Ontario Packaging, Paper Fees Complex for Industry

by Michele Raymond

Manufacturers that sell in Ontario Canada will be saddled with one of the most complex packaging fee systems in the world by June, with some paper fees exceeding those in many European countries, experts say.

Stewardship Ontario (SO) held its third stakeholder meeting January 16 in Toronto to explain the status of the recycling fees, and to get more input from companies affected by the new stewardship law, Bill 90.

Bill 90 authorizes the Ministry of Environment (MOE) to require take-back of a wide range of packaging and products. There will ultimately be nine “industry funding organizations” or IFOs created for different items that will be designated for stewardship by MOE. The first and most complex round is for Blue Box materials, including packaging and printed papers going to households.

New draft regulations are due to be published soon for tires, and for used oil. Within two years, the Ministry plans to also designate organic waste, batteries, fluorescent tubes, pharmaceuticals, electronics and other hazardous wastes.

To meet the requirement that industry reimburse municipalities for 50% of its Blue Box curbside recycling costs, SO met with different material sectors, run estimates of recycling and net costs, and come up with draft fees for different materials.

This means that in Ontario, companies selling more than $2 million (wholesale) or who market more than 15 (metric) tons of packaging or papers to consumers, must calculate weight-based fees on each material they use. This will be the first time in North America that weight-based fees will be assessed on packaging.

Even though not all kinds of packaging are collected in Blue Box, SO will be collecting fees on all packaging – ostensibly because a few cities have a “wet-dry” system that collects everything.

Two factors will make the law complex and possibly expensive for North American product makers:

1. Instead of charging one fee for plastics and one fee for paper as most countries do, the new Ontario draft fee schedule breaks out the materials in more detail. Thus, companies will have to calculate one rate for polystyrene, another rate for films, HDPE bottles and PET bottles, and yet another for “other” plastics. There are also several categories of laminates, ferrous metals, aluminum, and glass.

2. The law includes printed papers – not just fliers that are sent separately to consumers or put in stores, but package inserts as well. Thus, manufacturers will have to weigh their inserts and pay fees on them. No other country has such a system.

While there are recycling targets, industry must meet the financial target, which comes to $31.2 million (CDN) per year for now. SO plans to have all approvals on fees and begin charging in June, so industry’s cost for 2003 will $18.2 million.

The obligated brand owners must make up the difference for the approximately 30,000 companies that will be exempt. This means SO must try to reach 5,000 – 10,000 companies and get them to calculate and pay fees.

Since this is a financial target, companies that do pay in will simply pay higher fees to make up for “free riders.” For example, the plastic laminate fees will be about 9.78 cents per kilogram, (CDN) but if SO can get 95% compliance, it will be 6.5 cents per kg.

SO technical director Gordon Day explained at the meeting that if SO does not raise enough in one year, it raises fees the following year to make up the difference, but if it over-collects, then it credits back and charges less the next year. There will be no rebate checks, he confirmed. Day assured industry members that SO has no intention of building a reserve fund, as many producer responsibility organizations have done.

He also stressed that costs will vary according to market fluctuations in commodity prices. For example, SO would have to raise about $11 million more if there were no income from aluminum.

In his presentation, Day explained there will be about $4.8 million in administrative costs that SO must collect. The administration will be $3.3 million, $475,000 to be spent on glass market development, and $100,000 on Ministry enforcement (industry must reimburse government for this as well.)

It appears that few companies are happy with how Bill 90 is being implemented – though staffers explain they are doing the best they can with the requirements of the law.

While industry complains they have no control over how cities will spend the money, municipalities are already complaining that industry is taking too long, that the money is not enough, and that they do not have enough control. The industry IFO can withhold a certain amount of money, and payments will be based on what an efficient program should cost, not “cost plus.”

A steering committee member from Nestle complained bitterly that some brandowners were told one thing, but now are seeing something quite different. He noted that they thought the fees would be on a basket of goods and not by material. He was also unhappy that the newsprint share of costs has been negotiated down so much.

Derek Stephenson, SO program manager who has been developing the fees, acknowledged there have been a lot of politics in the process, but that they are trying to be as transparent as they possibly can, given the time constraints.

One retailer complained that compliance with this law will add 10% to his on-brand product costs. Another complained that some distributors might re-distribute their business so they all fall under the $2 million rule, which will place an unfair burden on the larger retailers and brandowners.

Another brandowner questioned the precedent the law will set for other provinces. “If other provinces know they can get one-half their curbside costs paid for, why wouldn’t they?” (Quebec is poised to copy Ontario once systems have been established.)

Damien Basset, CEO of SO said the alternatives (e.g. the big deposit programs in most provinces) are much more expensive. For example, in Vancouver British Columbia, curbside bottle handling costs about $80-$100 per ton, while the deposit material costs about $800 per ton to handle.

One source told SRLU the fee schedule ended up being complex because the staff has been spending too much time negotiating with the different material groups, who did not want to overpay, so items got separated out.

Implications for Manufacturers
Multi-national manufacturers already pay package recycling fees in 24 countries. However, most delegate the tasks to European and Asian distributors. Few centralize the task. This law means that companies will now have to weigh each packaging component they sell in Canada.

According to compliance consultant Victor Bell, of Environmental Packaging International, who is providing technical support to SO, few companies have kept data on their package inserts, so this and the complexity of the fees will be time-consuming to some companies.

He says companies can estimate the first year, by taking 10-25% of their line, the top-selling items, weigh that packaging, and estimate. They can also use a quick calculator that will be on the SO web site later.

He says the Canadian market is small enough that the burden of calculating these fees will probably fall upon U.S. headquarters for many companies, even though they will be paid by the Canadian distributor.

How do Ontario’s fees compare with Europe’s? Bell says the plastics fees are the lowest in the world, and paper is on the low end, but not the lowest. Plastics fees are about 50% higher than paper in Ontario, but in Europe they are 5-10 ti
mes higher than paper.

Graham Margetson, director at Foresite Systems Ltd. UK, which makes fee calculation software, says the few companies that have centralized their packaging data for fee calculation are saving money overall. He says all of Ontario’s fees schedules will be incorporated into the Pack.NET software once they are finalized.

What’s Included:
Definitions and exemptions: “packaging” will include most retail packaging, including pizza boxes, disposable plates, gift wrapping put on by retailers, cookie tins, plastic wrap, and CD film over wraps, as well as labels, mascara brushes, staples, pins, clips, measuring devices for dosages, etc.

Packaging that would be exempt would include flower pots, tool boxes, tea bags, wax layers on cheese, game boxes, durable video storage and CD cases. Ceramic and crystal packaging is exempt.

Transport packaging not intended to be used by consumers in households is exempt. Durable goods makers are to calculate total packaging, then deduct a percentage that goes to commercial accounts not intended for consumer use.

Definition of “papers,” to include newspapers, magazines, catalogues, directories, lottery tickets, brochures, annual reports, unsolicited consumer materials, transit schedules, and package inserts, including warranty information, and assembly instructions.

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