Binkley EPR PPR

DESIGNING EFFICIENT WASTE SYSTEMS:
A COMPARATIVE ASSESSMENT OF EXTENDED PRODUCER RESPONSIBILITY

POLICY INSTRUMENTS
WRITTEN BY ANDREW BINKLEY

Supervised by Professor Michael Trebilcock
DRAFT
FOR WEALTH WITHOUT WASTE CONFERENCE USE ONLY
Author contact: andrew.binkley@gmail.com. I am grateful to Professor Michael Trebilcock of the

University of Toronto, Ms. Caroyln Naiman and Messrs. Jack Quinn, Navin Joneja and Chad Leddy of
Blake, Cassels & Graydon LLP and Mr. Usman Valiante of the Corporate Policy Group for their helpful
suggestions while planning, researching and writing this paper.
1
2
Abstract ....................................................................................................................... 5
Introduction................................................................................................................. 6
2.1
Extended producer responsibility and the polluter pays principle...................... 7
2.2
A comparative analysis of extended producer responsibility ............................. 9
3
Criteria for assessing extended producer responsibility implementations................ 11
3.1
Achieve low cost disposal................................................................................. 11
3.2
Promote innovation that reduces future costs ................................................... 12
3.3
Promote changes that reduce life cycle environmental impact......................... 12
3.4
Minimize compliance and administrative costs................................................ 13
4
Instrument choices for implementing extended producer responsibility.................. 14
4.1
Is the system mandatory or voluntary? ............................................................. 15
4.2
The balance of economic incentives and regulatory requirements ................... 15
4.3
Can the responsibility be met financially?........................................................ 16
4.4
Is the responsibility shared?.............................................................................. 16
4.5
Who bears the immediate cost of disposal?...................................................... 17
4.6
When is disposal funded? ................................................................................. 18
4.7
Is individual responsibility encouraged? .......................................................... 19
4.8
Is there a registry or reporting system?............................................................. 20
5
Examples of end-of-life processing systems............................................................. 20
5.1
German automobiles ......................................................................................... 20
5.1.1
System overview....................................................................................... 21
5.1.2
Cost of disposal......................................................................................... 24
5.1.3
Design to reduce cost of disassembly is happening.................................. 25
5.1.4
Little re-manufacturing and re-use occurring ........................................... 25
5.1.5
Questionable improvement in life cycle environmental impact ............... 27
5.1.6
Compliance and administrative costs........................................................ 30
5.1.7
Conclusions............................................................................................... 31
5.1.7.1 Comparison of voluntary and mandatory approaches .......................... 31
5.1.7.2 Individual responsibility ....................................................................... 31
5.1.7.3 Timing effects encourage investment in disposal but not re-use.......... 32
5.1.7.4 Regulations are effective....................................................................... 32
5.1.7.5 Contracts incompletely internalize the benefits of re-use..................... 33
5.2
Swiss electrical and electronic equipment ........................................................ 36
5.2.1
System overview....................................................................................... 36
5.2.2
Low cost of disposal ................................................................................. 38
5.2.3
Timing of disposal fee .............................................................................. 40
5.2.4
The Swiss WEEE system has a positive environmental impact ............... 42
5.2.5
Improvements in re-use possible .............................................................. 42
5.2.6
Little design for environment.................................................................... 43
5.2.7
Treatment of orphaned and historical waste ............................................. 46
5.2.8
No abuse of monopoly powers found ....................................................... 47
5.2.9
Good compliance with the waste disposal system.................................... 48
5.2.9.1 Consumer compliance........................................................................... 48
5.2.9.2 Manufacturer compliance ..................................................................... 49
5.2.9.3 Retailer compliance .............................................................................. 50
5.2.9.4 Recycler compliance............................................................................. 51

5.2.10
Conclusions............................................................................................... 51
5.3
Japanese white goods........................................................................................ 52
5.3.1
System overview....................................................................................... 52
5.3.2
High expenditure compared with other systems....................................... 54
5.3.2.1 Does physical responsibility drive the high expenditure? .................... 54
5.3.2.2 Do industry groups drive the high expenditure?................................... 55
5.3.2.3 Does the timing of the disposal fee drive the high expenditure?.......... 56
5.3.2.4 Do higher standards drive the high expenditure? ................................. 57
5.3.3
High levels of re-use probably not caused by legislation ......................... 58
5.3.4
Poor compliance with the waste disposal system ..................................... 58
5.3.4.1 Illegal transfers of EOL goods .............................................................. 58
5.3.4.2 Illegal dumping brought on by timing of disposal fee.......................... 59
5.3.5
Conclusions............................................................................................... 60
5.4
German packaging system ................................................................................ 60
5.4.1
System overview....................................................................................... 60
5.4.2
Duales System Deutschland overview...................................................... 62
5.4.3
High cost of disposal has decreased.......................................................... 63
5.4.4
Promote changes that reduce life cycle environmental impact................. 66
5.4.5
DSD EU Competition Law contraventions............................................... 67
5.4.6
Compliance with the waste disposal system............................................. 69
5.4.7
Conclusions............................................................................................... 69
5.5
United Kingdom Packaging System ................................................................. 69
5.5.1
System overview....................................................................................... 70
5.5.2
Low initial cost of disposal ....................................................................... 72
5.5.3
Risky approaches to compliance............................................................... 75
5.5.4
Effective at stimulating changes in product design .................................. 79
5.5.5
Compliance ............................................................................................... 81
5.5.6
Conclusions............................................................................................... 81
6
Assessment of instrument choices ............................................................................ 82
6.1
The optimal mix of voluntary and compulsory approaches.............................. 82
6.1.1
Industry driven evolution from voluntary to compulsory approaches...... 82
6.1.2
Is this evolution beneficial? ...................................................................... 83
6.1.2.1 Reduces implementation and administration costs ............................... 83
6.1.2.2 Ability to curtail Mock-type opportunistic behaviour .......................... 83
6.1.2.3 Encourages collective learning ............................................................. 84
6.1.2.4 Possibility to undermine competitive advantages................................. 84
6.1.2.5 May result in a lack of innovation ........................................................ 85
6.1.2.6 Loss of information............................................................................... 87
6.1.2.7 Voluntary approaches may not encourage trading markets .................. 88
6.1.3
Conclusions about compulsory and voluntary approaches ....................... 89
6.2
What is the best mix of economic incentives and regulatory requirements?.... 91
6.2.1
Economic incentives preserve competitive advantages............................ 91
6.2.2
Regulatory intervention may be necessary to spur eco-design ................. 92
6.2.3
Suggestions for optimal mix of economic incentives and regulatory
requirements.............................................................................................................. 92
6.3
Is financial or physical responsibility preferable? ............................................ 94
6.3.1
Financial responsibility decreases the cost of compliance ....................... 95
6.3.2
Physical responsibility increases eco-design ............................................ 96
6.3.3
Financial responsibility with regulations to encourage integration .......... 96
6.4
Should responsibility be shared? ...................................................................... 96
6.4.1
Advantages to splitting responsibility....................................................... 96
6.4.1.1 Improve compliance with little cost to government ............................. 96
6.4.1.2 Increase likelihood of formation of tradeable market for compliance.. 97
6.4.2
Splitting responsibility may discourage eco-design ................................. 98
6.4.3
Responsibility sharing conclusions........................................................... 99
6.5
Who should bear the immediate cost of disposal?.......................................... 100
6.6
When should disposal be funded?................................................................... 100
6.7
Should legislation encourage collective or individual approaches? ............... 101
6.8
Should there be a reporting system? ............................................................... 102
6.9
Summary ......................................................................................................... 102
7
Works Consulted..................................................................................................... 104
1 Abstract
Traditionally society has borne the cost of disposal of end-of-life (EOL) products. Many
jurisdictions are now employing extended producer responsibility (EPR) to shift
responsibility for EOL products to producers. This paper studies the approaches taken by
five different jurisdictions to different products:
1. The German end-of-life vehicle (ELV) system
2. The Swiss waste electrical and electronic equipment (WEEE)
3. The Japanese EOL white goods system
4. The German EOL packaging system
5. The Great Britain packaging system
This paper evaluates different instrument choices for implementing EPR on the basis of
system cost, the promotion of innovation, life-cycle environmental effect, and
compliance and administrative costs. Voluntary approaches decrease implementation
costs, but do not encourage the most environmentally beneficial outcomes in some
instances. While regulatory approaches are strong drivers of innovation, economic
incentives are better at preserving competitive advantages. The same can be said for
physical responsibility and financial responsibility, respectively. Sharing of
responsibility increases compliance and promotes the emergence of trading systems but
may undermine incentives for innovation.
This paper concludes that EPR is not a one size fits all solution to EOL. EPR also is not
a safeguard against inefficient or environmentally poor target setting. Instead, it needs to
5
be employed in concert with other policy tools taking into account the market for the
product and possibilities for eco-design.
2 Introduction
In OECD countries municipal waste has increased 40% in absolute terms and 22% in per
capita terms between 1980 and 1997. About 18% of this waste was recycled and another
18% incinerated. The remainder ended up in landfills.1 The rate of waste production is
increasing. According to the European Environmental Agency, the volume of waste
produced each year in Europe is expected to double by 2020.2
Many countries are running out of landfill space. While this shortage is partially driven
by a lack of land and an expanding population, individuals strong desire not to live next
to a landfill is also a contributing factor.3 In addition, there are worries that the rate of
consumption of virgin resources, like oil, is unsustainable.4 When material is landfilled it
means that it cannot be recycled, increasing the demands placed by production on virgin
resources.
Local governments have traditionally operated waste services. This has meant that the
costs of disposal of an end-of-life (EOL) product are borne by the local taxpayer, not the
producer or the consumer. The externality of this cost to producers and consumers has
OECD, Extended producer responsibility: A guidance manual for governments, (2001) at 15.
European Environmental Agency, The European Environment: State and outlook, EEA Report,
(Copenhagen 2005).
3
B. K. Fishbein, Germany, garbage, and the green dot: Challenging the throwaway society, (New York,
NY: Inform, 1994) at 2.
4
World Oil Production & Peaking Outlook (2005) online: Peak Oil Netherlands Foundation,
<http://peakoil.nl/wp-content/uploads/2006/09/asponl_2005_report.pdf> (date accessed: 4 January 2008).
2
resulted in production that exceeds socially optimal waste creation.5 This is especially
worrying in light of the above concerns about reduced landfill capacity and virgin
resource consumption.
Extended producer responsibility (EPR) has the potential to solve this dilemma. EPR is
an environmental policy approach in which a producers responsibility for a product is
extended to the post-consumer stage of a products life cycle.6 According to the OECD,
EPR has two related features. The first is to shift at least some of the responsibility
associated with EOL product waste away from local governments and toward producers.
The second is to provide producers with incentives to design products that take into
account environmental factors (eco-design). 7
2.1 Extended producer responsibility and the polluter pays principle

EPR can be viewed as a form of polluter pays principle (PPP) where pollution is
extended to include not just environmental harm during production, but also EOL product
waste, which is attributed to the producer. According to the OECD PPP is:8
[T]he principle to be used for allocating costs of pollution prevention and control
measures to encourage rational use of scarce environmental resources and to avoid
distortions in international trade and investmentthis principle means that the
5
For an economic model that maximizes social benefit when the cost of recycling is incorporated into
product design see P. Calcott and M. Walls, Waste, recycling and Design for Environment: Roles for
Markets and Policy Instruments (2008), 27 Resource and Energy Economics 284.
6
7
8
OECD, Guiding Principles concerning International Economic Aspects of Environmental Policies,
(1972), quoted in M. Yamaguchi, Extended producer responsibility in Japan: introduction of EPR into
Japanese waste policy and some controversy (2002), 19 Japan Environmental Management Association
for Industry ECP Newsletter 7.
polluter should bear the expenses of carrying out the above-mentioned measures
decided by public authorities to ensure that the environment is in an acceptable
state. In other words the cost of these measures should be reflected in the cost of
goods and services which cause pollution in production and/or consumption.
Mitsutsune Yamaguchi resists the casting of EPR as a form of PPP.9 Yamaguchi argues
that waste is not a pure externality so it cannot be pollution. He points out that the
production of goods and waste entails the consumption of virgin resources and landfill
space in addition to environmental pollution from harmful substances. Since there is a
market that sets prices for virgin resources and landfill space, these aspects of waste are
not pollution, making it inappropriate to classify EPR as a form of PPP.
Yamaguchis argument has two weaknesses. First, while there is a market for landfill
space, it is not necessarily a market in which producers and consumers participate.
Instead, the costs are often borne by local governments. This means that producers and
consumers subject others the costs of landfill use that arise as a result of their activities, a
classic form of externality.
The second weakness is that the market costs of virgin materials, the cost of landfill and
the cost of compliance with traditional PPP environmental standards undervalue the
social cost of production. Specifically, contingent valuation studies suggest that effects
like human toxicity and the contribution of waste transport to traffic accidents are not
9
M. Yamaguchi, Extended producer responsibility in Japan: introduction of EPR into Japanese waste
policy and some controversy (2002), 19 Japan Environmental Management Association for Industry ECP
Newsletter 7 at 7.
fully captured by market prices.10 As a result, recycling rates above those achieved by
economic agents may be socially optimal. The incomplete internalization of the costs of
waste undermines Yamaguchis argument against EPR as a form of PPP.
Other economists suggest that EPR is not an efficient policy. Since many environmental
effects have already been internalized, the addition of EPR amounts to double taxation,
which is inefficient.11 Instead of focusing on waste generated after the useful life of a
product, these economists argue for a purer form of PPP that focuses on the inputs to
production that have a negative environmental effect.12 This paper does not attempt to
settle the debate about the efficiency of EPR. However, it would be cumbersome for
purer PPP approaches to take into account the physical structure of a product. Since a
products structure, independent of its composition, has an impact on its cost of disposal
purer PPP approaches may provide insufficient incentives for eco-design.
2.2 A comparative analysis of extended producer responsibility

This paper does not attempt to determine whether transaction costs mean that EPR is
actually more efficient than purer forms of PPP, what the appropriate valuation of
environmental damage is or whether it is equitable to switch EOL product waste
responsibility to producers when consumers have a large role to play in EOL decisions.
However, the arguments above are helpful for highlighting a difference in focus or degree
10
RDC/Pira, Evaluation of Costs and Benefits for the Achievement of Re-use and Recycling Targets for the
Different Packaging Materials in the Frame of the Packaging and Waste Directive 94/62/EC Proposed
Draft Final Report (Brussels: DC-Environment & Pira International for the Commission of the European
Communities, 2001).
11
D.W. Pearce and K. Turner, Packaging waste and the Polluter Pays Principle: a taxation solution, 35
Journal of Environmental Planning and Management 7.
12
D.W. Pearce and K. Turner, Packaging waste and the Polluter Pays Principle: a taxation solution, 35
Journal of Environmental Planning and Management 7 and S. Palmer and M. Walls, The Cost of Reducing
Municipal Solid Waste, (Washington D.C.: Resources for the Future, 1996).
between EPR and PPP. EPR aims to make producers responsible because they are the
party with control over product design. Eco-design cannot be achieved without the
cooperation of the producer. PPP in contrast focuses simply on the polluter. Since
polluters may have varying degrees of control over product design, EPR and PPP may
assign responsibility to different parts of the supply chain.
This paper accepts that governments are using EPR. It analyses the effects of five
different EPR approaches and attempts to assess the effectiveness of each approach at
moving responsibility to producers and encouraging eco-design.
As Kathryn Harrison points out, rigorously assessing the effectiveness of environmental

policy is difficult.13 Outcomes of the policy must be identified and compared. The usual
approach compares the outcomes of the policy to a reference year pre-dating the
implementation of the policy. These comparisons tend to exaggerate policy effectiveness
since some fraction of improvements will be caused by factors not related to the policy
being assessed. A more useful comparison is with a business-as-usual (BAU) baseline.
This comparison requires constructing a counterfactual model and unfortunately is rarely
done. Finally, it is also possible to compare the chosen policy to the outcomes of other
policies that could have been implemented.
Ideally, this paper would draw rigorous conclusions based on comparisons with
counterfactual situations. Unfortunately, there is insufficient information to support this
13
K. Harrison, Voluntarism and Environmental Governance in E. Parson, ed. Governing the

Environment: Persistent Challenges, Uncertain Innovations (Toronto: University of Toronto Press, 2001)
at 230.
10
approach and where comparisons are made, they are with a reference year. Where a lack
of information prevents even this comparison, an a priori discussion is undertaken.
3 Criteria for assessing extended producer responsibility

implementations
This section introduces the four criteria used by this paper to assess EPR
implementations:
1. The cost of the system.
2. The extent to which the system promotes innovation that reduces future system
costs.
3. The promotion of product changes that reduce the life-cycle environmental effect.
Eco-design, discussed above in section 2, is one way of reducing future costs and
life-cycle environmental impact.
4. The costs related to compliance and administration of the system.
3.1 Achieve low cost disposal

