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EPR: What Does It Mean? Where Is It Headed?

First page callout: Preventing pollution by extending producer responsibility.

Bette K. Fishbein

The term "extended producer responsibility" (EPR) was coined early in this decade by Thomas Lindhqvist to describe a policy then emerging in Europe and now sweeping the industrialized world. Lindhqvist, a Swedish professor of environmental economics, defined EPR as the extension of the responsibility of producers for the environmental impacts of their products to the entire product life cycle, and especially for their take-back, recycling, and disposal.

In practice, the term has mostly been used to describe producer responsibility "post-consumer" - after products have been discarded at the end of their useful life. As such, EPR shifts the responsibility for discarded materials that would otherwise be managed by local government to private industry, thereby incorporating the costs of product disposal or recycling into product price. First mandated in Germany in 1991, EPR policies are now spreading around the world and are the focus of heated policy debate.

A concept called "EPR" also exists in this country, but with some marked substantive differences. In 1996, the President's Council on Sustainable Development recommended an EPR policy of "extended product responsibility," which it defined much more broadly as the shared responsibility of government, consumers, and all industry actors in the product chain for all the environmental impacts of a product over its life cycle, with no emphasis on the producer's unique responsibilities or on the post-consumer stage.

This article describes the origins of EPR, the key issues involved in its implementation, and the direction in which it may now be headed. Unless otherwise noted, EPR refers throughout to extended producer responsibility. The term "waste" is used in the vernacular sense to refer to products discarded by consumers; it is not meant in the legal sense to distinguish waste materials from usable materials or products.

Origins of EPR

The origins of EPR lie in Germany's Packaging Ordinance of 1991, which holds producers responsible for managing packaging waste and precludes the use of public money for this purpose. In shifting the costs of collecting, sorting, and recycling used packaging from municipal government to private industry, this revolutionary policy sent shock waves around the world that reverberate to this day.

In response to charges from industry that packaging was being singled out unfairly, German officials explained that this sector had been chosen as the first target of EPR because packaging accounted for such a large percentage of the municipal waste stream - about one-third by weight and one-half by volume. The government made it clear that EPR would eventually be applied to other products as well, with vehicles and electric/electronic products (e.g., computers, televisions, home appliances) next in line.

While the concept of incorporating environmental costs into product costs was by no means new, its application in a German policy of EPR found a driving force in Klaus Töpfer, then the nation's powerful environment minister and now head of the United Nations Environment Program (UNEP). The catalyst was a looming shortage of landfill capacity, which created a critical need to decrease the amount of materials sent to landfills by reducing the amount of waste generated and increasing recycling.

However, Töpfer's focus was not only on reducing the need for disposal after production and use. Instead, he saw EPR as also providing the leverage to move toward a sustainable model of materials use by changing the way products are designed. He argued that requiring producers to pay for waste management would give them an incentive to make less wasteful and more economically recyclable products. While diversion from disposal was one of the environmental benefits of EPR, the policy also had the potential to substantially reduce energy use and virgin materials extraction - and their environmental impacts - by encouraging the increased use of recycling. Töpfer claimed that EPR would stimulate new recycling technologies and thereby enhance Germany's competitive position as a major exporter of environmental technologies.

The Packaging Ordinance offered industry an exemption from its key provisions - including deposits on packaging and take-back by retailers - if industry designed and successfully implemented and paid for its own system to take back and recycle packaging waste. Such a system would have to meet government-specified recycling targets, ranging from 64 to 72 percent for various packaging materials, and ensure that the refill rate for beverage containers remained at 72 percent or higher (the rate for milk containers had to be 17 percent or higher).

Industry responded by designing what is now known as the Dual, or Green Dot, System to take back and recycle packaging waste. To operate the system, it established a nonprofit company, Duales System Deutschland (DSD), which licenses its logo - the green dot - for a fee. Packages bearing this symbol are collected, sorted, and directed to recyclers by DSD. Fees are based on the material and weight of the package and are paid by the "filler" - usually the owner of the product brand name.

Households have two bins - one for regular trash, which they pay their municipality to collect, and one for packaging, which DSD picks up for free. DSD also operates drop-off igloos for glass and paper.

