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A National Approach to Waste Tyres

Commonwealth Department of Environment, 2001

Part II.
Analysis of Policy Options

1 Introduction

1.1 Scope and focus of Part II

The scope of Part II is somewhat more narrow than Part I. This section explains the reasons for omitting certain areas and the focus on others.

1.1.1 Non-tyre rubber waste

Non-tyre rubber waste is suitable for many of the practices that are in operation or have been suggested for waste tyres (with the exception of whole tyre applications and retreading). Nevertheless, this report has not focused on the evaluation of options for managing non-tyre rubber waste in view of the special characteristics of waste tyres and associated activities, which indicate that:

Unlike some rubber products, tyres are a consumable product (tyres need to be replaced at regular intervals).

The consequence is that the collection of waste tyres is relatively straightforward and waste tyres when collected are in a state ready for further applications. These factors have largely determined the excisting structure of the waste tyre industry and the way it operates. Collection of other rubber waste is quite different and is unlikely to fit easily into the policy and strategic options for waste tyre management that are assessed in this report.

1.1.2 Differences between tyres

Different classes of tyres have different characteristics and this is reflected in current management activities. They also have different requirements in policy considerations.

In the past, most attention has been paid to waste passenger tyres generated in urban areas, and this is true of this report. Some of the conclusions also apply to truck and bus tyres, and this will be implicit in the discussion. In general, commercial tyres are more valuable due to their larger size and suitability for retreading, and the waste tyre ‘problem’ is correspondingly smaller. Tyres in remote areas and OTR tyres (particularly very large OTR tyres) are dealt with separately in Part II.8.

1.2 Why a national approach?

In addition to the benefits that derive from uniformity and the consequences of the division of regulatory responsibilities between the Commonwealth and the States and Territories, a national approach may provide a range of other benefits. Some examples are given below.

Certain schemes are administratively more straightforward when managed at a national level. A good example is furnished by the NEPM for movement of controlled waste (waste tyres are scheduled as a controlled waste under the NEPM). The introduction of the NEPM obviates the need for States and Territories to develop bilateral arrangements for cross border movements of waste, where the development and transaction costs of such arrangements are likely to be well in excess of the costs of the NEPM.

It can be anticipated that there will be economies of scale if a national approach is adopted compared with efforts by individual jurisdictions. One example is that national advertising programs for products made from recycled tyres or programs that promote better tyre maintenance reach a larger audience, reducing unit costs by defraying the fixed costs associated with development over a larger number of potential ‘customers’.

Similarly, overlaps and duplication of effort in relation to research and development activities may be avoided as a result of a national approach. This will result in superior outcomes at a lower overall cost.

Additional benefits will be generated to the extent that a national approach promotes greater opportunities involving interstate arrangements for managing waste tyres.

There are matters where the Constitution provides that only the Commonwealth has certain powers. Of most relevance to the management of waste tyres are the provisions in respect of customs and excise. In such cases (the main examples include a levy on new tyres at the point of manufacture or import, or restrictions on the import of used tyres), then not only is a national approach required but also the involvement of the Commonwealth Government will need to be explicit.

1.3 Objective and justification

For the purpose of this study, the overall objective of the wider process has been taken to be as follows.


Objective: To solve the waste tyre problem

The statement of the objective in this way immediately begs the question "In what ways do waste tyres constitute a problem?", and in particular, how do the problems associated with waste tyres differ from problems associated with wastes more generally?

In considering wastes, the two major dimensions that have been the focus for government action and reforms are:

Of course, the two dimensions are not independent. Certain practices for processing wastes may entail considerable damage to the environment, or the use of resources, which may outweigh the gains from the more valuable end goods or services that are produced. In this regard, the waste management hierarchy, while providing a useful framework for considering different options, does not obviate the need for careful evaluation of all the costs and benefits associated with specific fates for the waste.

In the case of waste tyres, some of these considerations can be made a little more concrete. The question of environmental and amenity impacts has been covered in Part I. The conclusions from that part of the report are that waste tyres are relatively benign when disposed properly to landfill, but pose significant risks to the environment and public health if disposed inappropriately.

There is also the question of the extent to which waste tyres are disposed inappropriately. Estimates of the extent of inappropriate disposal range from ‘low’ to as high as 50% (some of this variation may be the result of genuine variations across different parts of Australia). If the actual incidence is towards the high end of the range of estimates, then waste tyres would appear to have much higher rates of inappropriate disposal than is common for other kinds of waste.

1.4 Market failure

It is worth reviewing the justification for intervention in the waste ‘industry’. Basically, the grounds for intervention are contained in the definition of the waste tyre problem. There is likely to be little argument regarding government's role (if not the means) in protecting the environment. However, it is valid to raise the question: if waste tyres are valuable, then why do we not see entrepreneurs exploiting this value? After all, management of waste is an industry and within the constraints of regulatory controls (imposed largely to control environmental impacts) a market operates with buyers and sellers of waste management services, using a price mechanism that reflects supply and demand.

