2 Priorities

The New Zealand Waste Strategy outlines criteria for prioritising government action on waste. These apply to all public action on waste, including government encouragement and involvement in product stewardship schemes. The criteria are as follows.

  • Volume and harm – the volume of waste is related to the environmental harm it causes. Are there significant problems with this material stream? What is the size of the waste stream, what is the nature of the harm it causes, and how/where is the harm felt? Is it clear that existing waste management tools are not adequate to deal with the problems?
  • Achievability – policies and actions must be achievable and realistic to ensure success. Is it likely that an effective solution can be developed?
  • Public concern – to be effective, policy and action must respond to public concerns. Is this product stream a priority for the community? What is the level of concern about impacts of mismanaged disposal of this product within the community (among individuals, community groups, councils and industry)?
  • Cost-effectiveness – policies and actions must be cost-effective, and those that offer the best value will take priority. What are the environmental, social and economic costs and benefits associated with the present regime?

A proposed fifth criterion for government involvement in product stewardship is:

  • The need for national action – arguably this falls under both 'achievability' and 'cost-effectiveness', but for clarity it should be added as one of the criteria for central government involvement in product stewardship. Is this a regional or a national problem? (If localised, we would tend to work with stakeholders to find a local solution.) What role can other existing waste management tools, such as provisions under the Local Government Act, take in addressing the problems?

Government would continue to encourage initiatives by individual firms to establish product stewardship schemes, but the Ministry for the Environment would focus its resources on supporting industry-wide schemes covering 'priority' products. These schemes would normally be voluntary and designed by industry to address the waste problem that is identified as the priority.

5.3 Product stewardship agreements

The main mechanism for establishing product stewardship schemes would be through negotiated product stewardship agreements. This approach allows an industry or sector to reach agreement on the basis for product stewardship within any industry or sector, but still allows the development of more than one scheme if this is the preference of those involved. The Ministry for the Environment may help establish a scheme because of its expertise and experience in this area.

The product stewardship agreement would specify what those parties to the agreement would do and how the scheme would operate. This could include, among other things, agreed changes to product design, labelling, collection and recycling, deposit–refund schemes, advance disposal schemes and specified recycling contents. The agreements should be clear on the responsibilities of different parties and how the schemes would be translated into practice.

For priority products, regulation may be considered if industry does not reach an agreement that would deal with the waste issue, or if regulation is needed to ensure that a scheme works.

The Ministry for the Environment has already been informally involved in the establishment of agreements (including the Packaging Accord and Tyre Track), but if this approach is adopted it would place the development of agreements on a more formal basis. The development of product stewardship agreements may include consideration of the need to regulate for the establishment of schemes, but does not presume that regulation will be needed.

5.4 Scheme design issues

Free-riders

'Free-riders' is a term from economics to describe firms or people that do not meet their fair share of the costs of their use of a resource or involvement in its benefits. Free-riders can benefit from product stewardship schemes, where products from companies that have not paid for the programme enter a recycling system, or where a producer does not include a charge to cover disposal of the product and their product price undercuts competitors who do include a disposal charge.

In some situations even a small amount of free-riding can compromise the entire system. In others, free-riding may not threaten the viability of a product stewardship scheme and may be accepted and dealt with by those involved. This may, depending on the circumstances, still raise equity concerns.

The effect of free-riding is one reason why there has been a definite shift overseas from relying solely on voluntary initiatives of producers to the introduction of mandatory programmes for some products by governments. For more discussion on free-riders and product stewardship, see the OECD (2001a) guide to governments and the proceedings of an extended producer responsibility seminar (OECD, 2001b).

It is proposed that any New Zealand legislation would guard against free-riding where it compromised the scheme or was a significant and onerous burden on those participating.

Competition

Business competition issues are relevant to product stewardship schemes, whether these are voluntary or regulated in some way.

To promote competition in markets the Commerce Act places limitations on particular types of co-operation among companies. For example, it prohibits firms from forming agreements to fix prices or that contain provisions that have the effect of substantially lessening competition. This may occur if producers in one sector all agree to uniformly pass on the costs of waste disposal in the price of their goods, or if those same producers all agree to use one waste disposal service provider, thereby shutting out competitors.

Competition issues need to be addressed through the careful design and implementation of schemes. For example, the establishment of a separate product stewardship organisation to run schemes is one way to limit the scope for dominant producers/suppliers from using product stewardship to avoid competition. Having transparency in the operation of these organisations is an important protection to both consumers and many industry participants.

Imports

Many of the products that are candidates for product stewardship schemes are imported. The 'producers' in product stewardship schemes will also need to include importers as well as New Zealand manufacturers to ensure all similar products are covered. Schemes should not disadvantage (or advantage) domestic manufacturers.

There is a question as to what powers are needed to ensure that imported products are treated the same as those that are domestically manufactured.

Trade agreements

Product stewardship policies have the potential to affect trade at the level of specific products. These policies might include economic instruments, such as levies or deposit–refund systems, which can act like a uniform tax regardless of the origin of the targeted product. These types of fees/levies are allowed under World Trade Organization (WTO) rules as long as they apply equally to both domestic and imported products.

