Chapter 3. Governance issues and extended producer responsibility

3.1.1. Why is government involved in EPR systems?

A key premise in EPR is a shift of responsibilities for waste management from the public sector to the private sector, raising the question of why – or how much – government is involved in such systems. In most countries, government is involved in waste management as a regulator and as a service provider. Typically, national or regional sub-national (state or provincial) governments act as regulators, whereas it is local governments that are assigned operational responsibility for waste management. In some cases, those local governments provide services themselves using government employees. In others, the local government contracts out those services to commercial providers. In still others, individual waste generators contract directly with collection services (with varying degrees of oversight by local governments). Thus, EPR represents not so much an entirely new intervention of government in the market for waste management as a different form of intervention.

This new role of government involves a different characterisation of the problems posed by waste and a reassignment of responsibilities entailing involvement of additional stakeholders. The result is that new forms of governance of waste management have emerged. Governance in this context6 refers to the organisation and administration of matters related to waste generation, management and policy by decision-makers at all levels including governments, businesses, advocacy organisations and other elements of civil society, members of the informal economy, and consumers/waste generators. Government is one element in the system of governance, albeit a pivotal one.

EPR represents, at least conceptually, a potential reduction of government involvement in waste management and yet even a cursory examination of EPR as it is practiced around the world indicates that governments are involved. The nature and extent of government involvement in EPR systems reflects the need to respond to market failures and, as EPR systems evolve, to problems that emerge with policies and program that are in place. Government involvement also exists because of the familiar requirement for monitoring and enforcement of public policy. Put more simply, government is involved because EPR systems require not only sound policy design, but also effective governance to operate effectively.

3.1.2. Voluntary approaches to EPR

Voluntary approaches to producer responsibility for end-of-life management of products exist in a variety of markets, adding a further dimension to the discussion of market failure and EPR governance. Voluntary product take-back – the most salient form of voluntary EPR – is most commonly found in markets for durable commercial products and/or where end-of-life products have value (positive prices), often under the rubric of “asset recovery”. Photocopiers are a long-cited example (Murray and Vietor, 1993; Reinhardt, 2000). Voluntary take-back may also be pursued by a producer seeking to prevent acquisition, refurbishment, and resale of its own products by third-parties (Ferguson and Toktay, 2006). Concern over loss of market share to refurbishers is thought to spur take-back by producers of toner cartridges and lenses from single use cameras. Reputational advantages and pre-emption of mandatory obligations can also motivate firms to engage in product take-back (Toffel, 2004; Nash and Bosso, 2013; Agrawal et al., 2015).

Voluntary approaches have been advocated by regulated and potentially regulated industries as a superior approach to the mandatory approaches discussed in this chapter, in part, because of their potential for flexibility and lower cost (Galeano, 1996; Renckens, 2008). While little systematic quantitative information is available on the proportion of end-of-life products managed through voluntary EPR, it appears confined to a few, specific products or product categories. That is, market forces will lead firms to take back products where it is profitable to do so. The question then becomes one of whether the amount of product take-back that occurs as a result of market forces is sufficient for policy purposes. Do products with lower end-of-life value, hazardous substances, or which are costly to collect and process also need to be the responsibility of producers? In the latter case, the issue is whether producers will adopt ongoing “beyond compliance” practices through a voluntary commitment to the extent deemed necessary by policy makers. Stated another way, will corporate social responsibility provide the level of continuing end-of-life management that is sought or is mandatory EPR required?7

Voluntary approaches to EPR can be hindered by the failure to progress beyond business as usual, regulatory capture, poor monitoring, free riding, and transaction costs (Barde, 2004). Analysis of voluntary and mandatory approaches suggests that voluntary approaches do not have the scope and transparency that can achieve ambitious policy targets (Quinn and Sinclair, 2006). That is, voluntary approaches not only face challenges in terms of performance, but also with respect to governance – data availability, measurement, and transparency in particular. The potential effectiveness of voluntary EPR is likely to be a function of the characteristics of the relevant product, the market conditions in the associated industry sectors, and the extent of transparency and oversight in the voluntary programs.

Governance of voluntary environmental initiatives has been studied (King and Lenox, 2000; Potoski and Prakash, 2013), but no research has been found on governance of voluntary EPR specifically. More broadly, voluntary approaches to environmental policy in general have been widely criticised in the research literature as ineffective (Harrison, 1998; OECD, 2003; Morgenstern and Pizer, 2007; Darnall and Sides, 2008). The effectiveness of voluntary approaches appears to be contingent on credible threats of regulation (Khanna, 2001). Arguments against mandatory EPR, however, often are not focused on the possibility of wide-scale voluntary EPR, but rather on the use of other policy approaches (often municipal responsibility for recycling (e.g. SAIC Energy, 2012a)) or challenge the need for enhanced end-of-life management (e.g. Scarlett et al., 1997). This shifts the policy debate away from questions of the adequacy of voluntary approaches to one of policy justification and/or instrument choice, matters outside the scope of this report.

3.1.3. EPR and market failure

From an economic perspective, inadequate end-of-life management arises because of the failure to price externalities. “Getting the prices right,” that is, internalising externalities so that market prices reflect environmental impacts, is thus the remedy that economic theory suggests as the approach of first resort. However, a variety of factors can make getting the prices right impractical or ineffective. Most notably, quantity-based user charges (“pay‐as-you-throw”), a crucial element in a get-the-prices-right strategy, can provoke illegal dumping (Ino, 2007); without variable fees, the price signal to generators for appropriate waste management is muted.8

In concrete terms, there are two consequences of the market failure in end-of-life management that motivate EPR. First, producers face insufficient incentives to (re)design products and packaging to facilitate end-of-life management, i.e. to pursue design for environment (DfE). As noted above, however, because of the structure of many EPR systems, incentives for DfE have been limited. The evidence for the impact of EPR on product design is sparse (Tojo, 2004; Gottberg et al., 2006; Røine and Lee, 2006),9 although there is some indication that EPR has an impact on material choice for packaging (see Chapter 4, Annex I and Bell 2013). Second, when levels of recycling or other appropriate forms of end-of-life management are seen as inadequate, EPR is one among a portfolio of policy strategies that can be used to raise the levels (Hickle, 2014a).10

It has been argued that governments turned to EPR in the early 1990s in part because of the failure of voluntary industry initiatives to remedy end-of-life management problems (Eichstädt and Kalhlenborn, 2002). This comports with a view that industry has the technical and managerial capacity, and notably, the resources, to change products and end-of-life management that are out of reach of government (Hickle, 2014a). That is, the argument for EPR in this view rests on matters of funding, institutional competence, and policy deficiencies rather than market failure.

The extension of the responsibility of producers to include end-of-life management is premised on a degree of privatisation of solid waste services. EPR was envisioned in part as a performance- and market-based environmental policy instrument (Lifset, 1993). In simple terms, producers would be assigned the responsibility for (some degree of) collection and processing for recycling, often with a quantitative target. Businesses would be left to organise the specific elements of those activities, using, it was hoped, the superior managerial acumen of the private sector. Municipalities and taxpayers would be relieved of the financial burden of recycling and related activities because the burden would be transferred to producers and consumers.

As EPR systems have been established around the world for various types of products, the notion of assigning a policy target and stepping aside to let producers self-organise to meet those goals confronted a variety of challenges and existing institutions. The result is that government involvement in the administration of EPR has taken a diversity of forms. In some instances the issues have involved misaligned incentives, in others the need for conventional government oversight. That governments play an overt role in EPR systems is not surprising. As noted in a recent review of market-based instruments in sustainability transitions (Parson and Kravitz, 2013), market instruments do not avoid authority based state regulation. Any policy is designed, enacted, implemented, and enforced by state authority and requires multiple design decisions by government… Governments must also decide how to monitor and respond to targeted actors’ behaviour, including what mix of rewards, punishments, and other modes of influence to use.

3.1.4. EPR when some products have value

The question of market failure and the role of government intervention when some, but not all, end-of-life products have value raises complicated challenges for EPR. Over the past decades some types of waste electrical and electronic equipment (WEEE) have become valuable, that is, the discarded products have positive, rather than negative, prices in market transactions. This has been the case for (many) mobile phones and commercial information technology products for many years. More generally, it is business-to-business goods, frequently disposed in the institutional, commercial, and industrial waste streams, which are likely to have positive value. More recently, however, consumer WEEE such as desktop PCs and printers have become valuable primarily because of the potential for sale into second hand markets and the metals contained in their circuit boards as well as improvements in recovery technologies. Some types of packaging and printed paper also fetch positive prices.