The grounds for government (or industry-based forms of) intervention all come under the umbrella of market failure. The first form of market failure arises as a result of distortions in competing markets. Products made from waste tyres compete with products made from virgin materials.

If all external costs of extraction and production were included, then the price of many virgin materials would rise relative to reused or recycled materials. This would raise the demand for recycled materials, diverting some waste from landfill. As long as external costs for virgin materials are not internalised, a target for diverting waste from landfill, even an arbitrary one, could lead to a more economically efficient level of recycling, reuse, and waste minimisation than if no target were in place.50

Similar arguments could be raised to justify other forms of government intervention (other than setting landfill disposal diversion targets), even if the extent of distortions due to externalities associated with virgin materials cannot be quantified with any degree of confidence.

Another example of distortion is in the ‘market’ for waste tyre practices that compete with these high value uses, specifically disposal to landfill and, even more so, illegal dumping. As a broad observation, landfill gate fees have moved progressively to recover direct operating costs, and waste levies now imposed by a number of jurisdictions aim to reflect the associated externalities of landfill operation.

The second form of market failure is due to imperfect knowledge. A relevant example in the case of waste tyres is where consumers may have a misconception that reprocessed products offer poor value. Frequently, judgements are made on less than rational grounds (sometimes unavoidably so if objective evidence is unavailable) or purchasing decisions are made to maintain the (possibly false) sense of security felt by following past practice.

The third form of market failure can arise from the dynamic nature of markets. A great part of the dramatic gains in material well-being since the time of the industrial revolution has been generated by innovation. But there are high risks in undertaking and implementing research, and individuals and firms will not be encouraged to embark on this route unless the potential rewards are correspondingly high. In some instances it may be problematic whether the developer of a new good or service can capture the benefits from the resource investments needed to bring the idea to the market. Yet such developments may make society better off.

The final form of market failure is where the structure of the industry is such that potential users do not have fair access to the markets. Most instances of such market failure occur in the product market and are often associated with unconscionable practices by competitors who can make use of their market power. But these problems can also arise in regard to inputs that are needed to produce goods and services. In the case of facilities that depend on a constant supply of waste tyres, this can occur due to the fragmented nature of tyre collection and transport and the relatively fixed number of waste tyres generated each year.

The assessment of which type of market failure is the most significant is a key determinant on future policy initiatives. The effects of distortions due to the failure of prices to reflect all costs in markets where waste tyre products compete are almost certainly important. But such distortions are endemic in the economy, and the solution will need instruments with a broader coverage than those considered in this report. Historically, there have been large investments in research and development, and activity is continuing at different levels ranging from work by individual firms to government supported investigations. There is no clear evidence of substantial market failure in this regard.

The message at an industry level (and from some Government agencies) is that the major limitation on improved practices for waste tyres is the difficulties associated with secure access to the resource. On the other hand, individual recyclers emphasise the lack of depth in the markets into which they sell their products, including difficulties with consumer acceptance. It is not possible with any confidence to separate the two forms of market failure as to which is the most important, and separate sections of the report are devoted to options which address each.

1.5 Extended producer responsibility

Extended producer responsibility (EPR) is an important high-level concept that underlies much of the philosophy as well as more practical matters in regard to tyres and other products. In effect, EPR represents a fundamentally different perspective, not just on the management of waste, but on the economic, environmental and social connections between the act of producing goods, their subsequent use and post-consumer management.

For the purpose of the current study, EPR is a strategy that transfers the cost of waste management from the community at large to those economic agents (producers) who are in the best position to influence the factors that are most problematic at the post consumer stage. EPR can provide strong incentives on producers to develop products which impose less costs to manage as waste. Since the costs of eventual waste management are embedded in the prices paid for goods, consumers will respond by making product choices that reflect, to a greater degree, the true (life-cycle) costs of products.

During the 1990s, the Organisation for Economic Co-operation and Development (OECD) conducted the first stage of an EPR project that evaluated design issues in the light of practical experience to date. The OECD made the following definition51:

‘EPR is defined, for the purposes of the OECD project, as the extension of the responsibilities of producers to the post-consumer stage of the products' life cycles.’

The OECD has observed52:

‘The essence of EPR is who pays for, not who physically operates, the waste management system.’

