Environmental Finance

EU’s End-of-life Vehicle Rules Stuck in Neutral

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Courtesy of Environmental Finance

Against a backdrop of stagnant car sales and falling scrap metal prices, car makers and recyclers are gearing up for the implementation of the European Union’s end-of-life vehicle directive. Or are they?

The European Union’s controversial end-of-life vehicle (ELV) directive comes into effect this month. But its passage from paper to practice appears to have stalled at a national level as car makers, recyclers and governments wrangle over who should foot the bill.

Aimed at dealing with the 10 million tonnes of waste generated by the 12 million-odd cars that reach the end of the road each year, the directive is the EU’s first piece of 'producer responsibility” legislation and, as such, is causing its fair share of debate and confusion.

Although it was signed by the European Parliament and Council of Ministers in September 2000, by late March, when this article went to press, only a handful of governments were even close to translating the directive into national law by the 21 April 2002 deadline.

In phase one of the directive, car makers will be responsible for the disposal of all ELVs they produce after it comes into force this month. In 2007, they will become responsible for all the vehicles they ever produced.

The legislation also stipulates that car-makers must re-use or recover 85% of ELVs by weight by 2006. At least 80% of that weight must be re-used or recycled while up to 5% can be dealt with through other recovery operations such as incineration. In 2015, this target rises to 95% of ELVs by weight, 85% of which must be re-used or recycled.

Britain’s Society of Motor Manufacturers and Traders (SMMT) estimates the directive will cost the UK car industry alone some £300 million ($425 million) annually, and that the total liability will be in the region of £4 billion. Across the EU, it estimates that the total liability will be £30 billion.
 

Car manufacturers argue that their role should be confined to developing recoverable/ recyclable cars that are easily dismantled. They also question why they should pay for recovery and recycling unless it can be proven that the car scrap industry is losing money as a result of the directive.

The scrap industry, divided in simple terms between the dismantlers who disassemble the car for parts and the shredders who crush the remaining hulk, complains that the higher re-use rates and stricter anti-pollution stipulations will make their activities far costlier.

The European Shredder Group, set up by the Brussels-based European Ferrous Recovery and Recycling Federation to deal with the ELV issue, estimates the directive will cost the European recycling industry between €3 billion and €6 billion ($2.6 billion and $5.2 billion), depending on how it is implemented by the various member states.

The most worrying aspect of the ELV directive from the car makers’ point of view, meanwhile, is its retroactive component that will make them responsible for the disposal of all the 160 million vehicles currently on European roads as of 2007. Older car manufacturers could find themselves saddled with huge financial liabilities.

“We have a vehicle park which is out of proportion with the business today. Our car park is in the region of three to four million vehicles. We’ve made this point to the [UK’s] DTI [Department of Trade and Industry] and the Trade and Industry [Parliamentary] select committee and I think, by and large, they have understood our situation,” says Stuart McKee, spokesman at UK car firm MG Rover.

“We’ve done various calculations based on the different ways the legislation could go. These range from £100 to £500 a vehicle. It will be a big expense for the business but, until we know how the legislation will work and who will have responsibility for bringing the vehicle back and taking care of it, it’s a difficult one to call,” he adds.

“Even in the countries where it seems that legislation is in place, like Sweden and Denmark, they haven’t really dealt with the issue of pre-2002 vehicles. Not a single country in Europe has resolved this problem,” comments Pascal Feillard, ELV coordinator at French car manufacturer PSA Peugeot Citroen.

UK car companies are particularly worried about the directive’s retroactive aspect because the DTI has been pushing to introduce it this year rather than in 2007 as stipulated.

“If the retrospective aspect is brought in this year without the proper infrastructure in place it will catch everyone on the hop. The potential damage is huge,” says SMMT spokesman John Stanley. SMMT estimates the UK’s ‘vehicle park’ – the number of cars on the road – stands at some 29 million vehicles.

Aside from “catching everyone on the hop”, the move would also force UK car makers to start entering their ELV financial liability as a provision in their accounts earlier than expected.

“Once the law comes into force, companies will be forced to make a provision in their accounts under article 12 of the Financial Reporting Act,” comments Charles Gooderham, a consultant in Andersen’s environmental risk team in London.

On a brighter note, a number of analysts feel car makers are on target in terms of developing new cars that will meet the directive’s on-going recovery and recycling targets.

“Most companies seem to have put their house pretty much in order to get to the 85% target which will chip in in 2006. We think by the time it comes through it won’t be a problem on an ongoing basis. We’re already at 75%,” says John Lawson, London-based auto analyst at US investment bank Schroder Salomon Smith Barney.

“By the time it rises to 95% in 2015, the cars should be designed to meet that. It’s demanding target but we think cars built in 2003/04 will have been developed in such way to meet it,” he says. Older cars, however, might pose a problem, adds Lawson, noting that the average lifespan of a car is currently about 12 years.

Like most of his counterparts, Lawson one of the sector’s leading analysts – is at loss when it comes to calculating how much the directive is likely to cost the motor industry.

In a report published in February 2001, he estimated the directive’s retroactive aspect would cost Germany’s Volkswagen €1.3 billion, Daimler Chrysler €380 million and BMW €250 million. Elsewhere in Europe, he predicted costs of €800 million each for Italy’s Fiat and French firms Peugeot Citroen and Renault.

But Lawson now says these figures are out of date and impossible to update at the moment due to the different legislative approaches of the member states (see box).

“Those figures were based on the assumption that the manufacturer would end paying, which isn’t really how it’s worked out,” he says. “It seems to be how Germany will enact it but it doesn’t seem to be quite the same throughout the rest of Europe. I suppose you can at least say they are all aiming for the same recycling and recovery rates.”

“The German companies have, by-and-large, made provisions in their 2000 accounts. At this stage we would suggest that they have done enough,” adds Lawson, noting, for example, that Volkswagen made a Dm1.4 billion ($624 million) provision in its 2000 accounts.

“In France and Italy, meanwhile, manufacturers didn’t make such provisions. But it looks like, at least in France, they were perfectly right not to given that in that territory they won’t have to bear a particularly high responsibility with the way we see the legislation working out there,” he concludes.

Until legislation is put in place across Europe, calculating the potential financial liability is like trying to work out an equation without all the variables.

“The directive is deliberately vague. They were unable to develop a common understanding so they came up with a vague formulation which is now causing problems,” says Hans-Martin Lent-Philipps, head of integrated environmental policy at the Brussels-based European Automobile Manufacturers Association (ACEA).

“Only two or three countries will be able implement the directive in time. They are the Netherlands and Sweden, and perhaps Germany, but I doubt it, although it should have legislation in place this year as should Belgium and Denmark,” he says.

The implementation of the ELV directive will fall just as the European Parliament is engrossed in the second reading of the next piece of EU “producer responsibility” legislation in the shape of the Waste Electrical and Electronic Equipment (WEEE) directive.

Aimed at making producers of electrical electronic goods assume more responsibility for their eventual recycling, the proposed legislation has raised widespread protests from companies who could face billions of dollars in extra recovery costs.

In a strategic paper on “integrated product policy” published in February 2001, EU Environmental Commissioner Margot Wallström said the “cradle to grave” legislation of the ELV and the planned WEEE directive would eventually be extended to other manufacturing sectors.

As a first stab at ‘producer responsibility’ legislation, then, companies across the board would be well-advised to keep an eye on how the ELV directive finally gets implemented.

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