Disposal of waste is expensive. For instance, the preliminary projected net cost for
running the Ontario blue-box system in 2009 is about $160 million dollars.14 The design
of a system has a large impact on the costs. Oregons bottle deposit system has many
collection points and requires every point to separate material by producer. One study
estimated that if California were to replace its bottle deposit system with one similar to
Oregons the impact of the bottle deposit system on the State economy would go from a
14
Presentation of Preliminary 2009 Fees for Blue Box Stewards, online: Stewardship Ontario
<http://www.stewardshipontario.ca/bluebox/pdf/consultation/fees_12sept2008/2009_fees_presentation_PF
1.pdf> (date accessed: 24 November 2008).
11
$42 million benefit to a $1.5 billion loss.15 Reducing transaction costs, increasing
economies of scale and coordination, and using existing infrastructure are common ways
to achieve low cost disposal.
3.2 Promote innovation that reduces future costs

In addition to static efficiency, it is possible to encourage innovation that reduces the total
cost of disposal in the future. This can include increasing product lifetime and
reparability, making a product weigh less or occupy less space, changing the composition
of the product so that it is easier to process, making products modular so that they are
easier to upgrade, and reducing packaging. Exposing producers to the disposal costs of
their products in the face of competition may promote this type of design. Product design
for easy disposal is promising because it is a young field with the potential for significant
improvements.16 In order to achieve their full potential, some product changes may
require new disposal infrastructure or processes.
3.3 Promote changes that reduce life cycle environmental impact

Transportation and processing mean that products generally have a negative impact on
the environment at the end of their life. Designing products to be easily re-used or
recycled can reduce the environmental impact of a product. Some products are inherently
hard to recycle. For instance, in the early 1990s recyclers had difficulty processing tetrapacks, commonly used as drink boxes. This was because the cardboard and plastic layers
15
P. Berck and G. Goldman, California Beverage Container Recycling and Litter Reduction Study, Report
to the California Legislature, Contract 5000-009 for the California Department of Conservation, Division of
Recycling, (Sacramento: California Department of Conservation, 2003) at 51. Oregons system does
achieve a higher diversion rate (about 83% in 2000) than California (62%) of materials covered (id. p. 47)
16
H. Vedder, Competition Law, Environmental Policy and Producer Responsibility: Experiences in the
Netherlands from a European Perspective (Groningen: Europa Law Publishing, 2002).
12
were not easily separable.17 To encourage producers to switch to materials that could be
processed more easily, Maine banned tetra-packs in 1990.
Unfortunately, concentrating exclusively on mitigating the environmental impact of a

products end-of-life leads to distortions that may result in increased overall
environmental impact. Returning to Maines example, when the entire life cycle of tetrapacks was considered, they were actually better than the alternatives. Tetra-packs are
lighter and permit more servings of juice to be transported in a single truck. These two
factors reduce environmental outputs during transportation and outweigh the inferior
recyclability of tetra-packs.18 This realization combined with the industrys
demonstration that juice boxes actually could be recycled resulted in Maine revoking the
ban in 1994.
When considering waste management systems it is important to consider the influence

that waste disposal systems and policies can have on other environmental outputs. Life
cycle analysis (LCA) combined with eco-design can help achieve this.
3.4 Minimize compliance and administrative costs

Non-compliance with waste disposal systems includes both disposal of waste in systems
not intended for that waste (a particular problem with hazardous waste) and illegal
dumping. These behaviours create inequities (when dumpee property owners become
responsible for disposal of dumpers waste), increase the cost of disposal by spreading
17
F. Ackerman, Why do we recycle? Markets, Values and Public Policy (Washington: Island Press, 1997)
at 93.
18
at 91.
13
waste over a larger area or remote locations, increase the impact that waste has on the
environment and create a deadweight cost (of conducting the illegal dumping).
A priori models predict19 and empirical studies show20 that as the cost of disposal to the
party disposing increases, so does illegal dumping. Product deposits, decreasing the cost
of disposal, increasing the value of the used material, and increasing the penalties for and
enforcement of laws against may also ensure compliance.21 However, monitoring and
enforcement impose their own costs.
In addition to the costs of monitoring and enforcement, EPR systems can be expensive to
set-up. Negotiations between industry and government and studies consume financial
resources and time.
4 Instrument choices for implementing extended producer

responsibility
There is a broad range of policy instrument choices for implementing EPR. This section
provides an overview of the different policy instrument designs of five EOL systems:
1. The German end-of-life vehicle (ELV) system, described below in section 5.1.
2. The Swiss waste electrical and electronic equipment (WEEE) system described
below in section 5.2.
19
I. Ferrara, Illegal Disposal of Commercial Solid Waste: A Dynamic Analysis, 36 Atlantic Economic
Journal 211.
20
G. Kim, Y. Chang, and D. Kelleher. Unit Pricing of Municipal Solid Waste and Illegal Dumping: An
Empirical Analysis of Korean Experience (2008), 9 Environmental Economics & Policy Studies 167.
21
H. Sigman, Midnight Dumping: Public Policies and Illegal Disposal of used Oil (1998), 29 RAND
Journal of Economics 157.
14
3. The Japanese EOL white goods system described below in section 5.3.
4. The German EOL packaging system described below in section 5.4.
5. The Great Britain packaging system described below in section 5.5.
4.1 Is the system mandatory or voluntary?

Systems like the Japanese white goods system and the German packaging system are
mandatory in nature. The government sets requirements with which producers must
comply. In contrast, while they have since taken on a more mandatory nature, the Swiss
WEEE and German ELV systems were initially largely voluntary. Industry played a
prominent role in determining how waste would be collected and what would be done
with it.
The distinction between mandatory and voluntary systems is one of degree. For instance,
the German ELV system has always incorporated mandatory requirements relating to the
handling of toxic substances giving it both mandatory and voluntary components.
Similarly, strict land-filling and incineration guidelines have always governed the Swiss
WEEE system.
4.2 The balance of economic incentives and regulatory requirements

By making the producer responsible for the cost of disposal, EPR provides producers
with an economic incentive to reduce the waste that results from their products.
However, regulatory requirements can also shape producer behaviour. Two such
mandatory requirements, German ELV toxic substance requirements and Swiss WEEE
land-filling and incineration guidelines are discussed above in section 4.1. Other
15
examples include the mandatory recycling targets in the German ELV and packaging
systems.
Economic incentives and regulatory requirements do not have to be set by legislatures or

formal regulators. For instance, private recyclers in Germany sets the fee producers are
charged for processing EOL packaging. As another example is the Swiss WEEE system,
where technical recycling standards are set in consultation with government scientists.
4.3 Can the responsibility be met financially?

The producers responsibility for EOL products can either be financial (most systems) or
physical (Japanese white goods). A producer discharges a financial responsibility by
paying for the EOL disposal required by legislation. A physical responsibility can only
be discharged by the processing of the EOL product in facilities owned by the producer.
If the responsibility is only financial, producers can contract with others to provide waste
disposal. This permits producers to design the waste disposal network themselves.
Alternatively, if producers have physical responsibility for recycling, then the producer
has less control over how the disposal system is designed since they cannot contract with
another party to fulfil their obligations.
4.4 Is the responsibility shared?

Responsibility can be assigned to the producer or shared among many parties. In reality,
because EOL involves so many players, the responsibility is almost always shared. For
instance, in addition to making the producer responsible for the cost or act of recycling or
16
land-filling a product, in all the systems studied, except the German and UK packaging
systems, consumers are required to return the EOL product to a designated location.
The responsibility placed on other parties can be regulatory or economic in nature. The
German ELV system has regulatory requirements that dismantlers must follow. In
contrast, German retailers have an economic incentive to require their suppliers to create
a collection system. Where the producer has a responsibility to finance EOL systems,
that responsibility may either be born by them alone, as in the German ELV system, or it
may be split with upstream producers, as in the UK packaging system.
When responsibilities are shared appropriately, it can provide economic agents with an
incentive to monitor the behaviour of other players in the system. For example, to avoid
onerous reporting obligations, Swiss WEEE retailers ensure that their suppliers
participate in the Swiss WEEE system. This arrangement can improve compliance
without requiring significant additional outlay by the government.
4.5 Who bears the immediate cost of disposal?

As discussed above in section 2, local governments have traditionally born the immediate
cost of disposal and passed it on to taxpayers. EPR changes this. In the Japanese system,
the consumer bears the immediate cost of disposal and it is paid at the time of disposal.
However, since producers in the Japanese system must own the facilities used for
processing, they also bear some cost in the form of risk. They have to invest in the
facilities and if the system does not work as planned they will be exposed to additional
costs, which they may not be able to recoup from consumers.
17
In all the other systems studied, producers bear the immediate cost of disposal.
Legislation may stipulate that they pass these costs onto consumers in the form of an
extra line on the bill, called a visible fee. Producer responsibility organizations (PROs),
which are groups formed to meet producers EPR responsibilities, may also require as a
condition of participation that these costs be explicitly passed to consumers, as with
Swiss WEEE.
The allocation of the immediate cost of disposal has an effect on compliance. Systems
where the producer bears the immediate cost of disposal, like the Swiss WEEE and
German ELV systems, are called free take-back systems because they offer free (in the
immediate or already paid for sense) disposal for final consumers. This decreases the
incentive that consumers have to engage in illegal dumping.
4.6 When is disposal funded?

The disposal of a product may either be funded when it is purchased or at the time of
disposal. Perhaps because of producers desire to delay costs, no system studied
explicitly funds the disposal of a product at the time of purchase. More common is the
approach of the Swiss WEEE system, where the current purchase of a product funds the
current disposal of another product.
The timing of costs can have an impact on incentives for innovation. Some systems, like
the Swiss WEEE system, require disposal costs to be allocated based on producer market
share at the time of disposal. In the time between the announcement of such a scheme
18
and its implementation, Dario Mock hypothesizes that existing firms will have an
incentive to under-invest in inexpensive disposal since they will be able to pass off some
of the cost of expensive disposal to new entrants.22 Not only does this increase the future
cost of disposal, but by creating barriers to entry can also drive up the price paid by
consumers for the associated product. Throughout this paper, this behaviour is referred
to as Mock-type opportunistic behaviour.
4.7 Is individual responsibility encouraged?

In some systems, like the German ELV system, producers meet their responsibilities
individually. In other systems, like the UK packaging system, some producers form
PROs to meet their responsibilities collectively. In the Japanese system, different
producers co-operate to build facilities and co-own them, giving the responsibility a
partly collective nature.
In all of the systems studied, producers have some flexibility to choose the extent to
which they employ collective responsibility. The decision about whether to take
individual or collective responsibility is probably made by individual producers based on
a form of cost-benefit analysis comparing individual and collective approaches. This
analysis may involve a comparison of the possible competitive advantages gained
through an individual approach and the economies of scale possible in a collective
approach. The relevant products probably influence the balance between these two
factors. For instance, for a highly designed product, like a car, the possible competitive
22
D. Mock, Wasting innovation: Barriers to entry and European regulation on waste electronic
equipment (2008), 26 Eur. J. Law Econ 1.
19
advantages gained through an individual approach are greater. This may explain the
choice of individual responsibility in the German ELV system.
The legislation framing the system can influence the analysis conducted by producers.
For instance, onerous individual reporting obligations in the Swiss WEEE and German
Packaging system increase the economies of scale achievable through a collective
approach.
4.8 Is there a registry or reporting system?

To help monitor compliance, some EOL systems use registries. For instance, in
Switzerland since most WEEE is imported, import logs provide a helpful means for
auditing producer behaviour. Alternatively, in the German ELV system, the existing
vehicle registration system is used to monitor ELV disposal. The creation of registries or
reporting systems is one reason for the reporting obligations noted above in section 4.7.
5 Examples of end-of-life processing systems

5.1 German automobiles
The German ELV system was chosen for study for three reasons. First, since it was
administered under voluntary arrangements from 1998-2002 and compulsory
arrangements from 2002 on, it is especially helpful for comparing the effectiveness of
voluntary and compulsory arrangements. Second, German car manufacturers meet their
EOL obligations on an individual basis. Finally, cars are highly designed products, so
20
design decisions resulting from EOL constraints may be easier to identify than for other
types of products.
5.1.1 System overview

German ELVs are governed by the German End-of-Live Vehicles Ordinance (ELV
Ordinance) and a voluntary agreement (VA). The ELV Ordinance was passed in 1998
and requires car manufacturers to set-up a collection network for cars and to re-use parts
when it is technically and economically feasible to do so. Dissemblers of cars are
required to remove certain hazardous materials and parts and to issue the last owner of
the ELV with a certificate of disposal. This certificate is required to permit the last
owner to de-register the vehicle. 23
Sixteen commercial parties signed the VA in 1997, including car manufacturers,

importers, automotive industries and dismantlers. Earlier drafts of the ELV Ordinance
required manufacturers to provide free take back to the last owner of a vehicle. Lobbying
by the auto industry diluted the free take back requirements and moved them into the
VA.24 Pursuant to the VA, manufacturers only have to provide free take back for cars
marketed after the ELV Ordinance comes into effect, that are less than 12 years old at the
time of disposal and that are not excessively damaged. Disposal of other cars at
prevailing market rates are the responsibility of the last owner.
23
N. Nakajima and W. H. Vanderburg, A failing grade for the German end-of-life vehicles take back
system (2005), 25 Bulletin of Science, Technology & Society 170 at 172.
24
21
In addition to diluted free-take back provisions, lobbying also resulted in recycling

targets being moved from the ELV Ordinance and being placed in the VA. Under the
VA, manufacturers retain control over design decisions. While they are supposed to
design for recycling and design for disassembly (two types of eco-design), the
implementation of these design approaches is left to them. Finally, the design of the
networks to take back ELVs is left to industry players.
The Directive of the European Parliament on end-of life vehicles (ELV Directive)
(enacted by Germany in 2002) modified the institutional framework created by the ELV
Ordinance and the VA.25 In addition to the requirements of the ELV Ordinance and the
VA, the ELV Directive requires that member state car approval regulations be changed to
ensure that vehicles meet recovery, recycling and re-use targets and places limits on the
use of mercury, hexavalent chromium, cadmium and lead in new vehicles. The ELV
Directive also requires that manufacturers fund free-take back for all cars manufactured
after January 2002 and free take back for all cars after January 2007 regardless of when
the car was manufactured.26 Finally, the ELV Directive requires 85% recovery of
vehicles by 2006 and 95% recovery by 2015.
The ELV Directive permits member states to enact these requirements through VAs.
However, it misleading to continue to think of these agreements as voluntary since if the
agreements are not met, member states are required to pass legislation by virtue of the
25
Directive 2000/53/EC of the European Parliament and of the Council of 2000 on end-of-life vehicles,
21.10.2000, L 269/34.
26
K.H. Forslind, Implementing extended producer responsibility: the case of Sweden'
s car scrapping
scheme (2005), 13 Journal of Cleaner Production 619 at 621.
22
ELV Directive. As stated above in section 5.1, the German ELV system is a valuable
case study because it permits the comparison of the effect of voluntary and mandatory
arrangements within the same system.
Two different types of networks have resulted from this institutional framework. In type
one networks, the car manufacturer signs a contract with a group of dismantlers. The
manufacturer works with the dismantlers to ensure that they have the relevant
information and expertise to properly dismantle the cars.27 The dismantlers comply with
the ELV Ordinance by removing hazardous components and returning recovered parts to
the manufacturer. After the dismantler is finished with the car it goes to a shredder. The
shredder rips the dismantled ELV into smaller pieces and separates material that can be
recycled. The remainder is called automobile shredder residue (ASR) and is land-filled.
Type one networks meet the manufacturers responsibilities under the ELV Ordinance
and the VA and provide the manufacturer with parts recovered from the dismantling
process at a relatively low cost. In return, the dismantler is guaranteed a steady stream of
business. Ford and Opel both use a type one network.
Type two networks focus on the shredder. The unstripped ELV has significant value as
scrap metal. To secure this value, shredders enter into partnerships with car companies.
In return for organizing the ELV disposal process shredders are guaranteed incoming
scrap metal. Volkswagen and Mercedes Benz participate in the type two network.
27
23
Despite being organized by the scrapper (not the manufacturer) and giving the scrapper
the choice of the dismantler (not the dismantler choice of the scrapper), the flow of
physical materials is the same in type one and two networks. Manufacturers participate
in both types of disposal network as individuals, not as groups, making the German ELV
system valuable for the study of individual producer responsibility as stated above in
section 5.1.
5.1.2 Cost of disposal