For a more detailed description of Germany's packaging take-back system, see Germany, Garbage, and the Green Dot: Challenging the Throwaway Society (1994), by Bette K. Fishbein, available from INFORM at www.informinc.org.

Early Results of the Green Dot System

Official statistics indicate that the long-term trend of annually increasing packaging consumption in Germany was reversed in the years following passage of the Packaging Ordinance. Between 1991 and 1995, packaging consumption decreased by about one million tons.

This was the result of such strategies as package lightweighting, elimination of unessential packaging (such as the box enclosing the toothpaste tube), and increased use of concentrates and refill packs. There has also been a shift from some difficult-to-recycle composites and plastics, particularly PVC, to more economically recyclable materials such as paper.

DSD reports show that Green Dot packaging decreased 14 percent from 1991 to 1995, while total packaging in Germany decreased 7 percent. Although comparisons with other countries must be viewed with caution - not all definitions and statistical methodologies are equivalent - it is notable that, according to EPA data, packaging consumption in the United States during the same period increased 13 percent.

DSD reports also show an increase in packaging recycling from 52 percent in 1993 to 84 percent in 1996. There has been a large increase in the recycling of plastic packages, reported at 68 percent in 1996.

It is important to keep in mind that about half this plastic is handled through "feedstock recycling," which includes technologies such as pyrolysis, hydrogenation, and the substitution of waste plastic for oil in steel production -technologies that might not be considered recycling in the United States. On the other hand, the U.S. recycling rate for plastic packaging is under 10 percent, far lower than the 36 percent mandated rate for mechanical recycling of plastic packaging in Germany.

As Töpfer predicted, the Packaging Ordinance has also stimulated development of new sorting and recycling technologies, including high-tech systems that use infrared and laser beams. Germany is already licensing some of its new technologies in Japan and expects major increases in exports within Europe and to Asia, particularly to the huge Chinese market.

Germany's exports of environmental technologies are only slightly less than those of the United States, which has an economy and population three times as large. Germany anticipates demand for environmental technologies to increase significantly as EPR policies spread throughout the world.

The Green Dot System has produced benefits, but they have not come cheap. In 1996, the system cost DM 3.9 billion ($2.2 billion) for 5.5 millions metric tons of collected materials, the equivalent of $356 per U.S. ton. With a population of 80 million, Germany is paying roughly $28 per person per year to operate the system.

Subsidies for the plastic recycling processes account for about 13 percent of DSD's costs. Amendments to the Packaging Ordinance passed in June 1998 that permit waste-to-energy recovery of some plastic packaging will no doubt affect both program costs and environmental impacts.

Controversy over the Green Dot System and EPR

The Green Dot System was controversial from the start. The European Recovery and Recycling Association (ERRA), an industry group, opposed EPR for "fast-moving consumer goods" such as packaging. ERRA argues that applying EPR to packaging is expensive and has no clear environmental benefits, that it increases bureaucracy, and that it results in fragmented waste collection (with separate systems required for different products). The association insists that the generators of waste - that is, consumers - should pay to manage packaging waste, not the producers of the product.

Environmentalists in Germany criticized the Green Dot System because they did not trust industry to run it. They also favored more extreme government action, such as a ban on beverages in nonrefillable containers and a ban on plastic packaging. (The debate over refillable versus one-way beverage containers is ongoing in Germany, with environmentalists demanding a higher mandated refill rate.)

Other countries also had problems with Germany's new system. There were complaints from some European neighbors that Germany was dumping its packaging waste and upsetting their materials markets. Formal charges were brought before the European Union (EU) claiming that Germany's requirements for refillable containers were protectionist and that the Green Dot System was a barrier to free trade. Once Germany significantly increased its own recycling capacity, however, many of these problems were resolved. To a large extent, they were caused by growing pains and, as Klaus Töpfer himself has acknowledged, an attempt to move "too far, too fast."

In the first years of its implementation, the Green Dot System was brought to the brink of bankruptcy by severe economic problems. Nevertheless, the idea that developed in Germany proved contagious and EPR policies are now taking hold around the world.

The Concept Spreads

In most countries, EPR is first applied to packaging and then to other products. Following are descriptions of the spread of EPR to three major product sectors: packaging, electric/electronic equipment, and vehicles.

