© Grant Thornton International. All rights reserved. WEEE Directive Review Legislative trends in the EU Waste Seminar Ekogaisma SIA Eesti Filiaal 28 May 2008

© Grant Thornton International. All rights reserved. I.In search of sustainable financial management of WEEE II.Competing schemes: a good or bad thing? III.The role of authorities: good management requires accreditation rules and transparency of Collective Schemes IV.One market: the need for EU wide definitions – Art. 95 EU Treaty V.Visibility of the fee: protecting European competitiveness VI.Questions & Answers WEEE Directive Review Legislative trends in the EU Slide 2

© Grant Thornton International. All rights reserved. I.In search of sustainable financial management of WEEE II.Competing schemes: a good or bad thing? III.The role of authorities: good management requires accreditation rules and transparency of Collective Schemes IV.One market: the need for EU wide definitions – Art. 95 EU Treaty V.Visibility of the fee: protecting European competitiveness VI.Questions & Answers WEEE Directive Review Legislative trends in the EU Slide 3

© Grant Thornton International. All rights reserved. Producer obligations with regard to the financing of WEEE  Financing of historic household waste (Art 8.3) –Collective obligation via collective scheme –Obligation // market share in current period  Financing of new household waste (Art. 8.2) –Individual Producer Responsibility (IPR) –Can be fulfilled individually or via a collective scheme In search of sustainable financial management of WEEE Slide 4

© Grant Thornton International. All rights reserved.  Art 8.3 EU WEEE Directive : historic household waste The responsibility for the financing of the costs of the management of WEEE from products put on the market before 13 August 2005 (historical waste) shall be provided by one or more systems to which all producers, existing on the market when the respective costs occur, contribute proportionately, e.g. in proportion to their respective share of the market by type of equipment.  Art 8.2 EU WEEE Directive : new household waste For products put on the market later than 13 August 2005 (future waste), each producer shall be responsible for financing the operations referred to in paragraph 1 relating to the waste from his own products. The producer can choose to fulfil this obligation either individually or by joining a collective scheme. In search of sustainable financial management of WEEE Slide 5

© Grant Thornton International. All rights reserved. Concerns arising from Art Individual Producer Responsibility (IPR)  Aim –To encourage the design and production of electrical and electronic equipment which take into full account and facilitate their repair, possible upgrading, reuse, disassembly and recycling  But –Is, within the scope of the other objectives of the WEEE Directive, IPR the right financial driver? –Will IPR support increased separate collection rates as well as sustainable financing of WEEE? In search of sustainable financial management of WEEE Slide 6

© Grant Thornton International. All rights reserved. Concerns arising from Art Individual Producer Responsibility (IPR)  IPR does not lead to any incentive to design for a better recycling of WEEE: IPR provides an incentive to Producers to minimize collection and to minimize costs  IPR is an incentive for increased illegal import and free-riding and increases the risk for externalisation of costs towards society (for instance orphan waste)  IPR decreases the ability of several stakeholders (especially Government) to monitor and control compliance with the WEEE Directive  IPR triggers Producers to step out of the market at the moment the financial obligation for new waste begins and creates hereby a potentially huge amount of orphan waste  IPR leads to additional environmental and financial costs without any added value to either the environment, society or the Producers due to the practical impossibility to identify and sort WEEE per individual Producer In search of sustainable financial management of WEEE Slide 7

© Grant Thornton International. All rights reserved. Concerns arising from Art Individual Producer Responsibility (IPR) How to manage these concerns? Different options can be developed, there is however only one sound solution beneficial to all stakeholders  Introduction of solidarity (collective financing responsibility) amongst Producers for new waste  This requires the Amendment of Art. 8.2  Introduction of a collective financing obligation for new waste on the basis of the market share of the Producers existing on the market in the period that the waste arises In search of sustainable financial management of WEEE Slide 8

© Grant Thornton International. All rights reserved. I.In search of sustainable financial management of WEEE II.Competing schemes: a good or bad thing? III.The role of authorities: good management requires accreditation rules and transparency of Collective Schemes IV.One market: the need for EU wide definitions – Art. 95 EU Treaty V.Visibility of the fee: protecting European competitiveness VI.Questions & Answers WEEE Directive Review Legislative trends in the EU Slide 9

© Grant Thornton International. All rights reserved. Issues arising from having multiple collective schemes dealing with WEEE lamps  Increased number of Free Riders  No implementation of the collective financing obligation (no allocation or issues with allocation)  Schemes collecting money for a product category though C&R nothing (lamps no residual value)  X-financing (in case of multiple category schemes)  Competition at the wrong level  Different schemes lead to competition on overhead costs (do nothing > low costs but also very low gains – e.g. no costs for awareness building and education, for the setup of a nationwide infrastructure, etc.)  No competition at the right level  No tendering for collection and recycling leading to increased costs Competing schemes: a good or bad thing? Slide 10

© Grant Thornton International. All rights reserved. Assumed risk resulting from having one Collective Scheme per category: Monopolistic behavior BUT Collective Schemes are / should be  "Not for profit"  No payment or dividend or other to shareholders etc  No economic incentive for increasing the reserve beyond what is required to comply with the WEEE Legislation = > No consumer surplus inside the Collective Scheme  Subject to monitoring and control by Govt.  Organizing competition where it does matter  Where: collection and recycling market  How: public markets (open tendering) => Having one Collective Scheme per category does not imply a monopoly or monopolistic behavior Competing schemes: a good or bad thing? Slide 11

© Grant Thornton International. All rights reserved. I.In search of sustainable financial management of WEEE II.Competing schemes: a good or bad thing? III.The role of authorities: good management requires accreditation rules and transparency of Collective Schemes IV.One market: the need for EU wide definitions – Art. 95 EU Treaty V.Visibility of the fee: protecting European competitiveness VI.Questions & Answers WEEE Directive Review Legislative trends in the EU Slide 12