At a foundational level, the presence of end-of-life products and materials with positive prices in waste streams regulated through EPR raises the question of whether there is in fact market failure and whether and how such wastes might be excluded from EPR obligations (Kunz et al., 2014). There are, however, practical challenges in differentiating EPR obligations according to whether market failure has occurred11 or even on the basis of the current price of end-of-life products. These challenges include the tracking of wastes managed outside EPR systems and the definition of thresholds that might trigger the release from EPR obligations. A key challenge for governance and EPR policy is the potential for increased cost as the valuable fractions of the waste stream are shifted away from EPR systems leaving only the costly to manage. The same applies to collection of waste from remote areas. A second challenge is whether EPR systems could be designed to accommodate changes in the end-of-life product streams that they manage as the prices and profitability of various wastes shift over time. An approach that differentiated among waste according to value would depend as well on the effectiveness of the regulation of entities providing collection and processing services outside of EPR systems in order to ensure that positive prices of end-of-life products do not arise from inadequate environmental management.

Leakage in EPR systems

The value of the end-of-life products has led to legal, semi-legal, and illegal diversion from EPR-managed systems. Many EPR systems report large flows of end-of-life products outside of EPR systems. In France it is estimated that only about one third of WEEE generated on French territory is handled by EPR systems, with between 45% and 75% moving through alternative channels and/or exported (Monier et al., 2013). Nearly half of the home appliances subject to management via EPR in Japan are estimated to move through non-EPR channels (see Annex H). According to Countering WEEE Illegal Trade (CWIT), a recent study commissioned by the European Union, of the 9 450 kilotons of WEEE generated in 2012 in Europe, approximately 3.3 million metric tonnes are officially reported as collected and recycled, 3.15 million tonnes are collected and processed without reporting and/or under other non-compliant conditions, and 1.3 million is exported without reporting12 (Huisman et al., 2015).

The leakage in the system occurs at many stages in the product life cycle. In some cases, municipalities formally opt out of EPR systems, choosing instead to contract with waste firms and recyclers to manage their recyclables. In Germany, for example, as much as 65% of the WEEE collected was done by municipalities that elected not to participate in EAR, the EPR system (see Figure 3.1).

Figure 3.1. Share of German municipalities choosing not to manage WEEE through EPR (%), 2009-13

Source: Stiftung Elektro-Altgeräte Register (2014), www.stiftung-ear.de/en/.

Leakage also occurs through “cherry-picking”, that is, collecting or managing only the valuable components of the waste stream, leaving the costly portion to others. This occurs when municipalities, retailers, or other entities providing collection or drop-off sites bypass producer responsibility organisations by selling, formally or informally, the more valuable fractions of the collected recyclables to recyclers not participating with the PRO program. Still more informal cherry-picking occurs when brokers intercept consumers en route to drop-off or civic amenity sites, purchasing items that are valuable. It can also occur when generator-segregated waste is scavenged prior to collection. Diversion of end-of-life products from EPR systems also occurs on a more systematic basis in developing countries where peddlers purchase discards from households and other waste generators at a price higher than that offered by the formal EPR system. This, for example, has been a long-standing challenge in the establishment of the Chinese EPR system for WEEE (Yu et al., 2010a).

In the US, bottle deposit laws, considered by some but not all stakeholders as a form of EPR, have experienced leakage. Containers discarded in a state without deposit legislation are transported to nearby states that have such legislation (see, CalRecycle, 2015). Deposits are falsely redeemed causing considerable financial impact on the deposit redemption system (Paben, 2015).

Finally, leakage can occur through illicit export of end-of-life products, including WEEE sent to developing countries and end-of-life vehicles (ELVs) transferred to Eastern Europe from other countries in Europe. The impetus for illegal exports ranges from lower labour costs available for dismantling of end-of-life products to lower, and thus less costly, environmental standards for processing to unadorned dumping.

The CWIT study found that offences related to illegal trade in WEEE involved 13 different types of actors across the EPR chain. These offenses include inappropriate treatment and violations of WEEE trade regulations, theft, lack of required licenses/permits, smuggling, and false declaration of the load. The study also identified financial crimes including fraud, money laundering, and tax evasion connected to illegal WEEE trade (Huisman et al., 2015).

Leakage of various sorts is often accompanied by inadequate handling and treatment of wastes. It also poses a direct problem for EPR systems insofar as the systems find it difficult or costly to collect sufficient quantities of end-of-life products to meet regulatory obligations. A variety of remedies have been proposed. These include giving producers priority access by law to designated wastes as in Finland (Kalimo et al., 2015). Another remedy is to include wastes formally collected outside of the EPR system in the calculations of regulatory targets while also ensuring that non-PRO facilities meet the same environmental standards as those operating as part of the EPR system. This approach has recently been mandated as part of the recast of the WEEE Directive in the European Union (EU DG Environment, 2014). In Japan, local governments have been pressed to regulate informal collectors as a means of reducing leakage (Hotta et al., 2015).

3.2.1. Single-PRO systems

Particularly in the European Union and Canada, many EPR systems have assumed a similar structure: establishment of a PRO to organise and execute producer obligations; registries to identify obligated producers and to gather data for allocation of responsibility; government agencies to certify PROs; payment of fees by producers14 to the PROs often on the basis of market shares of the obligated products; contracting for collection and processing of designated products by waste and recycling companies or municipalities; and oversight by governments. Examples of the single PRO approach include FOST Plus in Belgium for household packaging and Multi-Material Stewardship Manitoba for household packaging and paper. This is portrayed in Figure 3.2.

Figure 3.2. One PRO with commercial and/or municipal collection and processing services

Note: Material flows are not included for simplicity. The relationships related to individual producer responsibility (IPR) or end user industries are not shown. Municipalities may pay commercial providers for services and/or be paid for recyclables depending on the arrangements in the EPR system. Registration can be viewed as something the governments perform (i.e. they “register the producers”) or something the done by producers (i.e. the producers register with the government). The depiction of the directionality is thus somewhat arbitrary.

This structure is typical of many of the EPR systems established in the first generation of EPR systems (Monier et al. 2014d). Collective management of EPR compliance and services – as opposed to individual compliance via individual producer responsibility (IPR; Kalimo et al., 2012; Kalimo et al., 2014)15 – minimises administrative and logistical costs (Atasu and Subramanian, 2012). A single, monopoly PRO for an industry sector provides administrative simplicity for the producers and for the government regulatory entities and in smaller jurisdictions may reflect an effort to capture economies of scale. Contracting out for waste collection and processing by PROs reflects the business focus and/or absence of expertise in waste management services by both individual producers and PROs. Registries (discussed in § 3.3.6 on the role of clearinghouses) emerged because of the need to identify obligated producers and to obtain data on their sales in order to assess fees. In some cases, these functions are performed by a stand-alone organisation as shown in Figure 3.3. In others, the registry function is assumed by government agencies, as in Sweden where producers register with the Swedish Environmental Protection Agency for WEEE, or by PROs, as in the Canadian province of Quebec where Éco Enterprise Québec registers producers for packaging.

Figure 3.3. Multiple PROs with clearinghouse and commercial and/or municipal collection and processing services

Note: Material flows are not included for simplicity. The relationships related to individual producer responsibility (IPR) or end user industries are not shown. Municipalities may pay commercial providers for services and/or be paid for recyclables depending on the arrangements in the EPR system. Registration can be viewed as something the governments perform (i.e. they “register the producers”) or something the done by producers (i.e. the producers register with the government). The depiction of the directionality is thus somewhat arbitrary. PROs may be non-profit or for-profit.

The relationship between the PROs and municipalities can take several forms (Quoden, 2014). The “dual” model, most well known in the German EPR system for packaging, places full operational and financial responsibility for collection, sorting, and recycling in the hands of producers. A collection system separate from and parallel to the existing municipal system – thus the term “dual” – is a conspicuous part of this approach. Municipalities may serve as contractors to the PROs, providing local services, but have no automatic role in the system. This approach is used for packaging in Austria, Germany, and Sweden.