Before the ELV Directive came into effect, the EOL process cost manufacturers about
125 euros per car.28 Post-ELV Directive compliance is about 150 to 180 euros per car.29
While the difficulty of comparing Deutsche Marks to current day euros undermines the
validity of the comparison, the cost of compliance seems to have risen following the ELV
Directive. The ELV Directives more stringent requirements are probably the cause of
the increase in cost.
The individual nature of responsibility in the German ELV system makes the alternative
explanation of Mock-type opportunistic manufacturer behaviour unlikely.30 While there
was a delay between the publication of the ELV Ordinance and responsibility for
historical waste, the individual nature of responsibility means that established
manufacturers have no way of passing costs onto new entrants.
28
29
J. Miemczyk, An exploration of institutional constraints on developing end-of-life product recovery
capabilities (2008), 115 Int. J. Production Economics 272 at 273.
30
Mock-type opportunistic behaviour is discussed above in section 4.6.
24
5.1.3 Design to reduce cost of disassembly is happening

Under the more voluntary pre-ELV Directive arrangements, there was evidence of design
for disassembly. Manufacturers labelled plastics to permit dissemblers to sort them more
easily. The number of plastics incorporated in the car was also reduced which reduced
the complexity of recycling them. Specific components were also re-designed to reduce
the cost of disposal. For example, BMWs distinctive front grill used to be made of many
aluminium and plastic parts that required time intensive disassembly. BMW changed the
design and made the grill out of two plastic parts that were quickly unclipped.31 Since
the passage of the ELV Directive, design for disassembly is continuing.32
5.1.4 Little re-manufacturing and re-use occurring

ELVs have many valuable components in them. For example, radios, tires, and engine
parts can be used in new cars or for repairs to existing cars. This is beneficial because it
avoids land filling the components and reduces the virgin material demands of production
or repair. Sometimes in order to be re-used, parts need to be re-manufactured. While this
requires some virgin material and energy inputs, re-manufacturing is still less
environmentally demanding than manufacturing.
Marketing strategies for cars emphasize their technically advanced nature. Manufactures
fear that incorporating used parts would undermine this message. The technical
feasibility of re-use is also limited by the rapid evolution of new car components and by
31
32
J. Gerrard, Is European End-Of-Life vehicle legislation living up to expectations? (2007), 15 Journal
of Cleaner Production 17 at 22.
25
the delay before parts become available from ELVs. This delay is caused in turn by the
long useful lifetime of cars.33 As a result, re-use is largely limited to secondary markets,
like repair.
Since manufacturers do not re-use parts, their incentives to design parts that are more
easily remanufactured are less direct. This is unfortunate since dissemblers working
alone cannot achieve optimal re-manufacturing and re-use. However, the dissemblers
have made some progress. During the more voluntary pre-ELV Directive arrangements
dissemblers created a nationwide database of spare parts.34 This was a positive
development because it increased the market for parts recovered by dissemblers.
Pre-ELV Directive figures suggest that US re-use and re-manufacturing rates are higher
than German ones.35 A post-ELV Directive comparison between the EU and the US
found that re-manufacturing rates are four times higher in the US.36 This result can be
extrapolated to Germany with some confidence since the entire EU is subject to the same
ELV Directive. From the perspective of policy instrument design, the lower German rate
makes little sense. In the US there is no requirement that manufacturers play a role in
processing ELVs and it is up to the final user to find someone to accept the ELV. Why
have the incentives in Germany failed to produce higher re-manufacturing rates?
33

34
35
Using 1998 to 2000 figures, Nakajima and Vanderburg compared US and German re-use rates and found
that US re-use rates were higher: N. Nakajima and W. H. Vanderburg, A failing grade for the German
end-of-life vehicles take back system (2005), 25 Bulletin of Science, Technology & Society 170 at 183.
36
26
One explanation is that because Americans favour repair, there is a stronger secondary
market in the US for used parts. As an example, US car insurers generally tend to favour
repairs whereas German ones do not.37 This preference might stem from higher labour
costs in Germany, which makes time intensive re-use less economically feasible.38
Another possible explanation is that American cars are simpler and thus more easily
repaired. Further study is required to determine whether these factors are conclusive or
whether there are other, possibly cultural, explanations.
5.1.5 Questionable improvement in life cycle environmental impact

The German ELV system has been effective at eliminating toxic chemicals in new cars
and increasing the rate of plastics recycling. However, as discussed below other
jurisdictions have accomplished similar eliminations of toxic chemicals without resorting
to an ELV system. Moreover, the benefit of plastics recycling is questionable.
The ELV Directive requirement, discussed above in section 5.1.1, that mercury,
hexavalent chromium, cadmium and lead be eliminated from new cars has been
effective.39 These chemicals are highly toxic, and as long as their substitutes are not, this
will have a strong positive environmental benefit. This sort of regulation is present in
other jurisdictions without an ELV system. For instance in the US the Environmental
Protection Agency (EPA) enforces similar guidelines.
37
38
39
27
Even in the absence of ELV regulation, the value of metal in ELVs resulted in a very
high recycling rate of metallic components. However, because plastics degrade upon
recycling, they traditionally have not been recycled. The pre-ELV Directive system
accomplished about a 10% plastics recycling rate for ELVs.40 As discussed above in
section 5.1.1, the ELV Directive requires 85% recovery/recycling of vehicles by 2006 and
95% recovery by 2015. To meet these ambitious targets, manufactures have increased
their recycling efforts. 41 These efforts have consisted of trying to improve the
recyclability of plastic and reduce the amount of plastic in new cars.
Efforts to improve the recyclability of plastic have lead to the elimination from new cars
of bio-plastics and composite materials, because they are difficult to recycle.42 These
eliminations may not be environmentally positive. While bio-plastics are difficult to
recycle, under the right conditions they naturally biodegrade, resulting in a humus. One
expects that with the difficulties of recycling plastic, the use of bio-plastic might be
encouraged.
The elimination of composite plastics is also unlikely to be environmentally positive.

Composite plastics generally encase recycled or naturally derived materials in virgin
plastic. By providing a use for recyclate, composite plastics already have an
40
41
42
28
environmentally friendly role to play. Additionally, the heterogeneous structure of

composite plastics improves the mechanical properties of the plastic and makes it an
appropriate substitute in some instances for metal. Substituting plastic for metal is
environmentally beneficial over a cars lifetime, as explained below when discussing
efforts to reduce the amount of plastic in new cars.
The other solution pursued by car manufacturers to improve recyclability has been to use
metals where plastics were previously used. Since metal is easier to recycle than plastic
this increases the recyclability of cars. Unfortunately, since metal is heavier than plastic,
it also decreases the fuel efficiency of cars. Scientific studies have shown that the
positive environmental impact of increased fuel efficiency resulting from higher plastic
content outweighs the benefit of metal recyclability.43 This result is similar to the tetrapack example noted above in section 3.3.
In addition to these specific examples of the negative environmental effect of overly

ambitious recycling targets, the materials engineering literature contains a more
theoretical objection. Recycling involves energy and physical inputs. Producing a
material from virgin inputs require less energy and fewer physical inputs for some
products. This trade-off means that recycling targets need to be set intelligently.
Recycling targets that are set too high encourage waste and increase costs. In the specific
case of the ELV Directive, the target of 95% was not set with any regard to the
environmentally or economically optimal recycling rate. Not only is it too high to be
43

29
socially optimal, but it may also be thermodynamically impossible to achieve.44 This sort
of objection is different from industry arguing that compliance will be expensive or
technically impossible.45 The laws of thermodynamics are some of the most fundamental
physical laws and are also what predict the impossibility of perpetual motion.
Unfortunately there has been no response to this specific criticism in the public policy
literature.
5.1.6 Compliance and administrative costs

Under the pre-ELV Directive, it was almost impossible to gauge compliance. While the
VA did require reporting, companies may have been reluctant to do so because of a desire
to retain an ability to lobby for lower environmental standards. Nina Nakajima argues
that disclosure of actual compliance activities would have impeded the ability of industry
to argue that further regulation would hurt them.46 The quality of reporting has probably
improved in the post-ELV Directive era, but this is hard to gauge. For instance, there is a
lack of data on ELV specific R&D expenditure.47
The US ELV system, which only regulates hazardous substances, is attractive. As

discussed above in section 5.1.5, the US system has also been effective at removing
hazardous materials from new cars. Additionally, as noted above in section 5.1.4 it has
44
O. Ignatenko, A. van Schaik, M. A. Reuter, Exergy as a tool for evaluation of the resource efficiency of
recycling systems (2007) 20 Minerals Eng 862 at 873 and M. A. Reuter, A van Schaik, O. Ignatenko, G. J.
de Haan, Fundamental limits for the recycling of end-of-life vehicles (2006) 19 Minerals Eng 433.
45
As of November 13th 2008 I could find no response in the public policy literature to this thermodynamic
claim.
46
47
30
achieved higher levels of re-use. Finally, it has not created as strong incentives to replace
metal with plastic.
However, the US system probably also has a much larger problem with illegal dumping.
In Germany, consumers only have to transport a car 3km on average to reach a disposal
facility and they bear no financial burden for its disposal.48 In the US, there is no
guarantee, especially if the car is old or damaged, that the final owner will be able to
dispose of it. Since there is little regulation of the dismantlers, the possible environment
damage caused by improper disposal of ELVs may be sufficient to justify the 150 to 180
euros per car cost of the German system.
5.1.7 Conclusions
5.1.7.1 Comparison of voluntary and mandatory approaches
It is difficult to come to any conclusions about whether the voluntary (pre-ELV Directive)
or mandatory (post-ELV Directive) systems were superior. The more stringent standards
in the mandatory system did modify manufacturer behaviour. However, it is questionable
how beneficial this modification was in light of the environmental undesirability of the
recycling targets (discussed above in section 5.1.5).
5.1.7.2 Individual responsibility
As discussed above in section 5.1.2, individual responsibility has avoided potential
Mock-type opportunistic behaviour by manufacturers during legislative transition
periods. Additionally it seems to have been effective at providing an incentive for
48
31
innovation in disposal (discussed above in section 5.1.3), if not re-use (discussed above in
section 5.1.4). This observation, that there has been more progress in design for
disassembly than in design for re-use, has three plausible explanations, which are
evaluated below in sections 5.1.7.3 to 5.1.7.5.
5.1.7.3 Timing effects encourage investment in disposal but not re-use
The first explanation for more progress being made in design for disassembly is that
disposal costs are immediate whereas the benefits from design for re-use are deferred to
the future.49 Given the long life of vehicles, this can encourage investment in recycling
technologies that can be used today to reduce recycling costs. It can also discount the
future benefit of re-use. This explanation may have some force, but since some of the
improvements in design for recycling are better labelling of plastics at the time of
manufacture (discussed above in section 5.1.3), this theory is of limited explanatory
power.
5.1.7.4 Regulations are effective
Manufacturers responded diligently to regulations requiring the removal of hazardous
chemicals and meeting high recycling rate requirements. While in case of recycling, the
outcome may not have been as desired, regulation is clearly an effective way of
modifying manufacturers behaviour.
The effectiveness of regulation may explain the difference between the improvement in
design for disassembly and re-use. Design for disassembly overlaps with the recycling
49

32
targets. For instance, the reduction in the number of plastics and the labelling of plastics
(discussed above in section 5.1.3) facilitates recycling. Hence, in order to meet recycling
targets, manufacturers design for disassembly. On the other hand, recycling regulations
do not overlap with design for re-use. The regulatory explanation suggests that in order to
improve re-use, strict targets similar to those for recycling are needed for re-use.
5.1.7.5 Contracts incompletely internalize the benefits of re-use
While the effectiveness of regulation has significant explanatory power, economic
incentives and regulation are probably acting in concert. If manufacturers can make their
cars less expensive to dispose of, then they will be able to negotiate better prices with
dissemblers in type one networks and shredders in type two networks. This, combined
with the financial responsibility of manufacturers for the disposal of ELVs, gives them an
incentive to design cars to be disposed of more cheaply, which results in high levels of
design for disassembly.
However, as discussed above in section 5.1.4, car manufacturers are reluctant to re-use
parts, giving them a less direct interest in re-use and re-manufacturing. In other words,
manufacturers contracts with dissemblers in type one networks and shredders in type
two networks do not completely internalize the benefits of re-use. As an example, BMW
has signed lump sum contracts with dissemblers requiring them to return all parts
recovered to BMW. This does not provide dissemblers with a strong incentive to
improve recovery of parts.50
50
33
The failure of contracts to internalize the benefits of re-use is consistent with theoretical
literature that suggests that simply imposing producer responsibility is not sufficient to
achieve an environmentally optimal outcome.51 Instead policy needs to be cognizant of
the different opportunities faced by different elements of the supply and ELV chain. By
apportioning different types of responsibility along the supply chain, one can achieve a
better outcome. The German ELV system already shares the responsibility to some
extent in the form of procedures that dismantlers must follow when removing hazardous
components. However, as demonstrated by the BMW lump sum contracts example
above, there is room for improvement.
The German ELV system provides an excellent opportunity to test the extent to which
contracts do not completely internalize the benefits of re-use. If it is true that these
contracts incompletely internalize the benefits of re-use, then one would expect to see a
difference between the types of design encouraged by type one and type two networks.
While, as discussed above in section 5.1.1, both types of networks involve dissemblers
and shredders, the manufacturers central contractual counter-party or partner is different
in each network. In type one networks, the manufacturer contracts with the dissemblers
who sub-contract with the shredder. In type two networks, the manufacturer contracts
with the shredder who sub-contracts with the dissemblers. If these relationships
incompletely internalize the benefits of re-use, then the manufacturer will primarily
design to the preferences of their counter-party. Hence type one networks will privilege
the re-use of components whereas type two networks will privilege the re-use of metal.
51
M. Mazzanti, R. Zoboli, Economic instruments and induced innovation: The European policies on endof-life vehicles (2006) 50 Ecological Economics 318-37 at 319.
34
There is some evidence that this is happening. Mercedes Benz, which is in a type two
network, has attempted to participate in direct steel recycling.52 More evidence about
manufacturers specific design activities is necessary to reach a definitive conclusion.
The explanation of incomplete internalization for less progress in re-use raises the issue
of why the benefits from design for disassembly are better internalized. In order to
realize the benefits of design for disassembly, the manufacturer has to negotiate better
prices with their type one or type two network counter-parties. The situation is the same
for realizing the benefits of better design for re-use. It might be that by drawing
manufacturers attention to recycling, regulation encourages manufacturers to be more
diligent when they negotiate contractual terms relating to disposal. This hypothesis
highlights the potential interplay between regulatory and economic incentives when
designing EOL policy.
The above discussion suggests that producer responsibility should not be thought of as a
quick and easy fix. Designing effective producer responsibility schemes requires an
attention to detail and an understanding of the different players in the EOL chain and an
appreciation of the impact of regulation on firm behaviour.
52
35
5.2 Swiss electrical and electronic equipment

The Swiss Waste Electrical and Electronic Equipment (WEEE) system is the oldest and
most established WEEE system in Europe. Examining it provides a good opportunity to
study collective EOL endeavours.

