Slide 1 Blue Box Program Plan Review for 2007 Stewardship Ontario Funding Formula - Second Public Consultation Meeting - February 14, 2006

Slide 2 Introduction to Session & Website Mechanics Lyle Clarke & Neil Antymis

Slide 3Welcome!  Second public consultation meeting on Blue Box Program Plan (BBPP) review for 2007 & Stewardship Ontario’s funding formula for stewards  More than 100 people here in person  Approximately 30 registered by webcast  reflects interest & participation of diverse stakeholders

Slide 4Agenda 8 a.m. Registration open 9 a.m. - Meeting begins - Steering Committee presents preliminary recommendations 10:20 a.m. Break 10:40 a.m. - Steering Committee & Stakeholder Panel Questions & Answers - Review of next steps 12:30 p.m. (approx.) Meeting closes

Slide 5 Our Audiences  Webcast audience listening on-line  speakers will refer to slide numbers to prompt you to move to the next slide  questions to:  Archived webcast available for 180 days

Slide 6 Opening Remarks Derek Stephenson Program Manager

Slide 7 Opening Comments (1)  The work of the Steering Committee to date has been reviewed by newly expanded Stewardship Ontario Board  Board now includes wider representation from  durable products & distributors – CHHA  retail & distribution, including CRFA & Costco  consumable products, Unilever, Nestle, Kraft  Believe it has been an open & thorough review

Slide 8 Opening Comments (2)  Board is supportive of directions outlined, but as with each of you, individual members are thinking through carefully the impacts & issues before final decision  While program has been successful in meeting the obligation of stewards to date  2005 target has been met  MOE received only 3 comments during most recent fee-setting  Board welcomes attendees’ input as to whether BBPP can be made better

Slide 9 Lyle Clarke & Neil Antymis Steering Committee Preliminary Recommendations

Slide 10 Topics for Today’s Presentation  Objectives of review  Principles guiding the review  Objective of the meeting today  Review of process & timelines  Screening criteria used  Review current funding formula  Summary of input & comments  Steering Committee recommendations  Check against key screening criteria  Next steps

Slide 11 Objectives of the Review  Fulfill commitment made during 2006 fee consultation process to consider modifications to BBPP fee setting methodology  Provide an opportunity for all stakeholders to:  re-evaluate the current funding formula  identify & assess potential modifications or alternative approaches

Slide 12 Review of Process & Timelines (1) Draft discussion paper approved & circulated 1 st Advisory Committee meeting 1 st Public Meeting Oct 25 Oct 27 Dec 8 Receive & review written comments - detail for modeling impacts - further general comments Dec 22 Jan 12 Steering Committee recommendations Jan 20 2nd Advisory Committee meeting Jan 25 Stewardship Ontario Board approval of preferred option for the purposes of further consultation Jan 31

Slide 13 Review of Process & Timelines (2) 2nd Public Meeting - recommendations on Funding Formula (FF) & related changes to BBPP Feb 14 3rd Advisory Committee meeting - preferred option & related impacts on BBPP Mar 6 Stewardship Ontario Board approval Mar 8 Review by Waste Diversion Ontario (WDO) Board Mar 22 Recommendations forwarded to Minister

Slide 14 Screening Criteria (1)  Complies with legal requirements of Waste Diversion Act (WDA)  Furthers policies & goals of WDA & BBPP  Material impact that warrants change  Treats stewards & materials in a fairer manner  Strengthens incentives for 3Rs

Slide 15 Screening Criteria (2)  Improves simplicity & transparency  Facilitates compliance & auditing  Has a proponent  Sufficient outline of approach & data for effective modeling

Slide 16 The Current Funding Formula (1)  Sets fees within context of:  the goals & objectives of the BBPP  the requirements of the WDA, &  program requests made by the Minister of the Environment

Slide 17 The Current Funding Formula (2)  Defines Blue Box Wastes (BBW) as those managed primarily within municipal waste stream  Exempts thousands of companies generating small quantities of BBW from the program  Recognizes differences in costs to manage different material types

Slide 18 The Current Funding Formula (3)  Encourages the diversion of greater quantities of BBW  lowest possible total cost to stewards & municipalities  encourages recovery of next least cost tonne of BBW  shares some of the costs incurred by stewards of materials with the highest recycling rates among stewards of materials with the lowest recycling rates

Slide 19 The Current Funding Formula (4)  Minimizes cross-subsidization among material categories  Provides for a material specific market development fee to help remove barriers to recycling & to improve revenues, &  Shares common program delivery & administration costs across all stewards