In what is sometime called the “shared responsibility”16 model, municipalities are responsible for collection and sometimes for sorting. The division of financial responsibilities varies across EPR systems. In some jurisdictions, operational responsibility may reflect pre-existing laws defining the role of local government in solid waste management, rather than a choice the design of EPR systems.

These approaches are discussed further below in the section on the role of municipalities.

3.2.2. Competing PRO systems

The number of arrangements for governance of EPR is vast and thus many do not follow the pattern shown in Figure 3.2. One important variant occurs when there are multiple PROs competing to service the same territory or population of producers (Figure 3.3) as in Germany for both packaging and waste electrical and electronic equipment (WEEE). (Note that this does not refer to jurisdictions with multiple PROs that service different, non-overlapping product categories within a larger industry sector or waste stream and thus do not compete. Such instances of multiple, noncompeting PROs occur, for example, when household and commercial packaging wastes are managed by different EPR schemes.)17 In systems with multiple PROs, waste management companies sometimes own the PROs (Spasova, 2014). In most cases a clearinghouse is established in order to organise data collection and ensure appropriate burden sharing of collection (see discussion on clearinghouses in § 3.3.6).

In Germany, packaging for EPR was managed through a single centralised PRO, the Dual System Deutschland (DSD), from the initiation of EPR in 1991 until the beginning of the 2000s when the system shifted to multiple packaging PROs (10 as of 2015). The introduction of multiple PROs occurred in response to decisions by the German Federal Cartel Office and European Commission regarding anti-competitive practices (OECD, 2011). Changes in the EPR system for packaging were realised in 2003/4 through the dismantling of governance and contractual arrangements that had been established in 1993 in response to a financial crisis at the DSD (OECD, 2006, 2013b).

In contrast, in the United Kingdom competing PROs were an aspect of the initial design of the EPR systems for packaging and WEEE. Governance structures in the United Kingdom reflect shared responsibility among entities in the product chain and a market-oriented framework for targets specified in EU directives (Cahill et al., 2011). The United Kingdom EPR system for packaging subsequently evolved into a tradable credit system, discussed below.

3.2.3. Tradable credit systems

A third, distinctive variant in the organisation of EPR systems is based on the use of tradable credits. In this approach a producer’s compliance with EPR obligations is accomplished when a producer is in possession of the number of credits for collected and processed end-of-life products equal to a set target. Accredited actors in the system collect a specific amount of the relevant products, and process or export them and thereby generate a credit.

Tradable credits or permits as a market-based instrument have been widely discussed and used for a variety of environmental policy goals including air pollution regulation, management of water supply and quality, and grazing rights allocation (Tietenberg, 2007). They have not, however, been widely used for solid waste management (Salmons, 2002). In the early 1990s in the US they were proposed as a means to meet recycled content obligations for newsprint (Dinan, 1992). Tradable credit systems can minimise compliance cost and thus the burden to society by allowing those that can more cheaply perform a given task – e.g. reduce emissions or collect recyclables – to exceed regulatory targets and sell the credits to those for whom the task is expensive.

Among EPR systems, the United Kingdom packaging regime is notable in that it employs tradable credits.18 In that system, national level obligations for collection and recycling of packaging are set to meet the requirements of the EU Packaging Directive19 though some targets exceed the requirements of the Directive (OECD, 2014a). The obligations are divided among members of the packaging supply chain: 6 % to the packaging material manufacturers, 9% to converters (those that fabricate packages from the packaging materials), 37% to the packers or fillers (those put the product into the package), and 48% to sellers of the packaged product. Firms are allocated a share of the relevant obligation according to their position in the supply chain and the recovery target for the specific material used for packaging (ranging from 22% of wood up to 81% of glass).

The credits, called packaging waste recovery notes (PRNs) or packaging waste export recovery notes (PERNs), are generated when an accredited collection or processor (called re-processors in the United Kingdom scheme) processes or exports a tonne of packaging waste for recycling. Producers join PROs which purchase credits on their behalf from re‐processors who in turn have acquired waste packaging from collection services or municipalities or private entities (generators).

Some aspects of the resulting governance system are similar to the multi-PRO systems shown in Figure 3.4. There are approximately 30 accredited PROs as of 2014 (Monier et al., 2014h). A clearinghouse, the National Waste Packaging Database, is employed, but rather than allocating collection routes, it facilitates information flow. It registers producers, accredits re‐processors, issues the PRNs and PERNs, manages reporting, and monitors free-riding.

Figure 3.4. Governance structure for tradable credits system

Note: For simplicity, most material flows are not shown nor are export recovery notes. Municipalities play a limited role in sending waste to recyclers within EPR systems. Municipalities may pay commercial service providers for collection. Registration can be viewed as something the PROs perform (i.e. they “register the producers”) or something the done by producers (i.e. the producers register with the PROs). The depiction of the directionality is thus somewhat arbitrary. PROs may be non-profit or for-profit.

Municipalities have a diminished and less direct role relative to other types of EPR systems. In the United Kingdom system, targets can be met through the collection of packaging from commercial or household waste generators. It is often cheaper to obtain packaging from commercial generators than from households. In this respect, municipalities have no prerogatives to participate in the system, but if they collect segregated packaging materials they may sell them to re-processors or directly to the market. Figure 3.4 shows a schematisation of the United Kingdom packaging system, which allows multiple PROs (and even individual compliance, not shown on diagram).

The United Kingdom system is notable for the separation between producers and the verification of compliance by re-processors (OECD, 2014). That is, verification that the re‐processors have recycled a given quantity of waste and done so appropriately is performed by the government. Neither PROs nor the producers have roles. In this respect, the governance is quite different from the two approaches described above insofar as there is no direct operational or managerial role for producers. The United Kingdom tradable credit system does not encompass producer obligations for public education or design for environment.

3.2.4. Government-run EPR systems

A fourth variant occurs when the government plays a more direct role in fee collection and disbursement (Figure 3.5) as in China for WEEE (see Annex D), and Chinese Taipei, proposed for Thailand (Manomaivibool and Vassanadumrongdee, 2011), and some  US states for all products subject to EPR. The advantages of government collection and disbursement of fees is the control that the government has over the execution of policy, often in the face of an industry that may not be mature enough to organise and manage a privatised system of governance. China considered an approach to EPR for WEEE that relied on PROs to collect fees and contract for waste services. The approach was rejected because of concern that a nongovernmental organisation would not be effective in collecting fees or dealing with substandard recycling operations without strong support from the government. Instead, the government chose to collect fees from producers directly in conjunction with value-added taxes (VAT) using the State Administration of Taxation (SAT) for domestic companies and the General Administration of Customs (GAC) for foreign companies and to disburse the funds via the Ministry of Finance (see Annex D; Tong and Yan, 2013; Tong, 2014). In Chinese Taipei, an EPR system that initially relied on PROs was shifted to a producers-pay-government-disburses model because of difficulties arising from false data reporting, financial scandals, lack of transparency, and poor design of PRO responsibilities (Ching-Wen, 2004; Fan et al., 2005). Thus, in both cases, collection and disbursement of fees reflected difficulties the countries experienced with the PRO-based approach common in Europe and Canada.

Figure 3.5. Government-run EPR system

Note: Material flows are not included for simplicity. Municipalities may pay commercial providers for services and/or be paid for recyclables depending on the arrangements in the EPR system. Registration can be viewed as something the governments perform (i.e. they “register the producers”) or something the done by producers (i.e. the producers register with the government). The depiction of the directionality is thus somewhat arbitrary.

Some countries and stakeholders object to the labelling of such government-run systems as EPR. This can reflect a view of EPR as entailing a decision making or managerial role by products and/or a concern that taxes on producers under the auspices of EPR will be diverted by governments to non-EPR purposes. In Canada, government-run systems as shown in Figure 3.5 are not viewed as EPR. Instead, they are viewed as government-run product stewardship programs.20 Only those systems where producers manage product take-back collectively or individually are considered to be EPR (Environment Canada, 2013; Bury, 2015).

Government-run EPR systems for WEEE also exist in several US states including the state of Washington, where a multi-stakeholder, quasi-governmental non-profit organisation, the Washington Materials Management Financing Authority, performs many of the functions performed elsewhere by PROs including setting and collecting fees from producers (Gui et al., 2013). In Connecticut, the Department of Energy and Environmental Protection selects eligible recyclers and sets acceptable rates. The legislation allows for the participation of PROs, but none have emerged to-date (Metzner, 2015).

