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Publications archive - Waste and recycling

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Key departmental publications, e.g. annual reports, budget papers and program guidelines are available in our online archive.

Much of the material listed on these archived web pages has been superseded, or served a particular purpose at a particular time. It may contain references to activities or policies that have no current application. Many archived documents may link to web pages that have moved or no longer exist, or may refer to other documents that are no longer available.

A National Approach to Waste Tyres

Commonwealth Department of Environment, 2001


2 Take Back Schemes

A take back scheme represents the furthest point that the concept of EPR can be taken, in that the producer (manufacturer or importer) is required to be responsible in a physical sense for managing the product once it has reached the post-consumer stage.

It is worth noting that a take back scheme can be interpreted by viewing consumers as paying for the ‘services’ provided by a tyre53 rather than buying a tyre as a product; in effect the producer retains ownership of the tyre. The interpretation of tyres as a service rather than a product is implicit in some existing commercial buy-back arrangements for truck tyre casings to be used for retreading. Similar schemes have been introduced within Australia in other markets (carpets is one example) by firms who take an expressly life cycle approach to their products.

2.1 Design considerations

It is possible that producers in such schemes may actually take back the product. In the case of waste tyres, as was pointed out in Part I, technological limitations and financial constraints prevent closing the loop by reprocessing waste tyres into new tyres. Nevertheless, each of the two domestic tyre manufacturers operates retreading facilities for truck and bus tyres. It is reasonable to raise the possibility that the tyre manufacturers would in fact physically take back the tyres they produced, and then process them to generate high-value products.

However, it is more likely that they would enter arrangements for these operations with third parties, perhaps through a producer responsibility organisation (PRO), as discussed below. In the case of importers who do not operate plant in Australia, the incentive to manage their take back obligations externally would be even stronger.

The strongest form of take back schemes is where each producer is required to take back its own products, and this introduces the strongest incentives to develop products that are less costly to manage as waste. However, the reality is (at least in the short term) that tyres are reasonably homogenous. Any gains anticipated from the requirements for take back of a firm's own product may well be lost in increased costs resulting from the less flexible arrangements for collecting and transporting waste tyres.

It may be better to require that each producer is responsible for a specified number of waste tyres expressed as a percentage of the new tyres produced by the firm. The specified percentage could be increased over time allowing the scheme to be phased in. This provides an opportunity for both industry and the regulator to adapt to the scheme during implementation. Such an approach would facilitate incorporating exemptions for certain types of tyres (say for mining or agricultural tyres) or for variable take back percentage rates.

An important consideration is the level of government involvement. There are successful examples of voluntary industry schemes (such as the scheme operated by the Xerox company and the scheme to take back spent nickel-cadmium batteries in the US). The OECD reports that the experience in Europe in the case of packaging waste (and to a lesser extent consumer electric and electronic goods) has been that the success of take back schemes has been weakened when firms opt out (the free rider problem). Domestic take back schemes can be undermined by importers who choose not to join the scheme. Thus it is likely that some form of statutory support may be necessary which could be take a prescriptive form or be more outcomes based.

Mandatory take back schemes bring with them the need for monitoring, reporting and enforcement so that the performance of producers can be audited. Monitoring that a firm takes back its own products would be extremely difficult in practice. Monitoring numbers of tyres taken back would by contrast be quite straightforward using a modification of the tracking scheme discussed in Part II.4 below. There would need to be penalties or other sanctions for firms who failed to meet their take back obligations.

2.2 Producer responsibility organisations

The OECD has observed that virtually all take back schemes have spawned a producer responsibility organisation, since arrangements at the level of individual firms for take back and recycling (the core of EPR) have proved to be largely unworkable in practice. This conclusion may not be so clearcut in the case of waste tyres as it is with municipal waste.

The PROs undertake a number of activities including administrative arrangements with enterprises that guarantee the recycling targets, setting prices for individual members, reporting the performance of the scheme as required by the regulator, and undertaking public awareness programs. It is noted that the success of a take back scheme rests largely with the effectiveness of the PRO, and this in turn requires careful attention to design and planning in the establishment phase to ensure smooth operation.

