Chapter 2 Take-Back Legislation – Sustainable Operations and Closed Loop Supply Chains, Second Edition

CHAPTER 2

Take-Back Legislation

2.1 Introduction

Traditionally, the handling of waste has been the responsibility of local governments and municipalities. In addition, during the past 60 years or so, the industrial paradigm for the manufacturing of consumer goods has been to design and manufacture products for a single life cycle: minimizing material use (so as to minimize cost), so that products are less expensive but have to be discarded upon failure or obsolescence, rather than being repaired. One could argue that the fast evolution in technology is a significant driver of this trend. In industrialized countries, it is often more expensive to repair an electronic product or appliance than to buy a new one. For consumer electronics, this is partly due to their shorter life cycles, a result of increased performance and lower cost associated with semiconductor manufacturing, that is, the fast learning curve of the industry. With the digital revolution, the evolution of the electronics industry is driven partly by the pace at which microprocessor and memory manufacturers can reduce the size of transistors, and as a result increase the number of transistors per circuit, allowing processing of more data, since one transistor is associated with one bit of memory. Moore’s Law states that the number of transistors per chip doubles roughly every 18 months.

Shortening of life cycles and fast evolution of technology, however, result in an unfortunate by-product: the exponential increase in e-waste. The number of computers sold worldwide was 183 million in 2004, and 260 million in 2016.1 Most municipalities are clearly not prepared to handle the processing of this exponential increase in e-waste, particularly because electronic products contain toxic substances (such as mercury, cadmium, lead, and others), and recycling of electronic products is for the most part unprofitable. As a result, legislators have been enacting product take-back legislation, based on the principle of Extended Producer Responsibility (EPR). EPR holds producers physically and financially responsible for collection and environmentally responsible treatment of their products at the end of their useful life. There exists, in numerous forms or jurisdictions, take-back legislation for packaging, automobiles, appliances, and e-waste. In this chapter, we focus mostly on take-back legislation for e-waste, due to its complexity, reach, and impact on producers and society in general.

Very broadly speaking, take-back legislation takes three basic forms:

1. Advanced recovery fee (ARF; consumer pays): here consumers are assessed a fee upon the purchase of a new product. Retailers collect the fee and pass it to government, who uses a significant portion of the fee to subsidize collectors and recyclers.

2. Unit-based fee (consumer pays): here, the fee is collected upon the disposal of a used product, as opposed to during the sale of a new product.

3. Collection and recycling targets (producer pays): here, producers must collect a specified amount of used products, and recycle a certain fraction of the collected products.

Although we have used the terms “producer pays” and “consumer pays,” it is clear that both consumers and producers are likely to share costs for financing recycling of used products. In the ARF example, there are certain design guidelines established for producers to facilitate recycling; in the case of the unit-based fee, producers are still likely to be required to establish their own recycling networks, and in the case of collection and recycling targets, consumers are likely to experience higher prices for new products.

In the case of collection and recycling targets, a fair implementation of the legislation would ensure that each producer would be responsible solely for its own waste, that is, each producer would collect and recycle only its own products. This principle is referred to as Individual Producer Responsibility (IPR). In practice, IPR is difficult to achieve for the following reasons: recycling is subject to significant economies of scale, and e-waste transportation for long distances increases recycling costs. In addition, many collection points are set up by municipalities, so that all e-waste (across all products, manufacturers, and models) is collected together, resulting in a logistic nightmare for sorting. We provide some specific examples of take-back legislation in the following sections.

2.2 Take-Back Legislation in Electronics: Europe

The European Union (EU) established the WEEE Directive in 2003 to require producers to be financially and physically responsible for the recovery of e-waste. A recast of the WEEE Directive was approved by the EU parliament in February of 2012, with revised (more stringent) collection and recycling targets. The collection target was changed from a fixed amount (4 kg per year per inhabitant) to a collection rate target of 65 percent. According to the new directive2:

From 2016, the minimum collection rate shall be 45 percent calculated on the basis of the total weight of WEEE collected in accordance with Articles 5 and 6 in a given year in the Member State concerned, expressed as a percentage of the average weight of EEE placed on the market in the three preceding years in that Member State…. From 2019, the minimum collection rate to be achieved annually shall be 65 percent of the average weight of EEE placed on the market in the three preceding years in the Member State concerned, or alternatively 85 percent of WEEE generated on the territory of that member state.