3.2.5. The role and legal status of producer responsibility organisations

3.3.1. Policy formulation and evaluation

It is typically higher levels of government that have formulated and enacted the laws that mandate extended producer responsibility and – to varying degrees – dictate details that specify the structure and function of EPR schemes. In most cases it is the national governments that take on this role (as in Europe and East Asia) while in countries where the national government has not played a central role in EPR (Canada and the US), it is the state/provincial governments that have taken on this function. Conspicuously, the European Union as a supra-national entity has played this role in Europe (mandating EPR for packaging vehicles, EEE and batteries), with some aspects of policy left to member states. In a very small number of places in the US, local governments have enacted EPR laws (New York City; Alameda County, California; and King County, Washington).25

The filling-in of details regarding the structure and function of EPR schemes, where those details are not specified in the laws mandating EPR, is often left to administrative agencies (as with Green Manitoba in Canada) or to other levels of government (as with member states of the European Union). The boundary between the making of policy and the implementation of policy, conceptually, and especially in practice, is blurry. In many jurisdictions, governance functions are fully articulated in legislation, whereas in others they are promulgated as administrative regulations, delegated to non-governmental actors, or unspecified. Further, in some countries municipalities have more than an operational role, participating in policy formulation, and may have autonomy with regard to the degree to which they play a service role.

A crucial, though less widely noted, element in EPR governance is the evaluation of policy and program performance. Presumably the data obtained through monitoring (described below) can be used to assess not only the performance of individual actors in the EPR system, but also the performance of the overall system. Recent conspicuous examples of evaluation of EPR are the studies performed in preparation for the Recast of the WEEE Directive in the European Union (Sander et al., 2007; Huisman et al., 2007; Monier et al., 2014d). Policy and programmatic evaluation appear to be occasional rather than periodic in many systems and often hampered by inadequate data.

While policy formulation is primarily the role of governments, in line with the privatised dimensions of EPR, elements of policy may be delegated to non-governmental entities, especially producer responsibility organisations. This often includes the structure of fees paid by producers for the services organised by PROs and the selection of vendors of collection and processing services. While these decisions may not be viewed by some as “policy,” the structure of fees in particular can be a central factor in shaping whether EPR generates incentives for DfE.

3.3.2. Operations

The privatising logic of EPR puts many of the functions in EPR systems in the hands of commercial and non-profit organisations. This includes both administrative activities such as tendering for collection and processing services and the operation of those services. Nonetheless, some local governments, primarily municipalities,26 participate in collection and processing of designated products under the auspices of EPR systems (described above in § 3.2.1 in the discussion of systems of shared responsibilities). The role of local government is also a matter of considerable variation and debate across the world (as discussed further below in the section “The role of municipalities in EPR systems”).

3.3.3. Stakeholder consultation

Consultation is important in obtaining information and perspectives of the entities in the EPR product chain (government agencies, producers, PROs, specialised organisations established as part of the EPR system, municipalities, waste management companies, recyclers, end user industries, and consumers/waste generators) as well as other interested and affected entities (government agencies indirectly involved, trade associations, civil society). Stakeholder consultation is especially important in EPR, as EPR creates new institutional arrangements among entities that may not have previously interacted. Insofar as EPR constitutes a system of private environmental governance, stakeholder consultation functions tend to shift to PROs and other entities in the EPR chain and are sometimes designed to mirror the administrative rulemaking activities of government bodies (Hickle, 2014a).

The consultation can occur at the formation of an EPR system and on an ongoing basis. Monier et al. (2014d), in their review of EPR in the European Union, found in most cases that there were no specific structures for stakeholder consultation, but that informal dialogue often exists. Consultation practices and organisational structures, where they do have formal status, vary widely. A consultation process may operate within the PRO or it can be external. Within a single PRO, consultation may be directly conducted through the governing board as in the case of COOU and CONOE, non-competing used oil PROs in Italy that have representatives of national government ministries in a minority role on their boards. In France, the EPR for graphic paper has an advisory committee that meets on a quarterly basis to review and approve the activities and strategy of Ecofolio, the PRO that has been accredited by the state. The commission has representatives from three ministries as well as from environmental and consumer associations.

The consultation body may be an organisation external to the PRO as in the cases of packaging in France27 where the “Commission Consultative d’Agrément”, composed of all involved parties (industries, consumers, NGOs, PROs, local authorities, waste managers, etc.) offers non-binding opinions to public authorities with the express intent of securing the proper functioning of the household packaging sector in France. In Belgium, the external organisation overseeing the packaging waste stream (the Interregional Packaging Commission - IPC) is composed of members from the regional governments who, in turn, receive non-binding opinions from the “Packaging Platform” that is composed of industrial associations. The IPC will also seek input from enterprises not represented by the packaging platform and exercises control over PRO activities as well as issuing permits to the PROs.

3.3.4. Registration and accreditation

Oversight is typically accomplished through a mixture of ex ante permitting-like processes and through ex post data collection.

While the terminology is not consistent around the world, “registration” often refers to the identification of the participants (producers) in the EPR schemes and acquisition of data on sales of products subject to EPR.28 It is also a key element in identifying free-riders – producers that fail to participate in PROs or otherwise comply with EPR regulations. Registration is often performed by government agencies as in Finland where paper producers must register with the Centre for Economic Development, Transport and the Environment for Pirkanmaa (ELY Centre Pirkanmaa) (Monier et al., 2014j) or by quasi‐governmental agencies as with the Alberta Recycling Management Authority in the Canadian province of Alberta29 (CM Consulting, 2013). However, the process can also be administered by PROs as in United Kingdom where the registration information is compiled by PROs (called producer compliance schemes in the United Kingdom) and then transmitted to the Environment Agency or the equivalent in England, Scotland, Wales and Northern Ireland (Monier et al., 2014c).

A key means by which governments monitor activities in and the performance of the EPR chain is through the accreditation or certification of producer responsibility organisations. Typically, when a PRO seeks to operate in a given jurisdiction, the government requires that the PRO obtain permission by submitting an application that details the structure of the PRO and how it intends to operate. Many governments require that PROs periodically recertify and that process provides an occasion for the assembly and review of information. A related approach is to require, as a condition of operation, that the PRO submit periodic reports.

Comparison of accreditation criteria is difficult because the criteria are often stated in discretionary terms, that is, the certifying entity has the option to mandate that a PRO meet certain requirements, but is given flexibility as to whether in fact the requirements are imposed. In addition, the language in the relevant statute or regulation is often general, giving the certifying entity flexibility as to the specific form and extent of requirements that PROs face.

In many Canadian provinces, PROs must submit stewardship plans for approval by the relevant provincial government agency. They must also submit an annual report to the provincial government or environment agency on the program’s performance. In the province of British Columbia, PROs must submit a product stewardship plan30 and an annual report (Waste Reduction and Management Division, 2014). The producer31 must review its approved plan every five years and either propose amendments or indicate that no amendments are necessary. The requirements for stewardship plans are described in the provincial recycling regulations and contain provisions on:

• stakeholder consultation

• collection system and consumer access including recovery rate

• consumer awareness

• management of program costs

• management of environmental impacts

• dispute resolution

• performance measurement.

The provincial recycling regulations provide an extensive list of factors that the director of the Ministry of the Environment of British Columbia may consider when deciding whether to approve the stewardship plan including its timeliness and effectiveness in meeting the goals, the geographical area and market into which the producer sells its products, stewardship plans of other producers for products in the same category, and the structure of financial and operational co-operation with other producers (Province of British Columbia, 2004; British Columbia Ministry of the Environment, 2006).

There is some debate in Canada about whether or not it is appropriate for governments to approve such stewardship plans. Approval implies responsibility which can be problematic for government if the EPR program encounters problems. Some argue that it may be better for governments to concentrate on monitoring the achievement of targets and leave the planning on how best to meet the targets to the PROs (Bury, 2015).

