Is there interest in a truly competitive environment in waste management?

25. 2. 2015

The concept of extended producer responsibility (EPR) was first proposed in Sweden in 1990 by Professor Thomas Lindhqvist, a specialist in environmental issues at Lund University. Extended producer responsibility was defined as a strategy for products to have as little negative effect on the environment as possible by extending producers’ responsibility across products’ entire life cycles, and in particular to include take-back, recycling and final disposal of such products. The EPR strategy gradually became a part of EU legislation, and from there it spread to all member states. Today, it is one of the main pillars of waste management within the EU.

Extended producer responsibility represented a breakthrough strategy in waste management, completely changing the conditions within this field. Until this strategy was pioneered, only residents or municipalities paid for municipal waste – and they also were responsible for its disposal. EPR added another player, namely the producer. EPR was introduced for three main reasons:

to obtain from relatively wealthy producers additional funds to finance waste management and thereby to remove this burden from municipalities in particular, to shift responsibility for collection and recycling of products from consumers and municipalities to the producer, and to prevail upon producers to design products to be recycled more easily.

It is perfectly clear that the entire EPR strategy has the character of a purely non-market mechanism which the producers would not themselves have implemented were it not for the legal obligation for EPR. After all, such a measure only increases their costs. From an economic perspective, this represents the financing of a so-called externality, which according to economic theory most economic entities would endeavour to avoid. Producers were certainly not volunteering to take over responsibility for products across their life cycles, and they were only compelled to do so by legal mandate.

It was thus entirely involuntarily that producers entered the field of waste management. This was a field that at the time was considerably lacking in innovation and in which market mechanisms did not work well. The waste management market comprised only municipal or other communal enterprises founded by municipalities, and their objective was simply to avoid problems with waste rather than to strive for economic efficiency. The other option was to use private multinational waste removal companies, which often employed a variety of non-transparent and non-market methods (e.g. political lobbying, cartel agreements) as they attempted to obtain contracts from the municipal sphere. Their main priority was decidedly not to minimize prices.

All at once there was a new fish in the waste management pond – namely producers – and they were accustomed to making decisions within their business activities entirely pragmatically and on the basis of efficiency and optimal prices. These producers also had money which they were required to spend on the waste market. But here they met with pushback. It was completely logical that producers were interested in meeting their take-back obligations as inexpensively as possible (in order to save on costs), while waste management companies were interesting in fulfilling these obligations at the highest possible price (in order to earn more).

Producers soon discovered that waste management was not a real market, and so they sought alternative solutions. They began to ask their suppliers from other fields to assist them with waste, as that represented a substantially lower-cost solution. They also began to carry out some activities themselves, completely under their own control, as this was much more cost-effective. As a result, they often came into conflict with traditional waste management companies, who resented the facts that new entities were entering the market, that prices for their services were beginning to come down, and that they even were losing some contracts because they were unable or unwilling to compete on price with more inexpensive solutions.

The situation just described is the main reason for current disputes between producers (and the compliance schemes they own) and international waste management companies represented by the Czech Waste Management Association as to the direction legislation should take and the manner in which take-back will be ensured in future.

Waste management companies endeavour to limit to the greatest possible extent how producers manage waste. They essentially want that producers will be only geese laying golden eggs and which pour a great deal of money into waste management. They categorically do not want for producers to be able to decide for themselves about the most efficient and cost-effective solutions. For this reason, waste management companies are pressing for new legislation to include:

a waste regime even for products taken back (so that handling of such products could not be undertaken by an entity which would be able to do so at lower cost but which does not have a licence to dispose of waste, and thereby essentially restraining competition on the market); a requirement that all take-back activities be carried out as external activities, i.e. such that producers cannot conduct such activities themselves (so as to ensure a perpetual supply of contracts); and a prohibition on producers and compliance schemes entering the waste market (so that waste management companies will continue to protect their leading position in the market and not be threatened by entities which strive to act efficiently and emphasise the lowest possible prices).

A legal obligation was put upon producers to ensure and finance take-back and recycling of their products. Producers are making a legitimate effort to manage their funds independently and freely to decide the manner in which they will spend their resources. They are interested in advancing market conditions within waste management, but that comes into conflict with waste management companies’ striving to maintain the status quo and their long-established position. We will see whether the Ministry of the Environment is able to support producers in their efforts to ensure that their obligations are met efficiently, or whether it will succumb to pressure from the waste management lobby and preserve the unhealthy balance in waste management into the future.

Mgr. Jan Vrba

Chairman of the Board of Directors