Packaging

As EPR policies for packaging began to spread throughout Europe, the European Union issued its own Packaging Directive in 1994 to harmonize policies in its member countries. This directive embraced the concept of EPR and mandated recycling targets for packaging waste of 25 to 45 percent, with a minimum 15 percent recycling rate for each material.

As a result, all 15 member countries (including almost all of Western Europe) will ultimately have EPR systems for packaging, although the policy is taking different forms in different countries. Many of these systems are already in operation, while others are still under development.

Eastern European countries like Poland, Hungary, and the Czech Republic have jumped on the EPR bandwagon and the policy is also spreading to Asian countries such as Korea and Taiwan. Japan's law requiring EPR for packaging was passed in 1995 and went into effect in 1997. Twenty-eight countries now have packaging take-back laws.

The variations in EPR programs for packaging are substantial, with major differences relating to:

• The allocation of responsibility between government and industry actors in the packaging chain.
• The level of mandated recycling rates.
• The time frame for achieving mandated recycling rates.
• What counts as recycling.
• What packaging materials are included in the program.
• The types of collection systems used.
• The use of deposit/refund mechanisms.
• Implementation through third-party organizations.

Some of these issues are discussed later in this article, in the section on Key Policy Issues.

Electric and Electronic Equipment

Electric and electronic equipment (EEE) is a major focus of EPR policies around the world. In Europe, the pattern of policy development has been similar to that for packaging: a number of countries have mandated EPR for these products and now the EU is developing its own directive in an attempt to harmonize policies. EPR legislation for EEE has already been adopted in Switzerland, the Netherlands, Italy, and Norway, and is close to adoption in many other countries.

The EU circulated a first draft of its directive on EEE in April 1998. The directive is sweeping in scope and very controversial, covering a very broad range of electric and electronic products, from household appliances to communications, information, and lighting equipment to clocks, toys, and electric shavers.

Manufacturers and importers would be responsible for taking these products back and for meeting a range of collection and reuse/recycling targets (e.g., 80 to 90 percent of items such as large household appliances and personal computers would have to be collected, and 70 to 90 percent of that amount would have to be reused/recycled). Take-back would be free to households, with the costs built into the price of new products. Waste-to-energy recovery would not count toward the targets and phaseout of heavy metals in the equipment would be required.

EPR mandates for electric and electronic equipment in the EU's member countries are not as ambitious as those contained in the draft directive:

Switzerland mandated EPR for a broad range of products in 1998 but has not set any recovery targets. Industry is simply required to handle the materials in an "ecologically sensitive manner."

The Netherlands is implementing EPR for EEE in stages: as of January 1999, household appliances, computers, and telecommunications equipment will be taken back by producers. For smaller products the effective date is January 2000. There will be no charge to end users and surcharges will be imposed on new products to fund the system. Items covered in the regulations will be banned from incinerators and landfills.

Italy began its take-back program in November 1997, starting with refrigerators. The government is funding establishment of collection centers around the country and producers are responsible for the costs of recycling and disposal. A 1996 waste management decree also requires industry to develop take-back schemes for washing machines, TVs, and computers.

The Norwegian system addresses a broad range of products and take-back must be free of charge. The legislation, effective as of July 1999, requires collection rates of 80 percent within five years, but there are no recycling targets - "safe disposal" is permitted.

In Japan, EPR legislation for EEE was passed in May 1998 with implementation required by 2001. Initially, take-back of refrigerators, air conditioners, TVs, and washing machines will be required, with the possible expansion of the program later to include other products.

Unlike the European countries, which preclude end-user fees for take-back, Japan is permitting industry to cover its actual costs by charging end users for the service. Japan's Ministry of International Trade and Industry (MITI) estimates the fees as follows: $37 per refrigerator, $30 per air conditioner, $22 per TV, and $18 per washing machine. Japanese manufacturers are running pilot collection and recycling projects in anticipation of the EPR mandate.

Application of EPR to the EEE sector has raised issues different from those pertaining to packaging take-back. Manufacturers are generally willing to take back products that were designed for recycling but have strongly resisted this responsibility for "existing" products - those designed prior to the implementation of EPR policies. There is also the problem of assigning responsibility for "orphan" products that outlast their manufacturer, such as a TV discarded 20 years after the date of sale, when the "producer" is no longer in business.

