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Paper Users Face New Blue Box Tax in Ontario and Quebec

Users of paper that ends up in Ontario households are currently liable for a special levy or tax of between $3 and $90 a tonne, most of which gets paid to Ontario municipalities for recovering it for recycling. A few months ago the tax on paper packaging was $47 a tonne but that was a negotiated fee to get the scheme launched. Who knows where the tax will end up. There is no cap on how much a municipality may spend on its popular blue box curbside collection system, and on top of that, the province’s environment minister is pushing what seems like a “diversion-for-diversions’-sake” agenda.

What has paper done to deserve this? The answer is extended producer responsibility (EPR) or “stewardship” as it is known in Canada. And Ontario is only the beginning. Look out for Quebec (which recently accredited Eco Entreprises Quebec to raise funds from industry) and Manitoba next (together with Ontario, that’s about two-thirds of Canada’s total population). Don’t think that a lot of cash-strapped states and US municipalities aren’t looking with green eyes to the north. They are.

History

Firstly, the background. Canadian provinces have taken different routes in exerting their jurisdictional authority in residential solid waste matters. About the only thing in common is industry-managed closed-loop recycling for beer packaging, although beverage deposit regimes exist in eight of ten provinces. Other waste streams (primarily similar usage type categories such as used oil, tires or paint) are generally regulated separately from other material groups, with electronics the new kid on the block.

This increasing regulatory framework is being driven by the recognition by both government and industry that so-called “voluntary” stewardship has its problems, the non-volunteers or “free riders” who avoid payment and the need for “level playing fields,” between the various players, including importers. What’s called backdrop or enabling legislation is the typical option adopted.

Ontario, in common with governments around the world, but especially in Europe, has found it expedient to cloak such regulation in environmental green, when the real agenda is to transfer costs from the municipal tax base to industry and/or consumers. Politicians can claim (somewhat disingenuously) that “the polluters” are now paying and that their electoral promise of “no new taxes” is being upheld. In the meantime, municipalities will hopefully stop complaining about provincial downloading of costs and not threaten to abandon their Blue Box programs (which the municipalities know will upset the public and turn up the political heat on the province). Such political posturing and threats certainly played their part in the way both the former and current Ontario governments handled the controversial Blue Box file back in 2003, leading to the present situation.

Ontario’s enabling legislation, the Waste Diversion Act, set up a non-crown corporation called Waste Diversion Ontario (WDO) to develop, implement and operate various waste diversion programs (Blue Box, used oil, tires, electronics). But it’s abundantly clear that it is the provincial minister of environment who calls the shots. It is the minister who defines and designates waste materials for action, who determines who sits on the WDO and industry funding organization boards of directors, and who approves the rules for “stewards”, including fee schedules.

Stewardship fee structure

The industry funding organization (IFO) for Blue Box waste is Stewardship Ontario (SO), comprising representatives of seven industry associations covering retailers, grocery distributors, packaging brand-owners, the liquor, soft drink, paint and coatings industries, and newspaper publishers. Stewardship Ontario, in turn, has delegated its secretariat functions to another industry association (CSR, Corporations Supporting Recycling). The industry members of the boards of WDO, SO and CSR are not elected by industry at large, however. They are chosen or approved by the minister, and in the case of CSR chosen from among its 30 members. This situation has given rise to industry claims of, “taxation without representation,” and to a decidedly tangled web of potential conflicts of interest, since many of the same players sit on the same boards and/or their various committees.

Probably the most important decision these boards make is on the fee structure. Under the Act, industry by law is on the hook for 50% of the total net cost of Ontario’s almost 200 municipal Blue Box programs (see side panel on how the stewardship scheme works). But the Act also pre-determines how that industry money shall be raised, and that’s where the controversy rages and paper and the other traditional recyclables are penalized.

The province did not want this new Blue Box fee or levy to be seen by the Ontario public as a tax. So they declared that the industry funding formula be closely linked to actual direct program costs (in other words, it was a fee for service, not a tax). And the current provincial Liberal government has stuck with this, refusing so far to review this fundamentally flawed part of the Act.

What the Act and funding formula do, is impose a fee on a material whether that material is collected or not (so where’s the service?), but more importantly for the paper industry, it penalizes those materials that have traditionally been collected from households. PPEC has been fighting an ongoing war with the ministry of environment over this issue. The attached tables graphically show the perverse impact the current levy has on three material categories (paper and plastic packaging and printed paper). The numbers are different but the trend line is the same.

What the numbers show is that the more you recover, the more it costs you in steward fees. For example, collecting absolutely no paper packaging is actually cheaper for you as a steward (at $63.67 a tonne) than achieving a 60% recovery rate (supposedly a good thing) only to get hit with an $83.45 a tonne fee! When plastic packaging has a miserable Ontario residential recovery rate of just 16% and is now the largest packaging material (by weight!) remaining in household garbage, what possible incentive is there for a plastic steward to recover more plastic when zero recovery or even 20% recovery is half the fee cost of 60% recovery?

Conclusion

The current fee structure makes a mockery of the purpose of the Act (to encourage greater recovery) and of the minister’s statements that the province wants to reward good environmental players and to penalize the bad ones. Waste Diversion Ontario itself has even warned the minister about the potential for a “growing inequity” in the fee rates, nothing that under the current Act, “those materials with the highest recycling rates …will attract the highest costs.” Neither Stewardship Ontario nor the WDO nor the ministry has disputed the accuracy of PPEC’s numbers. They would just prefer not to deal with the issue at the moment.

