From cradle to grave

The effects of climate change on business may attract more
attention but, argues Owen Lomas, producer responsibility
is set to have even greater impacts

Ask a group of environmental lawyers to identify the most significant development in environmental regulation in recent years, and the chances are they will nominate climate change and emissions trading. There is, however, another contender.

Environmental regulation of industry was based on a primary concern with preventing or controlling the adverse impacts of industrial processes. The advent of the doctrine of ‘producer responsibility’ has changed all this. There is now a new generation of environmental laws addressing the responsibility of industrial producers for the environmental impact of their products after they have left the factory gate – both while in use, and at the end of their life. Key features of these new laws are that they are concerned with adverse environmental impacts, rather than human health and safety or product quality, and with the environmental impacts of products when they become waste, rather than merely when in use.

Who’s responsible? End-of-life directive puts onus on producers

Legislation in this area has proved highly controversial. Its legitimacy is questioned in industry because it places (often criminal) responsibility at the producer’s door for products which are no longer in its control. It leads to resentment that industry is expected to shoulder responsibilities that are more appropriately left to the consumer and which would otherwise properly belong with the public authorities.

Industry also complains that it is difficult, if not impossible, to achieve an equitable distribution of responsibility for recovery and recycling of product waste among producers. This is because it is often impracticable to match producers with their own products – meaning that they may be made responsible for a quantity of undifferentiated waste based upon some form of measurement of appropriate contribution, such as market share or products marketed in the preceding year.

On a more philosophical level, the argument is that industry makes the products which consumers want. It is therefore for government, by education and/or economic and fiscal means, to encourage demand for more environmentally acceptable products.

By contrast, the advocates of producer responsibility take as their guiding light the belief that the development of more environmentally acceptable products depends on product design and engineering, which are often unseen by the consumer. The best way, therefore, to make progress is to place responsibility for undertaking and/or financing the necessary environmental improvements on the producer.

The merit of this approach, it is argued, is also that it is more equitable – since all producers are affected and cannot ‘free ride’ by relying on consumer ignorance. It also generally permits costs to be passed on to consumers and is more likely to ensure rapid environmental progress than if left to changes in consumer demand. Politically, of course, producer responsibility is also attractive in that it avoids the need to impose costs and obligations directly on consumers. It also has the potential to reduce public authorities’ costs, such as those for waste collection and disposal.

In terms of the recovery and recycling of end-of-life products, producer responsibility has resulted in enacted or proposed EU and/or domestic legislation on waste packaging, waste electrical and electronic equipment (WEEE), end-of-life motor vehicles, batteries, tyres and newsprint. Similar legislation is also beginning to appear in other regions – with California and China as notable examples. Environmentalists suggest that the same approach should eventually be applied to all products.

The associated obligations can be onerous, and are becoming increasingly costly as the ‘low-hanging fruit’ is taken up in meeting interim targets, leaving the more difficult and costly work until later. Thus, for example, mandatory EU recovery targets for packaging waste will reach 70% by 2008 and, under the WEEE directive being introduced from next year, substantially all separately collected WEEE will have to be recovered.

As noted, one of the greatest challenges lies in making businesses responsible for the recovery and recycling of products no longer owned by them. This challenge can be met by producers of larger, high-value and low-volume products – where there is opportunity for a ‘closed-loop’ system with the customer. But for the majority of producers, this represents a logistical nightmare with the potential to be very expensive indeed.

This has led to the idea of collective achievement of targets, with each producer with obligations making an appropriate and equitable contribution. The problems with this approach are, however, legion. They include concerns about: lack of competition and escalating compliance costs; the difficulties of determining and applying appropriate criteria for burden sharing; and companies joining and leaving markets resulting in those currently obligated picking up obligations for historical or orphan products.

Perhaps the biggest challenge, however, is achieving the real environmental objective of changing product design and influencing behaviour, rather than simply imposing what is effectively another tax on products. If there is no direct relationship between producers and their own waste products, then there will be little or no incentive to make improvements in their products. Indeed, to do so will probably result in incurring all the costs but having to share all the benefits with one’s competitors. Significantly, in order to address this, the recently adopted WEEE directive imposes individual responsibility on producers for financing the recovery of their own products. In the UK, however, the difficulties of meeting this challenge are all too apparent in the legally questionable decision of the government to go for a collective approach – at least for the time being.

Despite the significance of producer responsibility and the challenges it throws up, those pointing to climate change regulation as the more notable development might cite the use of economic instruments and trading to shore up their argument. But even here producer responsibility has stolen a march, with tradable certificates being used in the UK to help lower costs and demonstrate compliance in relation to packaging waste. And so, in the significant development stakes, the worthy winner is producer responsibility. EF

Owen Lomas is a London-based partner and the head of global environmental law services at international law firm Allen & Overy LLP. E-mail: owen.lomas@allenovery.com