Slide 20 In summary: Meets the legal obligations of stewards to share in the costs of operating municipal recycling programs in a manner which minimizes total Blue Box (BB) program costs & for fairness, shares these costs among all obligated companies. The Current Funding Formula (5)

Slide 21 Overview of Input & Comments (1)  Suggestions received since the BBPP first approved (December 23, 2002)  October 27 Advisory Committee meeting to identify additional suggestions & review the long list of ideas  December 8 public stakeholder meeting input

Slide 22 Overview of Input & Comments (2)  Additional written comments received following December 8 meeting  summary of comments posted on Stewardship Ontario website  January 25 Advisory Committee meeting to review preliminary direction of Steering Committee

Slide 23 Issues Raised by Stakeholders (1) 1.Insufficient sharing of costs incurred by high recycling rate materials among low recycling rate materials:  represents a disincentive to promoting even higher diversion of easily recyclable materials  may encourage stewards to select low recycling rate materials to reduce fees

Slide 24 Issues Raised by Stakeholders (2) 2.Excessive sharing of costs incurred by high recycling rate materials among low recycling rate materials:  conflicts with nexus requirements of the WDA  some materials must be collected by regulation  penalizes non-recyclable materials for which there is no practical alternative  does not take into consideration other environmental & social factors  municipalities choose what materials collected

Slide 25 Issues Raised by Stakeholders (3) 3.Revenue from sale of some materials is not calculated accurately or fairly attributed to stewards of those materials. Currently:  benefit of sales revenue that is shared with contractors under municipal recycling contracts is distributed across all materials  surplus revenue from aluminum lowers all stewards financial obligations 4.The costs of managing materials exempted under de minimis provision, non-compliance & inaccurate data falls to “compliant stewards”

Slide 26 Issues Raised by Stakeholders (4) 5.The aggregation of some material types blunts the impact of the price signals that are built into the funding formula to encourage greater recycling 6.The funding formula is overly complicated, difficult to understand & describe 7.Recycled content credit should be allowed to recognize contribution to demand for recyclable materials

Slide 27 Summary of General Recommendations (1) 1.Improve accuracy of material-specific net costs by the changing way in which revenue & material prices are calculated 2.Provide an opportunity for a recycled-content credit program to be incorporated into subsequent annual fee setting calculations within the existing market development component of the fee setting formula  stewards within material sectors would submit detailed plans for such programs for Stewardship Ontario approval

Slide 28 Summary of General Recommendations (2) 3.Aggregate materials with similar characteristics (handling, revenue, etc.) for fee setting purposes 4.Do not give exemption or credit for biodegradability 5.Leave de minimis level as it is 6.Leave allocation of common costs as it is 7.Continue to calculate generation using waste audit data cross-checked against steward data

Slide 29 Short-listed Options for Detailed Review (1) Evaluated two alternatives for modifying the funding formula: a)Modifications to current 3-factor funding formula, keeping core structure same b)New 2-factor model Decided that Option (a) would be the focus of consultation

Slide 30 Short-listed Options for Detailed Review (2) Option a) Modifications to current 3-factor funding formula selected because:  Greater flexibility to equitably allocate costs to achieve objectives of BBPP & WDA  Ability to meet requirements of nexus  Modeling simplicity

Slide 31 Modifications to Current Funding Formula (1) In addition to general recommendations, e.g. modified calculation of revenue 1. Simplify recovery rate factor calculation −replace statistical calculation with simplified calculation based on relative recovery −same result with simpler steps

Slide 32 Modifications to Current Funding Formula (2) 2.Reduce target recovery on equalization factor from 75% to 60%  reflects the 60% diversion target for BBW set by the Minister & rewards highest recovery materials

Slide 33 Modifications to Current Funding Formula (3) 3.Adjust weightings of 3 factors  shift some of the weighting from recovery rate factor to equalization factor  greater sharing of cost of achieving higher diversion among all materials  can adjust weightings to achieve marginal change or more significant change

Fees Reflecting Cost to Manage Each Material Fee Rates Reflecting 100% Cost CNA/OCNA News Other News OMG OTB Other Printed Paper Packaging Plastics Steel Aluminum Glass Total Fee Rate ($/tonne) Net Cost to Manage Slide 34

Impact of Current Funding Formula Formula transfers portion of obligation from materials with higher recovery rates to materials with lower recovery rates, e.g. plastics at 18% overall Current 2006 Fee Formula: Recovery = 40%, Cost = 40%, Equalization = 20% CNA/OCNA News Other News OMG OTB Other Printed Paper Paper Packaging Plastics Steel Aluminum Glass Total Fee Rate ($/tonne) Current /40/20 Net Cost to Manage Slide 35