EEE includes both white-goods, like appliances and brown-goods, like computers. They
typically contain some hazardous materials and hence should be excluded from other
waste streams. The Return, the Taking Back and the Disposal of Electrical and Electronic
Equipment Ordinance (ORDEE) created the legal responsibility of producers for the
disposal of their WEEE in 1998. However, even before the legislation was passed,
producers had begun to take responsibility for WEEE by forming Producer
Responsibility Organizations (PROs). The pre-existing voluntary structure has been
credited with making the initial formal legal regulation of the sector less burdensome for
the federal government of Switzerland.53
As of 2007, there were four PROs in Switzerland.54 The two largest, and the only ones
discussed in this paper, are SWICO and SENS, which each cover different types of
WEEE. SWICO focuses on computers, consumer electronics and telecommunication
equipment and SENS on household appliances.
53
D. Khetriwal, Producer responsibility for e-waste management: key issues for consideration learning
from the Swiss experience (2009), 90 Journal of Environmental Management 153 at 156.
54
36
PROs select carriers and recyclers, fulfilling their members obligations under ORDEE.
PROs also determine the Advance Recycling Fee (ARF) that members charge consumers
at the time of purchase to finance the PROs activities. SWICO levies ARFs based on
product price. For example, the ARF ranged from CHF 0 for EEE costing less than CHF
50, to CHF 150 for products costing more than CHF 600,001. SENS levies the fee based
on product category.55 PROs also require retail stores to clearly identify the amount paid
by the consumer as an ARF at the time of purchase.
Consumers may return WEEE to retail stores. Retail stores are obligated by ORDEE to
take back WEEE from consumers free of charge as long as the WEEE is in a category of
goods sold by the retailer. This obligation exists even if the consumer did not buy the
product from that particular store. PROs do not give retail stores ARF revenues to defray
expenses incurred during take-back. Presumably this is because PROs do not need to
provide monetary incentives for take back by retailers since ORDEE requires retailers to
provide free take back. Nonetheless, retail stores co-operate with the PROs because if
they did not they would need to report to the government on the disposal of material
taken back and these reported figures would have to be similar to those achieved by
PROs.56 Retail stores may opt to re-use WEEE returned to them.
Alternatively, consumers may return WEEE to collection points instead of retail stores.
Collection points are located in accessible places like railway stations. They are funded
55
56
37
by ARFs on a per kg or per piece basis and accept WEEE free of charge from
consumers.57 Collection points are monitored to prevent pilfering of valuable
components.
After return by the consumer, the path taken by different types of WEEE diverges since
SWICO and SENS use different carriers and recyclers. Carriers, in return for ARF
revenue from the relevant PRO, transport the goods from the collection point or retail
store to the recycler.
The recycler dismantles and sorts the components. Recyclers have two sources of
revenue. First, they may sell recovered materials on the open market. Second, they
negotiate contracts with PROs that entitle them to a share of ARF revenues. The ARF
component received by recyclers is intended to make up the difference between recycling
revenues and the revenue required for profitable operation by recyclers. Strict
environmental regulation means that very few parts of WEEE are eligible to enter
landfills. As a result, almost all components are either re-used or incinerated with energy
recovery.
5.2.2 Low cost of disposal

Since ARFs are paid at the time of purchase there is no need to sort goods by
manufacturer after disposal to determine contribution to the PROs. The only sorting
required is to determine whether WEEE belongs in the SWICO or SENS system. By
reducing sorting and taking advantage of economies of scale, PROs in Switzerland have
57
38
achieved disposal that is much less expensive than under individual schemes. For
instance, one EEE manufacturer in Switzerland operates an individual system for
collection of printer cartridges. Postage for one printer cartridge is CHF 7. The total cost
over the lifetime of a printer, including multiple cartridges and the printer itself, in the
collective system is CHF 6.58
An advantage of individual collection of printer cartridges is that they have a significant

re-use value. There is a danger that this re-use value may not be realized in a collective
system and that cartridges will be recycled instead, adding to the cost of the system.
However, the ability of recyclers to use revenues from materials recovered gives them a
strong incentive to ensure that materials find their most valuable use. Additionally
retailers have the ability to re-use material returned to them. The profit-maximizing
tendency of recyclers and retailers suggest that recycling of components that could be
profitably re-used is unlikely to be a problem in the Swiss recycling system.
Nonetheless, as discussed below in section 5.2.6, there is room for improvement in Swiss
WEEE re-use rates.
Deepali Khetriwal suggests that there is widespread satisfaction in Switzerland with the
WEEE system. Nevertheless, based on first principles, one would expect retailers to be
reluctant participants.59 ORDEE forced them to take on a reverse logistics role without
compensation. While Khetriwal suggests that reverse logistics is a natural fit for retailers
58
59
from the Swiss experience (2009), 90 Journal of Environmental Management 153.
39
since they have space for storage and the expertise to sort WEEE as it comes in, other
commentators suggest that reverse logistics often take different paths and use different
resources than forward logistics.60 For instance, retail stores dealing in WEEE covered
by SWICO and by SENS must sort the goods for pick-up by the appropriate PROs
carrier. This imposes a burden on retailers. The reluctance of some small stores to
participate in the Swiss WEEE system supports the conclusion that reverse logistics
imposes costs on retailers.61
Retailers acceptance of their WEEE obligations, discussed below in section 5.2.9,

suggests that they have found ways to offset the costs imposed on them by ORDEE. The
two mentioned by Khetriwal are the ability to re-sell devices that are in re-usable
condition and the relationship formed with customers returning goods.62 Of course,
retailers can also raise prices to accommodate for their reverse logistics costs. Absent
data on whether and to what extent this has occurred, it is hard to determine the total cost
of the Swiss WEEE system.
5.2.3 Timing of disposal fee

The ADF is used to fund current PRO operations. This means that when a consumer
pays an ADF at the time of purchase they are actually funding the current disposal of
other goods bought in the past.63 The alternative considered for Swiss WEEE was to
60

capabilities (2008), 115 Int. J. Production Economics 272 at 273.
61
62
63
40
charge a disposal fee. ORDEE adopted the ADF because a disposal fee would have
created an incentive for consumers to avoid the disposal fee by disposing of the WEEE
illegally. Another advantage of the ADF is that consumers are happier to pay an
additional fee to buy useful EEE than they are to dispose of useless WEEE.64
However, an ADF has two drawbacks. First, it dilutes the incentive that EEE
manufactures have to engage in eco-design. Since current recycling costs determine the
ADF, the pay-off to producers for engaging in eco-design is delayed. Second, it risks
under-funding of PROs or high future ADFs, should there be negative growth in the EEE
sector. While EEE has historically been resistant to negative growth, increasing EEE
market saturation and economic slow-down make it an increased possibility.
When deciding on the timing of the disposal fee, the Swiss federal government only
seems to have considered the ADF or a fee at the time of disposal. A third option would
be to use an ADF, but one that is sufficient to meet the cost of disposal of the EEE for
which the ADF is being paid. This is called a funded solution and requires actuarially
fair ADFs. Theoretical work suggests that this is the best solution.65 If disposal costs can
be accurately projected in the aggregate, common sense also suggests that this is the best
solution. A fully funded ADF is levied at the time of purchase, avoiding incentives for
illegal dumping. Moreover, consumers are happier paying an additional fee for
something useful (EEE) than paying to get rid of something useless (WEEE). At the
64
65
K. H. Forslind, Does the financing of extended producer responsibility influence economic growth?
(2009), 17 J. Clean. Prod. 297.
41
same time, it can take into account eco-design in the product being sold and avoids any
risk of future consumers having to make PRO shortfalls due to negative growth in EEE
sales.
5.2.4 The Swiss WEEE system has a positive environmental impact

A life cycle analysis taking into account a broad range of environmental effects shows
that the Swiss WEEE system is better for the environment than incineration or landfilling.66 A subsequent study has confirmed this conclusion but adds the caveat that the
Swiss system will not work everywhere. As the distance that the WEEE is transported to
recycling centres increases, the environmental benefit of recycling decreases. In sparsely
populated large jurisdictions, land-filling and incineration are both better than the Swiss
WEEE systems approach.67
5.2.5 Improvements in re-use possible

One criticism of the Swiss WEEE system is the low level of re-use. Estimates suggest
that less than 2% of WEEE is being re-used.68 One explanation for this is that EEE is
generally only disposed of when it is obsolete. However, different consumer groups may
have different requirements for current technology. For instance schools and charitable
organizations may have a use for WEEE, especially computers that are obsolete for
business purposes. As the system is currently set-up, there are very few incentives for
businesses or retailers to donate this equipment to these socially beneficial purposes. In
66
R. Hischier, Does WEEE recycling make sense from an environmental perspective? (2005), 25
Environmental Impact Assessment Review 537.
67
Y. Barba-Gutierrez, An analysis of some environmental consequences of European electrical and waste
regulation (2008), 52 Resources, Conservation and Recycling 481at 483.
68
42
fact, there is a disincentive for retailers to donate equipment that has already been
returned once to them, because they will have to take it back again in the future, creating
additional costs.
A possible solution would be to exempt PROs and retailers from having to provide takeback from schools and charities. There would then be an incentive to donate the
equipment to these organizations since it would avoid the costs of disposal. The lack of
free take-back might increase the rate of illegal dumping by exempt groups. A registry
recording donations could combat illegal dumping.
5.2.6 Little design for environment

Despite having to pay for disposal, there is little evidence that the Swiss WEEE system is
encouraging manufacturers to design products that are more environmentally friendly.69
Companies in the system view ARFs as a cost of doing business, not something that they
should attempt to reduce through improved design. The collective nature of the system
dilutes incentives for individual companies to innovate in eco-design. As discussed
above in section 5.2.3, the timing of ADF payments also plays a role in discouraging ecodesign.
Despite the lack of incentives for individual companies to innovate, PROs might conduct
research aimed at improving the eco-design of their members EEE products. However,
69
43
in light of the price inelasticity of demand exhibited by many EEE goods, there is little
incentive for PROs to do this since they can simply pass disposal costs onto consumers.70
It may be possible for a manufacturer to opt out of a PRO and create their own waste
disposal systems. Companies might do this if they think that the savings they can realize
through eco-design outweigh the lost economies of scale. Considering the impressive
economies of scale achieved by the Swiss system (note the printer cartridge example
discussed above in section 5.2.2) this is especially true for the Swiss WEEE system for
two reasons.
First, in large firms, environmental and financial decisions are usually made in different
departments.71 This means that firms may not act when environmental opportunities to
save money arise, especially if the savings are fairly modest. WEEE fits into this
category since disposal costs are generally between 0.5% and 3%.72 If the German car
manufacturers exhibit similar divisions, this may help explain the incomplete
internalization discussed above in section 5.1.7.5.
Second, firms engage in environmental design when they think it will result in a
competitive advantage that can be marketed to customers. For instance, lighting firms
70
A. Gottberg, Producer responsibility, waste minimization and the WEEE directive: case studies in ecodesign from the European lighting sector (2006), 359 Science of the Total Environment 38 at 42.
71
72
44
have been effective at designing high efficiency bulbs. 73 However, under EPR,
improvement in EOL disposal, unlike improved energy efficiency, is not a direct benefit
to consumers. Regardless of the eco-design that firms undertake, customers do not bear
financial responsibly for the EOL. Under EPR eco-design can only be marketed to
consumers to the extent that it decreases the purchase price. Since many firms do not
believe that they can save money by engaging in design for disassembly, it does not
happen.74
Reflecting producers fragmented decision making and their view of the limited savings
of eco-design, it is not surprising that they generally do not communicate eco-design
requirements to the rest of their supply chain. Instead, most upstream communication
relates to the requirement of removal of hazardous materials created by regulations like
the European Union Directive on Restriction of Hazardous Substances (RoHS).75 The
responsiveness of the supply chain to hazardous materials regulation but not to economic
incentives, suggests that when industry adopts collective solutions for EOL disposal,
policy makers might want to rely more heavily on mandatory regulation for improving
environmental outcomes.
73
74
J. Yu, Extended Producer Responsibility and Eco-Design Changes: Perspectives from China (2008), 15
Corporate Social Responsibility and Environmental Management 111at 121.
75
J. Yu, Extended Producer Responsibility and Eco-Design Changes: Perspectives from China (2008), 15
Corporate Social Responsibility and Environmental Management 111at 123 and A. Gottberg, Producer
responsibility, waste minimization and the WEEE directive: case studies in eco-design from the European
lighting sector (2006), 359 Science of the Total Environment 38 at 47.
45
5.2.7 Treatment of orphaned and historical waste

Waste is orphaned when the party with responsibility for disposing of it ceases to exist.
In systems with only individual responsibility, when a manufacturer fails, the waste is
orphaned with the result that society bears the costs of disposal. However, since PROs
accept all WEEE of a certain type, the failure of a manufacturer is insufficient to orphan
WEEE in Switzerland. As discussed below in section 5.2.9.2, the Swiss WEEE system
has been successful at avoiding the potential for manufacturer free-riding created by this
set-up.
To further avoid the orphaning of WEEE, PROs maintain six months of capital reserve.
The hope is that within this time period, PROs can increase ADFs sufficiently to meet
any shortfalls experienced. Even if a PRO does fail, ORDEE would still impose the
responsibility for disposal on individual manufacturers. Hence, compared with a system
of individual responsibility, where only the producer of a good has to go out of business
to orphan waste, the presence of a PRO means that waste is less likely to be orphaned.
A downside of the collective approach is that the Swiss WEEE system is susceptible to
established manufacturers opportunistic behaviour of the type hypothesized by Mock
and discussed above in section 3.2. The opportunity for such behaviour only exists
between the time of the announcement of legislation creating responsibility for historical
waste and the assumption of that responsibility by industry. Since the Swiss system is
already established, barring future changes to responsibility for historical waste, the
opportunity for this behaviour has already passed.
46
The voluntary beginnings of the Swiss WEEE system could have mitigated the risk of
this behaviour. Mock-type opportunistic behaviour can only occur when established
producers can make new producers pay historical disposal costs. The power to force new
producers to pay historical waste costs is undermined by new entrants ability to delay
joining a PRO until expensive historical waste has been removed from the system.
Presumably a voluntary system gives them this legal ability.
5.2.8 No abuse of monopoly powers found

PROs have an effective monopoly on markets for the collection of WEEE in Switzerland.
This power mostly stems from the economies of scale they achieve. PROs have been
subject to competition scrutiny.76 No abuse of market power has been found. This
further hints that Mock-type opportunistic behaviour has not occurred in the Swiss
WEEE system. Khetriwal suggests that one reason for the absence of market power
abuse is the not-for-profit nature of PROs.77 While this is true, since PROs have the
interests of their members at heart, members profit interests may still drive PROs to
abuse their market power. Hence continued competition scrutiny of PROs is desirable.
Carriers and recyclers are held in check through competitive tendering by PROs. SWICO
prevents large recycler dominance by requiring transport distances to be 30km or less on
average. While it may not be justified from an efficiency perspective, in an attempt to
76
77
47
prevent large providers from underbidding small players, SENS has all recyclers pay the
same average price.78
Some observers have suggested that recyclers are not adjusting their bids appropriately in
light of increasing commodity prices.79 This might be caused by the lack of competition
among PROs combined with the price inelasticity of demand for EEE. Since they can
simply pass price increases along to consumers, PROs might have reduced incentive to
ensure good value for money in interactions with recyclers.
5.2.9 Good compliance with the waste disposal system

As discussed below, high levels of compliance have been achieved with the Swiss WEEE
system. This is partly because the system has been designed so that commercial players
police their competitors and their suppliers.
5.2.9.1 Consumer compliance
The Swiss WEEE system seems to have achieved very high rates of compliance among
consumers. Little WEEE is found in Municipal Solid Waste (MSW) system. 80
Additionally there has been very little evidence of illegal dumping. Several reasons have
been suggested for the high rate of compliance among consumers. First, while final
owners bear the obligation of bringing WEEE back, this obligation is not onerous
because of the large number of retail stores and collection points. Second, the amount
78
79
80
48
individual citizens pay for municipal solid waste services varies with the amount that an
individual disposes of. Since take back is free and WEEE is often bulky this provides a
financial incentive not to dispose of WEEE through the MSW system. Finally, there is a
fairly high level of environmental awareness in Switzerland.
5.2.9.2 Manufacturer compliance
As mentioned above in section 5.2.2, generally the only sorting conducted is to determine
whether WEEE belongs in the SWICO or SENS system. Since ARFs are paid at the time
of purchase, there is no need to sort goods by manufacturer after disposal to determine
contribution to the PROs. The failure to sort by brands at the time of disposal to
determine contribution to the PRO creates an opportunity for manufacturers to underreport sales or not to join the relevant PRO in the first place. However, there is very little
free-riding of this sort in the Swiss WEEE system. 81
The first check against manufacturer free-riding is the import based nature of the Swiss
EEE system. Very little EEE is manufactured in Switzerland. This means that a
manufacturers contributions to the PRO can be checked against import logs. Of course,
this requires cooperation between the PRO and the Swiss federal government.
The second check against manufacturer free-riding is the well established formal Swiss
retail sector. If a manufacturer cannot demonstrate compliance with the ORDEE then
retailers generally refuse to stock the manufacturers products. Retailers desire for
81
49
manufacturer participation in PRO probably stems from this participation relieving stores
of the reporting obligations discussed above in section 5.2.1.
The third check against PRO free-riding is peer pressure from competitors. If a EEE
manufacturer is not a member of the PRO, its competitors who are members of the PRO
will know that. It is in the best interests of members to ensure that all competitors join
the PRO so that costs are spread over the largest number of parties possible. These three
factors combined with the mandatory requirements of ORDEE ensure high compliance
among manufacturers.
5.2.9.3 Retailer compliance
When the Swiss WEEE system was being planned there was some concern that retailers
would skirt responsibilities under ORDEE by either dumping WEEE received on other
retailers or by turning away consumers bringing back WEEE. This concern is consistent
with the theory that reverse logistics create a burden on parties already providing forward
logistics, discussed above in section 5.2.2.
However, this behaviour has not been observed.82 The three reasons suggested above in
section 5.2.2 for compliance (ability to sell re-usable material, value of interaction with
customer and ability to raise prices) partially explain the compliance. Additionally, the
presence of many collection points and the compliance of other (compliant) retailers
eases the burden.
82
50
5.2.9.4 Recycler compliance