In Ireland, the Minister for the Environment, Community and Local Government is the governing body that approves PROs. Application for PRO status involves submission of documents related to governance and membership, a commitment not to discriminate against any producers with respect to size or location, and an assurance that it will co-operate with other PROs to achieve the environmental targets (Philip Lee, 2014; Gorecki, 2014). The Minister may outline specific conditions that the PRO must meet. These can include meeting specified targets, the composition and representativeness of the management board, expenditures for public education, awareness, and approval of amendments to articles of association, corporate governance and membership rules. The Department of the Environment, Community and Local Government (DECLG) has a management/oversight role ensuring that the PROs meet the targets (Gorecki, 2014).

The Irish approach is notable in that government has the prerogative to review and dictate aspects of the internal governance of PROs. In a recent review of EPR in Ireland, it was proposed the certification process be strengthened through a standardized code of corporate governance and the use of legal contracts (“service level agreements”) between the government and the PROs to replace the letters of approval that are currently in place (Philip Lee, 2014).

The regulation of packaging PROs in Lithuania, like many countries grappling with EPR, evolved considerably. Prior to 2013, the statute simply authorized the establishment of PROs. Starting in 2013, requirements were increased to require that PROs conclude agreements with municipalities, packaging waste collectors, and producers. A Board of Control is mandated to provide oversight and enforcement of the agreements. Lithuania requires that a PRO must represent at least 25% of the manufacturers and importers supplying packaging for the domestic market in order to obtain a license to operate (Republic of Lithuania, 2012).

Despite their considerable differences in other respects, the examples above indicate that the requirements that are imposed through accreditation are often quite general, leaving the certifying entity discretion as to the specific conditions PROs must meet.

3.3.5. Collection and disbursement of fees

At the core of EPR are the fees paid by producers for collection, reuse processing, recycling of used and end-of-life products. Typically, the fees are collected by PROs, based on fee schedules developed using data obtained from the registries. The PROs contract for collection, reuse, and processing services on behalf of the producers who are their members or clients. The fee structures can be elaborate to reflect varied circumstances for levels of service and co-collection of non-EPR waste.

Where governments collect and/or disburse producer fees as depicted in the third governance structure (Figure 3.4), typically in systems that use forms of advance disposal fees (ADFs), the arrangements resemble conventional systems of government taxation and funding of societal activities. ADFs can be paid by the producer or by consumers at the time of purchase. Collection of fees by governments more directly involves governments in both the managerial and oversight dimensions of EPR systems. Some producers object to the collection of fees by governments worrying that the funds will be diverted to uses other than end-of-life management.

It is important to note that not all ADF-based systems are what might be called producers-pay-government-distributes approaches. While the visible fees paid by consumers in some EPR systems are a form of ADF, many such systems involve neither government collection of funds nor their disbursement. This is the case, for example, with many of the EPR schemes for WEEE in the Canadian provinces (Waste Reduction and Management Division, 2014) and the Specified Home Appliance Recycling Law in Japan32 (Hotta et al., 2014). In the latter case, consumers pay fees at the time of disposal with the resulting funds managed by PROs (see Box 3.1). Some ADF-based systems, such as California’s e-waste law, do not involve producers or producer funding at all (see Annex K) and thus are not a form of EPR.

3.3.6. Co-ordination through clearinghouses

In jurisdictions where there are competing PROs seeking to fulfil EPR targets (Figure 2.4), a neutral coordinating entity is needed to make sure that collection is provided everywhere it is needed, that cherry picking is avoided, and that there is a level playing field for all competitors. Without such co-ordination, there is the possibility that collection in some regions – especially rural areas where collection routes may be long and quantities of wastes small – may not be provided service because PROs find it overly expensive. Co‐ordination also enhances efficiency by ensuring that competing PROs do not provide duplicative coverage, collecting end-of-life wastes from the same service area or collection points. Clearinghouses, often a separate non-profit organisation, but sometimes a government agency, thus help rectify undesirable incentives generated by competition among PROs. Clearinghouses can also collect data from producers or service providers, and provide a mechanism for managing proprietary data or identification of free riders.

The scope of services and organization provided by clearinghouses varies widely. Denmark, where the same clearinghouse, the DPA-System serves the EPR systems for WEEE, batteries, and ELVs is an example of a clearinghouse with a prominent role and multiple functions (see Box 3.2 for a description). United Kingdom EPR system for packaging, in contrast, clearinghouse activities are more limited, because of the structure of the tradable credit system.

Because the EPR system for packaging in the United Kingdom involves credits for recycling of packaging, two related entities are involved. As noted earlier, the National Waste Packaging Database provides a national on-line registration system for producers; accreditation for packaging re-processors and exporters; recording of the credits; and monitoring and reporting. In addition a small number of private internet platforms are maintained, for example by the Environmental Exchange, which provides a marketplace for the trading of credits (Monier et al., 2014h; OECD, 2014a), although the vast majority of credits are traded outside these platforms (Lange, 2015).

Ireland presents an intermediate case where some clearinghouse functions for WEEE are performed by the WEEE Register Society. As the name suggests, the Register Society is primarily a national producer registration body, set up to track which producers are placing EEE on the market. It is an independent, industry-based body, overseen by a management committee that includes including government agencies, and owned by producers (Monier et al., 2014e). The WEEE Register Society is also responsible for notifying the EPA of potential non-compliance with WEEE regulations and for verification of visible environmental management costs (vEMCs) that are applicable to WEEE (i.e. from products put on the market prior to the enactment of the WEEE Directive). As such, it fulfils one of the primary functions of a clearinghouse by supporting the identification of free riders. One distinction from other clearinghouses is that the WEEE Register Society does not determine that market share of individual producers. Rather, determination of market share and financial liability is contracted out to a private entity to ensure confidentiality through data submitted to the “WEEE Blackbox” website (www.weeeblackbox.ie/website/faq.html).

In some EPR systems, clearinghouses, rather than PROs, serve as the primary point of contact for municipalities. According to a recent study for the European Union, national clearinghouses, either as independent entities or government operations exist for all EPR systems for WEEE and for packaging in Austria and the United Kingdom (Monier et al., 2014d).

3.3.7. Monitoring

Monitoring, both public and private, is needed to ensure effective policy implementation, as a prerequisite for enforcement, and to inform subsequent policy assessment and debate about the effectiveness and future development of EPR. Monitoring is also a component of co-ordination. Key functions in EPR systems such as assignment of service territory and pick-up routes require information for operational purposes. Monitoring focuses on three key entities in the EPR chain: producers, PROs, and collection and processors including municipalities. Information about producers mostly relates to participation (to address free-riders) and sales or market activity (to allocate responsibility and fees). The information needed about PROs is more extensive and focuses on the extent of activities and performance. Information about service providers focuses on operational results, environmental compliance and financial activities. Monitoring of an EPR system thus requires both technical and financial data. Monitoring of non-EPR actors is also important in addressing leakage of end-of-life products and materials outside the EPR system (see §1.4.1). The effectiveness of the system will depend on transparency, auditing, harmonisation, and enforcement (described below).

3.3.8. Enforcement

Enforcement involves the identification of violations and imposition of sanctions. In the context of EPR, enforcement is principally concerned with failure to achieve collection and related targets, free-riding by producers, compliance by PROs with respect to managerial and fiduciary responsibilities, diversion of recyclables to inappropriate channels, and conformity with environmental regulations by collectors and processors of the relevant wastes. Consumers, importers (acting as producers), retailers (if obligated to accept end-of-life products), municipalities and exporters can also be non-compliant and the subject of enforcement actions. A recent study for the Irish government argues that the extent of non‐compliance problems depends on the design of the system and the type of product involved. “Systems with a large number of producers have a higher potential for noncompliance than more concentrated markets. The scope for non-compliance is greater and more complicated to deal with when a large number of producers are part of a long production chain” (RPS et al., 2014). Packaging systems are especially vulnerable in this regard.

Enforcement is important to increase compliance with EPR-related obligations, but also to ensure a level-playing field among competing producers, PROs, and service providers. Failure to provide consistent enforcement creates undue advantages to the entities failing to meet obligations and also can increase burden on those facing collective targets. Producers, for example, that evade payment of fees to PROs both reduce their own expenses and increase the costs that are borne by other producers. If evasion of fees is extensive, the financial viability of an EPR system can be at risk (Kalimo et al., 2012).34 Similarly, if collection or processing services operating outside of the EPR system do not face the same degree of enforcement, EPR schemes are disadvantaged and, as mentioned above, the level of services may be reduced. (See section “The role of municipalities in EPR systems” for additional discussion in the context of leakage). Enforcement in such cases can include monitoring of collection points maintained by retailers and municipalities (RPS et al., 2014, 343).