Impact of Modifications to Current Funding Formula Before Impacts of Aggregation/Dis-aggregation Modified formula results in similar fees by category Biggest impacts on plastic & aluminum Revised Fee Formula: Recovery = 20%, Net Cost = 40%, Equalization = 40% Total Fee Rate ($/tonne) Proposed 20/40/40 Current /40/20 Net Cost to Manage CNA/OCNA News Other News OMG OTB Other Printed Paper Paper Packaging Plastics Steel Aluminum Glass Slide 36

Impact of Modifications to Current Funding Formula Revised Model - Alternative Weightings Total Fee Rate ($/tonne) Factor weighting can be used to shift fees to low recovery & high cost material … biggest impact on plastic Current /40/20 Proposed 20/40/40 Alternative 30/40/30 Alternative 20/35/45 CNA/OCNA News Other News OMG OTB Other Printed Paper Paper Packaging Plastics Steel Aluminum Glass Slide 37

Slide 38 Printed Paper Aggregation  Currently Printed Paper completely dis-aggregated  Recommend partial aggregation  treat “like with like”  spread effects of de minimis, non-compliance, imprecision of data  balance fee rates on newspapers & municipal payment levels  Separate categories for CNA/OCNA newsprint & other newsprint  OMG, OTB, other printed paper together

Printed Paper Aggregation (1) Minimal impact of modified 3 factor model Largely due to revised material prices Printed Paper Current Dis-aggregation Total Fee Rate ($/tonne) Current /40/20 Fully Dis-aggregated Alternative 20/40/40 Fully Dis-aggregated CNA/OCNA News Other News OMGOTBOther Print Paper Slide 39

Printed Paper Aggregation (2) CNA/OCNA News Other News OMGOTBOther Print Paper Current /40/20 Fully Dis-aggregated Alternative 20/40/40 Fully Dis-aggregated Alternative 20/40/40 Fully Aggregated Other printed paper fees impacted significantly & in line with other paper categories Total Fee Rate ($/tonne) Slide 40

CNA/OCNA News Other News OMGOTBOther Print Paper Printed Paper Partial Aggregation Current /40/20 Fully Dis-aggregated Alternative 20/40/40 Fully Dis-aggregated Alternative 20/40/40 Fully Aggregated Proposed 20/40/40 Partial Aggregated Total Fee Rate ($/tonne) Printed Paper Aggregation (3) Recommended partial aggregation to reflect that generally handled together & given data aggregation, but also reflecting some differences in cost & recovery - fairer to other paper categories Slide 41

Slide 42 Plastic Packaging Aggregation  Currently Plastic Packaging fully aggregated  Recommend partial dis-aggregation  PET bottles  HDPE bottles & jugs  other  film, plastic laminants, polystyrene, other plastics, (including other PET & HDPE packaging)

Modified model initially shifts costs to lower recovery plastics Plastic Packaging Aggregation (1) Before Impact of Dis-aggregation Plastic Packaging Current Aggregation PET Bottles HDPE Bottles & Jugs Plastic Film Plastic Laminants PolystyreneOther Plastics Total Fee Rate ($/tonne) Current /40/20 Fully Aggregated Alternative 20/40/40 Fully Aggregated Slide 43

Plastic Packaging Aggregation (2) Complete plastic dis-aggregation impact on plastic laminants is dramatic Plastic Packaging Dis-aggregation PET Bottles HDPE Bottles & Jugs Plastic Film Plastic Laminants PolystyreneOther Plastics Total Fee Rate ($/tonne) Current /40/20 Fully Aggregated Alternative 20/40/40 Fully Aggregated Alternative 20/40/40 Fully Dis-aggregated Slide 44

Plastic Packaging Aggregation (3) Partial aggregation recognizes differences in handling & recovery rates, but is fairer & more balanced Plastic Packaging Partial Aggregation PET Bottles HDPE Bottles & Jugs Plastic Film Plastic Laminants PolystyreneOther Plastics Total Fee Rate ($/tonne) Current /40/20 Fully Aggregated Alternative 20/40/40 Fully Aggregated Alternative 20/40/40 Fully Dis-aggregated Proposed 20/40/40 Partial Dis-aggregated Slide 45

Slide 46 Paper Packaging Aggregation  Currently Paper Packaging fully aggregated  Recommend partial dis-aggregation  OCC & OBB  aggregated together  polycoat, paper laminants, aseptic  aggregated together