Recyclers must obtain a disposal permit from the federal government. In order to
incinerate or land-fill material, recyclers must meet stringent federal regulations. In
addition, PROs license recyclers to participate in their respective systems. The PRO
licensing process creates the majority of technical environmental standards to be applied
during recycling. PROs use third party auditors to ensure that recyclers meet these
environmental standards.83
It might be tempting for PROs to turn a blind eye to poor environmental practices by
recyclers since this environmental laxity could reduce the total cost of operating the
system. There are three safeguards preventing this. First, the standards that recyclers
must meet are not set by the PROs themselves, but rather by Technical Control Bodies.
The Technical Control Body of the Swiss Federal Laboratories for Materials Testing and
Research is a member of both the SWICO and SENS control bodies and helps to ensure
that industry interests do not capture standard setting exercises.84 Second, independent
auditors ensure that standards are met. Third, the PROs incentives to reduce costs
through lax environmental standards are not that strong in light of the price inelasticity of
demand exhibited by EEE goods and PROs ability to pass costs onto consumers.
5.2.10 Conclusions
The Swiss WEEE has been effective at shifting the costs of WEEE collection away from
taxpayers and toward consumers and minimizing those costs through economies of scale.
83
84
R. Hischier, Does WEEE recycling make sense from an environmental perspective? (2005), 25
Environmental Impact Assessment Review 537.
51
However, the ability of PROs to shift costs to consumers undermines innovation and
competition on costs of disposal and suggests that continued competition scrutiny is wise.
5.3 Japanese white goods

The Japanese approach to white goods recycling is notable for three reasons. First, it
imposes the financial responsibility for disposal on final consumers. Second, it requires
manufacturers to be physically responsible. Third, it concentrates on a limited number of
goods.85

The Japanese Designated Household Appliance Recycling Law (DHARL) was passed
June 1998 and went into force in April 2001. It covers TV sets, air conditioning units,
refrigerators and washing machines. When purchasing one of these goods, consumers are
notified of the recycling fees that consumers currently pay for disposal of the good.
Individual manufacturers set these fees.
When the time comes for disposal of the good, the final consumer is responsible for
returning it to a retail store. DHARL requires retailers to accept goods sold by the retailer
and also goods returned by a consumer when a new good is purchased. Retail stores then
transfer the EOL white good to a collection site run by the manufacturer of the good.
Alternatively, a customer may elect to return the white good directly to the
manufacturers collection site. Manufacturers are required to run these collection sites by
DHARL.
85
H. Aizawa, H. Yoshida and S. Sakai, Current results and future perspectives for Japanese recycling of
home electrical appliances (2008), 52 Resources, Conservation and Recycling, 1399 at 1400.
52
Once customers return a good, the good is entered into a manifest system that permits
authorities and consumers to audit the recycling process. At the point of return, the final
consumer must pay the current recycling and transportation fees. The manufacturer sets
these fees and they may be different from the one advertised at the time of purchase.86
From the collection point, the manufacturer must transfer the EOL white good to a
recycling plant owned by the manufacturer. The DHARL requirement of manufacturer
owned facilities is what distinguishes the Japanese requirement of physical responsibility
from other jurisdictions conception of producer responsibility.87 As a result, unlike their
EU counterparts, Japanese white good manufacturers cannot contract out recycling
services.
At the recycling plant the manufacturer must meet detailed recycling requirements
established by DHARL. This includes the separation and destruction of hazardous
materials and a total recycling rate of between 50 and 60% (depending on the appliance).
While this target appears to be lower than the Swiss system, the Japanese define
recycling much more narrowly. Only materials that have a positive market value
following recycling can be included. Materials that have been physically recycled but
have negative market value are not included when calculating the recycling rate.88
86
policy and some controversy (2002), 19 Japan Environmental Management Association for Industry ECP
Newsletter 7 at 3.
87
88
53
Local governments have and may continue to operate a parallel collection and recycling
system.89 However, they would prefer to avoid the cost and rely on those established by
manufacturers.90
5.3.2 High expenditure compared with other systems

The difference in the number of products covered makes comparison of the Swiss WEEE
(discussed above in section 5.2) and Japanese white goods systems difficult. Comparing
the EU WEEE approach, which is similar to the Swiss WEEE approach, and the
American WEEE approach, which is voluntary, to the Japanese white goods strategy,
Sergio Jofre and Tobru Morioka conclude that the current Japanese EOL strategy
represents the highest associated social expenditure of all the models.91 The difficulty in
comparing cost between different systems pales in comparison to the difficulty of
determining the root of this difference. Of the many possible explanations four are
addressed below.
5.3.2.1 Does physical responsibility drive the high expenditure?
The first explanation for the differences in cost is that the imposition of physical
responsibility increases the cost of recycling. Manufacturers cannot contract out their
obligation to companies that specialize in recycling. Since manufacturers may not have
expertise in recycling, this inability to contract out may drive up costs. Additionally,
89
90
Development Bank of Japan, Introduction of a Home Appliance Recycling System: Effects & Prospects:
Progress towards Utilization of Recycling Infrastructure (2001) at 19.
91
S. Jofre Waste management of electric and electronic equipment: Comparative analysis of end-of-life
strategies (2005), 7 Journal of Material Cycles and Waste Management 24 at 31.
54
brand sorting required by the Japanese system may be driving up costs. As discussed
above in section 3.1, sorting can drive up system costs enormously.92
5.3.2.2 Do industry groups drive the high expenditure?
Manufacturers have mitigated the potential impact of physical responsibility on cost by
pooling resources. One recycling plant may have many owners. 93 It seems that coownership of facilities satisfies the requirement of physical responsibility. This reduces
the amount of sorting, permits economies of scale and may facilitate investment in new
recycling infrastructure.
Since joint ownership fulfils physical responsibility, manufacturers have been able to
form two groups that control recycling in Japan.94 The first group, A, comprises 14
manufacturers who control 190 collection points and 24 recycling plants. The second
group, B, comprises 20 manufactures who control 190 collection points and 14 recycling
plants. Group A has focused on a low cost approach to recycling by emphasizing
existing infrastructure (originally employed by local authorities) to meet their recycling
needs. Group B on the other hand has tried to build new plants, emphasizing the
potential gains from new technology and centralization.95
92
93
94
95
55
When DHARL was being drafted, the intention was to create a system where
manufacturers would compete with each other on the price of disposal. However,
Matsushita has set prices and other manufacturers have followed. There have been very
few reductions in the fee charged consumers over the lifetime of DHARL.96
While there is no evidence of conspiracy under Japanese Competition Law, the pricing of
recycling fees paid by final consumers has been suspicious.97 One would anticipate that
given the different cost structures of Groups A and B a difference in pricing would
emerge.
5.3.2.3 Does the timing of the disposal fee drive the high expenditure?
In addition to the formation of large groups, another reason that manufacturers may not
be competing on recycling fees is that consumers have poor knowledge at the time of
purchase about future recycling fees. As discussed above in section 5.3.1, consumers pay
recycling fees at the time of disposal. However, this is not necessarily the price that is
advertised at the time of purchase. As a result, the ability of consumers to incorporate the
disposal price into purchase decisions is compromised.
Furthermore, the recycling network that the white goods pass through at the EOL, and
hence the fee charged, is not chosen by the final consumer but is determined by the brand
of the white good. The result is that the consumer cannot effectively choose low cost
96
97
policy and some controversy (2002)19 Japan Environmental Management Association for Industry ECP
Newsletter 7 at 3.
56
disposal. This lack of consumer choice reduces the incentive that manufacturers may
have to compete on the price of disposal and is consistent with the few reductions
observed in the disposal fee discussed above in section 5.3.2.2. This effect may be what
Sergio Jofre and Tobru Morioka are alluding to when they suggest that the EU WEEE
system internalizes the environmental costs in product prices better than the Japanese
system. 98
5.3.2.4 Do higher standards drive the high expenditure?
A more innocuous explanation for the higher expenditure in the Japanese system
compared to other jurisdictions is that they are caused by higher standards. As discussed
above in section 5.3.1, the Japanese restriction of recycling to activities that yield
materials with a positive market value is stricter than the definition in other jurisdictions.
The stricter definition of recycling and the integration of the design of the disposal
process has permitted innovative plastics recycling to occur. Unlike other jurisdiction
where recycled plastics are used in less demanding roles (called down-cycling), the
Japanese have been able to use recycled plastic for equally demanding roles. 99 This has
resulted in a high recycling rate.100
In addition to the innovative plastics recycling system, the system created by DHARL
exhibits similar types of design for disassembly as German ELVs, discussed above in
section 5.1.3. This includes aiding disassembly by making screw-points more
98
99
100
57
identifiable, improving the identification of substances, reducing the number of types of

plastic, and reducing the number of parts. 101
This is a marked contrast to the Swiss WEEE system, discussed above in section 5.2.6,
where there has been little eco-design. Physical responsibility and concentration on
fewer goods may have permitted industry to develop better EOL techniques.
5.3.3 High levels of re-use probably not caused by legislation

In addition to the eco-design mentioned above in above in section 5.3.2.4, the white
goods covered by DHARL enjoy a high rate of re-use (about 30%).102 This rate is
probably due to the nature of the goods covered by DHARL. Fashion conscious first
owners will often discard a good that still functions but that is out of fashion, making reuse by less fashion conscious consumers possible. It is not clear if DHARL has increased
the rate of re-use, which was about 30% even before the implementation of DHARL.
5.3.4 Poor compliance with the waste disposal system

The Japanese white goods EOL system has problems with compliance. The two main
problems are illegal transfers of goods and illegal dumping by consumers.
5.3.4.1 Illegal transfers of EOL goods
Retailers have been caught claiming that they have re-used goods when in fact they have
illegally entrusted them to waste dealers. This permits retailers to pocket the disposal fee
101
102
58
paid by consumers since they do not have to pay it to downstream recyclers. These cases
were uncovered by the use of the manifest system mentioned above in section 5.3.1.
5.3.4.2 Illegal dumping brought on by timing of disposal fee
Illegal dumping by consumers to avoid paying the recycling fee at the EOL has increased
since the introduction of DHARL, even in the wake of new legislation, penalties and
increased enforcement activity. 103 While the problems inherent in a fee paid at the time
of disposal were recognized when DHARL was being drafted, it was felt that several
advantages outweighed this problem. 104
First, a fee paid at the time of disposal avoids orphaned products and problems with
historical waste, since there will be money to pay for the disposal. This avoids Mock
style opportunistic behaviour, discussed above in section 3.2. Second, fees can take into
account current disposal techniques, unlike ADFs, as discussed above in section 5.2.3.
Finally, the fee can create public awareness of recycling.
However, in light of the lack of competition in disposal price, discussed above in above
in section 5.3.2.2, the second benefit is questionable. As discussed above in section
5.3.2.3, the timing of the fee might be contributing to the lack of competition in disposal
price. It might be worthwhile to revisit the decision to employ a fee levied at the time of
disposal and instead consider a funded solution, as discussed above in section 5.2.3. In
order to make this system work with physical responsibility, the producer would have to
103
104
59
put sufficient money aside at the time of purchase to fund disposal. This payment could
then be redeemed at the time of EOL processing.
5.3.5 Conclusions
As discussed above in section 5.3.2.4, the Japanese EOL system has been effective in
promoting design for disassembly and recycling of plastic. This is probably due to the
requirement of physical responsibility, focusing on a limited number of products and the
restrictive definition of recycling under DHARL. While physical responsibility has
permitted the formation of large groups, and perhaps the realization of economies of
scale, these economies of scale probably have not been passed onto consumers as
discussed above in section 5.3.2.2. Finally the timing of the disposal fee has probably
also increased expenditures, as discussed above in section 5.3.2.3 and reduced
compliance with the system, as discussed above in section 5.3.4.2.
5.4 German packaging system

The German packaging system was chosen for study because of its strong dependence on
a single collective solution to waste and its mandatory approach. Among the systems
studied in this paper, it is the only one where behaviour has been found to contravene the
applicable competition laws.

The 1991 German Packaging Ordinance created the current German packaging waste
disposal system. The ordinance requires recycling of packaging insofar as this is
60
technically possible and economically reasonable.105 The ordinance requires that

packaging not harm the environment and be recyclable. It also requires the reduction of
packaging and the use of refillable packaging insofar as it is technically possible and
feasible. 106
Under the Packaging Ordinance, manufacturers and distributors are required to accept
returns of transport packaging, like shipping containers, pallets and cartons, from
retailers.107 In the context of the ordinance, manufacturers produce or import packaging
or packaging materials. Distributors put the packaging into circulation. Retailers have
the responsibilities of distributors when they put packaging into circulation. For instance,
butcher shops that wrap products are responsible for that wrapping.108
In addition to their duties as distributors, retailers are required to accept from consumers
packaging that is not necessary for use of the product from customers. As an example,
the cardboard sleeve on a tube of toothpaste is not necessary for use. 109 Retailers must
implement a self-managed system to accept packaging that is necessary for the
customers use of products, unless a system is established that meets government
requirements.110 This system is called an exemption system because it exempts retailers
105
2005 amendment of the (Packaging) ordinance, 2005.

2005 amendment of the (Packaging) ordinance, 2005.
107
at 107.
108
N. Nakajima and W. H. Vanderburg, A description and analysis of the German Packaging Take-Back
System (2006), 26 Bulletin of Science, Technology & Society 510 at 512.
109
Federal Ministry for the Environment, Nature Conservation and Nuclear Safety, 2005 amendment of the
ordinance. Bonn, Germany: 2005, p. 4.
110
106
61
from take-back. Both self-managed and exemption systems are audited and require proof
that prescribed recycling rates based on material are being met.
The Packaging Ordinance requires a deposit/refund system for beverage containers,

detergent and paint containers. Beverage containers are exempt if their recovery rates
remain above 1991 levels. 111
5.4.2 Duales System Deutschland overview

Manufacturers established the Duales System Deutschland (DSD) as an exemption
system for useful packaging (useful packaging is defined above in section 5.4.1), thereby
avoiding the requirement for a self-managed system. The DSD satisfies approximately
80% of the demand in the market for packaging collection.112
Manufactures pay a fee to use DSDs Green Dot on packaging pursuant to a licensing
agreement.113 The Green Dot is shown below in Figure 1. Payment of the fee permits
the manufacturers packaging with the Green Dot on it to be placed in the DSDs disposal
system. The fee paid by a manufacturer depends on the materials used for packaging and
the total amount of packaging used. In 2006, the fee for glass was the lowest at 7.6 Euro
cents/kg and the highest for plastics at 135.0 Euro cents/kg. 114 There is no exclusivity
111
at 108.
112
Der Grne Punkt Duales System Deutschland GmbH v Commission of the European Communities,
Case T-289/01, Court of First Impression, 24 May 2007, para. 29.
113
at 108.
114
62
created by payment of the fee. 115 In other words, participation in the DSD does not
require manufacturers to dispose of all their waste in the DSD system.
Figure 1: The DSDs trademarked Green Dot
The DSD does not collect packaging itself. Instead, the DSD contracts with waste
haulers to provide collection. Initially the system called for 15 year contracts, but they
have since moved to 4 year contracts. 116 The DSD stipulates that the contracted hauling
companies may not market the collected material.117 This is a zero interface rule.
The DSD also does not conduct recycling itself. It contracts with guarantee companies
for acceptance and processing of packaging. 118 These guarantee companies are entitled
to revenues from the resale of recycled materials. For materials whose market value does
not offset the recycling cost, the guarantee companies also receive funding from the
manufacturers licensing fees.
5.4.3 High cost of disposal has decreased

The DSD was initially much more expensive than land filling packaging waste. In 1994
the system cost $2.4 billion dollars, about $29 per person, compared with landfill disposal
115
A. Boule, Environmental Protection and EC Anti-Trust Law: The Commissions Approach for
Packaging Waste Management Systems (2006), 15 RECIEL 146 at 148.
116
117
118
63
that would have cost about $9 per person.119 However, over time the cost has fluctuated
and seems to have declined, as shown below in Figure 2. In the long run, increasing
landfill costs and waste reduction may mean that the DSD is less expensive than other
measures.
DSD Yearly Revenue for Waste Collection, Sorting and

