I. Background
Resource conservation and waste minimization goals have long influenced production and product-design decisions of manufacturers. However, heightened concerns about waste and other environmental impacts, especially of consumer products, have escalated over the past decade. Those concerns have prompted a search for new institutional relationships (within firms, among firms, and between firms and customers) that: 1) create incentives for companies to deliberately incorporate waste-minimization values into product design decisions; 2) motivate firms to reduce the overall environmental impact of their production processes and products; and 3) motivate consumers to generate less waste and reduce their environmental “footprint.”
One such institutional innovation, now called “extended producer responsibility” (EPR), reallocates responsibility for postconsumer waste from the consumer or taxpayer back to the manufacturer through product take-back arrangements and/or product waste-handling fees. As firms compete to add value for the customers, EPR has emerged voluntarily in some settings, for some materials, and within some industries. These voluntary EPR arrangements are situated among a whole complex of other institutional innovations that share the common goal of reducing the environmental impacts of manufacturing processes and products. What distinguishes voluntary EPR arrangements from these other experiments in industrial ecology is one central feature–the reallocation from the end user to the manufacturer of some or all responsibility for products at the end of their useful lifespan.
In a 1998 informal survey of emerging institutional arrangements intended to enhance environmental responsibility, I have identified three different categories of voluntary programs that embody features of EPR. These include: 1) take back and product-leasing programs; 2) joint private-sector “green design,” recycling, and remanufacturing consortia; and 3) producer leveraging agreements with their private-sector suppliers.
II. Brief Description: Three Program Models
Take Back and Product Leasing. Voluntary take back programs in many ways mirror those created through legislation or public-private negotiated agreements. Individual companies or specific industries set up mechanisms to “take back” products, either directly to the manufacturer or through a designated collection network. Costs are borne either by an individual firm, when acting independently, or through a fee system established collectively by the sponsoring industry. In the United States, only one example of the latter approach-an industry-wide take back scheme-appears to exist to date. That program is the Rechargeable Battery Recycling Corporation, established by the rechargeable battery industry. Several pilot industry-wide programs also exist, such as a windshield take back pilot sponsored by the U.S. Council for Automotive Research (USCAR).
Other programs have been established by individual businesses independent of other firms operating in the same industry. These programs include Nike’s Reuse-a-Shoe program, Dell’s computer take back program, Hewlett Packard’s toner cartridge return program, several brand-name clothing return programs, a number of returnable transport packaging programs, Saturn’s bumper fascia return program, a furniture manufacturer retrieval program for foam shipping material, and several returnable camera programs.
Consortia for Green Design, Recycling, and Remanufacturing. Where manufacturers within an industry share common environmental challenges, especially relating to product reuse, recycling, and disposal, many collaborative research efforts have been undertaken. Well known in this realm are efforts of trade associations such as the American Forest and Paper Association, the Steel Institute, and the American Plastics Council. However, some industries have moved beyond the traditional joint research efforts that occur under the rubric of trade associations to embark on direct, industry-funded research into reuse and recycling on a partnership basis. Most notable of these efforts is the Vehicle Recycling Development Center (VRDC), established in 1994 as a partnership of the three American auto manufacturers, who also collaborate with the Automotive Recyclers Association, the American Plastics, Council, and the Institute for Scrap Recycling Industries. The primary goals of VRDC include: 1) finding ways to recycle automobile “fluff”-the 25 % or so of material remaining after recycling of the ferrous, nonferrous, and other readily recycled components.; 2) finding ways to more cost-effectively disassemble cars, including removal of fluids.
Producer Agreements/Collaboration with Private-Sector Suppliers. Most manufacturers are not fully vertically integrated, meaning that they purchase parts and other production inputs from outside suppliers. These relationships are often stable and involve large transactions, giving the manufacturer substantial “leverage” over the private-sector supplier regarding the environmental characteristics of supplier inputs. Through this leverage, firms can essentially invest in product redesign to meet company recycling, waste reduction, toxics use reduction, and other environmental goals. Such “green partnerships” between manufacturers and suppliers are among the most common forms of voluntary extended (or shared) producer responsibility programs. Notable examples include, but are not limited to: 1) Dell’s establishment of Environmental and Recyclability Design Guidelines for all input suppliers; 2) Hewlett Packard’s “Controlled Materials List,” in which suppliers must avoid 154 pre-identified hazardous wastes; 3) DuPont’s Emerald Environmental Services, which works with DuPont clients to implement waste-recovery programs; Bell Atlantic’s coordination with Westvaco, supplier of billing envelopes, to work with paper manufacturers to create an envelope of 100% recycled content, of which half is made from recycled phone books, diverting 575 tons of waste from landfills.