Paper Packaging Aggregation (1) Modified model initially shifts costs down marginally Paper Packaging Current Aggregation Old Corrugated Containers GabletopPaper Laminants Aseptic Containers Old Boxboard Total Fee Rate ($/tonne) Current /40/20 Fully Aggregated Alternative 20/40/40 Fully Aggregated Slide 47

Paper Packaging Aggregation (2) Full dis-aggregation does not recognize material handling reality … does not treat “like with like” Paper Packaging Fully Dis-aggregation Old Corrugated Containers GabletopPaper Laminants Aseptic Containers Old Boxboard Total Fee Rate ($/tonne) Current /40/20 Fully Aggregated Alternative 20/40/40 Fully Aggregated Alternative 20/40/40 Fully Dis-aggregated Slide 48

Paper Packaging Aggregation (3) Partial aggregation treats materials fairly & balances impact between materials Paper Packaging Partial Dis-aggregation Old Corrugated Containers GabletopPaper Laminants Aseptic Containers Old Boxboard Total Fee Rate ($/tonne) Current /40/20 Fully Aggregated Alternative 20/40/40 Fully Aggregated Alternative 20/40/40 Fully Dis-aggregated Proposed 20/40/40 Partial Dis-aggregated Slide 49

Impact on Material Fee Rates Changes vary by material - some adjustments may need to be considered Comparison of Fee Rates CNA/OCNA News Other News OMG OTB Other Print Paper OCC & OBB Other Paper Pckg PET Bottles HDPE Bottles & Jugs All Other Plastics Steel Foil & Other Al Clear Glass Col Glass Total Fee Rate ($/tonne) Current 2006 Model 40/40/20 Proposed 3-Factor Model 20/40/40 Al Cans Slide 50

Slide 51 What Changes Accomplish (1) 1.Will put greater emphasis on costs to manage different material types  through net cost & equalization factors 2.Sharing slightly greater amount of total program costs among stewards using lowest recycled materials (~$6.3 million, ~11% of obligation) 3.Improved financial signals to encourage greater diversion

Slide 52 What Changes Accomplish (2) 4.Introducing technical improvements to better reflect true net costs & revenue attributable to individual obligated materials 5.Sharing a portion of costs for exempted/non- reporting materials within material groups 6.Introducing a new option for stewards of specific materials to develop & propose a recycled content credit program to stimulate greater market demand for these materials

Slide 53 What Changes Accomplish (3) 7.Maintaining current rules on de minimis for economic efficiency 8.Maintaining the essential architecture of the model given:  the considerable investment in education/understanding of the current model  close adherence to policy & legal opinions in design & approval of the original BBPP 9.Improving the simplicity & transparency of the formula

Slide 54 What Changes Accomplish (4) In summary: New Funding Formula maintains the critical legal requirements of the existing Funding Formula & improves upon fairness, accuracy & incentives while striking a better balance of cost sharing between high recovery materials & low recovery materials

Slide 55 Check against key review criteria (1)  Complies with legal requirements of WDA  preliminary assessment – strengthens nexus test  Furthers policies & goals of WDA & BBPP  stronger financial incentives to increase recycling at lowest total cost  maintains prime motivation to reduce waste  Material impact warrants change  modest change overall (but with significant impact possible on individual stewards)

Slide 56 Check against key review criteria (2)  Treats stewards & materials in a fairer manner  technical improvements provide more accurate revenues, costs & recovery rates  addresses perceived unfairness that results from wide ranging recovery rates (whether due to costs, logistics, legislation or municipal choice) by having low recovery materials share more of the cost of recycling materials that are less costly to recover  does not reflect total life cycle considerations (beyond scope of BBPP)

Slide 57 Check against key review criteria (3)  Strengthens incentives for 3Rs  yes  Improves simplicity & transparency  simplified calculation of recovery rate factor  opportunity to improve presentation & flow of the model  Facilitates compliance & auditing  no significant change

Slide 58 Ways to Mitigate Effects (1) 1.By making incremental changes to factor weightings over several years, e.g.  2006: 40% recovery, 40% cost & 20% equalization  2007: 30% recovery, 40% cost & 30% equalization  2008: 20% recovery, 40% cost & 40% equalization Or, an even more gradual shift? If direction & goal is right, should we move more slowly?