© Grant Thornton International. All rights reserved.  Public authorities should apply due diligence when accrediting collective schemes so as to ensure a level playing field and the sustainable management of all the WEEE objectives  Public authorities should demand transparency by the Collective Schemes  To which degree have the Producer obligations been taken over  What does this imply for the transferred financing obligations and how does a collective scheme go about this in its activities  How is this reflected into the financial reporting and annual accounts  Monitoring and control, incl.  Strict enforcement of the Law by the appropriate public authorities (border control / VAT and other tax authorities, environmental inspection, police, etc.) The role of authorities Accreditation rules and transparency Slide 13

© Grant Thornton International. All rights reserved. In order to ensure a level playing field and the establishment of sustainable collective schemes, sound accreditation rules (Art. 95 EC Treaty) need to be implemented, incl.:  Legal format requirements, incl.  Not for profit character (no payment or dividend or other to shareholders etc.)  Business plan requirements, incl.  Sustainable financing covering for / based on full Producer responsibility  Full geographic coverage for collection  Information and communication planning  Penalties for non compliance, incl.  Monitoring and control procedures  Loss of accreditation / fines  Guarantee requirements  In case of dissolution of the scheme The role of authorities Accreditation rules and transparency Slide 14

© Grant Thornton International. All rights reserved. Different financing schemes lead to competition on overhead costs and different levels of compliance with all the objectives of the WEEE Directive The role of authorities Accreditation rules and transparency Slide 15

© Grant Thornton International. All rights reserved. Looking at the financing models existing in the market we observe that:  Only one financing model for historic household waste, i.e. model I 'financing based on the number of products that are expected to come back in the measurement period based on the average life time of the product' allows full compliance with all Producer obligations under the WEEE Directive.  All other financing models do not allow for full compliance with the spirit and the letter of the WEEE Directive.  As such, only the fee reflecting the full financing obligation of Producers can be used as a basis for allocation of the financing obligation across all Producers according to their market share in the measurement period. The role of authorities Accreditation rules and transparency Slide 16

© Grant Thornton International. All rights reserved. I.In search of sustainable financial management of WEEE II.Competing schemes: a good or bad thing? III.The role of authorities: good management requires accreditation rules and transparency of Collective Schemes IV.One market: the need for EU wide definitions – Art. 95 EU Treaty V.Visibility of the fee: protecting European competitiveness VI.Questions & Answers WEEE Directive Review Legislative trends in the EU Slide 17

© Grant Thornton International. All rights reserved. Example: Issues with the implementation of the EU Directive definition of "Producer" into national legislation:  The definition of "European Producer" is not implemented in the Member States (resulting into "national Producers" only)  This is amongst other things caused by the insecurity of national governments in their ability to control Producers from outside of their national territory  Drastic increase of number of importers (subsequently considered the "national Producer") reduces control  European Producers cannot register in all countries  End users can source “cross border” avoiding responsibility  Establishment of trade barriers / limited free movement of goods  E.g. due to the difference in burden for buyers when sourcing from a company able to assume Producer responsibility versus from a company not able to assume Producer responsibility One market: the need for EU wide definitions Application Art. 95 EU Treaty Slide 18

© Grant Thornton International. All rights reserved. ‘Producer’ means any person, established in the EU who, irrespective of the selling technique used, including by means of distance communication in accordance with Directive 97/7/EC of the European Parliament and of the Council of 20 May 1997 on the protection of consumers in respect of distance contracts (Art. 95 EC Treaty): i. Sells for the first time electrical and electronic equipment in the EU ii. Resells under his own brand electrical and electronic equipment supplied by other manufacturers, a reseller not being regarded as the ‘producer’ if the brand of the producer appears on the equipment, as provided for in sub point (i) iii. Resells in the MS, where it has an establishment, electrical and electronic equipment, upon acquisition from a producer, which has not fulfilled its legal obligations in the MS where the reselling takes place iv. Buys for own use as a professional end user, electrical and electronic equipment, from a producer, which has not fulfilled its legal obligations, in the MS where the electrical and electronic equipment is used or from a supplier outside the EU One market: the need for EU wide definitions Application Art. 95 EU Treaty Slide 19

© Grant Thornton International. All rights reserved. I.In search of sustainable financial management of WEEE II.Competing schemes: a good or bad thing? III.The role of authorities: good management requires accreditation rules and transparency of Collective Schemes IV.One market: the need for EU wide definitions – Art. 95 EU Treaty V.Visibility of the fee: protecting European competitiveness VI.Questions & Answers WEEE Directive Review Legislative trends in the EU Slide 20

© Grant Thornton International. All rights reserved.  Effective tool against free riders  Minimizes costs: no mark-up for WEEE costs through the supply chain  Builds ongoing consumer awareness  Historic waste still needs to be financed also after 2011  Future waste will also need financing and consumers have a key role to play in enabling financial and environmental sustainable solutions  Ensures the competitiveness of European Producers (WEEE costs only paid once, i.e. in the Member State where the EEE becomes waste)  Increases transparency Visibility of the Fee: protecting European competitiveness Slide 21

© Grant Thornton International. All rights reserved. I.In search of sustainable financial management of WEEE II.Competing schemes: a good or bad thing? III.The role of authorities: good management requires accreditation rules and transparency of Collective Schemes IV.One market: the need for EU wide definitions – Art. 95 EU Treaty V.Visibility of the fee: protecting European competitiveness VI.Questions & Answers WEEE Directive Review Legislative trends in the EU Slide 22

© Grant Thornton International. All rights reserved. V. Questions & Answers