PPEC will be increasing the public component of its campaign shortly.

This whole situation raises serious concerns about current and future costs of Ontario’s Blue Box system and the potential impact this could have on paper recycling viability. Three-quarters of the Blue Box is paper material of one kind or another, representing some 20% of Ontario recycling mills’ furnish. So the Blue Box is essentially a paper recovery system. Recognition of this fact and of the increasing cost and quality pressures on the industry, spurred PPEC to issue a request for proposals recently on alternatives to the current curbside system. What about a paper box only? What would you do with the other materials? Significantly higher recovery rates for non-paper materials (plastic, glass and metal) are being achieved in beverage or container deposit systems in eight of Canada’s ten provinces (see table). The questions that inevitably arise then, are economical, to establish the costs of relative systems s
o that we can see the way ahead. The status quo is not sustainable.

John Mullinder is the Executive Director of PPEC (Paper & Paperboard Packaging Environmental Council) in Etobicoke, ON.

How Ontario’s Blue Box stewardship scheme works

The Waste Diversion Act specifies that industry must pay 50% of the total net cost of Ontario’s municipal Blue Box programs. For 2005 purposes (the 2005 fees relate to 2003 program costs) this amounts to $58.77 million, but then there’s the administration costs of Stewardship Ontario secretariat CSR and some WDO and ministry of environment expenses (enforcement), bringing the total to $63.95 million.

This $64 million is then divided for payment among the “stewards,” these being those whose printed paper or packaging materials are likely to end up in Ontario households. The stewards are generally defined as packaging brandowners or first importers and newspaper publishers. (The paper and plastic industries successfully lobbied against material suppliers being forced to become “voluntary” stewards for their brandowner or grocery distributor clients, at least legally. We can’t control what might happen in the commercial marketplace).

All stewards must register with Stewardship Ontario, detailing what they put into the residential marketplace, and then forward a cheque depending on the fee rates assigned to the materials they use.

After deducting its administration fee, Stewardship Ontario passes on the money to the municipalities.

Ontario Blue Box Fees (2005)

Newsprint (1)$2.71 per tonne

Newsprint7.86 per tonne

Magazines and catalogues8.62 per tonne

Telephone books13.02 per tonne

Other printed paper90.29 per tonne

Paper-based Packaging (collectively)79.04 per tonne

Plastics Packaging139.07 per tonne

Steel Packaging47.45 per tonne

Aluminum cans (2)(10.93) per tonne

Foil and other Aluminum Packaging55.02 per tonne

Clear Glass Packaging37.61 per tonne

Colour Glass Packaging44..32 per tonne

(1) of the Canadian Newspaper Association and Ontario Community Newspaper Association get a break because they contribute $1.3 million in in-kind Blue Box advertising.

(2) Aluminum cans get a credit since their revenue is higher than their cost to collect and process.

Source: Stewardship Ontario

Extended Producer Responsibility

We can argue for hours about the pros and cons of visible and invisible “stewardship” fees, levies or taxes. The ultimate payer is always the same (you and I) whether as municipal taxpayers or consumers or both. Extended Producer Responsibility or EPR is a wonderful academic theory, but in practice, in most Canadian provinces, it’s nothing more than a disguised tax or user fee. Governments do not have the guts to be honest with the people they supposedly represent.

The Ontario Minister of Environment, for example, rarely misses an opportunity to extol the virtues of EPR. She has made statements that her government is “shifting (its) emphasis to ensure that good environmental players are rewarded and bad players penalized”: that “good performers will be rewarded with incentives while polluters will pay for their actions.”

The problem is that the Blue Box “fee/ levy/tax” that she has endorsed does the exact opposite. The Ontario government does not want this Blue Box tax to be perceived as a tax so they have gerrymandered it to be so closely linked to the costs of managing recyclable materials that it actually penalizes them for their increased recovery. This is a perversion of true EPR.

For example, under the Ontario scheme, if no paper packaging is recovered from households it still attracts a “steward fee” of $63.67 a tonne (because it enters the residential marketplace). Recovering 60% of that packaging, however (which is presumably a good thing and what the Waste Diversion Act says it’s promoting) bumps up the “stewardship fee” by 31% to $83.45 a tonne. In other words, the formula penalizes those extra recovery efforts.

Similarly, for plastics packaging. What possible incentive is there for a plastic “steward” to recover more plastics when zero recovery costs only $31.40 a tonne compared to a $249.76 a tonne fee for 60% recovery? What would you lobby for if you were a plastic steward?

Background on PPEC

The Paper & Paperboard Packaging Environmental Council (PPEC) was created 15 years ago by the mills that produce containerboard, boxboard and kraft paper and the converters who turn these materials into corrugated boxes, boxboard cartons, and paper bags and sacks.

PPEC’s 120-member companies thus represent two vital components of the product distribution and resource recovery chain, the converters who supply paper materials to their clients and the mills that take it back for further recycling.

Because of its crossover membership, PPEC also represents more than just packaging interests. Several of its mill members also produce and/or recycle non-packaging grades such as newsprint, magazines, and printing and writing paper.

PPEC’s major focus in recent years has been on the implications of stewardship schemes on the paper industry.

For more information see www.ppec-paper.com