EPR schemes have been implemented in a range of industry sectors, such as electronic and electric consumer products, and consumables used in office equipment. The OECD studies on EPR focus largely on municipal waste and the case studies are in the packaging industries. In the case of municipal waste, the price faced by the waste generator for an additional unit of waste is often very low or even zero (for example in the case of uniform domestic waste collection rates). In other words, the waste generator is not paying the actual costs associated with the management of the waste. Consequently, within a product market, there is an implicit subsidy from products with low post-consumer costs to products with high post-consumer costs. The distortions in consumer decisions in response to price signals affected by such a cross subsidy result in sub-optimal allocation of the community's resources. Specifically, more waste is generated or the costs of managing the waste are higher than would be the case if the purchase price of products reflected all costs (including those at the post-consumer stage). One objective of EPR is to make producers face these costs explicitly, so that they are integrated in decisions made throughout the life of the product.

EPR can take many forms.

One form (the OECD refers to the use of economic instruments in this regard) has been implemented in Australia for oil through the PSA (product stewardship arrangements) scheme, which commenced operation at the start of 2001. A similar scheme for tyres is discussed in Part II.7.3.1. In this form of EPR, producers (interpreted to be manufacturers and importers) discharge their responsibilities by making a payment that covers the expected costs for post-consumer management of the product. This is essentially a funding mechanism.

Other forms of EPR can provide more control to individual producers, or to the industry as a whole, over the way they meet their producer responsibilities. Within this general group of forms of EPR, the role of the regulator is restricted to ensuring, in the first instance, that waste tyres are not disposed by inappropriate means. The regulator may set further requirements in respect of the proportion of waste tyres used in specified applications. Within the constraints imposed by such requirements, tyre producers are provided the flexibility to manage waste tyres in the way that best suits their operations.

Perhaps the most publicised form of EPR is commonly referred to as a take back scheme. In essence, take back schemes, as the name suggests, require tyre producers to take back tyres once they reach the end of the consumer stage of their life. This is discussed in more detail in Part II.2.

Experience overseas suggests that there are three main design questions for EPR:

While the question of source of funding for waste management is obviously important (certainly on distributional or fairness grounds), there is little incentive to seek and implement improvements in the environmental impacts arising post-production. EPR extends the traditional responsibilities for producers, which have been largely concerned with the production process itself (health and safety of the workforce, impacts on the environment, public health and local amenity) and consumer issues such as product quality and safety. EPR in its wider sense aims to make the producer responsible for longer term in-service impacts as well as, importantly for this study, management of the post-consumer stage in the product's life. The specific concerns here are:

1.6 Options

The choice of options to be considered is based, in part, on the outcomes of the National Workshop held 14 December 2000. However, the structure of the evaluation of the options differs from the discussion at the workshop.

In classical cost benefit analysis, the options to be assessed are evaluated against their ability to meet specified objectives. Commonly there is a single objective. The options to be considered are mutually exclusive. Either it is not possible to implement more than one option or there is nothing to be gained, once one option has been put in place, to also implement any other option.

The situation in regard to waste tyres is rather different. It is true that the options to be evaluated in this study are all directed at solving the waste tyre ‘problem’, but in general they either target different aspects of the problem or they address the same aspect in different ways that can be considered to be complementary. To obtain the best overall outcome requires a ‘toolbox’ approach, selecting the appropriate tool that deals with each aspect of the waste tyre problem.

A second important consideration in regards to the assessment of options is the timeframe for implementation, and the existence of delays before it can be realistically expected that substantial improvements can be obtained. This suggests that it may be worthwhile to work on certain options which are fairly straightforward to implement, even though these may be viewed as of an interim nature, until such time as better options can be introduced.

1.6.1 The base case

In economic assessment, it is necessary to define a base case against which all the options are compared. In this report the base case is taken to be the do nothing option in regard to the options that are discussed below. The term do nothing is somewhat of a misnomer in that there are a large number of important developments and changes in terms of waste tyres that will go ahead regardless of decisions made in the process of which this study is a part. More correctly, the base case should be termed business as usual, and is defined to be the future situation as discussed in regard to various elements in Part I.

1.7 Structure of the report

Part II.2 deals with take back schemes as an option under EPR.

The following sections of the report have been structured on the basis of three major opportunities to move towards the solution of the waste tyre problem that have been identified for evaluation:

The third opportunity has been split into two sections that address impediments due respectively to concerns regarding security of supply and forms of market failure.

Part II.7 deals with options for funding which is discussed separately from the management of the disbursement of the collected funds.

One consequence of this structure is that parts of certain ‘packages’ that have been proposed as options by stakeholders are discussed in different sections (an example is the product stewardship arrangements (PSA)). However, in terms of inputs into decision-making, our view is that the structure adopted in this report is more ‘natural’ in that it separately addresses considerations that are independent for the purpose of decision-making.

Part II.8 discusses the issues associated with waste tyres generated in mine sites and remote areas.


50IPART (1996).

51OECD (1996), page 15.

52OECD (1998a), page 5.