Processing
2.5
Billions of Euros
2
1.5
1
0.5
0
1994
1998
2002
2003
2006
Year
Figure 2: DSDs yearly revenue for waste collection, sorting and processing. Since the Euro was not
introduced until 31 December 1998 the 1998 and 1994 figures were generated by using DSDs 2002
estimate of 23% savings since 1998 and by comparing Deutsche Mark values for 1998 and 1994.120
One reason that costs may have declined is that early contracts with collectors were not
advantageous to the DSD. When the system almost went bankrupt in 1993 because of
over collection and underestimated costs, contracts were easily renegotiated downward,
suggesting that they were initially very lucrative for waste haulers. Frank Ackerman
119
at 109.
120
Data taken from Frank Ackerman, C. Hanisch, Is extended producer responsibility effective? (2000),
34 Environmental Science and Technology 170A and D. Toto, Green with envy: Germanys Green Dot
program continues generating good collection numbers (October 2004), Recycling Today.
64
suggests the rush to implement the system resulted in efficiency taking a back seat to
timing. 121
Another reason that costs may have declined over time is that legislative change and
investment have reduced the cost of plastic recycling. Since guarantee companies did not
have the capacity to handle plastic recycling, the price that the DSD had to pay them
went up. A change to the Packaging Ordinance permitted thermal treatment of plastic.122
This legislative change meant that steel companies could burn plastic during the steel
production process and count it toward the recycling achieved by the DSD system.123
Nakajima and Vanderburg are critical of the legislative change which permitted thermal
destruction of plastic to count toward recycling targets. They suggest that this has
prevented other more innovative solutions from being found.124 The experience of the
Japanese with recycling high value plastic, discussed above in section 5.3.2.4 suggests
that Nakajima and Vanderburg may be correct. However whether this approach would be
environmentally beneficial depends on the specific circumstances of the German
packaging sector.
121
at 111.
122
123
at 115.
124
65
5.4.4 Promote changes that reduce life cycle environmental impact

The Packaging Ordinance has been successful at encouraging changes in the behaviour
of commercial actors. When the Packaging Ordinance came into effect, total packaging
was reduced by 500 000 tonnes over the previous year.
There has been a rapid decline in transport packaging and non-useful packaging. 125
Unnecessary packaging has been removed and replaced with more efficient blister
packaging. Containers have changed size, shape and thickness. Reflecting their higher
cost of disposal, plastics have been reduced from 40% by volume of packaging to 27%.126
Taking a comparative perspective, from 1990 to 1999 packaging volume in Germany fell
by 4%. Over the same time period it increased by 15 to 20% in the Netherlands where a
more voluntary approach was employed.127
As shown in Table 1 below, the DSD system has exceeded its targets for 2003. Of
course, as discussed above in section 2.2, without a comparison against a BAU case, it is
not clear if these outcomes are a result of the Packaging Ordinance. The cause of
recycling rates in excess of 100% is discussed below in section 5.4.6.
125
at 108.
126
127
M. Walls, Extended Producer Responsibility and Product Design: Economic Theory and Selected Case
Studies (Washington D.C.: Resources for the Future, 2006) at 23.
66
Initially the Green Dot was licensed at a flat rate regardless of material type.128 In order
to encourage a shift away from plastics, a tiered price structure was introduced, and
seems to have been effective. However, decreased plastic use can have a negative effect
on the environment since the increased environmental impact of transportation outweighs
EOL considerations. 129 This is also discussed in the context of the German ELV system
above in section 5.1.5.
Aluminium
Plastics
Composites
Paper Cardboard
Tinplate
Glass
Recycling targets set (%) Recycling rates achieved (%)

60
128
60
97
60
74
70
161
70
121
75
99
Table 1: A comparison of the percent by mass recycling targets set by the ordinance and the
recycling achieved by the DSD in 2003130
5.4.5 DSD EU Competition Law contraventions

The DSD has been found to be operating in contravention of EU Competition Law in
cases T-151/01 and T-289/01.
Case T-151/01 established that the DSD could not require manufacturers to pay full
licensing fees for packaging bearing the Green Dot disposed of through another
system.131 Such a requirement violates Article 82(2)(a) of the EC Treaty that prevents
undertakings in a dominant position from imposing unfair prices and binding others to
128
129
at 91.
130
D. Toto, Green with envy: Germanys Green Dot program continues generating good collection
numbers (October 2004), Recycling Today.
131
Case T-151/01, Court of First Impression, 24 May 2007.
67
services in law or in fact. The manufacturer bears the responsibility of demonstrating

that its packaging has passed through another system.
One of DSDs arguments in Case T-151/01 was that a mixed self-managed and
exemption system (discussed above in section 5.4.1) did not satisfy the Packaging
Ordinance. Instead an undertaking could only satisfy the Packaging Ordinance by
participating in a pure self-managed system or a pure exemption system. Hence the DSD
claimed statutory authority for charging the full licensing fee regardless of the fate of the
packaging. The European Court of First Instance disagreed with DSD, preserving the
non-exclusivity discussed above in section 5.4.2. The European Court of First Instance
held that it was impractical in light of DSDs dominance to expect manufacturers not to
use the Green Dot on packaging disposed of through other systems.
The separate, but related, Case T-289/01 established that the DSD could not prevent
competitors from accessing its contracted haulers waste sites.132 In reaching this
decision the European Court of First Instance found that it was counterproductive to
require consumers to use two different waste collection systems.
Case T-151/01 should make it easier for DSDs competitors to find customers since
customers will not have to pay twice for alternative service. Case T-289/01 will make it
easier for these competitors to serve customers. The application of competition law
should enable more competition in the German packaging sector and increase efficiency.
132
Case T-289/01, Court of First Impression, 24 May 2007.
68
5.4.6 Compliance with the waste disposal system

The German DSD system achieved high recycling rates as shown above in Table 1. The
presence of recycling rates greater than 100% in Table 1 is explained by free riding. If all
packaging for which fees have been paid is recycled, the measured rate is 100%. The rate
can only exceed 100% if packaging for which fees have not been paid is recycled. This is
clearly happening for some product categories. Additionally, there are problems with
waste being exported for land-filling in France and Eastern Europe. However, overall
participation in the DSD is fairly high. This is partly because some retailers require their
suppliers to participate in the system.
5.4.7 Conclusions
The German packaging system has been successful at achieving high recycling rates and
encouraging a reduction in the amount of packaging used. The high initial cost of the
system has declined with time. However, the dominance of the DSD may be a continued
impediment to competition.
5.5 United Kingdom Packaging System

The UK used packaging recycling system is unique in two respects. First, participants in
the packaging production chain share financial responsibility in set proportions. Second
the UK has an active market in compliance certificates that meet packaging producers
obligations.
69

The EC Directive on Packaging and Packaging Waste (EC Packaging Directive)
required member states to introduce systems to achieve specified used packaging
recovery and recycling rates by June 2001 and higher ones by December 2008. Recovery
includes both recycling and material incinerated with energy capture. The EC Packaging
Directive also applies to the German packaging industry. Since DSD recycling rates
exceed the targets, the existing German packaging system satisfies the EC Packaging
Directive.
Initially, the United Kingdom attempted to meet its EC Packaging Directive obligations
by negotiating VAs with industry. However, the inability of industry players to reach a
consensus on relative responsibility and their desire to avoid free riding necessitated a
compulsory approach. As a result the Secretary of State for the Environment enacted the
Producer Responsibility Obligations (Packaging Waste) Regulations 1997 (PROR).133
A party dealing with packaging in one of the following roles is obligated under the
PROR:
1. Manufacturing raw materials used to produce packaging
2. Manufacturing packaging
3. Packaging a product
4. Selling a packaged product
133
F. Nunan, Barriers to the Use of Voluntary Agreements: a case study of the development of packaging
waste regulations in the United Kingdom (1999), 9 Eur. Env. 238 at 245. There is a more recent version
of the legislation however there has been little review of its effectiveness.
70
To reduce administrative costs, small companies are not obligated under PROR. Only
parties with annual revenues exceeding 2 million that handle at least 50 tonnes of
packaging are obligated. In 2003, there were 14,000 obligated parties.134 As of 2001, the
2 million threshold included 88.6% of all UK packaging.135
Three factors are used to assess an obligated partys annual responsibility under PROR.
The first is the amount of packaging that the party handles in a year. The second is the
roles in which that packaging are handled.136 The third is the nationally prescribed
recycling and recovery rates for that year. In an effort to smooth the transition to the EC
Packaging Directive targets, the nationally prescribed targets have increased gradually.
To compensate for the exemption of small companies, the nationally prescribed recycling
and recovery rates are higher than those set by the EC Packaging Directive.
A party meets its annual responsibility by obtaining sufficient certificates of compliance

by the end of the year, as verified by the Environment Agency. Alternatively, obligated
parties may join registered schemes. In return for membership dues, registered schemes
assume the partys responsibility under PROR.
134
S. Brady, Waste Recovery Using Packaging Waste Recovery Notes: A cost effective way of meeting
targets? (2003), 46 Journal of Environmental Planning and Management 605 at 607.
135
136
For every unit of packaging produced, responsibility is divided among the relevant manufacturers of raw
materials, manufacturers of packaging, packagers and retailers in a fixed proportion. This proportion is 6%
for raw-material producers, 9% for packaging manufacturers, 37% for packagers and 48% for retailers. F.
Nunan, Barriers to the Use of Voluntary Agreements: a case study of the development of packaging waste
regulations in the United Kingdom (1999), 9 Eur. Env. 238 at 244.
71
Apart from requiring the production of certificates of compliance by obligated parties,

PROR does not set standards for the certificates of compliance.137 These standards have
instead been created by administrative practice which was developed in response to the
largest compliance schemes decision to contract out recycling and recovery. Recyclers
may apply to the Environmental Agency for accreditation. Once accredited, recyclers
submit quarterly reports on the tonnage recycled in that quarter. The recyclers are issued
one blank Packaging Recovery Note (PRN) of the appropriate material type for every ton
of packaging reported recycled. The recyclers then sell the PRNs to obligated
companies.138 Accredited international recyclers may sell Packaging Export Recovery
Notes (PERNs) which serve the same purpose as PRNs.
Since there is an active market in PRNs, the sale of PRNs by recyclers provides revenue
that helps fund recycling activities. One of the reasons that the UK government chose the
system outlined by PROR was to provide additional incentives for recyclers to invest in
recycling infrastructure.139
5.5.2 Low initial cost of disposal

Compared with other jurisdictions, the PRN system has provided packaging producers
with inexpensive compliance. For common consumer goods, the producers cost of
compliance is about 2p. This is slightly less than France, Portugal, Spain and Finland and
much less than Belgium (14p), Sweden (18p), Germany (35p) and Austria (45p).
137
Doherty, Regulatory failure via market evolution: the case of UK Packaging Recycling, Environment
and Planning C: Government and Policy, 2003, v. 21, pages 579-595, p. 583.
138
139
R. Doherty, Regulatory failure via market evolution: the case of UK Packaging Recycling (2003), 21
Environment and Planning C: Government and Policy 579 at 583.
72
Confirming the low cost of compliance, Unilever has indicated that it spends only 0.04%
of its national revenue on recycling charges in the UK. In comparison, Unilever spends
2.9% of its national revenue on recycling charges in Germany, 0.8% in Belgium and
0.3% in Spain.140
One explanation offered for the low recycling prices in the UK is the market power
wielded by registered schemes. The majority of obligated parties meet their obligations
by joining registered schemes. In 2004, about 90% of obligated companies met their
responsibilities through a compliance scheme while the rest met their responsibilities
individually.141 Valpack is the largest of the compliance schemes. In 2004, 52.7% of the
businesses registered with a compliance scheme were registered with Valpack.142
In 2001, there were 17 registered schemes and 266 accredited re-processors. This
disparity in numbers has led some to suggest that recyclers are at a disadvantage when
negotiating PRN prices.143 The demand made by Valpack during the start-up of the PRN
system, for a rebate if PRN prices should fall supports the market power explanation for
low recycling prices. 144 However, competition scrutiny of registered schemes under s.
31(1) of PROR and the willingness of the Department of Trade to enforce this scrutiny
140
141
142
143
144
73
(Valpacks rebate demand was blocked as a restrictive practice) suggest that this
explanation has no special force for the recycling sector.
Another possible reason for the low cost of compliance under the PRN system compared
with other jurisdictions is that only the most cost-efficient recycling required to meet the
targets is undertaken. Recyclers can refuse to process poorly sorted waste streams and
hard to recycle composite products. Additionally, the majority of PRN recycling is
carried out using packaging from the Commercial and Industrial (C&I) waste streams.145
Economies of scale mean that C&I collection is generally less expensive than household
curbside collection. Even when household waste streams play a major role, the cost of
collection is born by local authorities in the UK. If this were the reason for the low cost
of compliance, as targets increase one would expect to see an increase in the cost of
compliance.
Figure 3 below shows the average annual spot market price for PRNs. PRNs for metals
do seem to have increased, supporting the suggestion above. However, since many PRNs
are the subject of long term contracts, and hence do not trade on the spot market, one
must be cautious when attempting to generalize from Figure 3. Interestingly, the price
decline in 2003 for all types of PRNs was probably caused by the governments
unexpected decision not to increase recycling targets for that year.146
145
146
74
180
160
140
GBP per ton
120
100
80
60
40
20
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Year
Aluminum
Glass
Paper
Plastic
Steel
Figure 3: Average annual spot market PRN prices by material.147
The willingness of local authorities to run collection systems means that packaging
producers who run collection systems often pay the same amount for PRNs as packaging
producers who do not.148 As a result, PRNs do not provide good incentives to producers
for running collection systems and unlike other jurisdictions, producers do not bear the
responsibility for collection.
5.5.3 Risky approaches to compliance

While recycling and recovery rates have increased over time, the overall recovery rate
has fallen short of both UK and EU targets almost every year.149 Some have suggested
147
online: Environment Exchange <http://www.t2e.co.uk/> (date accessed 7 January 2009). Since data for
wood is not available for all years it has been excluded from the figure.
148
149
75
that there will be insufficient PRNs to permit all obligated companies to meet 2008
requirements.150
This failure to meet targets suggests that PRNs do not provide recyclers and re-processors
with sufficient incentives to provide their services. One outcome of the low cost of
compliance is that recyclers have a reduced incentive to develop new recycling facilities.
As discussed above in the context of the DSD system, economical plastics recycling has
required extensive efforts and infrastructure investment. While the cost of compliance is
low for producers in the UK, the cost per unit of plastic recycled is higher in the UK than
Germany.151 One possible explanation for this discrepancy is that UK techniques for
handling plastic are less advanced than German ones because of lower levels of
investment.
A compliance scheme representative suggests that the low levels of investment in

infrastructure are not due to low prices, but rather a preference for profit making by
recyclers:152
The glass, aluminium, and steel areas have been a success simply because reprocessors have not needed to invest one jot of new capacity to reprocess recovered
material. Those sectors requiring fundamental investment, such as paper, card, and
150
PRN system has not provided framework to meet EU targets, online: Lets Recycle
<http://www.letsrecycle.com/materials/packaging/news.jsp?story=4526>, (date accessed: 2 January 2009)
151
152
76
plastic, have demonstrated a complete inability to prove where the funds have gone
and we strongly suspect that those funding flows have propped up balance sheets or
profit and loss at a time of falling global commodity prices.
To encourage recyclers to invest in infrastructure, the UK government has implemented

reforms requiring recyclers to report how PRN revenue is spent. This reporting
requirement stops short of telling recyclers what proportion should be spent on new
infrastructure.153
Another approach would be to address regulatory problems by focusing on packaging

producers and compliance schemes. Ultimately these parties have the primary legal
obligations under the PROR. Producers and compliance schemes could meet these
obligations by signing multi-year contracts with recyclers that would encourage recyclers
to invest in capacity. Not surprisingly, recyclers suggest that this would be the best
approach:154
There is a potential conflict of interest between the compliance schemes and the
re-processors. Compliance schemes wish to obtain PRNs at the most economic rate
and to remain flexible in what is a rapidly changing system. They are therefore
reluctant to enter into longer term purchasing contracts. This can potentially work
153
154
Environment and Planning C: Government and Policy 579 at 588, quoting a recycling representative in the
DETR 1998 Review of the Producer Responsibility Obligations (Packaging Waste) Regulations 1997.
77
against re-processors by failing to create the conditions for a sustainable and

expanding reprocessing market
Obligated parties might be reluctant to sign contracts because they think the failure to
secure sufficient PRNs will not have serious ramifications. Consistent with this theory,
the Department for Environment, Food & Rural Affairs (Defra) considers that obligated
producers are pursuing high-risk strategies that are over-reliant on the spot market with
insufficient multi-year contracts.155
Two factors may be contributing to obligated parties high-risk approach to compliance.