Vehicles

Unlike packaging and electric and electronic equipment, vehicles are among the most highly recycled products in the world. About 75 percent of vehicles (by weight) consists of metals - mostly iron and steel - which have always been recycled in the industrialized countries.

The target for EPR is the remaining 25 percent: the mixed materials (plastic, rubber, glass, textiles, fluids, and paint) that are often contaminated with hazardous substances such as lead, cadmium, waste oil, and PCBs. In some countries, these materials (known as auto shredder residue) are designated a hazardous waste. EPR for vehicles aims to keep this waste out of landfills and reduce the number of vehicles disposed of illegally.

After years of effort and heavy lobbying, the EU directive on end-of-life vehicles (ELVs) is still a work in progress. The current draft holds manufacturers responsible for take-back and mandates recycling rates of 80 and 85 percent, respectively, for vehicles that go on the market after 2005 and 2015. Recovery targets (which allow waste-to-energy) are 85 percent for 2005 and 95 percent for 2015. To avoid paying fees, vehicle owners would have to obtain a "certificate of deregistration" signifying that the vehicle had been brought to an authorized recycling facility.

A number of countries with EPR policies for vehicles already in place have recycling and recovery targets similar to those under consideration by the EU. Both France and Germany have negotiated ELV take-back agreements with industry, and Germany passed legislation in 1998 to facilitate enforcement. In Sweden, legislation passed in 1996 requiring EPR for vehicles supplements that country's 1975 vehicle scrapping law (which focused on reducing litter caused by abandoned vehicles). In Japan, MITI has been developing EPR legislation for ELVs that sets recycling/recovery goals similar to those of the EU and individual countries in Europe. A common target in most programs is a 95 percent recovery rate for 2015, meaning that only 5 percent of ELVs would be permitted in landfills by that date.

Led by Germany's producers, European vehicle manufacturers have been planning for the advent of EPR since the early '90s, redesigning their vehicles for disassembly and recycling. Strategies include increasing recycled content, reducing the number of plastic resins, labeling plastics, marking parts to permit draining of fluids (so recycling feedstock is not contaminated), and using fasteners that facilitate disassembly.

In fact, vehicles are an excellent example of how extended producer responsibility can have an impact on product design. Even in the United States, where no EPR policies are in place for ELVs, marketing goals and the desire to preempt EPR legislation can lead to design innovations. For example, members of the voluntary Vehicle Recycling Partnership (which includes Chrysler, Ford, and General Motors) are working on design changes that would make it easier to recycle discarded vehicles.

EPR in the United States

The United States is a major holdout among the industrialized countries, with no federal EPR legislation or policy. EPR for packaging was included in the Resource Conservation and Recovery Act (RCRA) reauthorization bill submitted to Congress in 1992. Failure of this bill to pass ended EPR legislative initiatives at the federal level, at least for the foreseeable future.

The major national policy discussion of EPR occurred at the President's Council on Sustainable Development (PCSD). In 1996, this multistakeholder group issued a report, Sustainable America, which recommended policies to "achieve national environmental, economic and social goals."

EPR was one of the policies recommended but, as noted earlier, the original designation was changed to "extended product responsibility." As defined by the PCSD, "product" responsibility differs from "producer" responsibility in several major respects:

1. Responsibility is for the environmental impacts of products over their entire life cycle, with no focus on the post-consumer stage.

2. Responsibility is shared by consumers, government, and all industry actors in the product chain - there is no targeting of specific "producers" such as the manufacturer or retailer.

3. Responsibility is not necessarily physical or financial - for example, it may simply mean providing consumer education.

4. It is not mandatory.

Clearly, "product responsibility" is much broader than "producer responsibility." The danger in this lack of specificity is that such a policy, by not focusing on the post-consumer stage, may fail to allocate any industry responsibility for this critical part of the product life cycle.

Despite the absence of a federal EPR policy, there is one industrywide national take-back program in the United States. The battery industry initiated this program, in part, to avoid having to comply with inconsistent legislation in eight states that mandated producer responsibility for nickel-cadmium (Ni-Cd) rechargeable batteries. In 1995, the battery industry set up the nonprofit Rechargeable Battery Recycling Corporation (RBRC) to manage the collection and recycling of Ni-Cd rechargeable batteries. Industry set a recycling goal of 70 percent for discarded Ni-Cds by 2001. By 1997, the recycling rate had reached 22 percent, up from 2 percent in 1993.