There are also recycling and recovery targets. Recycling target is the percentage (in weight) of the amount collected that is used for material recovery (i.e., recycling or reuse). Recovery target is the percentage (in weight) of the amount collected that is used for material and energy (i.e., incineration) recovery. The legislation stipulates different recycling and recovery targets for 11 product categories, and Table 2.1 illustrates the recycling targets for four product categories. So, for example, for large household appliances producers must recycle (or reuse) at least 80 percent of the amount of used products collected and allocated to the producer, and the total recovery target must exceed 85 percent; if a producer recycles, say, 81 percent, then it must incinerate at least an additional 4 percent to meet the 85 percent recovery target. The directive has been transposed into national laws by each of the EU member state, and the way it has been implemented varies considerably across countries.

Table 2.1 Illustration of recycling targets for WEEE directive

Category

Recycling target (%)

Recovery target (%)

Large household appliances

80

85

IT & telecommunications

70

80

Electric and electronic tools, medical equipment, monitoring devices, control equipment

55

75

Gas discharge lamps

85

85

Table 2.2, adapted from Atasu and Van Wassenhove,3 displays the differences in implementation of the directive between Germany (and the UK) and Belgium. In Belgium, municipalities and retailers collect e-waste. There is a single collective collection and recycling organization (CRO) (that is, a monopolist CRO, backed by industry and government), which all producers must use, and this CRO assesses producers a fee based on the amount of products they sell (the fee is not necessarily correlated with actual recycling costs). In addition, consumers are also assessed an ARF. In the UK and Germany, there is no ARF assessed to consumers, and each producer is allowed to establish its own CRO, or form a collective CRO with other firms (for example, the European Recycling Platform, or ERP, is a CRO established by HP, Sony, Braun, and Electrolux). Finally, actual recycling costs (incurred by the CRO) are split among the different manufacturers according to market share.

Table 2.2 e-Waste take-back legislation in different countries in the EU

Dimension

Belgium

UK and Germany

Who performs collection

Municipalities

Retailers

Municipalities

Retailers

Producer’s own collection system

Collection and recycling organizations (CRO)

Single collective CRO

Different competing collective CROs

Producer’s own CRO allowed

Who pays for recycling costs

Producers assessed recycling fees based on products sold

Consumers assessed an ARF

Actual recycling costs split according to market share

Source: Adapted from Atasu and Van Wassenhove (2012).

2.3 Take-Back Legislation in Japan

The Specified Household Appliance Recycling (SHAR) law in Japan applies to TV sets, refrigerators, washing machines, and air conditioners; consumers are assessed a unit-based fee upon their disposal of the old appliance. This occurs when the consumer replaces an old appliance with a new one, so that the collection of old appliances occurs at retailers. The key to this system is an information system called the “manifest” system. Upon collecting an old appliance from a consumer, the retailer scans the barcode on the item. Each item (product category and brand) has associated with it on the manifest system a “recycling bill,” which is a directive set forth by the producer indicating to the retailer to which CRO the used product should be sent. A CRO can be individually owned by a producer, or serve several producers (i.e., there are multiple competing CROs). If a CRO serves several producers, they are able to assess each producer the actual recycling cost for the producer’s products (so, recycling costs are not split to producers based on, for example, market share as is the case in Germany). The manifest system also allows CROs to provide feedback to producers on ease of recyclability, for example, ease of disassembly, labeling, and material composition. The Japanese SHAR system is widely regarded as an example that approximates IPR, since manufacturers have control over their own recycling costs. Thus, the Japanese system provides an incentive for greener product designs.

Japan also has take-back legislation for personal computers (PCs). The differences from SHAR are: collection of used products is performed through the postal system, and consumers are not assessed a unit-based fee upon disposal.