Other product stewardship policies require certain product standards, product design requirements and labelling, and these can also have trade implications. For example, having to adjust production facilities to comply with diverse technical requirements in individual markets can raise the unit cost of production, making goods more expensive than they need to be. This can in some cases lead to market access restrictions.

The OECD has found few specific examples of actual trade effects from product stewardship (or extended producer responsibility) programmes (OECD, 2001a). Product stewardship requirements, whether voluntary or mandatory (and therefore a technical regulation) nevertheless need to take into account New Zealand's obligations under the WTO Agreement on Technical Barriers to Trade (TBT). The TBT Agreement ensures that regulations, standards, testing and certification procedures do not create unnecessary obstacles to trade and are not more trade-restrictive than is necessary to fulfil a legitimate objective.

The TBT Agreement does not prevent countries from adopting the standards or technical regulations they consider appropriate for things like product safety or environmental impact. But for the benefit of consumers and producers alike, it encourages countries to use international standards wherever appropriate. The use of domestic and international experience (eg, the OECD guidelines in product stewardship scheme design) will be an important component in ensuring this requirement is met if the proposed product stewardship policy is taken forward.

The TBT Agreement requires that the procedures used by governments to decide whether a product conforms with national standards are fair and equitable. The agreement applies the Most Favoured Nation (MFN) and national treatment principles so that WTO members are obliged not to use methods that would give domestically produced goods an unfair advantage. If the circumstances that led a country to adopt a regulation change, or a new, less trade-restrictive measure becomes available, then the TBT Agreement says the regulation must be removed.

The Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal aims both to reduce the amount of waste produced by signatories and to regulate the international traffic in hazardous wastes (especially to developing countries). Any product stewardship agreement that involves the export of waste products overseas for recycling or disposal would need to comply with the requirements of the Basel Convention.

Costs and incentives

The costs of product stewardship schemes can be met in a number of ways.

Some costs may 'lie where they fall'. For instance, the costs of collecting some waste products are met by the companies organising the collection system.

Some costs, such as scheme administration, may be apportioned across the scheme participants and paid for through an industry levy. For example, the scheme for the collection of ozone-depleting refrigerants is funded through a voluntary levy. The refrigerant levy applies to gases imported in containers, but not to gases that are part of products such as car air-conditioning systems.

In Australia, product stewardship schemes being developed for televisions and computers would be financed through a levy or 'advance disposal fee', which will be included in the purchase price met by the consumer. The fee covers the costs of resource recovery or disposal at the end of the product's life. It is probable that some schemes in New Zealand will require the use of one or other of these levies.

If the levies or advance disposal fees used in product stewardship schemes affect the profit margins from products, some businesses may be unwilling to pay these on a voluntary basis and this area may be one where implementing the safety net of legislation is needed.

Any use of levies needs to be carefully considered to ensure that the right incentives are established. Under the polluter-pays principle, industry and consumers should pay the full costs of their decisions, including the cost of avoiding and remedying any environmental damage. Where the costs of wastes are internalised in the costs and prices of products, they will also be factored into decisions on product design and whether or not to use the product.

In some cases the costs of waste are met by the community through the costs of dealing with waste or through environmental degradation. There could be savings to councils and others if product stewardship schemes reduce wastes. While not strictly in accordance with the polluter-pays principle, it may make sense for councils and government to contribute to the start-up of some schemes because of these savings.

Orphan products

Product stewardship schemes often involve some form of product take-back arrangement. The establishment of take-back schemes requires consideration of how to deal with products manufactured or sold by parties that are no longer part of the sector involved in the scheme. These are referred to as 'orphan' products.

Orphan products are likely to be more significant in the early stages of product stewardship schemes; before orphan products are replaced with products produced by members of product stewardship schemes. Low volumes of orphan products may not affect the viability of schemes, but the costs of dealing with significant volumes could be a real impediment to a scheme's success.

5.5 Scheme management issues

Administration and governance of product stewardship schemes

All product stewardship schemes will require specific arrangements for their administration and governance. This may be able to be simply arranged, particularly when schemes involve only one or a few companies. In most cases, however, there will be a significant number of parties involved.

The usual response to this situation is arms-length scheme management by a separate entity, which administers the product stewardship scheme. Such an entity is known as a product stewardship organisation, or PSO. A PSO may be a new organisation, or an existing organisation could take on the new function. For the Packaging Accord, the Packaging Council of New Zealand is the PSO. In some overseas product stewardship schemes the PSO is a separate not-for-profit organisation.

Governance involves a different role from administration, and is usually filled by some form of governance body which has a similar role to the board of a company. The governance body would have overall responsibility for monitoring the performance of the product stewardship scheme and would take key decisions relating to the setting and overview of budgets and the settling of disputes between parties.

Monitoring and compliance - voluntary schemes

In the design of industry initiated and led schemes, provision should be made for monitoring and public reporting on the performance of the scheme. Monitoring a scheme's compliance is usually the responsibility of the product stewardship organisation administering the scheme and its governance body. The Ministry for the Environment may also have a role in monitoring approved product stewardship schemes, and would take performance into account if and when it considers there is a case for scheme regulation.