The legal authority to impose penalties is typically reserved to governmental agencies. In the US, however, a EPR model law for batteries under development by the Product Stewardship Institute and other stakeholders includes a right of private action, that is, producers who would not otherwise have legal standing to sue entities involved in EPR for failure to perform, are granted the right to do so (Nash and Bosso, 2013). In a related vein, entities in the EPR system can play a role in identifying violators even without having formal legal authority. This is especially the case with respect to free-riding by producers (i.e. avoiding payment of fees and participation in EPR schemes).

In the European Union, there is widespread agreement among stakeholders that member states and PROs should both be responsible (“co-responsible”) for the monitoring of EPR schemes, and should ensure that there are adequate means for enforcement , but there is less consensus as to the specifics of the division of responsibilities and costs (“co‐funding” of enforcement) (Monier et al., 2014d).

Sanctions can range from criminal and civil penalties, fees, revocation of the right of a PRO to operate to public disclosure of non-compliant entities (e.g. free-riding producers) and successful prosecutions. There is little systematic and especially cross-national research on enforcement mechanisms and especially on the use of sanctions and penalties in EPR systems.35 Analyses of illegal export of WEEE, ELVs and other wastes, however, have been conducted (e.g. Miller et al., 2012; Bisschop, 2012), but are typically not tied specifically to such exports arising from EPR systems. An issue with respect to sanctions that is specific to EPR arises, however, when a jurisdiction has a single PRO for a given product category. In such circumstances, the threat of revocation of a PRO’s license to operate (i.e. its accreditation) is less credible than it might otherwise be. A contingency fund held in reserve by PROs equal to approximately one year’s operating costs is used in Ireland to mitigate the difficulties in replacing a PRO (RPS et al., 2014).

In some countries, municipalities have enforcement roles. This can include monitoring the performance of EPR schemes, especially shared sites and activities (e.g. collection points and civic amenity sites), and permitting and sanctioning collection and processing activities within their borders. For example, in Ireland the collection points used by distributors must be registered with local governments (RPS et al., 2014). At the same time, municipalities that play an active role in the EPR chain are sometimes monitored by PROs primarily to control costs. National antitrust and competition authorities may also monitor the activities of PROs and service providers in an effort to ensure competitive markets in PRO services, collection, sorting and processing of wastes. Competition authorities may take participants in an EPR system to court or otherwise raise objections to the existing structure and practice of an EPR system (see Chapter 4).

3.4.1. Patterns in the allocation of functions

Typical allocation of governance functions

The four typical governance structures described earlier in this report – single PRO, competing PROs, tradable credits, and government-run – are only partially correlated with the allocation of governance functions in EPR systems. More broadly, irrespective of the governance structure used, the assignment of governance tasks related to accreditation, monitoring, reporting and financing of administration described in this report shows wide variation across EPR systems and jurisdictions. Notably, several functions are executed by government agencies, clearinghouses and PROs without a conspicuous pattern across jurisdictions:

• registration of producers

• collection of sales and import data

• certification of PROs

• allocation of collection territory; and

• monitoring of recyclers and auditing.

In contrast, the assignment of some tasks has an obvious logic: PROs cannot certify other PROs,36 so this task falls to government agencies or, where they exist, sometimes clearinghouses. There is obvious need for clearinghouses in a multi-PRO system, and in many cases in government-run systems there are no PROs. Enforcement, because of the legal powers required, is almost always the prerogative of governments. Table 3.1 summarises the variety of assignments of governance tasks.

Table 3.1. Typical allocation of governance tasks in EPR Systems
* Government refers to public sector entities involved in policy formulation and oversight. Does not include local governments solely involved in service delivery.
** Governments take the lead in policy formulation, but key stakeholders are often involved.
*** Municipalities have ongoing interaction with citizens even when they don’t have a central role in stakeholder consultation processes.

Table 3.1 indicates variability of the assignment of key tasks in governance among entities in EPR systems. For example, multiple types of entities may play a role in co‐ordination and monitoring. That variability and the absence of commentary in cross-jurisdictional analyses of EPR systems about optimal arrangements suggest that those arrangements need to reflect local conditions and that best practice may lie elsewhere. Put another way, for several key governance tasks, with modest exceptions there is not clear evidence as to which sort of entity should take on a given function in an EPR system.

At the same time, analysts of EPR have argued that clear delineation of roles among stakeholders is important to good governance (e.g. Kalimo et al., 2012; 2014). Monier et al. (2014d) suggest that while there is no “one size fits all” solution in the allocation of responsibilities, “achievement of good…EPR performance is a result of each stakeholder’s contributions toward a common goal and precise roles should be defined at the national scale, in accordance with the respective financial and/or operational obligations.” Quoden (2015) points to the “Basic Document on the Monitoring of Packaging”,37 a document with legal status in the Netherlands that defines roles in detail, as a model for clear allocation of functions.

The role of municipalities in EPR systems

The role of municipalities in EPR systems is a contentious issue in many jurisdictions. One of the motivations for EPR is to relieve local governments (and tax payers and rate payers) of the burden of managing many waste streams. However, the form of this shift raises important questions for all parties in the EPR chain as it also implies a shift in control and in revenue and cost streams.

Municipal control

Municipalities argue that they bear legal or other obligations for waste management and public health in their communities and thus should have a major say in how waste is managed under EPR (Council of European Municipalities and Regions, 2013; Municipal Waste Europe, 2013). Municipal waste collection is also often an important source of local employment, one which local governments are reluctant see shift to the control of outside entities (Tojo and Hansson, 2004). In addition, local governments may have stranded assets if control shifts to PROs. That is, existing capacity in government-run or -financed facilities for material sorting or disposal may be displaced by facilities run by other entities; the existing facilities may be idled with a loss of revenue and on-going financing costs. The issues of employment and stranded assets are likely to pose a greater challenge for local governments that provide waste services directly than for those that contract with commercial providers for those services.

The central issue in most cases revolves around whether local governments provide EPR-related collection services and the extent to which their costs are covered by PROs. Where the cities see their role as crucial in ensuring public health and democratic control, others argue that efficiency and innovation are more likely to occur where industry has control (Valiante, 2015).

Other aspects of the municipalities’ role, such as funding for public outreach and the extent of consultation regarding policy and operations in the EPR systems, are also at issue. Participation of municipalities in the different stages of EPR varies in several ways; it may:

• be mandated or optional

• be an exclusive prerogative of the municipality or may be conducted in competition with other collection and processing service providers

• include an oversight function as well as an operational role

• be financed by the industry or by the municipality itself; financing may be contingent on goals or performance.

With respect to service provision, municipalities typically function in one of two ways. In some EPR systems, described as “shared systems” in § 2.2.1, they have the obligation or prerogative to provide collection and sometimes sorting of designated wastes, that is, they have the option to provide (or contract for) the services. This is often the case in the packaging arena where municipal collection and recycling programs sometimes pre-date EPR regulations and producer obligations. Frequently the municipalities are reimbursed in whole or in part for the cost of their services and with rules governing amount of reimbursement. In other EPR systems described earlier as “dual systems”, they may compete to provide collection and sorting, but the PROs are not obliged to use their services. These two approaches are illustrated in Figure 3.6.

Figure 3.6. Municipal roles in collection and sorting

Note: Commercial waste services may be used by PRO when municipality chooses not to participate or by municipality when it contracts out services. Registration can be viewed as something the governments perform (i.e. they “register the producers”) or something done by producers (i.e. the producers register with the government). The depiction of the directionality is thus somewhat arbitrary.

PRO may contract with municipality but is not obligated to do so. Bold figures indicate primacy of municipality (2.6a) or commercial services (2.6b).

Costs and Cost Control

A key point of contention is cost. In systems where municipalities have the prerogative to provide services, producers (and PROs as their agents) may not be able to control costs to their satisfaction. As a result, producers have contested the very assignment of costs as with the local collection of WEEE.38 In some instances producers may seek to exercise extensive control of local collection and processing, as in the EPR system for packaging and printed paper in the Canadian province of British Columbia where producers have been given full financial and operational responsibilities for collection and processing (Elliott, 2014; Sinoski, 2014). In the Canadian province of Ontario, a formal arbitration process was conducted between the municipalities and the packaging PRO because of conflicts over what municipal costs were eligible for producer funding (Armstrong, 2014). The arbitrator found in favour of the municipalities, but the fundamental issues were not resolved (Bury, 2015).

