Usman Valiante
Usman Valiante is Senior Policy Analyst with Corporate Policy Group LLP. He has 20 years experience in the management of commercial and public policy issues involving a complex mix of economics, environmental science, law, public policy, business strategy and politics.


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Jun 24, 2014

The Race to the Bottom Part 2 – Death of a Recycler

Is there a greater tragedy imaginable than that, in our endeavour consciously to shape our future in accordance with high ideals, we should in fact unwittingly produce the very opposite of what we have been striving for?

 ― Friedrich August von Hayek

Sims Recycling Solutions – the world’s largest e-waste recycler – has announced that it is leaving Canada closing plants in Langley, British Columbia, Mississauga, Ontario and Laval, Quebec.

At a time when e-waste volume is growing faster than all other waste streams and the e-waste recycling business should be booming, 250 people employed in Canada’s “green economy” will lose their jobs on July 31st 2014.

What led to this?

Sims established itself in Ontario in 2003 a full 6 years before regulated e-waste product stewardship and its investments in e-waste recycling were made in the free-market. That market demanded services for the end-of-life recycling of e-waste that discharged both e-waste generators’ environmental liabilities as well as their informational confidentiality requirements. Sims was not alone – there were at least 9 other e-waste reusers and recyclers in the province at the time.

The advent of e-waste product stewardship in Ontario in 2009 reduced Sims’ client base from thousands of generators to one customer – Ontario Electronic Stewardship (OES).

OES is convened under the Waste Diversion Act (WDA) as an Industry Funding Organization (IFO) that operates the provincial Waste Electronic and Electrical Equipment (e-waste) Program in cooperation with Waste Diversion Ontario (WDO) as overseer and quasi-regulator.

OES launched its program in 2009 with a Waste Electronic and Electrical Equipment (WEEE) Program Plan approved by WDO and the Ontario Minister of the Environment. It includes an approach to retain recycling services that was and continues to be a model of what not to do if you actually want to recycle.

To quote Sims as it wrote to then Environment Minister Gerretsen in 2010,

“Under the WEEE program all WEEE collected by registered collectors is consolidated (in OES controlled consolidation centers) and then allocated to WEEE processors under a quota system. There is no way for a processor to “grow the business” – any WEEE collected by a given processor on its own initiative is then allocated to its competitors by OES based on the set quotas.

As an example, if Sims Recycling Solutions were to organize and fund a creative collection event (say through a school board or Rotary Club) we would only receive our allocated 30% of the WEEE we collect for processing despite the fact that Sims Recycling Solutions was responsible for recovering 100% of this material. The other approved processors would receive the remaining 70% of what Sims Recycling Solutions collected despite not being involved in the development or execution of the innovative collection event.”

Of course such a scheme isn’t very effective at driving e-waste collection because it provides no incentives for collection – it blocks proactive e-waste collection and makes e-waste processors passive receivers of e-waste (OES affiliates in British Columbia under EPRA-BC and Quebec under ARPE employ a similar recycling-market engagement economic models).

Not surprisingly, under this program design Ontario e-waste collection rates were stagnant.

In October 2010 OES was forced to introduce a financial incentive based system for e-waste collection and processing to operate in parallel with its existing quota allocation system.

The Processor Incentive Program (PIP) drove Ontario e-waste collections from 2,423 kg/month in 2010 (with OES failing to meet its diversion targets for that year) to 6,089 kg/month in the first 6 months of 2012.

Following the eco-fee debacle of 2010 the Ontario Government became hypersensitive to the political implications of consumer eco-fees and waste diversion programs running large financial surpluses.

In the spring run-up to the fall provincial election in 2011, WDO agreed to allow OES to reduce its electronic handling eco-fees (“EHF”) despite the known risk that OES could run into a serious financial deficit once it had run through its large accrued surplus (an embarrassing political liability).

The risk of deficit was not unknown to the Ministry of Environment yet, as the April 2011 WDO Board teleconference minutes note, “It was noted that the MOE senior staff had met with OES earlier to work out the approach to reducing fees.”

