Efficient Implementation of Collective Extended Producer Responsibility Legislation

Abstract

Extended Producer Responsibility (EPR) is a policy tool that holds producers financially responsible for the post-use collection, recycling and disposal of their products. Many EPR implementations are collective-a large collection and recycling network (CRN) handles multiple producers' products in order to benefit from scale and scope economies. The total cost is then allocated to producers based on metrics such as their return shares by weight. Such weight-based proportional allocation mechanisms are criticized in practice for not taking into account the heterogeneity in the costs imposed by different producers' products. The consequence is cost allocations that impose higher costs on certain producer groups than they can achieve independently. This may lead some producers to break away from collective systems, resulting in fragmented systems with higher total cost. Yet, cost efficiency is a key legislative and producer concern. To address this concern, this paper develops cost allocation mechanisms that induce participation in collective systems and maximize cost efficiency. The cost allocation mechanisms we propose consist of adjustments to the widely-used return share method, and include the weighing of return shares based on processing costs and the rewarding of capacity contributions to collective systems. We validate our theoretical results using Washington state EPR implementation data and provide insights as to how these mechanisms can be implemented in practice.

Operational Perspectives on Extended Producer Responsibility

“…Producers often join together to meet their EPR obligations using collective collection, sorting, and processing systems due to their cost efficiency—thus the label “collective EPR.” That is, collective systems not only benefit from scale economies by pooling recycling volumes but also can leverage the same to reduce compliance charges from competing service providers and monitoring costs (Gui et al. ). In this context, an important assumption about EPR that appears regularly in the literature (e.g., Lindhqvist and Lifset []; Dempsey et al.…”

“…[], and Gui et al. [, 2018b]) has shown, again using analytical OM models, that free‐riding concerns in collective systems are predominantly driven by linear cost‐sharing rules (e.g., market share– or return share–based cost allocations) in practice. In turn, identifying more appropriate cost allocation mechanisms that differentiate producers with respect to the types of product design improvements they put into effect can help address the long criticized free‐riding concerns in collective systems.…”

“…In turn, identifying more appropriate cost allocation mechanisms that differentiate producers with respect to the types of product design improvements they put into effect can help address the long criticized free‐riding concerns in collective systems. For example, Gui and colleagues (, 2018b) formulate detailed network flows in collective EPR implementations and use game‐theoretic models to show that a two‐part cost allocation model that rewards producers for design improvements and charges them for the portion of available capacity they utilize in a collective system can lead to better design choices by “all” producers in a collective system (see Mayers et al. [] for similar arguments through a different cost allocation model for collective systems).…”

Environmentally Responsible Supply Chains

“…Hence, in the phase where EPR is operationalized, the focus -of not only producers, but also of the architects, enforcers and operators of these systems -typically turns to establishing a well-functioning system and minimizing the implementation cost (subject to the regulatory standards). (Gui et al 2015b) A similar cost concern is shared by many involved entities. The European Recycling Platform, a producer-operated nonprofit, aims to ensure cost-efficient implementation of the WEEE Directive for its members (European Recycling Platform 2012).…”

“…This provides participation incentives for the producers to voluntarily join the collective system and guarantees the stability of a collective implementation. In practice, such a stability problem is one of the major challenges faced by legislators, as producers' actions to defect from collective systems can be observed in several implementations (Gui et al 2015b). Example 4 demonstrates that this problem can also be solved by improving the cost allocation used.…”