Calculating the Material Levies for Obligated Stewards

Waste Diversion ActIndustry Consultation WebcastCalculating the Material Levies for Obligated Stewards

Calculating the Material Levies for Obligated Stewards Webcast Presenters Damian Bassett Dan Lantz Gordon Day Derek Stephenson

AGENDA 10:00 – 10:05Welcome & Webcast Notes Damian Bassett – Stewardship Ontario10:05 – 10:20 Draft Definitions for Calculating Obligated Materials Gordon Day – Stewardship Ontario, Technical Services10:20 – 11:00How Material Levies will be Calculated by Stewardship Ontario Dan Lantz – Stewardship Ontario, Technical Services11:00 – 11:55Question Period Damian Bassett – Facilitator Derek Stephenson – Program Manager Gordon Day – Technical Services Dan Lantz – Technical Services11:55 – 12:00In Closing Damian Bassett

WEBCAST NOTES • To ask a question during Question Period, call 416-640-4127 • Please “speak now” and “for the record”, as your input is important • Please also feel free to write us questions during the Consultation Period to: questions@stewardshipontario.ca

WEBCAST NOTES • Official comments on Blue Box Program Plan, must be submitted in writing - Deadline is January 17, 2003 • Mailing address can be found at www.stewardshipontario.ca • E-mail: comments@stewardshipontario.ca • Workshop 2 – “Stewardship Ontario’s Business Plan” - January 16, 2003 • Draft BB Program Plan to WDO Board – January 21 • Final BB Plan to WDO – February 18 • Final BB Plan to Minister – February 28

WEBCAST NOTES • Please return to www.stewardshipontario.ca following your listening to this webcast (live or in archive) - to fill out a webcast Evaluation Form • Industry representatives who fill in an Evaluation Form will receive an electronic version of the proposed funding model – to allow companies to complete preliminary assessment of their own projected costs

WEBCAST NOTES • Reminder: this event will be archived for listening and comment at Canada NewsWire for the duration of the Industry consultation process • This is a 3-part Industry consultation process. Proceedings and presentations from part-one: the December 3 Workshop 1 are posted on Stewardship Ontario website • Please follow the easy links from www.stewardshipontario.ca • Please visit the Stewardship Ontario website regularly for updates on January 16 Workshop 2, and all developing details and important events

Draft Definitions for Calculating Obligated MaterialsGordon Day – Technical Services

LEGAL FRAMEWORK • The Waste Diversion Act, section 30(2) defines stewards of a designated waste as:“…having a commercial connection to the designated wastes or to the product from which the designated waste is derived” • Item 5 in the Addendum to the Minister’s Request for a Waste Diversion Program for Blue Box: “The proposed funding rules under the program will designate and define as stewards under the program, brand owners and first importers into Ontario of products that result in blue box wastes under the program”

PROPOSED RULES • Stewardship Ontario defines “obligated steward” as: - Brand owner of printed paper and packaging, or - First importer to Ontario of printed paper and packaging

BRAND OWNERS • Brand owner or trade-mark owner defined as: a) Packer-filler/publisher in Ontario that result in blue box wastes, or b) Party that causes packaging or printed materials, or c) Brand owner’s/publisher’s Ontario subsidiary/legal entity for product packaging or printed materials imported to Ontario, or d) Where the brand owner whose legal entity is outside Ontario agrees to register with Stewardship Ontario and discharge their responsibility

FIRST IMPORTER • Where the brand owner/publisher does not have an Ontario legal entity: e) the first importer to Ontario is the first person to take possession of the product in Ontario

SERVICE PACKAGING • Service or in-store packaging is that which is filled and/or provided at the point of sale. Service packaging is considered primary household packaging and is therefore obligated. • Every merchandise shop, quick service and grocery establishment which provides customers with service packaging is obligated as the brand owner or first importer. • Given the large number of establishments responsible for service packaging, Stewardship Ontario would like to establish special rules for service packaging:

FRANCHISES • The franchisor shall be deemed the obligated steward for all its Ontario franchisees and is obligated to report for all of its franchisees and corporately owned operations in Ontario with the following exceptions where: a) franchisor does not supply the goods to plants, distribution centres, and stores operated by its franchisees - each franchisee shall be deemed to be the steward b) under a master franchise agreement, where the master franchisee supplies all or substantially all of the goods to plants, distribution centres - the master franchisee shall be deemed to be the steward

OPTION 1 • Suppliers of service packaging have the option of declaring service packaging to Stewardship Ontario on behalf of those of their customers who provide service packaging to consumers This approach would leave the matter of who pays the fee up to commercial negotiations or

