California has just experienced a monumental change in the maturation of the state's Electronic Waste Recycling Act of 2003 (SB20/SB50) . The California Integrated Waste Management Board (CIWMB), which oversees the program, recently accepted its staff's recommendation to adjust the recovery and recycling fee, reducing the amount it pays to approved e-waste recyclers and collectors who participate in the program, effective July 1, 2008.
SB20 is the landmark legislation that established a funding system for the free collection and recycling of "covered electronic wastes" (CEW). (Revisions to the payment structure are required by legislation every two years, although this revision comes about a year late.)
The new payment structure is as follows:
— For CEW transferred from a collector to a recycler on or after July 1, 2008, the recovery payment will be 16 cents per pound. It was previously 20 cents per pound.
— For CEW recycling payment claims submitted to the CIWMB on or after September 16, 2008, the combined recovery and recycling payment rate will be 39 cents per pound, from 48 cents per pound.
Many people are wondering why the state made these changes, how they arrived at this decision, and what it means for the future of the program. My view is that these changes will have significant effects on the program.
Over the past year, CIWMB staff has been working to build this recommendation, which comes after a review of 'net cost reports' from approved California e-waste processors and collectors. These reports were not all that went into the decision. The CIWMB also used its own judgment to conclude that a "reasonable profit" above the net cost should average +10%. It also judged which net cost reports were outliers and should be excluded from the "representative sample". The fact is that these judgments were not defined by the regulation and had a significant effect on the outcome. A 20 percent reduction in the financial model could be the entire profit margin of a processor or collector.
While the state maintains that the decisions were not based on fund solvency, the program was flawed from the beginning in simple math and logic. The CIWMB decided three years ago that a $6, $8, or $10 per unit Advance Recovery Fee at the point of purchase would be an appropriate measure to prepare for end-of-life recycling, but ended up paying the recycler, on average, $22 per unit. Anyone can read between the lines and see that this disparity has led to a diminishing fund.
The collectors and recyclers were not and are not responsible for the disconnect between the fees collected at the point of purchase and the recovery payment rates, and yet it seems that it is collectors and recyclers that are now being called upon to take a financial hit. Approved California recyclers have had to bear the entire burden of this program. Recyclers take on all the costs, all the responsibility of making the program work, and at the end of the day are expected to take the pay cut.
The recommendation comes at a time when the e-waste business is being challenged on many fronts. Fuel costs are rising, with no end in sight. CRT technology is being displaced by flat-panel technology, making it inevitable that the cost of glass disposal will increase as the market for leaded glass diminishes. The metals market is at an all-time high and, with its historical volatility, will also likely decline.
With all these external market factors and the recent deduction in payment structure, it leaves me wondering if the original intent of the legislation — to foster a viable e-waste recycling industry — will have longevity.
The change in the recovery and recycling fees beg the following questions:
Will this lead to a reduction in the number of FREE opportunities for businesses and consumers to recycle their e-waste in a responsible way?
Most likely some collectors who have built their business on higher margins with undiversified sources of material will have a hard time surviving in this climate and will be forced out of business.
Will best practices fall by the wayside because collectors and processor are desperate to make ends meet?
With the bar to make a break-even business now higher, some e-waste processors will not be financially able to adhere to the Basil Action Network's ideas of best practices, which in many cases demand higher cost operations. Will some collectors and processors be more likely to put fraudulent material through the state program to make ends meet?
Will the state be prepared to respond with urgency when the market shifts and $0.39 per pound is just not enough for collectors and processors to stay in business?
Whether or not it was about fund solvency, it seems highly likely that unless the state is feeling the direct pressure of being in this business, it will not respond.
The CIWMB might have missed a great opportunity to build in more provisions in the regulations, along with the pricing adjustments, that would mandate it to review the payment structure more frequently and using more data.
Another point worth noting: the state will soon respond to the solvency problem by increasing the Advance Recovery Fee that is collected at the point of purchase. Consumers are already feeling the pinch from the worsening economy and will soon feel the pressure from retailers as they market new HDTVs in the face of the digital conversion in early 2009. That's a topic for a future post...
But today, as one of the largest recyclers in the very first state to undertake a legislated e-waste program, I have to ask: does it pay to be a recycler in California?
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