Tensions over the cost of services provided by municipalities reflect both questions of whether a given type of service is delivered in a cost-effective manner and differences over what level of service should be provided. In the latter case, a municipality may want to provide frequent collection services or provide a dense network of drop-off (bring) sites, greater than a PRO judges to be necessary to meet EPR targets.

Some EPR systems have established reference costs for municipal services which provide a benchmark or limit regarding what constitutes reasonable costs. Reference costs can be configured based on a variety of strategies:

• reimbursement of the municipality tied to quantity or percentage of designated materials collected

• adjustments to reimbursements tied to quality of material collected (i.e. level of residues)

• definition of a standard cost for individual elements of municipal activities

• definition of a standard level of service beyond which reimbursement is not provided or limited, or

• bonuses for additional services (e.g. public outreach).

Box 3.4. Assignment of costs and level of service: Packaging EPR in France

In the EPR system for packaging in France, municipalities are assigned the tasks of separate collection and sorting of waste packaging from households. As of 2012, a target of 75% recycling of packaging waste had been adopted and 80% of the net reference costs for an optimized service of collection and sorting incurred by the municipalities are reimbursed by Eco-Emballages, the PRO and French Green Dot system responsible for household waste packaging provided that the 75% target is achieved. Most of the remuneration paid to municipalities consists of i) a payment varying according to the level of performance achieved (kilograms of recycled packaging per inhabitant per year) (Cabral et al., 2013), ii) a payment for public outreach activities and iii) a payment for the reporting of their costs regarding environmental, economic and social targets so as to incentivize municipalities to monitor better their performances. Contracts between municipalities and service providers have a term of six years (French Ministry of the Environment 2014). Municipalities can issue tenders for take-back of materials (i.e. manage the contracting for services themselves), but Eco-Emballages will also provide a take-back guarantee with a take-back operator designated by the PRO. In that case, material take-back prices and contractual arrangements are applied in the same manner to all municipalities and prices and terms are not negotiable (Monier et al., 2014e). A recent review suggests that there may be too many sorting centres, that there is a lack of transparency regarding municipal costs, and that the reference cost calculations do not reflect variation in costs across municipalities. The result is that the reference costs appear to be higher than actual costs (Monier et al., 2014e). The long service contracts (six years) make changes in the organisation of EPR chain slow.

3.4.2. Advantages and disadvantages of governance structures

The PRO operating in a single-PRO governance structure (Figure 3.2) is almost always a non-profit PRO (one of the few exceptions is the Italian PRO for used oil). The single-PRO structure has the advantage that monitoring, reporting, and consultation are simplified and transparency tends to be greater than with multiple PROs (EXPRA, 2013). At the same time, the absence of competition among PROs in such a structure is argued to lead to higher prices (i.e. higher fees charged by the PROs to the participating producers). There are also concerns that a single PRO may exert market (monopsony) power over waste service providers (see Chapter 4) or may favour large producers at the expense of smaller ones. The strengths and weaknesses of a single PRO model are difficult to disentangle from those that arise from the choice as to whether PROs should be non-profit or for-profit (see section “For-profit vs. non-profit status” above).

According to the recent study by Monier et al. (2014d), multiple PROs manage WEEE in all seven of the EPR systems examined. Batteries are also frequently managed by multiple PROs. In contrast, end-of-life vehicles (ELVs) in the systems studied were always managed by a single PRO. EPR for other product categories did not show a clear pattern.

Competition authorities have sometimes been the impetus, in whole or part, for the shift from single-PRO to multiple-PRO governance structures (see Chapter 5). As noted earlier, the German Federal Cartel Office played a key role in shifting the German EPR system for packaging from a single, non-profit PRO to multiple, competing for-profit PROs. More recently, the ARA, the monopoly, non-profit PRO responsible for household packaging waste in Austria, was warned by European Commission that it was abusing its dominant position in the market. The Austrian law governing waste management, already in revision, came into force and a new packaging ordinance with clearer definition of conditions was implemented in 2015, resulting in multiple, competing PROs for household packaging waste (Monier et al., 2014f; Wollman, 2015).

It is difficult to ascertain whether single or multiple PRO systems are preferable. Data are sparse because governance structures for multi-PRO systems as shown in Figure 3.3 often have for-profit PROs which inhibit disclosure of financial and other market information. In Germany, the introduction of competition among packaging PROs led to significant reductions in cost. Some stakeholders argue that the competition led to efficiency and flexibility and thus to the decline in costs. Others argue that the decline reflects primarily competition at the level of collection and processing rather than PRO services (Monier et al., 2014d, 103). Further, as Monier et al. (2014d) point out, there are few cases of real competition, because, where there are multiple PROs, a large PRO usually dominates. They looked at 8 EPR systems with multiple PROs and found that the market share of the dominant PRO in all cases was at least 48% and in most cases was above 70% (Monier et al., 2014d). In an asnalysis of competition law and EPR under Chapter 3, it is argued that competition should be the norm once EPR systems reach an appropriate level of maturity.

Systems with tradable compliance certifications, such as the United Kingdom packaging system, will tend to be efficient and flexible. Economic efficiency is promoted because those with lowest costs of compliance have an incentive to “over-comply” and sell their surplus certification notes to those with highest costs, reducing average costs. Flexibility arises because actors alter their participation strategy based on the cost of acquiring versus producing the notes.

As noted earlier, the United Kingdom system separates producers from the process of compliance verification. Some criticise this separation because producers are quite removed from the achievement of environmental goals and the meeting of environmental requirements. OECD (2014a) argues that firms are not prevented from putting their own standards in place in order, for example, to maintain reputation. Further, the separation allows regulatory compliance to be focused on a smaller number of (re-processor) firms. In this respect, the virtue – or drawback – of the system is that it does not exploit the business acumen of the producers that some argue is an important element of EPR and that others dismiss as irrelevant.

The United Kingdom system is criticised for its impact on municipalities (Cahill et al., 2011). The system is not designed to cover the full cost of the collection and processing of packaging waste, with coverage typically ranging from 5-10% (Monier et al., 2014c). Because compliance in the system can be achieved by collecting waste packaging from sources other than municipalities, and because municipalities may nonetheless operate recycling programs, they benefit little from the system because few of the funds generated through producer financing are paid to them.

EPR systems where governments play a direct role in collecting and disbursing fees as shown in Figure 3.5 are less common. They can be found in China for WEEE, Chinese Taipei for all products subject to EPR, Denmark and Hungary for packaging and in several US states and in Alberta, Canada. Government control can facilitate the integration of strategies with other waste management objectives. They are also often considered by developing countries contemplating EPR (Manomaivibool, 2009). The absence of industry involvement in the fee collection and disbursement functions however, means that i) societal obligations for waste management have not been shifted to producers ii) any business acumen that producers might bring to those tasks is foregone, and iii) market forces are not exploited as an impetus for efficiency in the EPR system.39 In addition, the public sector may be in no better position than industry to execute these responsibilities. Nonetheless, generalisations about the effectiveness of governance structures where governments collect and disburse fees as displayed in Figure 3.6 are difficult because many systems are only well documented in the native language of the relevant country, because many are new and lack a track record, and because of especially wide variation in circumstances in the countries adopting this model.

Hickle argues that EPR represents not only an incentive-based policy strategy but also a systematic reframing of the roles of producers and local governments and a transformation of the governance of waste management that can reflect the dynamism of the global market and deploy technology for enhanced collection, sorting and processing. In that respect, governance structures that maintain a central operation role for government may reflect a transitional stage to a newer, more ambitious strategy.

3.5.1. Authority

Government agencies charged with the oversight of EPR schemes need sufficient statutory or other legal authority to collect data, establish requirements for, and engage in enforcement regarding entities in the EPR chain. Many EPR systems, as part of the application process for certifying PROs, will require formal agreements between the government agency and the PRO which spell out obligations regarding governance, operations, targets, financial management, and data collection and reporting. The government agency must have the authority to mandate the agreements and to review, revoke, vary, and replace them (Philip Lee, 2014) if effective oversight is to be provided.

