OBSERVATIONS ABOUT HAWAII’S PROPOSED DEPOSIT SYSTEM, HB 1256

Prepared by Businesses and Environmentalists Allied for Recycling,

A Project of Global Green USA

March 22, 2002

Background

Hawaii Representative Hermina Morita has proposed a bill (HB 1256) that would enact a beverage container deposit system in Hawaii. An industry-sponsored report entitled Increasing Residential Recycling in Hawaii was prepared by Cascadia Consulting to present an alternative to the proposed deposit system. Representative Morita requested Businesses and Environmentalists Allied for Recycling (BEAR) to review these two documents and to make observations based on the findings of the Multi-Stakeholder Recovery Project (described below). This document presents BEAR’s conclusions, and is limited to those areas that are specifically supported by the findings and recommendations of the Multi-Stakeholder Recovery Project.

BEAR, a project of Global Green USA,[1] is a unique alliance of businesses, recyclers, environmentalists and other stakeholders working to maximize beverage container recycling. BEAR’s goal is to increase the national recycling rate for all beverage containers to 80 percent. Last year BEAR launched the Multi-Stakeholder Recovery Project (MSRP). For eight months, BEAR’s members worked intensely with members of a task force including Coca-Cola North America, Waste Management, Inc., Southeastern Container and others, to evaluate beverage container generation and recycling trends, and to compare the effectiveness, costs and benefits of alternative recycling programs. A broader 24-member advisory committee provided input from all types of stakeholders. To help ensure our results would be accepted as unbiased, we engaged a consulting team with deep experience working with industry, government and environmental organizations, including R.W. Beck, Inc., Franklin Associates, Ltd., the Tellus Institute, Sound Resource Management Group, Inc. and Boisson & Associates. Stage One of the project culminated in January 2002 with joint release of the report, Understanding Beverage Container Recycling (available on the Internet at www.globalgreen.org/bear). This document, referred to as the MSRP Report below, did not recommend a particular program; however, it provides a wealth of useful statistics and a cover letter signed by task force participants includes recommendations to guide future efforts. We’ve attached for your information the report’s cover letter and executive summary, and a list of the project participants.

Since the report’s release, the beverage industry has taken pains to distance itself from one key result – that the California redemption system has relatively low operating costs. Privately, these critics have agreed that the MSRP Report accurately captures the program’s operating costs, but they argue that its problematic funding mechanisms result in additional “costs.” The MSRP Report acknowledges that California’s funding mechanisms are problematic and suggests that programs be devised that use the highly efficient recovery mechanisms proven in that state, while avoiding its complex funding mechanisms. As discussed in point #3 below, we feel the proposed Hawaii bottle bill is an example of an effort to do this. However, we do encourage the fund administrator to evaluate actual costs and compensation levels provided to redemption centers in an effort to fairly match program revenue with program costs.

Strengths

1. HB 1256 satisfies the need to both strengthen existing municipal programs and support a range of new recovery mechanisms.
This is one of three recommendations that the MSRP Task Force agreed should guide future recycling initiatives.[2] Because an increasing percentage of beverage containers are discarded away-from-home, programs are needed that provide recycling opportunities in a wide range of settings. HB 1256 does this by encouraging establishment of widespread recycling opportunities at and near retail stores.

2. HB 1256 satisfies the need for incentives to ensure the long-term sustainability of recycling.

To varying degrees, HB 1256 succeeds in providing each of the four types of needed incentives the MSRP Task Force identified in its cover letter recommendations.

· First and most importantly, the proposed program would provide a direct monetary incentive for consumers to recycle through the returnable 5-cent deposit and through a system of convenient recycling services at home and away.

· Second, by providing payments to certified redemption centers, the program would encourage entrepreneurial companies to innovate new and potentially highly efficient recovery schemes.

· Third, by involving distributors in assessing beverage container fees (albeit collected through consumers) the program would provide a very modest incentive for design-for-recycling.

· And fourth, by establishing a fund to be used in part for market development, the program would encourage to some degree incentives for encouraging reuse of recycled beverage containers in manufacturing processes. While this later incentive is not strong, given Hawaii’s distance to mainland markets it is quite important and would build on past successes of the Clean Hawaii Center and others.

3. HB 1256 includes several elements that can reduce recycling program operating costs while still achieving significant recovery rates.

