This study analyses options for the design of tradeable certificate systems to finance the recovery of waste electrical and electronic equipment (WEEE). The study focuses on the option of an EU wide system although the concept can also be applied on a national or industry-led (environmental agreement) basis.
Tradeable Certificates for Waste Electronic and Electrical Equipment
An obligation is placed on producers (manufacturers and importers) of electrical and electronic equipment to finance the reprocessing of a specified amount of waste equipment. The amount of waste electrical and electronic equipment reprocessing to be financed by each producer is calculated on the basis of his/her current market share. The producers demonstrate their fulfillment of this obligation via certificates issued by reprocessors. The certificates represent a confirmation that the specified amount of waste has been reprocessed. Reprocessors cover their costs by selling the certificates which may subsequently be freely traded. Market mechanisms such as brokerage services, a formal exchange or trading pool are likely to emerge to facilitate trading.
The main design issues that need to be considered with respect to such a system are:
- whether the system will only cover costs arising at the level of reprocessors or whether collection and transport costs will be included as well;
- a clear definition of environmentally sound treatment of waste equipment and procedures to ensure strict control and monitoring;
- sharing of the duty to finance reprocessing among producers;
- the extent to which harmonization of reprocessing requirements and enforcement is appropriate to avoid market distortion(in particular for EU wide trading systems);
- whether weighting part of the obligation to favour products with fewer environmental impacts may be an option to introduce an incentive for eco-design;
- whether banking of certificates from one year to the other should be allowed.
A tradeable certificate system for waste electrical and electronic equipment provides the opportunity for obligated firms to seek the lowest cost reprocessing services. This demand can encourage competition in the reprocessing sectors, thus promoting cost savings. The extent of these advantages will depend on the extent to which different national legislation prevents the free trading of waste equipment, the transparency with which the trading market is designed and its user-friendliness.
The main lessons to be drawn from existing trading systems
The design of a possible system of tradeable certificates for waste electrical and electronic equipment builds on the experience of existing trading systems, and in particular on the UK PRN trading system for packaging waste recovery notes. The other trading systems reviewed are the SO 2 allowance trading in the US; New Zealand (NZ) transferable fishing quotas; US lead trading; and the trade of Ozone Depleting Substances (ODS) quotas under the Montreal Protocol. Table 3.4 summarises the principle features of these trading systems.
Some key lessons, with particular relevance to a tradeable certificate system for waste equipment, are:
- ideal systems are rarely constructed from the beginning, but have to be modified;
- a permit system works best when it has a strong legal foundation, as this creates certainty in the system thereby reducing the risk in trading;
- clearly defined rules of compliance and trading provide certainty for participants;
- realistic pollution reduction targets based on some ‘fair' criterion are important for the political feasibility of trading systems;
- banking adds flexibility to the trading system. Borrowing is generally not permitted;
- falling permit prices in the US SO 2 allowance trading system and the UK PRN system may be an indication of real cost reductions through trading; however, it is difficult to separate cost reductions through competition from other parameters which might also influence the price