A number of U.S. companies have also voluntarily implemented their own EPR programs:

• Xerox's Asset Recycling Management Program is a model EPR program which has led to extensive product redesign. The program has generated substantial profits by maximizing recovery of the residual value of office equipment, which the company takes back at the end of its useful life.
• Kodak's take-back and recycling program for single-use cameras has had marketing benefits in helping to dispel these products' image as throwaway items that quickly end up in the landfill.
• Interface, a global carpet company, has a program to lease carpet and recycle it at the end of its life. DuPont, 3M, Milliken, and Collins & Aikman are also taking back and recycling carpeting.
• DuPont has a program to take back and recycle PET packaging films. The company anticipates that identifying its film as a waste-free product will bring important marketing advantages in the future.

Since the U.S. government is the largest consumer in the country, marketing advantages for businesses with EPR programs in place can be driven by government procurement guidelines. Procurement officials are beginning to focus on end-of-life issues. For instance, the U.S. Postal Service, to avoid responsibility for the end of life of computers, is considering a rule that would require its equipment to be leased instead of purchased. It is also looking into requiring producer take-back.

The EPR2 Roundtable, a group of representatives from the manufacturing and recycling industries, nongovernmental organizations (NGOs), and all levels of government, is addressing end-of-life issues related to electronics - particularly computers and TVs. The group is developing baseline data on the amount of electronic material being discarded and is looking at program and policy options for the post-consumer management of these products, including EPR.

Some of the goals of EPR may be achieved in the United States through alternative approaches. For example, there is a trend toward leasing instead of selling products and providing a service or function rather than a product. Under these arrangements, the producer may retain ownership of products during and after their use by consumers. Manufacturers of personal computers, in particular, are moving toward such arrangements. Dell has a leasing program and Gateway has announced that its computers can be traded in every two years - an option advertised as "obsolescence protection." It remains to be seen whether these arrangements will encourage recapture of the residual value of products through reuse and recycling.

In one program that has already led to more efficient resource use, Ford UK pays DuPont for each car painted rather than for paint. Instead of selling a product (paint), DuPont provides a service - painting automobiles. This arrangement gives DuPont an incentive to increase profits by using less paint and reducing waste, instead of by selling more paint. As a result, paint consumption has decreased substantially.

EPR and the OECD

The Organization for Economic Cooperation and Development (OECD) is an international organization of the 29 most industrialized countries in the world that addresses economic and social policy issues. Since 1994, the government of Japan has been funding a three-phase project at the OECD to develop a guidance document on EPR for member countries.

The phase one report documented implementation of EPR. The report found that, as of 1995, over two-thirds of the OECD's member nations had national EPR policies in place or were actively considering them. It noted that these programs focused on that part of the product life cycle where producer responsibility is weakest - the post-consumer stage. Phase two generated papers on existing EPR programs in the Netherlands and Germany, as well as a report on policy and legal considerations in implementing EPR.

Phase three of the OECD project, consisting of four international workshops on EPR, is now under way. The first workshop, held in Ottawa, Canada, in December 1997, addressed such questions as: Who is the producer? What is the producer responsible for? The second workshop, in Helsinki, Finland, in May 1998, addressed potential problems and barriers to EPR, including cartels, trade issues, and "free riders" (companies that benefit from EPR programs without helping to fund them). The third workshop, to be held in Washington, D.C., in December 1998, will address the economics of EPR and its application to specific product sectors. The final meeting, scheduled for May 1999 in Paris, will be a joint workshop of the OECD's EPR group and Waste Minimization group. The objective of this project is not to promote EPR legislation but rather to provide a guidance document for OECD member nations that choose to implement the policy.

Throughout the OECD project, industry representatives in the U.S. delegation have argued strongly for changing the designation of EPR to "extended product responsibility," so far without success. The key question, they claim, is not "Who is the producer?" but "Who is the polluter?" Industry's position is that the consumer (as the one who uses and discards products) is the "polluter" and as such should bear the financial responsibility for waste management.