OPTION 2 • Suppliers of service packaging shall declare all service packaging to Stewardship Ontario on behalf of their customers who provide service packaging to consumers This approach would determine by rule that it is more administratively simple for the relatively small number of suppliers of service packaging to pay fees

NEXT STEPS • Stewardship Ontario wants to receive your feedback and comment on the proposed definitions and options presented • Please provide your feedback through this webcast’s Question Period and Evaluation Form, and through questions@stewardshipontario.ca

How Material Levies will be Calculated by Stewardship Ontario Dan Lantz – Technical Services

KEY BASE ASSUMPTION • The numbers presented in this model, and the model itself, are preliminary only, and will likely change in response to: • Comments received during the Consultation Process • Additional data provided by key stakeholders • Policy decisions yet to be taken by the Board

INTRODUCTION • Five key principles underpin the funding allocation methodology. The fee structure should: • Reflect the true costs to manage each designated Blue Box material • Take into consideration the benefits to all stewards from high recycling rates achieved by some materials • Encourage stewards to select materials that can be recycled at lower costs • Encourage increased material recycling rates • Minimize the total net costs to the members of Stewardship Ontario (e.g., reflect positive revenues)

STEPS TAKEN TO DATE • Model was first introduced to the Stewardship Ontario Board for its consideration on November 26, 2002 • Approval given for consultation on the model • Presentations given to key stakeholders and stakeholder committees • Key changes have been made as a result of consultation to date • Additional changes may result from continued consultation

MODEL OVERVIEW • The Model is comprised of three tables: • Waste Composition and Quantities Diverted • Cost to Manage • Gross Cost • Revenues • Net Cost • Funding Formula

MODEL OVERVIEW • The materials within the Blue Box are addressed in two streams: • All printed paper • Newspaper, telephone books, magazines and catalogues, other printed papers • All packaging • Old corrugated containers, old boxboard, aseptics, gabletop cartons, paper laminants, plastic laminants, PET, HDPE, plastic film, polystyrene, other plastics, steel cans, paint cans, aerosols, aluminum cans, aluminum foil, clear glass, coloured glass

WASTE COMPOSITION • The quantity of each material generated in Ontario in 2001 was calculated on the basis of a series of waste audits undertaken across a number of municipalities around the province • Numbers represent waste generated in the residential sector - not sales into the marketplace

WASTE COMPOSITION • Adjusted estimates (through Dec/02) suggest 1,554,000 tonnes of recyclable materials were generated in Ontario in 2001

QUANTITIES RECYCLED • The quantities diverted are taken from the 3 Rs Datacall undertaken as a joint effort by: • Ministry of Environment • Recycling Council of Ontario • Association of Municipal Recycling Coordinators • Municipal Waste Integration Network • Composting Council of Canada • Ontario Municipal Benchmarking Initiative • Corporations Supporting Recycling

QUANTITIES RECYCLED • A total of 699,255 tonnes of material were diverted in 2001 • The overall diversion rate for the program was 45%

PROGRAM COSTS • The gross cost per tonne for each material was calculated using an Activity-Based Costing (ABC) methodology • The total gross cost of the program for 2001 was estimated at $129,200,000 • The average gross cost per tonne was approximately $185.00

PROGRAM GROSS COSTS & REVENUES • Revenues were estimated at $66.7 million for 2001

NET RECYCLING PROGRAM COSTS • It is estimated that the net cost for the Blue Box program was $62.5 million in 2001

CALCULATING MATERIAL LEVIES • There are separate levy calculations for printed paper and for packaging • Through the consultation process and improvements to the model, separating printed paper from packaging was seen as necessary to ensure a fair distribution of the levies to both streams • Therefore, $310,000 is allocated to printed materials and $30,900,000 to packaging materials • Equivalent to the net cost to manage those streams in the current Blue Box program

BASIS FOR FEE PAYMENTS IN 2003 • The fees paid by stewards in 2003 will be based on the costs for the management of recyclables as occurred in 2001 • The quantities generated, recycled and the costs for the management of each material will be updated annually

CALCULATING MATERIAL LEVIES • Three factors are used to calculate specific material levies • Recovery Rate – 45% of total cost to industry • Levies are inversely proportional to the recovery rate for the individual materials • Net Cost – 40% of cost • Levies are proportional to each material’s percentage of the system current net cost • Equalization Factor – 15% of cost • Levies are proportional to each material’s percentage of the system cost if all materials were recycled at the same rate