III. Program Challenges
Program challenges vary by program type but generally include: 1) finding mechanisms to attract customer participation; 2) establishing cost-effective collection and return networks; 3) identifying markets and uses for returned items; and 4) achieving cooperation where multiple firms are involved.
Customer Participation. Some programs use incentives–such as Nike’s $5 rebate on returned shoes–to generate customer participation. Other programs involve direct economic benefits to consumers–as in the case of Dell’s computer leasing and take back program–that stimulate consumer cooperation. Others, such as LensCrafters’ eyeglasses return program, use a social services approach by working with local nonprofit Lions Clubs to generate consumer responsiveness.
Customer participation is a critical issue for take back programs; for manufacturer-supplier leveraged agreements, the preexisting relationships, the economic incentives suppliers have to meet the needs of their manufacturing customers, and the relatively small universe of suppliers that some companies interact with make customer participation less of an issue for these agreements.
Collection Networks. Our survey showed nearly as many different collection networks as there were programs, but these networks fall into several categories: 1) contracting with professional shippers using prepaid shipping labels; 2) direct return to retail outlets where they are reshipped to the manufacturer; 3) use of nonprofit service organizations as collection centers; and 4) use of a manufacturer-operated return network.
Under the first category are those such as Hewlett Packard—s toner cartridge take back program. HP supplies all customers with prepaid United Parcel Service (UPS) shipping labels. Large customers also receive free of charge bulk shipping containers for multiple cartridges. UPS picks up returnable cartridges either directly from the customer, or the customer can take the cartridge to Mail Boxes Etc., a private mailing service, where UPS will pick up the cartridge. UPS now has over 200 clients that use its Asset Recovery Service (ARS) to provide for efficient, prepaid return of items from the user back to the manufacturer. Some of these ARS programs have no environmental dimension; others, like the Hewlett-Packard program, are specifically designed with environmental goals in mind. The UPS program allows companies with take back programs to take advantage of a preexisting, highly efficient shipping network. However, such prepaid shipping programs appear most feasible only where the returned product has high reuse, remanufacturing, or recycling value, as can be the case for photographic equipment or some electronic supplies and equipment.
Under the second category are numerous programs such as Nike’s Reuse-a-Shoe program and the Ecolog outdoor clothing program. Use of retail outlets appears feasible primarily when the manufacturer has a preexisting, decentralized and substantial network of retail outlets or distributors that provide broad customer access across market areas. LensCrafters “Gift of Sight” program uses a combination of its over 700 retail outlets, plus the nonprofit organization, Lions Club International, to provide a product return network.
Under the final category are several product-leasing programs, including, especially some returnable pallet programs. Chep USA ships products in a variety of returnable containers and pallets, each marked with a bar code for tracking purposes. Chep provides participating customers with computer software to allow for tracking and return of container inventory.
Manufacturing research consortia such as the VRDC typically work with existing infrastructure, including auto retailers, auto scrap dealers and dismantlers, to identify key issues and research applications. Since no real product take back occurs, the collection issue is not relevant.
Identifying Markets and Uses. All voluntary take back programs in our informal survey actively invested in and developed end uses for returned products, including reuse, remanufacturing, and recycling. In most instances, the take back program has generated up front product redesign. These redesign efforts vary but typically include one or several of the following features: 1) increased product simplicity for easier material separation and reduction in contaminants in the recyclate; 2) greater ease of disassembly, through use of modular parts, elimination of glues or welding; reduction in number of parts; etc.; and 3) increased durability of parts designated for reuse. Examples in each of these three categories include Ecolog’s outdoor clothing, with all parts made of a single, highly recyclable polyester; Dell’s use of modular computer components, reduction in number of materials used, and reduction in use of welding; Xerox’s switch from plastic to more expensive, but more durable copy machine parts that facilitate reuse.
