competition and extended producer...

© 2014 Deloitte Conseil

Competition and Extended Producer Responsibility Lessons from Germany‘s competitive marketplace •  Ursula Denison •  Der Grüne Punkt – Duales System Deutschland GmbH •  Head of Sales, Marketing and International Services

•  February 5, 2015, Toronto

© 2014 Deloitte Conseil Ein Unternehmen der / A member company of the DSD – Duales System Holding GmbH & Co. KG 3

•  Political Objective: Reduction of landfill volume, Internalisation of external costs for packaging recovery

•  Alternatives: Packaging tax or a system based on Extended Producer Responsibility (EPR)

•  Consensus: Government, retail and industry agreed on industry-run organisation based on EPR principles

•  Business Model: 100 % full-cost, non-profit, owned by obliged industry – “virtual monopoly”

•  “Der Grüne Punkt” Duales System Deutschland GmbH began operations in July 1991

Looking back: Germany‘s Packaging Ordinance 1991


The German Packaging Ordinance 1991-2015

•  Principle: implementation of EPR for all types of packaging •  ICI packaging: self-compliance, no set targets •  Sales packaging: obligation to participate in „dual system“, opting out via „sector-solutions“ (self-

compliance) as an exception •  Dual Systems - requirements:

•  Regular collection of all sales packaging from households/small commercial sites •  Complete coverage, i.e. also in less-populated areas •  Agreement with municipalities on method and frequency of collection •  Payment to municipalities for container sites, cleanup, communication (126 Mio. €/year) •  Regular mass-flow verification of collected, sorted, recovered and recycled packaging, by

external audit •  Material specific targets, based on licensed volume (not market volume)

•  E.g. Glass 75 %, Paper/board 70 %, Tinplate 70 %, Aluminum 60 %, Composites 60 %, Plastics 60 % recovery, of this 60 % material recycling (36 % total)


The German Packaging Ordinance 1991-2015 - milestones

•  1998: new rules for self-compliance for sales packaging – in effect opening the market for competition

•  2003: introduction of compulsory deposit for single-use beverage containers – major impact on financing and material flow of dual system!

•  2009: introduction of central registry for obliged companies, and Declaration of Compliance

•  2015: closing of loopholes for self-compliance

© 2014 Deloitte Conseil 6

Glass...

... in bottle banks, separated by color

Paper and Cardboard...

...in paper bins/containers

... in recycling bins/bags

Lightweight packaging Separation of household waste in Germany

•  Increasing collection of organic waste in separate bin •  Landfill ban since 2012 •  Households charged by number and size of gray bins

... in the gray/waste bins

Non-recyclable materials

Residual/organic waste


Recycling rates for packaging in Europe – Germany No. 3


Recycling rates for plastic packaging in Europe – Germany No. 4


“Der Grüne Punkt”: From Monopoly … •  Challenge: 18 months rollout – 458 municipalities - 82 Mio. people – 20.000 obliged

companies – 7.7 Mio. Tons of household packaging – curbside collection – all materials included

•  Full-cost system, i.e. 100 % cost and control over collection, sorting, recycling

•  1993: major financial crisis, system on the brink of collapse. Reasons: •  Fast and comprehensive rollout – high participation by consumers •  No quick and cheap solution for plastics recycling •  Financing not in sync with costs – high rate of free riders, lack of control mechanisms,

lack of regulatory oversight •  Rescue package – incl. long-term contracts with waste management companies. Higher

cost for industry, especially for plastics


•  1998: High cost leads industry to seek alternatives: increase of “self-compliance”

•  Quasi-Monopoly of Green Dot always cause for concern of German and European competition authorities

•  2001: EU commission opens market for competitors - Shared use of collection infrastructure, use of Green Dot Trademark possible for companies under contract with competitors

•  2005: Ultimatum of Competition Authority leads to DSD reorganization: Change of ownership

•  Market today: ten competing systems for household packaging, DSD remains market leader at 45-50 %

“Der Grüne Punkt”: … to Competition


Change in Governance

2004: Competition Authority sets DSD a deadline for changing its shareholder structure

•  Obligated industry, material producers and retailers no longer allowed to be shareholders

•  Turn from non-profit, member owned company to privately held, for- profit business

•  DSD still is market leader with close ties to customers, but industry no longer has direct „vote“ on business decisions

•  DSD is independent from waste management companies – business focussed on preserving and advancing EPR in the interest of industry and retail

•  Customers value this independence – DSD still has more than 40 % market share!