In addition to opposing the targeting of producers, industry objects to any focus on the post-consumer stage, arguing that EPR applies to the entire product life cycle. This means, for example, that a company that reduces environmental impacts anywhere along the product chain, such as in the manufacturing process, can claim to have implemented an EPR program even if it does not take responsibility for its product at the post-consumer stage.

Key Policy Issues

As noted earlier, EPR is taking different forms in different countries and for different products. However, there are three key elements that all EPR policies (outside of the United States) have in common:

1. They extend responsibility to the post-consumer stage.

2. The responsibility of the producer is always physical and/or financial - producers either physically take back and recycle their own products or pay a third party to do so.

3. Guidelines (usually set by government) require specific recycling rates, define what counts as recycling, and require data collection and reporting.

Who Is the Producer?

Existing and emerging EPR policies do not share a common definition of "producer." There is considerable variation in how the producer is identified, although usually it is the company whose brand name appears on the product.

In Germany, green dot fees are generally paid by the owner of the brand name - the filler of the packaging, not the company that produces the package. Thus, in the case of detergents, the "producer" would be a company like Procter & Gamble or Unilever. In the United Kingdom, a system is evolving in which responsibility is shared by all the actors in the product chain, each of which is allocated a percentage of the responsibility for collecting and recycling packaging waste.

The entity designated as the responsible party can also depend on the product. In the U.S. Ni-Cd battery take-back program, industry has allocated financial responsibility among the producer of the battery cell, the producer of the battery pack, and the producer of the product containing the battery.

If one of the main points of EPR is to encourage production of less wasteful products, it can be argued that the policy's effectiveness is enhanced when the producer is identified as the entity with most authority over materials selection and product design (or with most leverage over whoever exercises that authority). In such a system, this producer bears ultimate responsibility for the environmental impacts of its products, but responsibility can also be shared to varying degrees with others in the product chain.

How Can Responsibility Be Shared?

In EPR programs in which responsibility is shared, it is shared between the public and private sectors and/or among the different industry actors along the product chain. In either case, the key is to shift sufficient responsibility to those with the greatest potential to trigger the actions needed to move toward a sustainable pattern of materials use. Germany shifted full responsibility for managing packaging waste to industry. In France and Japan, municipalities remain responsible for waste collection and industry was made responsible only for the recycling of certain materials.

The approach in which the various industry actors along the product chain - rather than a single "producer," as in Germany and Austria - share responsibility for the post-consumer stage is exemplified by Britain's packaging scheme. There, each industry player is allocated a specific percentage of the responsibility: 47 percent for retailers, 36 percent for packers and fillers, 11 percent for converters, and 6 percent for raw material processors.

An outstanding question is: Who should allocate responsibility among the different industry players in this type of shared system? Should government do it? Or should government give "producers" the authority to allocate specific responsibilities among the industry actors?

It should be noted that there is some degree of sharing in all EPR programs. Even in Germany, where the fillers of packaging pay the Green Dot fees, municipal governments, retailers, waste haulers, recyclers, and consumers are all involved in the program.

Consumers have responsibilities in all EPR programs. They separate recyclables and often return them to retailers or drop them off at a specified location. Consumers also pay for the costs of EPR through higher product prices.

Producer Responsibility Organizations

To create the most powerful incentives, individual producers would be required to take back and recycle their own products. Often, however, this is not practical. For example, it would not be economically feasible for producers of high-volume, low-value products, such as cereal or detergent boxes, to identify, sort, and take back the particular boxes they made.

For this reason, EPR policies usually permit producers to form "producer responsibility organizations" (PROs) which enable them to fulfill their responsibilities collectively. The Duales System Deutschland (DSD) in Germany and the Rechargeable Battery Recycling Corporation (RBRC) in the United States are both PROs. These organizations license their logos for a fee and use the revenues to finance, respectively, the Green Dot System and the take-back of Ni-Cd batteries. Private industry usually sets the fees and operates the PROs. For example, a company pays a fee to DSD for every package it puts on the German market.

It is important that the fee structures imposed by PROs reward companies that choose to design less wasteful and more economically recyclable products. Otherwise, one of the most important benefits of EPR will be squandered. For example, in a packaging take-back system, a standard fee based on the volume of the packaging contents would not provide any incentive to reduce packaging or increase its recyclability. However, fees based on packaging weight and packaging materials would allow companies to benefit from such design changes.