In numerous cases, manufacturers conduct materials research to create marketable and high-quality end uses for recyclate. Nike has developed its Nike Grind, made of recycled shoe parts, that it licenses for use by makers and installers of athletic surfaces. Saturn developed internal uses for recycled bumper fascias. Saturn developed processes to remove paint from bumpers and recycle the bumper fascia materials into new car parts.
Achieving Industry Cooperation. Most voluntary efforts operate through the actions of individual firms, so the issue of coordination and cooperation is not relevant. However, the several examples of industry-wide take back or joint research efforts suggest several features of the cooperative efforts. In the case of the RBRC, cooperation was, in effect, greatly facilitated as the industry faced a common legislative challenge–specifically, the designation of Ni-Cd batteries as a hazardous waste. This challenge helped coalesce the industry to move toward common action and provided an impetus for the 200 participating companies to pay licensing fees to use the RBRC “Charge Up to Recycle!” logo.
The other major industry-wide effort, involving the American automakers, did not result from specific legislation but from a common perception of a growing challenge of how to recycle the 25% of auto materials typically not recycled in traditional scrap operations, especially in the context of growing public interest on materials recycling. Transaction costs to achieve coordination were likely limited because of the small number of “players”-there are only three major American automakers.
IV. Thumbnail Sketch: Issues and Opportunities
Motivations for Voluntary Action. An informal survey of voluntary programs in each of the three institutional models shows varying motivations for program start up.
Regulations. At one end of the spectrum are indirect regulatory motivations–that is, regulations that do not require product take back but which make such arrangements more economically attractive. At least two programs fall into this category: the Rechargeable Battery Recycling Corporation (RBRC) “Charge Up to Recycle” program and several appliance take back programs. In the former instance, redesignation of nickel-cadmium batteries as hazardous wastes created product-liability concerns and introduced more costly and complicated disposal requirements. Recycling under these circumstances offered not only potential environmental benefits but avoided disposal costs and related liabilities. In the case of appliances, some take back initiatives emerged in response to state laws that required removal of hazardous materials before “white goods” scrap could be recycled and to federal Clean Air Act requirements regarding removal of chlorofluorocarbon refrigerants.
Economics. At the other end of the spectrum are economic drivers in which take-back programs create clear economic benefits for customers. Dell’s Asset Management Program can provide economic benefits to customers. Ernst & Young uses Dell’s direct leasing program, which in one year supplied the company with 20,000 laptop and desktop computers. US tax law requires that computers be depreciated over five years, yet most firms use equipment for just two to three years. As a result, computers often sit on the books, requiring continued payment of property taxes on the equipment, and generating storage costs. Companies can also pay $300 or so for their disposal. Avoiding these costs meant substantial savings for Ernst & Young, as well as environmental benefits. Under Dell’s leasing program, after 24 months, older computers can be returned to Dell, who, in turn, refurbishes or recycles them. Economics plays a part in other take back programs such as Hewlett Packard’s toner cartridge take back program.
Image-Building. For other programs, the primary motivation appears to have been image-building. Where image building maintains and attracts customers, image-building and economic benefit are integrally related. Nike’s Reuse-a-Shoe program and LensCrafters’ “Gift of Sight” program both provide opportunities to blend environmental, social, and economic goals. In both cases, the products represent a relatively small-even unmeasurable-part of the total waste stream. However, individually, the programs result in the return and reuse or recycling of millions of products. LensCrafters has collected over 2 million pairs of used eyeglasses; Nike collected over 2 million shoes in 1997. In both instances, the take back programs are then linked to social programs-provision of free eyeglasses to low-income recipients, and contribution by Nike toward building of athletic surfaces for schools, youth programs, etc., made from Nike Grind recycled material.
Challenges and Barriers. Voluntary EPR programs are situated within a larger market context. Sustainability of these programs, hence, hinges on cost-effectiveness. All programs surveyed placed a premium on integrating economic concerns with environmental goals. For example, a key to recycling automobile fluids is the ability to remove fluids quickly, reducing labor costs. VRDC set a goal of reducing disassembly time for a single auto from 45 minutes to 20 minutes, to improve the economics of disassembly. The white goods industry has likewise focused on improved, cost-effective means for removing CFC refrigerants before recycling.