The first is that they think that capacity shortfalls in the UK can be remedied with
PERNs. Traditionally PERNs have been less expensive than PRNs and the Environment
Agency has been willing to accredit international recyclers. In light of EU Treaty Article
174(2), which requires that where possible environmental damage should be remedied at
its source, the UK may want to rethink its reliance on PERNs.156
The second factor that might be contributing to obligated parties high-risk approach to
compliance is that they believe the government will be forgiving of failure to meet
targets. This belief may stem from changes like the downward revision of recycling
155
Scrutiny of operational plans for packaging waste, online: Department for Environment, Food & Rural
Affairs <http://www.defra.gov.uk/environment/waste/topics/packaging/pdf/opscrutiny-results07.pdf>, (date
accessed: 26 December 2008).
156
78
targets in 1999, the lack of increase in 2003 and the high cost of prosecuting offences
under the PROR, discussed below in section 5.5.5.157
Richard ODoherty, Ian Bailey and Alan Collins suggest that the absence of long-term
contracts and use of PRN revenue for immediate profit as opposed to infrastructure
development threaten to undermine the PROR system.158 They suggest that this failure is
not due to an inherent weakness in market based instruments (MBIs) like PRNs, but
rather a failure to regulate them properly. In light of the concerns presented above, the
UK may want to consider hard caps on PERNs and communicating the gravity of noncompliance with PROR more clearly to obligated parties.
5.5.4 Effective at stimulating changes in product design

The existence of the PROR correlates with reductions in the amount of packaging used in
the UK. Figure 4 below shows the change in the UKs GDP and packaging indexed to
1998, the first year the regulation was enforced. Between 1999 and 2004, packaging
production did not grow as quickly as the GDP, indicating that economic contraction was
not the reason for a reduction in packaging growth rates. While increases in packaging
volume were observed in 1999, 2003 and 2004, the 1999 and 2003 increases can be
attributed to a downward revision of targets and a decision not to increase targets,
respectively, as discussed above in section 5.5.3.
157
158
Environment and Planning C: Government and Policy 579.
79
140
135
Index (1998 base)
130
125
120
115
110
105
100
1998
1999
2000
2001
2002
2003
2004
Year
GDP
Packaging tonnage
Figure 4: Growth in UK GDP and Packaging Production using 1998 as a basis159
This correlation between the enforcement of PROR and the reduction in packaging
growth makes sense in light of the incentives that PROR creates for packaging producers.
By reducing packaging, producers may purchase fewer PRNs, saving money. They may
also have incentives to switch from high cost materials to low cost materials.
There is anecdotal evidence of changes in producer behaviour as a result of the PROR

system. PROR seems to have resulted in reductions in the size and weight of containers
for yoghurt, soft drinks, cat-food and laundry detergent. While some of the reductions
may have happened anyway, they probably have additional benefits by decreasing the
159
Table from M. Walls, Extended Producer Responsibility and Product Design: Economic Theory and
Selected Case Studies (Washington D.C.: Resources for the Future, 2006) at 30.
80
fossil fuel consumption necessary for transport. PRNs only need to be purchased for the
first use of the packaging. Hence there has been an increase in re-usable transport
packaging.160 There is insufficient information to determine if this is a net environmental
benefit once transportation effects are taken into account.
5.5.5 Compliance
While relatively inexpensive for producers, in terms of administrative costs to
government the PRN system is expensive. The abortive VA negotiations consumed
additional resources of government and industry. 161 An investigation into the wood and
plastic sectors has found that a small number of recyclers were over-reporting recycling
activity. To prevent this from happening in the future, changes were made to the
reporting requirements. 162 Additionally, while monitoring has detected non-compliant
obligated parties, it is likely that others have gone undetected. The administrative
apparatus required to apply the program is very expensive.163
5.5.6 Conclusions
The PRN system has provided a low cost method for meeting the EC Packaging
Directive targets and has encouraged lower weight packaging design. While the amount
of packaging recycled has increased under the PROR regime, this has not been sufficient
to meet overall recovery targets.
160
161
F. Nunan, Barriers to the Use of Voluntary Agreements: a case study of the development of packaging
waste regulations in the United Kingdom (1999), 9 Eur. Env. 238 at 247.
162
163
81
6 Assessment of instrument choices

The goal of this section is to analyze the effectiveness of the instrument choices outlined
above in section 4.
6.1 The optimal mix of voluntary and compulsory approaches

6.1.1 Industry driven evolution from voluntary to compulsory approaches
Using the example of the Swiss WEEE, German ELV and UK packaging systems, a
pattern can be discerned as to how industry would like EPR implementations to evolve.
When environmental standards that burden industry, like recycling rates, have not yet
been established, industry would prefer a voluntary approach. As an example, to avoid
legislation, the German automotive sector lobbied to include free-take back in the
voluntary agreement.
On the other hand, once limits have been set and there is widespread compliance, to
avoid free-riding industry players will lobby for a compulsory approach. The UK
packaging system is a prime example. Since the European Commission had set target
rates, there was no opportunity for UK industry to modify them through voluntary
negotiations. Hence, as discussed above in section 5.5.1, despite the UK governments
preference for a voluntary system, a compulsory system was adopted. One also suspects
that Swiss WEEE PRO members supported the transition to a compulsory system.
This observed pattern has broad applicability, since most actitivies at some point in time
were not regulated.
82
6.1.2 Is this evolution beneficial?

This observed pattern of evolution has several benefits. It can reduce implementation
costs, avoid Mock-type opportunistic behaviour and encourage collective learning.
However, if sufficient care is not taken, it may undermine competitive advantages, avoid
real innovation and weaken incentives for reporting.
6.1.2.1 Reduces implementation and administration costs
In order to control implementation costs, Swiss EEE and German car manufacturers were
keen to design the EOL system themselves. The Swiss federal government was happy to
permit Swiss EEE manufacturers to do this as it allowed the bureaucrats to avoid the
burden of designing the system. This avoided burden was also one of the reasons that the
UK government supported a voluntary approach to packaging waste. Assuming that
industry and government are acting rationally, these preferences show that there are real
savings to be achieved by starting with a voluntary approach.
6.1.2.2 Ability to curtail Mock-type opportunistic behaviour
As discussed above in section 5.2.7, the Swiss WEEE system had the potential for
manufacturers to engage in Mock-type opportunistic behaviour. This may have been
avoided by the initial voluntary nature of the system. If new firms perceive that
established members of PROs have unfairly increased historical waste costs, then new
firms may retaliate by not joining the applicable PRO.
However, once the system becomes compulsory new firms no longer have this recourse
against old firms. This suggests that the evolution from a voluntary to compulsory
83
system may distort the market for the underlying good. One solution would be to exempt
new firms from compulsory participation in the EOL for a period. This period could be
determined by looking at the newcomers market share and the expected useful lifetime
of their products.
6.1.2.3 Encourages collective learning
Theoretical arguments and empirical evidence canvassed by James Cunningham suggest
that voluntary approaches can encourage collective learning by industry.164 Where there
is a large degree of uncertainty about how to achieve costly environmental goals,
voluntary approaches can improve efficiency by pooling resources. The empirical basis
of this advantage is still not well established.
6.1.2.4 Possibility to undermine competitive advantages
When firms are faced by a situation that creates uncertainty, a common approach is to
imitate the approach taken by other firms with similar problems. While this reduces risk,
it can also result in a firm adopting an approach that does not exploit its competitive
advantages. Case studies conducted by Joe Miemcyk suggest that restrictive mandatory
EPR legislation can drive this structural imitation and result in firms adopting suboptimal homogeneous solutions.165
164
J. Cunningham, Innovation and Environmental Voluntary Approaches (2005), 48 Journal of

Environmental Planning and Management 373.
165
capabilities (2008), 115 Int. J. Production Economics 272. A similar position is presented in D. Gattuso
and J. Schwartz, Extended Producer Responsibility: Reexamining its Role in Environmental Progress, (Los
Angeles: Reason Foundation, 2002).
84
Since voluntary approaches do not impose as strong a set of constraints on industry, they
create less uncertainty about the future for firms. This means that they might be a
promising method for avoiding structural imitation. Where a minority of producers
develop approaches that employ competitive advantages, one would expect other industry
players to lobby particularly hard for a mandatory system that excludes these approaches.
As a result, when considering whether to shift from a voluntary to a compulsory solution,
the responsible authority should determine if the proposed system is unnecessarily
restrictive. If it is, the mandatory system should be crafted to permit a wider range of
activity. This might be accomplished by balancing economic incentives and regulation,
discussed below in section 6.2
The possibility of structural imitation does not necessarily support starting with a
voluntary approach. Voluntary approaches can increase information sharing among
firms, which increases the risk of structural imitation. Governments should be cognizant
of this risk when they encourage industry collaboration on methods to meet
environmental goals.
6.1.2.5 May result in a lack of innovation
Nina Nakajima suggests that the relaxation of plastic recycling requirements in the
German Packaging Ordinance permitted producers to avoid finding innovative ways to
recycle plastic.166 Her argument is that industry is reluctant to research recycling
solutions in the absence of a mandatory requirement to do so. Frank Ackerman adopts a
166
System (2006), 26 Bulletin of Science, Technology & Society 510.
85
similar perspective.167 To the extent that benefits from EOL systems are external to
producers this perspective is rational. In comparison, the strong mandatory requirements
of the Japanese white goods system have encouraged firms to find innovative ways to
recycle plastic. Since voluntary approaches do not create mandatory requirements,
according to Nakajimas theory, they also will not do a good job of encouraging
innovation.
Implicit in Nakajimas theory is the premise that in the absence of mandatory

requirements, industry undervalues the potential savings from research and that
government intervention can remedy this. There is support for this premise in the
management literature. According to Jasbinder Singh, the roles of environmental
compliance and industry operations are often separated at a firm. Incomplete integration
between these departments can result in compliance efforts that are inefficient from the
firms perspective.168 A failure to integrate is consistent with the:
1. Incomplete internalization of the benefits of re-use explanation, discussed above
in section 5.1.7.5
2. Lack of design for the environment in the Swiss WEEE system, discussed above
in section 5.2.6
A similar separation between those responsible for research, environmental compliance

and operations roles could explain why industry undervalues environmental research.
167
at 115.
168
J. Singh, Making Business Sense of Environmental Compliance (2000), 41 Sloan management review
91.
86
Hence one reason for supporting mandatory approaches is that they may encourage firm
management to integrate research, environmental compliance and operations roles,
resulting in more efficient investment in research. While the mechanism for this
integration is unclear, it is possible that regulation and the threat of penalties can
penetrate divisions in firm decision-making. Mandatory approaches with physical
responsibility may be particularly effective at accomplishing integration, explaining the
success of the Japanese white goods system with plastic recycling. Of course, if in the
drafting of mandatory legislation, the government overestimates the potential savings of
research and development, then the inefficient scenario of expensive research producing
few benefits results.
Nakajimas theory is not necessarily inconsistent with Miemcyks argument that strongly
mandatory systems can increase the risks of structural imitation. The types of innovation
that Nakajima is interested in may be industry-wide and homogenous. This suggests that
when deciding between mandatory and voluntary approaches, governments should be
aware of the trade-offs between general efficiency and individual competitive advantages
in the sector. One approach for managing this trade-off, discussed below in section 6.2,
would be to structure it so that firms can make the choice. Unfortunately, this may be
ineffective at encouraging the integration of decision-making.
6.1.2.6 Loss of information
One of the purported advantages of voluntary approaches is that by bringing industry
together they foster a collaborative approach that can encourage a transfer of information
87
among producers.169 However, it is not clear why collective mandatory approaches can
not function similarly. Additionally, for some voluntary approaches, this information is
not shared with the public. For instance, information about German car manufacturers
investments in eco-design during the voluntary phase of the program is not available.170
Nakajima attributes the failure of the voluntary German ELV system to produce
meaningful information to the adversarial relationship between the government and the
manufacturers during the voluntary phase of the system. If manufacturers were to
provide accurate information about their efforts under the Voluntary Agreement, it may
have detracted from their future lobbying abilities.171 As Harrison points out, industrys
desire to control decision-making is a disadvantage of beginning with a voluntary
approach, since it places the government and industry in adversarial positions.
6.1.2.7 Voluntary approaches may not encourage trading markets
Trading markets for compliance, like the UK PRN system, require a great deal of initial
effort to develop. Standards must be set and market participants need to be audited.
However, once deployed, they reduce the cost of compliance. This is a benefit to society
since it increases the amount of compliance that can be achieved by a profit seeking
industry.
169
J. Cunningham, Innovation and Environmental Voluntary Approaches (2005), 48 Journal of

Environmental Planning and Management 376.
170
To be fair, the mandatory approach in the German ELV system has also not produced this data.
171
88
Katrina Wyman suggests that two factors drive the investment of effort to achieve
tradeable permits.172 First, industry participation is driven by the cost of compliance. As
the cost of compliance increases, the savings achievable through trading by parties for
whom compliance is expensive increases. Similarly, the trading profits for those with
inexpensive compliance also increases. Second, government participation is driven by
the cost of the non-market based regulatory system. As this increases, the incentive for
regulators to adopt market based systems also increases.
Starting with a voluntary approach reduces the effect of both of these factors. Regarding
the first factor, a voluntary approach may permit industry to reduce the burden imposed
on it. Regarding the second factor, one of the major attractions of a voluntary approach is
that it reduces the administrative costs of the existing regulatory system.
6.1.3 Conclusions about compulsory and voluntary approaches

Starting with a voluntary system can reduce implementation and administrative costs. It
makes sense to create exemptions from mandatory systems for newcomers to discourage
Mock-type opportunistic behaviour. While voluntary systems may encourage collective
learning, they also suffer from the possibility of structural imitation. Additionally, a lack
of integration within firms may mean that voluntary approaches may fail to encourage
efficient levels of investment in research. If industry believes that its lobbying can
modify basic limits, then voluntary approaches might interfere with information sharing.
Finally, a system that is initially voluntary may delay the creation of a tradeable market
for compliance.
172
K. Wyman, Why Regulators Turn to Tradeable Permits: A Canadian Case Study (2002), 52 U.T.L.J.
419.
89
While not discussed above, compulsory solutions have the advantage of avoiding freeriding by producers. To the extent that increased participation by producers in EPR
schemes benefits society, governments should support industry requests for a mandatory
system. Mandatory systems can also be structured to encourage firm integration,
improving research outcomes.
However, there is the danger that mandatory approaches may require inefficiently high
levels of research, promote disadvantageous structural imitation and undermine
competitive advantages. To minimize these risks, government may want to consider
using economic incentives, as opposed to regulatory requirements to implement
compulsory approaches. This is discussed below in section 6.2.
An alternative to the industry preferred progression from a voluntary to a compulsory

approach would be to start with hard limits set by government. Industry could then
engage in a voluntary approach for determining how the limits are to be met. The hard
limits might encourage both industry and government to develop a trading market for
compliance.
Regulators can encourage integration by requiring firms to report on their analysis of

opportunities for eco-design (discussed below further in section 6.2.3). The elimination
of the adversarial relationship between the government and producers by virtue of the
establishment of hard limits could make producers more likely to respect the reporting
90
requirements. Participation by a government agency could also achieve integration. This

participation might be similar to the role of the Swiss Federal Laboratories for Materials
Testing in the Swiss WEEE system, discussed above in section 5.2.9.4.
The biggest disadvantage of this alternative approach is that government will be limited
in its ability to consult with industry to determine what targets are reasonable. This may
result in inefficiently or impossibly high targets being set, as discussed above in section
5.1.5. Hence, this approach might not be suitable for governments that lack the capacity
to set appropriate environmental targets.
6.2 What is the best mix of economic incentives and regulatory

requirements?
Specific EPR goals can be accomplished using regulatory requirements or economic
incentives. The regulatory recycling requirements of the ELV Vehicle Directive have
resulted in reduced plastic use. Similarly, the economic incentives provided by material
differentiated DSD licensing charges have also reduced plastic consumption. Economic
incentives and regulatory requirements are not mutually exclusive. For instance, the
DSD economic incentives exist within the regulatory framework of the Packaging
Directive.
6.2.1 Economic incentives preserve competitive advantages

By permitting firms to make their own trade-offs, economic incentives can preserve
competitive advantages. For instance, if a producer decides that the transportation cost of
using different containers outweighs the recycling cost of current plastic containers, that
91
producer can continue using plastic containers. As the example of the UK packaging
waste system shows, the potential for economic incentives to miss targets and provide
insufficient incentives for investment means that they have to be carefully regulated.
6.2.2 Regulatory intervention may be necessary to spur eco-design

As discussed above in section 5.2.6, in some instances regulatory approaches are more
effective at driving eco-design. This is because internal divisions in firm decisionmaking may not realize the savings achievable through eco-design (also discussed above
in section 6.1.2.5), or because firms fail to identify benefits from eco-design.
Economic incentives can do a particularly poor job of encouraging eco-design when a
collective approach is adopted.
6.2.3 Suggestions for optimal mix of economic incentives and regulatory

requirements
One solution would be to rely more heavily on regulatory approaches to encourage
environmental innovation, especially when producers adopt a collective approach. All
the systems studied only mandated a recycling rate. If re-use is a priority, governments
should also consider mandatory re-use rates. Care needs to be taken when implementing
mandatory re-use rates. If compliance measures require the reporting of individual
occurrences re-use, for instance if a car dealer needs to fill out a form each time an old
component is re-used, they may create transaction costs which actually reduce levels of
re-use.
92
An alternative to relying more heavily on regulatory approaches would be to find ways to

increase responsiveness to economic incentives. Three suggestions for doing this are
presented below.
The first method of improving responsiveness to economic incentives would be to impose

the economic incentives at a different point in the supply chain. While some producers
might be able to pass increased waste disposal costs onto consumers, their suppliers
might not be able to. Limitations of this approach include a possible increase in the
number of regulated parties and jurisdictional boundaries, especially for import driven
activities like the Swiss EEE market. Additionally, it is possible that regulation of certain
upstream suppliers may cause a migration away from those suppliers, nullifying the
effect of EPR legislation. For instance, if light-bulb suppliers bear responsibility but light
emitting diode (LED) suppliers do not, then producers may switch to LEDs, avoiding the
EPR system.
The second method would be to encourage integration of environmental decision making

at firms. This could be achieved by requiring firms to report on the extent of eco-design
they have engaged in, an economic analysis showing that this level of investment is
reasonable and proof that they have discussed eco-design opportunities with suppliers.
This requirement may be too onerous to apply to smaller firms, but smaller firms
probably have less fractured decision-making processes. Reading the information
produced and maintaining its confidentiality are two barriers to this method.
93
If the producer is not undertaking eco-design because of a belief that it will not reduce
costs in the long run, methods one and two might not be effective. Should the
government nonetheless want to encourage eco-design, perhaps because the benefits of
eco-design are not fully internalized, it can do so by changing the incentives faced by the
producer. This is the third method. Increasing land-filling fees, taxing virgin materials,
encouraging green procurement, giving grants for eco-design or providing expanded
intellectual property protection for eco-design developments are all options.
By encouraging producers to engage in additional eco-design, policy makers run the risk
of decreasing efficiency and the quality of environmental outcomes. An example of this
in the regulatory context is the reduction in the plastic content of German cars, discussed
above in section 5.1.5. Economic incentives may have a similar effect. If the UK PRN
system has resulted in a substitution of heavier materials for plastic, transportation effects
may outweigh the EOL considerations. EPR is not a safeguard against poor
environmental decision-making.
6.3 Is financial or physical responsibility preferable?