As EPR programs spread around the world, PROs are emerging in many countries. In addition to DSD and RBRC, these include Eco-Emballages in France, Alstoff Recycling in Austria, Fost Plus in Belgium, and VALPAK in the United Kingdom.

Voluntary Versus Mandatory EPR

EPR programs are often described as either mandatory or voluntary. However, it is more accurate to think of them as falling along a continuum from mandated to truly voluntary. Mandatory programs are those that result from laws and regulations. Truly voluntary EPR initiatives are generally implemented when a company is able to make a profit or gain a marketing advantage by taking back its products. There are numerous examples of such voluntary programs, including the Asset Recycling Management program at Xerox and Kodak's take-back of single-use cameras.

Many EPR programs do not generate profits, however, at least in the short term. Nonetheless, companies will sometimes institute them on a "voluntary" basis for other reasons, such as to preempt pending or future legislation. EPR programs driven by the threat of legislation are not truly voluntary, and fall midway along the continuum. Other programs falling within this region result from agreements negotiated between government and industry in lieu of legislation, such as those pertaining to vehicles in Germany and France.

Industry invariably argues for a voluntary approach to EPR. Often countries will try this and mandate EPR only if the voluntary efforts are not successful in attaining their goals. Voluntary EPR for packaging was attempted in France and Germany; both countries were dissatisfied with the results and ultimately passed legislation. Switzerland rejected a voluntary EPR approach to electric and electronic equipment because of concern about "free riders."

The Problem of Free Riders

Free riders - companies that do not contribute to the funding of EPR programs yet still benefit from them - are a major problem in voluntary programs. About 75 percent of U.S. battery producers have joined the RBRC program, which means the remaining 25 percent are potential free riders. There is no federal requirement for participation and state requirements are not being enforced.

Lack of enforcement can cause problems with free riders in mandatory programs as well. In the early years of the Green Dot System, 90 percent of packages on the German market carried the green dot, but fees were paid for only 60 percent of them. Free riders remain a problem in the German system and are addressed in amendments to the Packaging Ordinance, passed in June 1998, requiring nonparticipants in the Green Dot System to meet the same recycling targets as participants.

The OECD is also looking into the free rider problem and will include recommendations on this issue in its Guidance Document. Solutions may vary from regulatory enforcement to pressure from trade associations to publicizing the names of free riders. In order to drive product innovation toward sustainability, EPR programs need to reward the companies that are acting most responsibly and prevent free riders from gaining a competitive advantage.

Problems in Evaluating EPR Costs and Benefits

It is difficult to measure the costs and benefits of an individual nation's EPR program and even harder to make comparisons between programs in different countries. This is because of differences in the definition of waste and recycling; differences in data collection methodologies; and differences in systemic factors such as wage rates. Nevertheless, efforts to facilitate evaluation of existing EPR programs on both the national and international level are crucial to developing a basis for rational policy decisions in the future.

One source of confusion is the tables of PRO-imposed fees often used to compare the costs of EPR programs in various countries. Since these fees reflect only the portion of costs paid by industry, they do not necessarily indicate the costs of the system as a whole. In Germany, where industry pays all the costs of managing packaging waste and the municipalities pay none, PRO fees do reflect total system costs. But in countries like France and Japan, where municipalities continue to pay for collection, municipal costs must be added to the PRO fees to arrive at the total cost of the system. When government shares the financial responsibility for collection and recycling, one would expect industry's costs to be lower.

It is also important to understand that not all the costs of an EPR program represent additional costs to society; to a large extent, these are not "new" costs but costs that have been shifted from government to industry. EPR costs are reflected in higher product prices, but these are offset by lower taxes or waste fees. "Lower" in this case is a relative term: the taxes and fees will not necessarily be lower than before EPR was initiated. In a period of rising costs for waste management, lower may mean a reduction in the increase that would have occurred without EPR.

To evaluate EPR policy options, it is important to disaggregate the cost components. How much of the costs are due to the mandated recycling rates? To the use of separate collection systems for different products? To the technologies permitted to count as recycling?