2.4 Take-Back Legislation in the United States

As of May 2017, 25 states in the United States plus the District of Columbia have passed e-waste recycling laws.4 The laws apply mostly to desktops, laptops, and monitors, with some laws also applying to printers and TVs. California is the only state in the U.S. where consumers pay an ARF: the money collected goes to the state, which uses it to reimburse recyclers and collectors. The other 24 states have producer responsibility take-back laws. The details vary across states. For example, in Virginia, Texas, and South Carolina (among others), the legislation only mandates financial producer responsibility for e-waste originating from consumers (but not businesses); in addition, there are no minimum collection and recycling targets. Due to inherent complexity and diversity of formats of the legislation in the different states, a comprehensive table that includes all 25 states is beyond the scope of this book; however, the reader is referred to a table that compares them.5 For illustration, Table 2.3 displays examples of take-back legislation in three different states of the United States.

Table 2.3 indicates that in New York, Washington, and Indiana producers decide how they meet their recycling obligations: by owning their own recycling plants, contracting with other (private) collective CROs, or in the case of Washington, joining a collective state-operated CRO, with costs assessed based on return share (i.e., the actual volume of products recycled). The legislation also exempts producers from paying recycling costs for large businesses.

2.5 Implications for Producers and Policy Makers

Take-back legislation is a reality. In the United States, the dominant form of take-back legislation is that of producer responsibility, with the producer deciding how to meet recycling targets—that is, the producer decides which CRO to subcontract with. The exception is California, where consumers are assessed an ARF, with the money collected going to the state to reimburse collectors and recyclers. Japan also holds producers responsible for collection and recycling of appliances and PCs, although consumers pay a unit-based fee for appliances they dispose of. In Europe, some countries (such as Belgium and Sweden) have a monopolistic CRO, which producers must join, and producers are assessed recycling fees that do not necessarily reflect their actual recycling costs. In other countries, such as the UK, Germany, and France, producers also decide which CRO to use when meeting their recycling obligations, with their own recycling targets based on market share, from an overall collection target of 65 percent of sales.

Table 2.3 Select examples of take-back legislation in the United States

The implication of these examples to producers is clear: producers who invest in recycling technologies (and easy-to-recycle products) will be able to meet their recycling obligations more cheaply (or even turn a profit from recycling) under several take-back laws that favor individual producer responsibility (several states in the United States, Japan, and many countries in Europe). In jurisdictions where the take-back is handled by a single collective system (monopolistic or state-run CROs), there is evidently no incentive for producers to invest in recycling technologies, or in greener products. However, even in these cases, proactive producers can still lobby governments to revise the implementation of these take-back laws so as to approximate IPR. Proactive and efficient producers prefer a level playing field where they are responsible only for their own waste so that efficient recycling technologies and greener (in the context of easy-to-recycle) products will be another source of competitive advantage, considering that lower recycling costs, and higher revenues from recycled material, will be passed on to consumers in the form of lower prices.

A recent development in e-waste recycling is that, for many electronic products, firms can now turn profits from recycling them. This is due to many reasons such as a sharp increase in the prices of precious metals (thus incentivizing recovery of such metals), advances in product design, and improvements in recycling technology. Although this is good news for producers who have to comply with recycling targets, this development also causes them a headache: because recycling can be profitable, some e-waste is leaked to third-party recyclers and/or exported to other countries. This may make it difficult for producers to comply with their recycling target obligations. In fact, many academics and practitioners have called for a refocus of take-back legislation from establishing recycling targets for producers toward stricter recycling standards to ensure that third-party recycling is done appropriately.

To policy makers, the implications are that society benefits from take-back laws that favor IPR: manufacturers will design greener products, recycling costs will decrease, and consumers will benefit from cheaper recycling costs in the form of low product prices. When designing new take-back legislation, or when revising existing legislation, policy makers can learn from Europe, countries such as Japan, and from some states in the United States. Implementation details, however, matter: producers should be allowed to design their own collection and recycling system.

2.6 Web Resources

Since the legislative environment on take-back legislation changes rapidly, the reader is referred to the following websites for constantly updated information:

Take-back Legislation in the U.S.: http://www.electronicstakeback.com

WEEE Directive in Europe: http://ec.europa.eu/environment/waste/weee/index_en.htm