EHF fund the collection and recycling of e-waste under the OES program. Reducing the EHF reduce program revenues which means that once any surplus is expended program costs have to come down.

The first effort to reduce OES’ program costs was to reduce the costs of processing e-waste under the aforementioned allocation scheme. This was achieved by ignoring the scoring criteria for allocating e-waste to processors as defined in the approved WEEE Program Plan. The WEEE Material Allocation Methodology for allocating electronic waste to processors weights recycling efficiency at 50%; cost at 30%; and innovation and capacity at 20%.

Rather than have OES amend the WEEE Program Plan to change the recycling efficiency criteria (which would require public consultation) WDO tacitly agreed to allow OES to use a new allocation formula that reduced the recycling efficiency weighting to 20% with an 80% focus on cost elements such as price and freight.

Under the new price weighted allocation formula Sims was not competitive – it went from receiving 30% of all e-waste collected in Ontario under the allocation system to zero.

Sims had just opened a state-of-the-art e-waste recycling facility in Mississauga Ontario in February 2011 having predicated its investments on the idea that recycling excellence would be recognized. This change delivered a significant blow.

Sims sought to redress WDO’s decision to allow the change through judicial review. Sims was not given standing in court.

As Sims wrote to WDO during WDO’s “Fairness in the Marketplace” consultations in April 2013,

“Essentially when WDO decides to allow IFOs to change their plans without deeming them “material changes” it is not exercising any statutory decision-making powers. As a result, any party challenging WDO’s decision will not be given standing in court and WDO’s decisions in this regard are not reviewable.”

By overtly turning a blind eye to recycling efficiency and ignoring the approved e-waste program plan WDO drove the first stake into Sims.

To further reduce e-waste program costs OES then turned to the financial incentive payments payable to e-waste processors under the Processor Incentive Program reducing them by 25% in the fall of 2012.

Sims Fairness in the Marketplace letter to WDO (best read in full) describes the effect of this incentive reduction in the face of no effective oversight of East Asian “down-stream” e-waste recyclers receiving e-waste from OES e-waste recyclers in Ontario:

“Recently, in March 2013 OES admitted to allowing OES approved processors to use down-stream processors that have not been qualified through the Recycler Qualification Process 2010 (RQP), a direct contravention of OES’ Approved Program Plan.

While all of Sims’ down-stream processors are qualified and engage in practices necessary to meet those qualifications, those of many of Sims’ competitors are not. The result is that Sims’ competitors operate at lower cost thereby freeing financial resources to buy WEEE from generators under the Processor Incentive Program (PIP). As a result, Sims’ collection volumes under PIP continue to decline, Sims’ investments are devalued and its business threatened. Of course, allowing processors that “cut corners” to participate allows OES to maintain lower recycling incentive rates than they would have to pay otherwise.

Of note, OES-sourced WEEE can be found in unqualified South East Asian processing facilities undergoing egregious management practices that are entirely inconsistent with the standards set forth under the Environmental Recycling Standard that is part of the RQP.

Neither WDO nor the Ministry of Environment monitor environmental outcomes providing no incentive for OES to adhere to the rules.”

The response from OES’ lawyers was swift.

Sims appeared before OES and WDO to answer for its accusations.

While no one from WDO, OES or the Recycler Qualification Office had ever been to China (this despite the OES program being in its fourth year of operation) Sims had been to China and had inspected the downstream e-waste recycling vendors in question. It also had lots of pictures of what it saw.

In its defense OES stated that while the e-waste appearing in China may have come from Canada and perhaps even from OES approved processors there was no proof that the material in question had come from the OES program itself.

Of course no one asked whether OES could verify whether the materials in question did not originate from OES’ program.

In June 2013 WDO sent Sims an insipid follow-up letter announcing EPRA and RQO’s first visit to China to conduct their first on-site audits.

It is June 2014 and Sims has won the race to the bottom.

It has been a privilege to have had the opportunity to work with the outstanding people at Sims Recycling Solutions over the last 4 years.

It’s a sad day.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


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