Financial responsibility decreases the cost of compliance, but physical responsibility may
encourage more eco-design. If physical responsibilitys effectiveness stems from
improved integration of decision making, then it may be possible to incorporate the
advantages of both systems.
94
6.3.1 Financial responsibility decreases the cost of compliance

All the systems studied, except the Japanese white goods system, permit producers to pay
another party to perform their obligations. The ability to contract out responsibility
permits firms to respond in more heterogeneous ways to their responsibilities.
Miemcyks work, discussed above in section 6.1.2.4 suggests that this freedom can lower
costs. This is consistent with Sergio Jofre and Tobru Moriokas conclusion, discussed
above in section 5.3.2, that the current Japanese EOL strategy represents the highest
associated social expenditure of all the models.173
The difference in flexibility afforded by financial and physical responsibility is one of

degree. While financial responsibility affords more flexibility, the ability of Japanese
white goods producers to engage in joint ventures and still fulfil their physical
responsibilities also provides some flexibility. However, the requirement of ownership
means that physical responsibility cannot create a tradeable market for compliance. This
is a major difference between financial and physical responsibility. As discussed above
in section 6.1.2.7, by lowering the cost of compliance, tradeable markets increase the
amount of compliance that a profit oriented firm can afford, resulting in a social benefit.
Additional conditions for the creation of a market for compliance are discussed below in
sections 6.4.1.2 and 6.7.
173
95
6.3.2 Physical responsibility increases eco-design

Given the Japanese white goods systems success with plastic recycling, physical
responsibility may be more effective at encouraging eco-design. Building on the
discussion above in sections 6.1 and 6.2, this might be because physical responsibility
encourages greater integration of environmental decision-making in firms. By forcing
companies to take back their own products, the benefits of eco-design are more fully
internalized.
6.3.3 Financial responsibility with regulations to encourage integration

If a more complete internalization of benefits is the reason that physical responsibility
improves eco-design, then regulation aimed at promoting this integration combined with
financial responsibility may provide the benefits of both systems. Possible approaches to
this regulation are discussed above in section 6.2.3.
6.4 Should responsibility be shared?

When responsibility for different aspects of EOL are split, this can result in improved
compliance and an increased likelihood of the emergence of a tradeable market for
compliance. However, when the financial responsibility for recycling or re-use is split,
one expects that it will reduce eco-design.
6.4.1 Advantages to splitting responsibility

6.4.1.1 Improve compliance with little cost to government
Jonathan Adler has suggested that vertical contracts between firms improve the ability of
competing firms to enforce horizontal agreements among themselves. This is because the
96
upstream party can provide information about compliance to the competitors and may
refuse to deal with non-compliant competitors.174 The German packaging waste system
and Swiss WEEE system exhibit a similar phenomenon. When EPR legislation gives
retailers reporting responsibilities that are dependent on the compliance of their suppliers,
retailers are motivated ensure their suppliers compliance. Hence the division of
responsibilities can increase compliance without cost to the government. Of course, it is
possible that it is more expensive for firms to police each other than for a government to
police them.
6.4.1.2 Increase likelihood of formation of tradeable market for compliance
If different responsibilities are divided among different parties, then it may encourage the
formation of a market. For instance, in the UK packaging waste system, local authorities
finance and carry out a large amount of collection. This means that collection costs do
not have to be factored into PRN prices. Since collection costs may vary depending on
factors not related to the material type, like geographic dispersion, the exclusion of
collection costs has made it easier for a single market price to emerge for each material.
The emergence of a single market price facilitates organized trading.175
The lack of emergence of trading in other systems is puzzling. Even if responsibility for
collection is allocated to producers, they generally contract separately for collection and
recycling. This means that they should be able to assign a price to material recycling
which would encourage the emergence of a tradeable market for recycling. Other
174
J. H. Adler, Conservation Cartels: Competition Policy Can Conflict with Environmental Protection
(2004), 27 Regulation 38.
175
P. Halpern, M. Trebilcock and S. Turnbull, An Economic Analysis of Limited Liability in Corporation
Law (1980), 30 U.T.L.J. 117 at 147.
97
systems may not have created a tradeable market for compliance because when a
producer has many responsibilities, the perceived benefits of creating the markets might
be lower. This suggestion requires further investigation. Nonetheless, it is striking that
the UK PRN is the EPR only system studied (compared with traditional systems) where
local authorities bear the cost of collection and also the only system to have a tradeable
market for compliance.
6.4.2 Splitting responsibility may discourage eco-design

In the UK PRN system, financial responsibility for recycling or reprocessing of
packaging is initially allocated among parties that play different roles in the production of
packaging. The idea is that this approach is fairest since everyone in the production chain
earns profits from packaging. In contrast, the entire financial responsibility for recycling
is initially allocated to producers in the Swiss WEEE and German ELV systems.
If different firms in the supply chain can fully internalize the benefits of eco-design
through negotiation, then it does not matter what the initial allocation of responsibility is.
However, in the presence of transaction costs, the allocation does matter from an
efficiency perspective.176 Non-integrated firm decision-making, discussed above in
section 6.1.2.5, is one transaction cost that will be incurred when negotiating a reallocation of responsibility.
The empirical observation, presented above in section 5.2.6, that firms may not act when
only modest environmental costs are imposed, suggests that the dilution of responsibility
176
R. Coase, The Problem of Social Cost, The Firm, The Market, and The Law (Chicago, University of
Chicago Press, 1988) at 95.
98
among many parties will reduce eco-design. Hence, to promote eco-design,

responsibility should be allocated to only one point in the supply chain. This choice is
discussed below in section 6.5.
6.4.3 Responsibility sharing conclusions

Sharing financial responsibility may improve compliance and allow the separation of
EOL roles, encouraging the emergence of markets that trade in compliance. However,
sharing responsibility also decreases the incentives to engage in eco-design. One way of
resolving this tension is to share responsibility where there is relatively little potential for
eco-design, like packaging, and not to share it where there is large potential, like EEE and
cars.
Another approach is to look at types of responsibility. Creating reporting obligations for

retailers does not reduce the costs imposed by EPR on producers. In fact, by increasing
compliance, it may actually increase the costs imposed by EPR on producers. While
exempting producers from the financial responsibility for collection reduces the overall
cost that EPR imposes on producers (both directly and indirectly if it results in market
creation), design for collection and design for recycling and recovery may be distinct. If
one assumes that design for collection is driven by the same factors that drive the costs of
distribution (weight and volume), then removing incentives for design for collection
might not be particularly harmful. The recommendation of this approach is that financial
responsibility for recycling or recovery be allocated to only one point in the supply chain,
but that other types of responsibility be shared.
99
6.5 Who should bear the immediate cost of disposal?

In order to encourage eco-design, the party that best combines inability to shift the cost,
and control over the product, should bear the immediate cost of disposal. The
combination of the inability to shift the cost and control ought to encourage eco-design.
Generally the party that faces the most competition will be least able to shift costs to
other parties.
As discussed above in section 6.2.3, this approach might be limited by a possible increase
in the number of regulated parties and jurisdictional boundaries, especially for import
driven sectors like the Swiss EEE market. Additionally, it is possible that regulation of
upstream suppliers may cause a migration away from suppliers, nullifying the effect of
EPR legislation.
6.6 When should disposal be funded?

Three possible approaches for the timing of funding disposal have been considered. In
the first, current revenues are used to pay current disposal costs. This is the case for all
the systems studied, except for the Japanese white goods system. In the second approach,
adopted by the Japanese white goods system, consumers pay disposal costs at the time of
disposal. The third approach, which has only been suggested in theory, is that revenues
from the sale of products are used to pay the future disposal costs of those products.
The first approach dilutes the incentive that EEE manufactures have to engage in ecodesign. Since current recycling costs determine the fee, the pay-off to producers for
100
engaging in eco-design is delayed. Additionally, this approach risks under-funding EOL

should there be a decline in sales for the relevant sector. Finally, the first approach
permits Mock-type opportunistic behaviour.
The second approach, adopted by the Japanese white good system, increases the
incentives for consumers to dispose products illegally. Also, if consumers cannot choose
between disposal streams, and disposal prices are not set at the time of sale, consumers
cannot reward producers for creating inexpensive ways to dispose of products.
The third approach is a funded solution. If future disposal costs can be accurately
projected, it can encourage eco-design, avoid the risk of under-funding EOL, avoid
opportunistic behaviour, and avoid illegal disposal. If future disposal costs cannot be
predicted, then the selection of the next best approach depends on the expected benefits
of eco-design. If they are high compared to the risks of illegal disposal, the second
approach, with scope for consumer choice, should be selected. Otherwise, the first
approach should be adopted.
6.7 Should legislation encourage collective or individual approaches?

The economies of scale in an EOL sector, like that for packaging, can favour a collective
solution. Legislative reporting requirements that can be discharged through a collective
solution, like those seen in the Swiss WEEE, German packaging and UK packaging
systems, magnify these economies of scale. For other products, like ELVs, the potential
for eco-design may motivate producers to choose individual solutions.
101
If there are no special features in the EOL market that justify special treatment, EPR
should permit producers to decide whether to take advantage of economies of scale or
whether to pursue competitive advantages through individual eco-design. As seen from
the German packaging example, competition law can address concerns that arise from
collective approaches. To the extent that policy makers are concerned with collective
approaches undermining incentives for eco-design, they should consider employing
regulatory approaches to promote eco-design. These are discussed above in section 6.2.3.
While dominant collective solutions may pose a threat to competition, in some cases they
may create a system of economic incentives that promotes producer flexibility. Both the
material differentiated pricing of the DSD and the UK PRN system emerged because of
the influence of dominant collective solutions.
6.8 Should there be a reporting system?

As discussed above in section 6.7, reporting requirements may tilt the balance in favour
of collective schemes. However, as the Japanese white goods and Swiss WEEE
examples show, registries have been helpful for detecting fraud and ensuring compliance
in EOL systems. The potential for reporting systems to provide future information on the
effectiveness of EPR programs weighs in favour of their inclusion.
6.9 Summary
EPR is not a one size fits all solution to the waste disposal problems facing policy
makers. The implementation of EPR involves many trade-offs. Voluntary approaches
decrease implementation costs, but do not encourage the most beneficial environmental
102
outcomes in some instances. While regulatory approaches are strong drivers of ecodesign, economic incentives are better at preserving competitive advantages. The same
can be said for physical responsibility and financial responsibility, respectively. Sharing
of responsibility increases compliance and promotes the emergence of trading systems
but may undermine incentives for eco-design.
EPR is not a complete solution. Exogenous factors, whether insurance companies prefer
repair (German ELV compared with US ELV) or the existence of a pay as you throw
municipal waste system (Swiss WEEE), can have a large impact on the effectiveness of
an EPR implementation. The use of other policies to strengthen markets for recyclables,
like green procurement and virgin material taxes should be considered in concert with
EPR. Additionally, EPR is not a safeguard against inefficient or environmentally poor
target setting. Careful analysis of existing systems and proposed legislation need to be
conducted when implementing EPR.
As discussed above in section 2.1 there is debate as to whether EPR is efficient or

whether combined with existing taxes on production it results in inefficient double
taxation. Based on the comparative experience above, it is clear that EOL products
impose costs on society both through their composition and structure. While existing
production taxes may be able to recover the costs imposed by composition, they are not
well suited to recovering the costs imposed by structure. EPR however can take into
account costs imposed by product structure. This means that EPR is valuable for
internalizing the full cost of EOL products and should be employed accordingly.
103
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DESIGNING EFFICIENT WASTE SYSTEMS:

A COMPARATIVE ASSESSMENT OF EXTENDED PRODUCER RESPONSIBILITY

WRITTEN BY ANDREW BINKLEY

Author contact: andrew.binkley@gmail.com. I am grateful to Professor Michael Trebilcock of the

5.2.9.4 Recycler compliance............................................................................. 51

2.1 Extended producer responsibility and the polluter pays principle

2.2 A comparative analysis of extended producer responsibility

As Kathryn Harrison points out, rigorously assessing the effectiveness of environmental

K. Harrison, Voluntarism and Environmental Governance in E. Parson, ed. Governing the

3 Criteria for assessing extended producer responsibility

3.1 Achieve low cost disposal

3.2 Promote innovation that reduces future costs

3.3 Promote changes that reduce life cycle environmental impact

Unfortunately, concentrating exclusively on mitigating the environmental impact of a

When considering waste management systems it is important to consider the influence

3.4 Minimize compliance and administrative costs

4 Instrument choices for implementing extended producer

4.1 Is the system mandatory or voluntary?

4.2 The balance of economic incentives and regulatory requirements

Economic incentives and regulatory requirements do not have to be set by legislatures or

4.3 Can the responsibility be met financially?

4.4 Is the responsibility shared?

4.5 Who bears the immediate cost of disposal?

4.6 When is disposal funded?

4.7 Is individual responsibility encouraged?

4.8 Is there a registry or reporting system?

5 Examples of end-of-life processing systems

5.1.1 System overview

Sixteen commercial parties signed the VA in 1997, including car manufacturers,

In addition to diluted free-take back provisions, lobbying also resulted in recycling

5.1.2 Cost of disposal

5.1.3 Design to reduce cost of disassembly is happening

5.1.4 Little re-manufacturing and re-use occurring

J. Gerrard, Is European End-Of-Life vehicle legislation living up to expectations? (2007), 15 Journal

5.1.5 Questionable improvement in life cycle environmental impact

The elimination of composite plastics is also unlikely to be environmentally positive.

environmentally friendly role to play. Additionally, the heterogeneous structure of

In addition to these specific examples of the negative environmental effect of overly

J. Gerrard, Is European End-Of-Life vehicle legislation living up to expectations? (2007), 15 Journal

5.1.6 Compliance and administrative costs

The US ELV system, which only regulates hazardous substances, is attractive. As

J. Gerrard, Is European End-Of-Life vehicle legislation living up to expectations? (2007), 15 Journal

5.2 Swiss electrical and electronic equipment

5.2.1 System overview

5.2.2 Low cost of disposal

An advantage of individual collection of printer cartridges is that they have a significant

Retailers acceptance of their WEEE obligations, discussed below in section 5.2.9,

5.2.3 Timing of disposal fee

J. Miemczyk, An exploration of institutional constraints on developing end-of-life product recovery

5.2.4 The Swiss WEEE system has a positive environmental impact

5.2.5 Improvements in re-use possible

5.2.6 Little design for environment

5.2.7 Treatment of orphaned and historical waste

5.2.8 No abuse of monopoly powers found

5.2.9 Good compliance with the waste disposal system

5.2.9.4 Recycler compliance

5.3 Japanese white goods

5.3.1 System overview

5.3.2 High expenditure compared with other systems

identifiable, improving the identification of substances, reducing the number of types of

5.3.3 High levels of re-use probably not caused by legislation

5.3.4 Poor compliance with the waste disposal system

5.4 German packaging system