Implications for existing schemes

The proposals in this paper do not have any immediate impact on agreements currently in place covering packaged goods and Tyre Track, provided those agreements continue to operate. The Packaging Accord is to be reviewed in 2009 and Tyre Track in 2006. These reviews will provide the opportunity for an assessment of how these schemes are performing and what changes might be necessary for the schemes to be consistent with the final product stewardship policy.

5.6 Role of the Government

The role of the Ministry for the Environment in encouraging the development of product stewardship could include:

  • preparing guidance material on the development and implementation of schemes
  • establishing priorities for the development of schemes
  • negotiating specific product stewardship agreements
  • monitoring the performance of schemes
  • if regulation occurs the Ministry would be involved in implementing measures to avoid free-riders (under options 2 and 4), regulation of specific problem areas only (option 4), or regulation only as a backstop (option 3).

In considering how product stewardship might work with specific products or special wastes, the Ministry for the Environment will undertake an assessment of the applicability of product stewardship as a solution.

Deciding whether to regulate

Under the preferred approach, regulation is intended only as a backstop for when voluntary schemes do not deal with significant problems or to deal with free-rider issues.

Before regulation is considered, the waste area being targeted by the regulation would have already have been identified as a priority area for government involvement under the criteria listed in 5.2 above. Only where voluntary measures do not work would regulation be considered for these wastes. Criteria for deciding whether to regulate include the following:

  • there is no effective voluntary action and none is likely
  • the benefits of regulation outweigh the costs, after taking account of all the costs (including all compliance and enforcement costs) and all the benefits of no action and alternative courses of action
  • the waste can cause significant adverse effects on one or more of:
    • economic well-being
    • biodiversity and ecosystems
    • human health and enjoyment of the environment
    • soil resources or water quality
    • the relationship between Māori and their culture and traditions and the environment
  • regulation is not contrary to international obligations.

Monitoring and compliance – regulations

When regulations are used these will need to be enforced. Although the Ministry for the Environment will have the central role in developing any regulations, a number of other agencies could potentially be involved. Such involvement may be determined by the product stewardship mechanisms provided for in the regulations. Regulation could also extend to products entering the New Zealand market from overseas. Any scheme to levy disposal charges will involve a collection agency and the reimbursement of the costs to those doing waste collection and recovery.

If mandatory standards on product materials, recycling targets and so on are imposed, then some checking of compliance will be needed. This could involve both local and central government agencies. Legislation will need to provide for any sharing of information between agencies that is necessary (eg, use of Customs data to identify imports and importers).

5.7 Legislation supporting product stewardship schemes

The preferred option includes legislation providing regulatory powers supporting product stewardship schemes. As we have stressed, use of regulatory powers would not be automatic, and would be used only where it was needed; that is, where the product stewardship scheme would fail without it, resulting in adverse environmental effects.

Regulatory powers would be available for use to:

  • Create a 'level playing field' for industry and to avoid some parties obtaining a competitive advantage or free-riding by standing outside of product stewardship agreements – the provisions in the agreements would need to be approved by government before regulation could be considered, and regulation could require parties to be a member of a product stewardship scheme or face similar obligations.
  • Provide government-approved product stewardship schemes with the potential to use a range of economic and other tools supporting the objectives of the schemes, possibly including:
    • advance disposal fees
    • product-refund schemes
    • mandatory recycled material content.
  • As a safety net to cover circumstances where industry-led schemes fail or cannot be established, even with controls over free-riders. In these cases consideration would be given to mandatory schemes.

No current legislation provides the powers envisaged, and they are unlikely to fit comfortably as part of any existing statutes, such as the Resource Management Act or the Hazardous Substances and New Organisms Act. New legislation may be required.

The legislation to support the preferred option (option 4) would need to have provisions enabling:

  • the identification of wastes or products that are government priorities for product stewardship measures, and reasons why these have been identified
  • the establishment of product stewardship agreements between the government and other parties
  • the approval of product stewardship schemes where regulation is sought to implement the provisions of product stewardship agreements
  • regulation-making powers covering:
    • the identification of the product(s) or waste that will be the subject of the scheme
    • the identification of producers
    • prescribing standards or targets (and exemptions to these) for the use of natural and physical resources in specified products and/or the disposal of specified products
    • specification of the duties and responsibilities of identified producers, or users and holders of specified products
    • the application of mechanisms such as deposit fees, take-back schemes, codes of practice or industry levies
    • prescribing methods for reporting and confirming that products meet requirements for standards, targets or labelling
    • provisions for compliance and enforcement.
  • before regulations are made the Minister must:
    • publicly notify the proposal to make the regulations
    • give interested parties the opportunity to make submissions on the proposal to make regulations
    • consult with the appropriate people.

Any proposals to use the regulations would be subject to an assessment of the costs and benefits of regulation in that particular circumstance under the Government's requirements for the assessment of regulatory impacts and compliance costs.