But cost-effectiveness can be influenced by nonmarket factors. In the case of returnable shipping pallets, tax laws can deter the use of returnables. For example, many states exempt nonreturnable shipping pallets from sales taxes but require payment of sales tax on returnable, leased containers. This differential taxation creates an economic hurdle that can be difficult for suppliers of returnable, leased pallets to overcome.
Uneven enforcement of regulations can also affect incentives for firms to establish take back or other programs to enhance environmental performance. For example, US federal law requires removal of hazardous materials from appliances before recycling of scrap metal. However, this requirement is unevenly enforced. According to the Appliance Recycling Centers of America, Inc., only the U.S. EPA regional offices covering Pennsylvania and Ohio have taken enforcement actions against scrap yards for violations of intentionally venting CFCs. Appliances, on average, weigh 150 pounds; current scrap values garner recyclers about $3 per appliance (at $40 per ton, which is a “high” value in today’s markets). Costs of hazardous waste removal are not offset by scrap prices, thereby requiring that a fee be charged for this service. But with widespread nonenforcement of the removal policies, neither manufacturers, end users, or others have any incentive to pay removal fees.
In several cases, public-private partnerships have created incentives for participation in take back programs. Indiana’s Department of Environmental Management, working with the Indiana Drycleaning and Laundry Association, established a 5-Star Environmental Recognition Program for drycleaners. The program is a flexible labeling program, with five tiers of actions and options that drycleaners can undertake; the more of these tiered actions undertaken, the greater number of stars awarded. Levels two and above include the establishment by the participating drycleaner of a “take back” program for hangers and drycleaning bags.
Each product and industry faces a series of specific “devilish details” that influence what institutional arrangements will add both environmental and economic value. Ech industry also faces its own specific set of barriers and challenges that can only be hinted at in a general overview.
V. Conclusion
How effective these programs are (or will be over time) in advancing environmental goals depends on a number of factors that include, but are not necessarily limited to: 1) ability to overcome interfirm, intrafirm, and other coordination barriers (thereby reducing private enforcement costs; 2) success in motivating “green design,” waste reduction, reuse, recycling, and remanufacturing; 3) success in motivating “green” consumption and waste-handling choices; 4) scope and intensity of unintended (negative) consequences associated with the program: and 5) financial sustainability. How these programs perform is both of function of the particular program design and the nature of the production and consumption marketplace within which the programs operate.
A number of factors appear to influence the likelihood that voluntary EPR programs will emerge, what particular form these programs will take, and whether they will be efficient and effective over time. The incidence and form of these programs appears to be affected by the:
- Number of affected products within a target category
- Frequency of product transactions
- Degree of product homogeneity within a product category
- Size and scope of a product distribution network
- Degree of harm (liability) associated with product mishandling in use and disposal
- Nature of existing discards-handling infrastructure
- Number of manufacturers within an industry
- Availability of consumer incentives/disincentives for appropriate product use and disposal or recycling
To date, voluntary take back programs appear to have emerged in circumstances where there are one or several of the following characteristics: 1) a high risk of improper disposal and associated liabilities; 2) a high value associated with the discarded product; 3) relatively low-frequency, high-value transactions between a manufacturer and a consumer; 4) a relatively close or ongoing relationship between the customer and manufacturer; and/or 5) specialty or high-end products for whom environmental or other social goals may enhance customer loyalty. In the absence of any of these qualities, environmental stewardship is taking different forms through environmental certification initiatives, firm-specific life cycle analysis in product development, and so on.
The variety of institutional arrangements that are emerging suggests that environmental progress involves not only technological innovation but also institutional innovations that better link production and consumption choices to the environmental impacts associated with those choices. A competitive market context helps to foster this institutional discovery process and allows firms and industries to tailor their environmental responses in ways that match the industry profile. Legislation can deter or stimulate this discovery process. Key areas for focus include taxing policies, policies pertaining to toxic waste liabilities, and information programs.
Lynn Scarlett is president of Reason Foundation.