In concept, a PRO has much in common with options associated with a central administration scheme that will be discussed in Part II.5. The important difference is that the schemes discussed later arise from express Government direction (possibly with some industry involvement). On the other hand, the establishment of a PRO within an industry occurs when individual firms seek an exemption from their responsibilities under the take back schemes.

Notwithstanding this important difference, some of the concerns for PROs are similar to those raised later for central administration schemes. The key concern is the power that the PRO exerts on both the product manufacturers and importers, and the recyclers.

If membership of a PRO is mandatory (or the only feasible commercial alternative for small to medium enterprises), then it is important that the fees and other requirements for new membership are not set prohibitively high so as to restrict entry to the product market. Also, the allocation of costs and benefits by the PRO may disadvantage certain companies that make products which have been burdened with higher costs in relation to the recycling process. There is the possibility that large contracts entered into by the PRO may freeze out small waste operators. There is the further possibility for high-level vertical integration to result in a closely inbred system, which would impose additional costs on consumers without achieving important waste management goals.

The attractions of gaining an exemption can be expected to be even stronger for importers who are not domestic manufacturers. Some importers may have minimal facilities available for taking back waste tyres. In some cases, where the importers are not directly involved in retailing, their facilities in Australia might constitute only a warehouse for holding tyres which may not be well suited to accepting waste tyres. As a member of a PRO, an importer may still suffer some disadvantage in view of the reduced flexibility (compared with local manufacturers) to arrange their operations so as to take full benefit of the PRO. Where this is potentially an issue, international trade obligations could need to be considered in the design and operation of the PRO.

Governments in Europe have responded to these concerns by means of different types and levels of controls. In Germany, for example, the government maintains oversight to ensure that the decision-making elements of PROs and waste management firms (including recyclers) are kept at arms length, while The Netherlands relies on a much more voluntary approach54. Of particular note are the concerns relating to competition policy, both the impacts on domestic markets and in respect to international trade agreements for markets for reprocessed goods.

A key to success in delivering improved waste management and related outcomes is producer participation in active product redesign. Producers should be confident in expecting returns for their efforts and expenditures. The OECD reports that experience to date suggests that the rewards have not flowed back to the firms who generated the improvements but have been captured by the PRO or shared amongst all members of the PRO. However, this should not be a problem with tyres, since the products of individual firms can be identified and the rewards directed to the producers involved.

2.3 Other matters

Two issues arise in relation to take back schemes: orphan products and grandfathering.

Orphan products are taken to be those waste tyres for which the producer no longer exists to take responsibility for their management. This is obviously not a problem for some EPR schemes (for example, in a levy scheme provided the levy is paid at the point of production). For take back schemes, it is necessary for the responsibility for the tyre to be assumed by some other entity. The choice is between the waste generator (consumer or tyre dealer), the tyre industry as a whole, or the community through the Government. Alternatively, all tyre producers could be required to lodge a financial assurance which would cover the costs of take back in the event that the firm ceased to trade.

Grandfathering refers to tyres that are in existence prior to the introduction of a take back scheme. One possibility, as these tyres reach the end of their consumer life, is that they could be ignored for the purpose of the take back scheme (provided they could be separately identified from the post scheme tyres). This would result in a delay before the benefits of take back were realised. Alternatively, all tyres that reach the end of their consumer life after the commencement of the scheme could be required to be taken back. In this case, the tyre industry might argue with some justification that they had not been able to incorporate additional take back costs in the original sale price of the grandfathered tyres. This argument has less force in the case where tyre producers have responsibility for a specified number of tyres rather than specifically the tyres that they produce.

2.4 Conclusions

Take back schemes, as one form of EPR, provide the ultimate in levels of control by manufactures and importers over the management of waste tyres, and incentives to integrate actions over the life cycle of the tyre to minimise financial and environmental costs. Experience in other countries suggests that the concept is workable in practice. If the EPR requirements for take back result in the establishment of a PRO, then this may raise a number of concerns that are common to other centralised administration schemes. In addition, although PROs arise from industry decisions, it is likely that they will need Government controls and oversight if they are to deliver benefits without undesirable side effects.

It would appear that any EPR initiative, and in particular take back schemes, would need to be implemented at the national level.

 


53The services provided by a tyre could be defined in some way such as making contact with the road, and providing grip for cornering, acceleration and braking.

54OECD (1998b), page 38.