Orderly Transition from Monopoly to Competition Development of Green Dot Market Share 2003 bis 2014

52%47%

53% 50%46%

96%100% 99%

63%61%

74%

86%

12

Sou

rce:

DS

D, 2

015

Green Dot market share has dropped after 2005, but remains around 50 %

2006 2007 2008 2009 2010 2011 2012

* 1.-4. Quarter

2005 2004 2003 2013 2014*


Sou

rce

S

ecto

r Stu

dy G

erm

an A

nti-T

rust

Offi

ce –

Dec

embe

r 201

2

Total System cost cut in half – app. 10 €/person/year

Significant Cost Reduction


The Discussion has changed - From Waste to Resources •  In the system of producer responsibility for packaging 7,5 Mio. tons of household

packaging waste are put to recycling and recovery every year. All targets for the recycling and recovery were overfulfilled significantly in the past years.

•  In the last two decades the recycling rate for sales packaging (households/ small business) increased from 37,3 % to 79,2 (Source: GVM 2014):

1991 (%) 2014 (%) Recovery of that

Recycling Glass 53,7 87,9 87,9 Paper/Cardboard 28,0 99,7 83,3 Tinplate 33,8 96,5 96,5 Aluminum 5,1 93,9 90,2 Plastics 3,1 100,0 58,6 Beverage Cartons k.A. 99,6 75,2


Plastics Recycling Made in Germany: Investment pays off

Cost Development Index for Plastics Recycling in the Dual System

100

84

70

45

23

13

0

-20.00

0.00

20.00

40.00

60.00

80.00

100.00

120.00

1997 2000 2003 2006 2009 2012 Plan 2017

Index 1997=100 Cost 1997 – 2012

Index

Source: DSD, DKR


Competition between Compliance Schemes

One jointly used system for collection of light weight packaging

collection

sorting

processing / recovery

Separate recycling and recovery contracts – each CS with its own partners

Compliance scheme 1 Separate sorting of a specific share of mass – market share

Compliance scheme 2 Compliance scheme 3


Current challenges: Erosion of financial base due to unfair competition

Collected lightweight packaging Licensed lightweight packaging

kt

year

2.250 2.273 2.318 2.361 2.451 2.451 2.451 2.451

1.0891.282 1.165 1.199 1.205 1.117 1.160 1.236

8201125

500

1.000

1.500

2.000

2.500

2008 2009 2010 2011 2012 2013 2014 2015

Growing gap between collected and financed volumes

Estimate for 2014 – system collapse?


Current challenges - initiatives to stabilize the situation

•  Retailers have provided extra funds to close the financing gap for 2014 •  Dual systems have signed new clearing contracts, enabling better controls

and sanctions •  Licensing brokers are still a challenge – little transparency •  Stakeholders are in favor of establishing a s.c. „Central Agency“ to

•  Monitor licensed volumes •  Support authorities in enforcement of violations of the packaging

ordinance •  Provide guidance with regard to the correct interpretation of definitions •  Monitor the tendering process

18


The Challenge of Embracing Competition - Opportunities

• We welcome competition as an important principle of business interaction

• We realize that environmental services are shifting from a „common welfare“ model to an industry branch with legitimate business interests

• We appreciate that competitive pressure makes us quicker, leaner, and (maybe a bit) „meaner“, and

• We expect that competition will enable us to optimize and extend our services to obligated producers

19


The Challenge of Embracing Competition - Threats

• Competition needs a level playing field! • Regulators must ensure the same opportunities for all actors in

the market • Clear definitions, requirements for operation and

documentation, as well as reliable data are essential for „fair“ competition

• Competition must be based on real differences in service, sustainability, and performance,

•  ...not on „virtual“ factors, e.g. the „creative“ interpretation of legal/regulatory requirements and loopholes 20


Summary •  The Green Dot: still a unique platform for interaction between stakeholders

from industry, retail, consumers, environmental organizations, waste management, recyclers, municipalities, and the government

•  Green Dot can show clear successes: ü  Reliable and well accepted separate collection, sorting, and recycling of all types of

household packaging ü  New technology for sorting and recycling, especially for plastics – „beacon“ ü  Market leader in a highly competitive market ü  Credibility and acceptance among stakeholder groups ü  Valuable network of international cooperation and exchange with over 30

countries in Europe and North America

The main challenge for the near future: competition on the system level without appropriate regulation and sanctions!

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