Slide 59 Ways to Mitigate Effects (2) Or 2.By making incremental changes to aggregation/dis-aggregation levels  e.g. for plastics, partially dis-aggregating PET bottles, HDPE bottles & jugs & all other plastics  the fee for each material would be composed of a dis-aggregated part & an aggregated part  the portion that is aggregated & dis-aggregated is changed over time  similar option for paper

Incremental Change to Weightings Incremental changes to weightings lessens impacts on fee rates Incremental Changes to Factor Weightings CNA/OCNA News Other News OMG OTB Other Printed Paper Packaging Plastics Steel Aluminum Glass Total Fee Rate ($/tonne) Current /40/20 Proposed 20/40/40 Alternative 30/40/30 Slide 60

Incremental changes to weighting aggregation lessens impact of dis-aggregation on fee rates Incremental Dis-aggregation of Plastics Revised Model Incremental Changes to Plastics Aggregation PET Bottles HDPE Bottles & Jugs Plastic Film Plastic Laminants PolystyreneOther Plastics Total Fee Rate ($/tonne) Alternative 20/40/40 Fully Aggregated Proposed 20/40/40 Partial Dis-aggregated Alternative 20/40/40 Partial Dis-aggregated Slide 61

Slide 62 Other Elements Affecting Fees  Various other elements of the BB System will affect fee rates:  material generation estimates,  material recovery rates,  system & material-specific costs, &  revenue & material prices  These will be addressed when setting 2007 fees, as in previous years

Slide 63 Next Steps  Immediate - Detailed policy & legal review  March 1 – Comments due  March 6 - Review comments received & Steering Committee final recommendations with Advisory Committee  March 8 – Recommendations to Stewardship Ontario Board (including other changes to BBPP)  March 15 – Submit to WDO Board (for review at March 22 board meeting)

Slide 64 Feedback Requested (1) Please provide your feedback on the proposed changes to Stewardship Ontario by March 1, In addition to your comments on the overall recommendations we would appreciate your response to the following specific questions...

Slide 65 Feedback Requested (2) 1.Do you agree with the recommendation to transfer slightly more of the program cost to materials with low recovery rates?  to share more equitably among all materials the cost of achieving higher diversion at the lowest possible cost 2.Do you agree with the recommended weightings for the funding formula?  20% recovery, 40% net cost & 40% equalization & a target for the equalization factor of 60% diversion  if not, please specify alternative weightings

Slide 66 Feedback Requested (3) 3.Should these changes be made in 2007? If not, why?  if not, please specify the weightings each year 4.Do you agree with the general approach of aggregating “like” materials in terms of how they are handled, e.g. collection, processing & marketing together, similar recovery, data availability, etc.?  to reflect significant different costs & performance

Slide 67 Feedback Requested (4) 5.a) Do you agree for the purposes of fee setting, printed paper materials should be aggregated as:  CNA/OCNA newsprint,  other newsprint, &  all other printed paper categories b) If not, why not? c) What is your proposed alternative?

Slide 68 Feedback Requested (5) 6.a) Do you agree for the purposes of fee setting, paper packaging should be aggregated as:  corrugated cardboard & boxboard together, &  all other paper packaging materials together b) If not, why not? c) What is your proposed alternative?

Slide 69 Feedback Requested (6) 7.a) Do you agree for the purposes of fee setting, plastic packaging should be aggregated as:  PET bottles  HDPE bottles & jugs, and  all other plastic packaging materials together b) If not, why not? c) What is your proposed alternative?

Slide 70 How to Provide Comments  Deadline for comments is March 1, 2006  On-line survey to facilitate your comment  URL to on-line survey & URL to model to be sent by end of day in a Need to Know newsletter  this will NOT be compiled & evaluated as a statistical survey  More detailed, written comments may also be provided:

Slide 71 Next Part of Agenda  20 minute break  Steering Committee & Stakeholder Panel for Questions & Answers  stakeholder statements  open Q&A

Slide 72 Questions & Answers for next part of session

Slide 73 Break

Slide 74 Next Steps  Immediate - Detailed policy & legal review  March 1 – Comments due  March 6 - Review comments received & Steering Committee final recommendations with Advisory Committee  March 8 – Recommendations to Stewardship Ontario Board (including other changes to BBPP)  March 15 – Submit to WDO Board (for review at March 22 board meeting)

Slide 75 How to Provide Comments  Deadline for comments is March 1, 2006  On-line survey to facilitate your comment  URL to on-line survey & URL to model to be sent by end of day in a Need to Know newsletter  this will NOT be compiled & evaluated as a statistical survey  More detailed, written comments may also be provided:

Slide 76 Thank You