3.5.2. Staff

No studies documenting staffing levels in government agencies charged with oversight of EPR schemes have been found. It appears that many governments use or expand existing staff in environmental or related agencies to perform these duties.

3.5.3. Funds

Funding for government oversight activities related to EPR is also not well documented. It is not uncommon for governments to require payment of a fee by producers at the time of registration and/or payment of fees at the time of certification of PROs (separate from fees paid by producers to PROs). In some cases, the fees are mandated by statute. In California, for example, the Paint Stewardship Law includes provisions for an administrative fee imposed on the producer or PRO to fully cover the cost of administering and enforcing the statute (California Paint Stewardship Law, 2010). The fee is not charged separately, but is part of the fee paid by producers. The agency charged with overseeing the EPR system, the Department of Resources Recycling and Recovery (CalRecycle), prepares an administrative budget and invoices the PRO for its expenses (Zarrehparvar, 2012).

According to a report prepared by SAIC (SAIC Energy, 2012b), costs40 to state governments in the US for EPR systems for WEEE as indicated by registration fees ranged from USD .05 to USD 0.28 per pound (lb) collected. For states with higher collection rates, the report indicates that the costs are closer to USD 0.01-0.02/lb collected. It is not clear whether registration fees pay all or only a portion of the governmental costs.

In some EPR systems, funding for what might be labelled ancillary activities – public outreach, waste prevention initiatives, research and development related to DfE, anti-litter campaigns, etc. – is assigned to government agencies (or required of PROs, clearinghouses, or producers).

Fees from enforcement actions imposed upon noncompliant entities in the EPR chain can be additional sources of funds. Reliance on such fees can be problematic to the extent that it creates awkward incentives around enforcement and can be an unpredictable revenue stream.

In some EPR systems, governments use a portion of producer fees as a source of funds to support administrative activities. Chinese Taipei imposes a tax on producers which is then used by the government to develop or subsidise waste services and infrastructure. A portion of the tax revenue is used for the government activities (Ching-Wen, 2004). China currently also imposes a tax on EEE producers but the tax is deliberately set such that the amount collected is less than the amount needed to support collection and processing so that the authorities distribute the funds without retaining any surplus (see Annex D).

3.5.4. Delegation and outsourcing41

In many cases, governments reduce their administrative burden – and thus indirectly the cost – by delegating monitoring, co-ordination, and other administrative tasks to quasi- and non-governmental entities. This aspect of delegation is largely distinct from the shift of waste management activities from municipalities to producers.

PROs are typically responsible for arranging for collection and processing services by waste companies and municipalities. As part of that activity, monitoring and reporting are often performed with the statistics then being provided to the government. The extent of the services that are in effect outsourced to PROs by the government agency ranges widely. For example, the PRO dealing with battery recycling in Japan, the Japan Portable Rechargeable Battery Recycling Center (JBRC), monitors the delivery of waste batteries from participating retailers, businesses, and municipalities to those who receive and recycle the batteries and also audits recyclers (see Annex G). In Denmark, by contrast, PROs have a more limited role. The battery (and WEEE) producer responsibility system is controlled by the Ministry of the Environment through a clearinghouse, the Danish Producer Responsibility System (DPA, Dansk Producentansvarssystem) system. The amount of batteries collected is reported to DPA by a combination of producers, PROs, and municipalities. The amount of batteries treated is reported by the waste treatment company directly to DPA (Monier et al., 2014h).

As described earlier, enforcement is generally not outsourced to non-governmental entities because the legal authority typically cannot be delegated. However, other entities in the EPR system can be enlisted formally or informally in the identification of non-compliant participants. In the Czech Republic, the EPR law holds retailers and distributers responsible for take-back obligations in cases where their supplier does not comply with the packaging law. This has proven to be a very efficient anti-engee riding measure because retailers have strong incentives to ensure that suppliers comply with the law (Monier et al., 2014g). See Box 3.5 for more detail.

In some EPR systems, there are additional quasi-governmental and non-governmental entities that play a role in the administration of the system, effectively shifting tasks away from traditional environmental agencies. In Germany, the Chamber of Industry and Trade acts as a data repository for packaging put on the market as required for the Packaging Ordinance. The German Society for Packaging Market Research (Gesellschaft für Verpackungsmarktforschung, GVM), a B2B market research institute specialising on packaging, collects and collates data from across German government agencies as part of the process of verifying the calculation of packaging quantities.

3.6.1. The difficulties in deducing best practice

As noted in the discussion of allocation of functions in EPR governance systems (§ 3.4.1), there are only limited commonalities across EPR systems regarding the particulars of the involvement of government. Perhaps more important, it is difficult to identify best practices among the patterns that do exist. This reflects the diversity of goals and situations in which EPR systems operate across the globe. It also reflects the conspicuous lack of data and comparative analysis regarding EPR governance. This is compounded by the multiple factors influencing outcomes: with many factors at play, it is difficult to ascribe the performance of an EPR system to a particular governance practice. As Monier et al. (2014d) indicate, there is both a lack of data and lack of harmonisation of data (and practice) across EPR systems. Teasing out causes and effects in governance outcomes requires especially good data. With the vast number of EPR systems in operation around the world, generalisations are precarious.

The boundary between policy and governance is hazy as well. Issues such as which end-of-life products should be included in an EPR scheme – e.g. those from residential waste streams versus those from commercial sources or a few types of WEEE versus an expansive list – are presumably matters of policy design. However, in some EPR systems they are a matter of choice, left to the discretion of producers and PROs. Thus, to whom decision making authority is delegated can be a matter of both governance and policy. It also adds to the list of factors shaping governance choices and outcomes in a particular EPR system along with population density, the historical configuration and maturity of waste management systems, legal structures, and the like. The good news is that the choices are many; the bad news is that analysis is difficult.

Even governance practices that appear to be especially attractive bear careful scrutiny. There is a temptation to look for self-implementing mechanisms that will generate desirable results without extensive government involvement. The most obvious example is the incentives facing producers participating in EPR schemes who are prompted to identify other producers that are free-riding, shirking their obligations. Other mechanisms exist such as making one interest responsible if another fails as when retailers bear the burden of EPR if producers do not meet obligations. These strategies, however, require political will at the time of policy formulation because the interest that is targeted for the assignment of such an additional responsibility will object.

3.6.2. Opportunities for better governance and increased understanding

All is not opaque nor out of reach, however. Much of what appears to be important in this admittedly brief scan of EPR governance practice are basic elements of good governance – clear assignment of roles, systematic monitoring and data collection, transparency, enforcement, stakeholder consultation, adequate resources for oversight. Some of the common features have EPR-specific coloration. Transparency is a particular challenge where for-profit PROs operate, hindering well-informed evaluation of EPR. Enforcement, especially as it relates to entities that collect and process end-of-life products outside of EPR systems, is critical not only for environmental protection, but also for the financial viability of EPR.

Some of the generic gaps in knowledge regarding EPR governance systems can be addressed with moderate investment of time and effort. Many systems have produced reports evaluating performance for use by policy makers within the relevant jurisdiction. These reports contain some of detailed information that can improve understanding of key governance practices. With additional effort, information about practices across EPR systems can be acquired. For example, compilation of registration fees charged to producers could provide some indication of the funds used for government administration.

Some contested issues could be clarified through detailed comparative case studies. Systems with for-profit PROs could be compared to those with non-profits. Similarly, systems with single PROs could be compared with those that have multiple PROs. If the research is to be useful, it would need to go beyond basic descriptions of the EPR systems and simple calculations of the cost per tonne or kilograms per inhabitant collected to engage the specific claims of competing positions and investigate them empirically in depth. For example, non-profit PROs make several specific claims in their criticism of for-profit PROs (see § 3.3.5). Investigation of those particular claims could advance the discussion of for‐profit versus non-profit status. Similarly, competing PROs are argued to lower the cost to producers for EPR compliance (see § 3.5.2). Costs could be examined with careful attention to adjustment of data to reflect the differences in the scope and level of service in EPR systems. Access to data would be a challenge, but nondisclosure agreements and redaction of sensitive information as used in a recent study of EPR in Ireland (RPS et al., 2014) could mitigate this problem.

Comprehensive comparisons of EPR systems, however, will have to wait for better data and increased harmonisation of systems.