In Germany, for example, about 4 percent of plastic packaging was recycled before implementation of the Packaging Ordinance, which specified an increase to 64 percent within two years. Accomplishing this has been very costly. Would costs be lower if municipal government rather than industry had to achieve the 64 percent recycling rate? What would the costs of the EPR system be if the mandated recycling rate were 50 percent? What would it cost to achieve the 64 percent recycling rate if waste-to-energy recovery were allowed? Much additional work is needed to quantify the benefits and costs of these different policy options.

 

Conclusion

EPR has already had major impacts on the three R's (reduce, reuse, recycle) and on product and package design - impacts that have spread well beyond the borders of the countries that have EPR policies in place. Some companies have rethought their product design and delivery systems in ways that have allowed them to profit from EPR. Some are implementing EPR voluntarily for marketing purposes or in hopes of preempting legislation.

Industry, particularly in the United States, is adamant that EPR be voluntary. While there clearly are examples of very effective voluntary initiatives, the approach has two key disadvantages: (1) it can be ineffective in sectors such as packaging, where EPR is likely to generate costs to industry rather than profits, and (2) it encourages free riders, which place companies that act most responsibly at a disadvantage.

In May 1998, the White House, concerned that recycling may be losing momentum, convened a conference (entitled "Recycling: Looking Toward the Next Century") to recommend new policy options to the Clinton administration. There have, in fact, been reports recently of backward movement in the United States on waste prevention and recycling - companies increasing the weight of their packaging, shifting from reusable to disposable products, and increasing the costs of recycling by adding pigments to milk jugs and adhesives to labels that are incompatible with recycling processes. Recycling of glass bottles did decline in 1997, and total container recycling fell 7.6 percent.

These are the types of problems that EPR aims to avoid. A company that must pay to recycle its product or package has a strong incentive to design for recyclability. When recycling is solely a taxpayer responsibility, companies often do not make this a priority. In the United States, we are seeing the results of the absence of a national policy on EPR. Nevertheless, it was clear at the White House conference that the prospects for federal EPR legislation anytime soon are unlikely given industry's strong opposition.

Government EPR initiatives in the United States are most likely to occur at the state level, with a focus on wastes with toxic constituents ("problem wastes"). States that led in mandating producer responsibility for Ni-Cd batteries are now investigating the possibility of keeping other problem wastes out of incinerators and landfills through EPR. Minnesota, for instance, has passed EPR legislation for mercury-containing products. An important lesson of the Ni-Cd battery take-back program is that action by a few states can lead industry to create national programs to avoid dealing with numerous conflicting state requirements.

The major impetus for EPR has come in countries experiencing severe shortages of landfill capacity. But the policy's environmental benefits go well beyond reducing pressure on disposal facilities. Well-designed EPR programs encourage both source reduction and recycling, and therefore result in reduced energy and materials consumption and reduced toxicity of products. When consumption of energy and materials decreases, the environmental impacts associated with these activities - such as air and water emissions - also decline substantially. Therefore, EPR can be viewed not only as a mechanism to divert materials from disposal but as an important strategy for sustainability.

As we move into the twenty-first century, the recognition is growing that we need to be more efficient in our use of resources. Many economists and environmentalists have stressed the need to "internalize the externalities" - that is, to incorporate environmental impacts into product prices - as a method of attaining sustainability. This has been impeded by the difficulty of quantifying such impacts as the costs to society of air and water pollution. Although EPR does not internalize all environmental externalities, it does internalize actual waste management costs into product prices and thus is a step in the direction of sustainability.

EPR can be described as a market-based approach - once waste management costs are internalized, the market determines the response. EPR programs do not generally specify how products and packages should be designed or what materials should be used. Their aim is to send the right economic signals and then leave industry free to innovate. EPR builds the post-consumer stage of products into a company's bottom line. This gives a competitive advantage to less wasteful, more economically recyclable products, and can provide an important economic incentive to drive product innovation toward more efficient resource use.

 

Bette K. Fishbein is Senior Fellow in the Sustainable Products and Practices Program at INFORM, Inc., a nonprofit environmental research organization in New York City.

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This is a preprint of an article published in P2: Pollution Prevention Review, pp. 43-55, Volume 8 © 1998 John Wiley & Sons, Inc.

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