CALCULATING MATERIAL LEVIES • Recovery Rate Calculation - $14,062,500 allocation • Separate calculations for printed paper and packaging • Levies are calculated for materials between and within material categories by comparing recovery rates relative to the mean for the program • The higher the recovery rate, the lower the relative levy per tonne • Range per tonne is from $4.50 to $31.10 for packaging and $0.14 to $0.36 for printed materials

CALCULATING MATERIAL LEVIES • Net Cost Calculation – $12,500,000 allocation • The levy is a simple linear relationship between the net cost to manage an individual material and the applied levy • For example, if a material represents 5% of the net cost of the current Blue Box program, it is assigned 5% of the $12,500,000 dollars assigned to this category

CALCULATING MATERIAL LEVIES • Equalization Calculation – $4,687,500 allocation • There are significant differences in recycling rates, attracting different costs for each material, • This factor acts as a means of promoting fairness in sharing costs assuming all materials are recycled at the same rate • For each material, the number of tonnes that would be diverted at a 75% rate is calculated • This quantity is then multiplied by the current net cost per tonne to manage • e.g., steel cans – 59,000 x 75% = 44,250 x $175.42 = $7,762,335

CALCULATING MATERIAL LEVIES • Equalization Calculation – continued • The cost for the material under the current program is then subtracted • e.g., steel cans - $7,762,335 - $4,966,233 = $2,796,102 • This calculation is done for all materials and the results added together • The levy is calculated by taking the cost of each material as a percentage of the total cost of the “75% program” and multiplying it by the dollars to be levied under this category • If steel represents 5% of the program cost, it is assigned 5% of the dollars assigned to this category

CALCULATING MATERIAL LEVIES • The base levy is calculated by taking the assigned levies across each of the three factors • Recovery Rate Factor levy + Net Cost Factor levy + Equalization Factor levy • Changing the weightings will have an impact on the levies assigned to each material • The current weightings place 45% of the emphasis on recovery rates, 40% on net costs, and 15% on sharing costs • Numbers established through a series of sensitivity analyses to establish similar levies between material categories

DE MINIMIS / COMPLIANCE • To the base levy, a de minimis/projected Year 1 compliance rate is applied • De Minimis: • It is required that a de minimis be established • Proposed that small businesses (<$2,000,000 Ontario sales) are exempt from paying levies • Compliance: • It will take time to “capture” all stewards • Lower rates are assumed for first year as program is established

DE MINIMIS / COMPLIANCE • De Minimis/Compliance • Approaches to ensure most materials included being addressed • Discussion of definitions • Over-collecting/Under collecting • If more money is collected for a category than was originally projected, money will be credited back to those stewards in that material and future de minimis/compliance rates will be adjusted accordingly • Vice-versa applied

EXAMPLE LEVIES • The final levies are converted into levy per tonne • Costs per unit package can then be calculated • Printed Paper, Paper Packaging and Polycoat examples

EXAMPLE LEVIES • Ferrous, Aluminum and Glass examples

EXAMPLE LEVIES • Plastics and Laminants examples

NEXT STEPS • Consultation to review all aspects of the model • Primary focus expected to be on the weightings assigned to the three factors • Recovery Rate – 45% • Net Cost – 40% • Equalization – 15% • Policy decision needed on which sales to apply the fee • Review by Stewardship Ontario Board January 15th • Will establish preliminary fees • Final fee decision in February • Feedback to Stewardship Ontario welcome/wanted

QUESTION PERIOD Please call 416-640-4127

IN CLOSING • Official comment on Blue Box Program Plan, must be submitted in writing - Deadline is January 17, 2003 • Mailing address can be found at www.stewardshipontario.ca • E-mail: comments@stewardshipontario.ca

IN CLOSING • Please return to www.stewardshipontario.ca following your listening to this webcast (live or in archive) - to fill out a webcast Evaluation Form • Industry representatives who fill in an Evaluation Form will receive an electronic version of the proposed funding model – to allow companies to complete preliminary assessment of their own projected costs

IN CLOSING • Reminder: this event will be archived for listening and comment at Canada NewsWire for the duration of the Industry consultation process • This is a 3-part Industry consultation process. Proceedings and presentations from part-one: the December 3 Workshop 1 are posted on Stewardship Ontario website • Please follow the easy links from www.stewardshipontario.ca • Please visit the Stewardship Ontario website regularly for updates on January 16 Workshop 2, and all developing details and important events

THANK YOU See you at the Workshop on January 16

Calculating the Material Levies for Obligated Stewards