Policy Study

Extended Producer Responsibility

Reexamining its Role in Environmental Progress

Executive Summary

Environmental policymakers have increasingly turned their attention to the environmental impacts of products. One concept-extended producer responsibility (EPR)-has captured the hearts of policymakers globally. Variations on this concept have surfaced, but EPR policies generally impose a fee that is paid by manufacturers for targeted products, and establish specific “take-back” goals for each targeted material or product. EPR rests on the idea that if manufacturers pay for the post-consumer impacts of products, they will design them differently to reduce waste. But other opportunities to more fully include environmental values into product-design decisions exist, and their lack of realization should not be deemed “market failure,” but rather a natural consequence of the complexity of the design, production, and distribution of good and services, the physical impossibility of vigorously pursuing all values simultaneously, and the continual emergence of new values.

Most proponents of EPR assume that current product-design practices deter efficient resource use and don’t adequately mitigate environmental impacts. Yet product-design trends belie this assertion. Manufacturers are moving toward reduced material-use per unit of output, reduced energy use in making and delivering each product, and improved product performance-including environmental performance.

It is not clear that EPR programs accelerate or enhance this process for several reasons. First, the various goals of EPR programs are not necessarily compatible. For example, fees set to reflect recycling costs and thus encourage “design for recyclability” may discourage source reduction and use of lighter and more durable modern materials such as laminates, composites, and plastics. Second, there is no intrinsically right fee level for EPR programs. Packaging fees among European nations vary as much as 35-fold for identical products. Fee setting is generally a political, rather than a scientific or economic exercise. Resulting fees give manufacturers confusing and conflicting signals about which design goals to pursue. To date, EPR has been most frequently applied to packaging and electronics. There is no single model of EPR, so evaluating just a few experiences is at best only suggestive.

What does the record to date show? Germany’s celebrated take-back program for packaging has a mixed record, with high costs for performance achieved. Under its Green Dot EPR program, Germany exceeded its waste-recovery targets. But over same time period, with no EPR system in place, the U.S. experienced even greater reductions in total packaging used per unit of output. Canadian packaging manufacturers, who set a voluntary reduction target of 50 percent in packaging sent for disposal, achieved that goal four years ahead of schedule with no EPR and at lower costs than Germany. The Netherlands also had a voluntary approach to packaging reductions under which packaging consumption declined 6 to 15 percent per year initially, dropping to 1.5 percent in later years. Overall reductions in packaging materials were greater in the Netherlands than in Germany.

Effects of mandatory electronics take-back programs are either undocumented or ambiguous. If European Union (EU) EPR directives for electronics steer manufacturers away from plastics, EPR could reverse trends toward more lightweight materials use, increasing shipping costs and energy use. For some electronics products, EPR programs actually generate high costs with minimal or no gains in recycling or other environmental amenities.

Though mandated programs may generate costs with few environmental (or other product-value) gains, some voluntary programs are also emerging. These voluntary programs face several challenges that include: 1) finding mechanisms to attract customer participation; 2) establishing cost-effective collection and return networks for discarded products; 3) identifying markets and uses for returned products and materials; and 4) achieving cooperation where multiple firms are involved.

The performance of voluntary EPR programs depends on program design and the nature of the production and consumption marketplace within which the program operates. Voluntary take-back programs appear to have emerged when one or more of the following characteristics dominate: 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 consumer; 4) relatively close or ongoing relationship between the customer and manufacturer; and/or 5) high-end products for which environmental goals may enhance customer loyalty.

The failure of voluntary EPR programs to emerge in some instances is not evidence of market failure. It is an indication that manufacturers anticipate more costs than benefits to their consumers from these programs, and that some barriers (for example, disadvantageous tax treatment for leased rather than purchased products) may inhibit introduction of take-back programs. If benefits from EPR in a particular situation appear likely to accrue, those potential benefits represent an entrepreneurial opportunity that will, over time, attract investment.

Industrial ecology-market-driven innovations to add economic value through investing in environmental improvements to products and manufacturing processes-offers a more comprehensive framework than EPR for achieving environmental benefits. It involves a systematic search by manufacturers for opportunities to reduce environmental impacts as a source for cutting costs or increasing customer benefits.

Four factors are driving the trend toward industrial ecology. First is consumers’ increasing concern for nature and environmental values. Second is the emergence of “smart” technologies that make possible new relationships between manufacturers and suppliers and between customers and consumers, and that heighten prospects for replacing production equipment with “knowledge equipment” (for example, use of tractormounted computers to allow for highly tailored and efficient fertilizer application). Third is increasing affluence, which is correlated worldwide with increased environmental investment. And fourth is production dynamics, in which companies, having tapped the “low-hanging fruit” of savings available from improving labor productivity and energy efficiency, are now looking for competitive advantage in smaller, dispersed opportunities such as pollution prevention and waste exchanges.

Industrial ecology transcends the common assumption that environmental investments undermine economic performance. But industrial ecology does not rest on the expectation that all waste reduction and pollution prevention will yield bottom-line benefits. Instead, industrial ecology is best understood as a discovery system-a way of organizing information and framing problems.

Mandated EPR programs override this discovery process, forcing creation of take-back schemes within a regulatory framework that prescribes institutional arrangements. Like earlier environmental regulations that prescribed technological responses, such mandates stifle innovative market processes, impose uniform procedures for diverse circumstances, and necessitate the acquisition and reporting of large amounts of implementation and compliance data without guaranteeing tangible environmental benefits.

Attachments

Joel Schwartz is a Senior Fellow in the Environment Program at Reason Foundation. Before joining Reason, Joel was the Executive Officer of the California Inspection and Main-tenance Review Committee, the state agency charged with evaluating California's Smog Check program and advising the legislature and governor on Smog Check policy. Joel previously worked as a Senior Policy Analyst with the Legislative Analyst's Office in Sacramento, con-sulted for the RAND Corporation and the South Coast Air Quality Management District, and served as the first Staff Scientist at the Coalition for Clean Air, in Los Angeles. Joel earned a Bachelor of Arts in Chemistry from Cornell Uni-versity and a Master of Science in Planetary Science from the California Institute of Technology. He lives in Sacra-mento, California.

Dana Joel Gattuso is an adjunct scholar with the Washington, D.C.-based Competitive Enterprise Institute. She is also the Washington liaison for PERC-The Center for Free Market Environmentalism, and a policy consultant and freelance writer on environmental issues for a number of organizations, including The Heritage Foundation, the National Foundation for Environmental Education, and the Thomas Jefferson Institute. Previously, Gattuso was Director of Projects and Issue Management for Environment and Regulatory Affairs with the U.S. Chamber of Commerce. Before working at the Chamber, she was director of research with the San Francisco-based research group Pacific Research Institute. Gattuso also previously worked with Citizens for a Sound Economy, as Deputy Director of Regulatory Affairs, and at The Heritage Foundation. She has written numerous studies and articles for newspapers, magazines, and journals that have appeared or been cited in the New York Times, the Washington Post, the Washington Times, USA Today, the Baltimore Sun, the Detroit News, Fortune Magazine, and Regulation Magazine. She is also a contributor to the book, Privatizing Correctional Institutions (Transaction Publishers, 1992). Gattuso received her education at Butler University in Indianapolis and George Mason University in Fairfax, Virginia.