This is the third and final area that the MSRP Task Force agreed to include as a recommendation for future initiatives. The MSRP Report concluded that the California Redemption System has relatively low net operating costs (0.55 cents per container compared to 2.67 cents per container for “traditional deposit systems). This is largely because of four elements that are also found in Hawaii’s proposed bill.

· First, it uses a central fund that reduces administrative costs and eliminates the need for beverage distributors to engage in recycling activities, sort bottles according to brand or distributor as in many other bottle bill states.

· Second, it relies largely on independent buy-back and retailer-affiliated redemption centers to provide recycling services. Because of their low collection and processing costs, these are among the most efficient collection mechanisms available.

· Third, it allows retailers to use highly efficient, automated reverse vending machines to satisfy recycling obligations.

· And fourth, it eliminates the need for some retailers to provide relatively costly on-site recycling services (i.e., if they are small, in rural areas or if an existing recycler is operating within a certain radius from their store).

4. HB 1256 avoids many of California’s most controversial and problematic elements by relying on relatively simple funding mechanisms.

HB 1256 adopts many of the elements that have been proven in California to result in lower unit costs, but to its credit avoids use of California’s highly controversial and problematic funding mechanisms. The MSRP Report discusses these problems with California’s so-called processing fee system in some detail. They include: concerns over equity across package types and across business types; the inability of the state to rapidly adjust pricing in response to changing market conditions; controversy over how to calculate and allocate processing fees. The simple 2-cent beverage container fee and unredeemed deposit revenue, all managed in a single, central fund avoids many of these problems. We understand that the fund administrator will have the discretion to adjust the funds paid to different types of redemption centers. This is a useful element that will help ensure revenues are matched with actual costs as closely as possible over time.

Implications of the Bill’s Broad Scope

Hawaii’s proposed bill is an “expanded bottle bill” in that it covers virtually all types of beverage containers with very limited exceptions. For many years US bottle bills covered primarily only carbonated beverages. Maine’s bill was expanded in the early 1990s to cover most other containers, as was California’s in 2000. Given the broad scope of covered containers, one would expect the following:

5. HB 1256 is likely to result in higher recovery per-capita than traditional bottle bills, but recovery rates may be somewhat lower, at least initially.

Projecting program effectiveness is difficult because there is little experience with expanded bottle bills in the US. Initial experience with California and Maine indicate collected tons will increase, rates may drop initially, and a higher percentage of covered containers may be returned through municipal systems than would be the case under a more narrowly defined deposit system. However, over time, with good education efforts the rates may rise to those comparable with other more limited bottle bills, as has occurred in some Canadian Provinces with broad deposit systems.

6. All other factors being equal, net unit costs for a program covering all beverage containers may be higher than for a program covering a more narrow range of beverage containers.

This results for at least two reasons. First, the percentage of aluminum in the mix of containers collected in an expanded bottle bill is much less than in a traditional system. Since aluminum dominates the average market value per container recovered, this is reduced in expanded bottle bills. Second, the costs to process and market containers of resin types other than HDPE and PET in an expanded bill can add cost. We have not attempted to project the actual operating costs associated with HB1256, and reiterate the desirability of reviewing the payment structure to redemption centers periodically.

The Cascadia Plan

The Hawaii legislature has been presented with two very different options: 1) Attempt to maximize municipally-operated recycling services targeting a range of materials generated in residences (i.e., the Cascadia plan); or 2) Establishing a statewide system to very effectively handle one particular material type, beverage containers (i.e., the deposit system proposed in HB 1256). To reiterate, we have not prepared a detailed critique of the plan submitted by Cascadia Group. However, we do offer the following observations.

Since implementing the Cascadia plan requires that dozens of cities and counties switch to a user-fee based system and secure sufficient resources, it is unclear whether the plan could be successfully implemented in a timely manner. Even assuming the Cascadia plan were fully implemented, we conclude it would result in only a marginal increase in beverage container recovery rates. This is because it only addresses beverage containers generated in residences and relies on to-be-established curbside and drop-off programs as recovery mechanisms. We do not have data to evaluate Hawaii’s specific situation. However, based on national averages, states relying exclusively on non-deposit approaches like curbside and drop-off achieve overall beverage container recovery rates of approximately about 28%, compared to states that combine curbside and drop-off with deposit systems to achieve overall recovery rates of about 72%. Since Hawaii’s proposed deposit system covers far more beverage container types than traditional deposit systems covered in the MSRP Report, the rate may potentially rise even higher. Even the most exemplary municipal programs, such as in Seattle and other West Coast cities, achieve beverage container recovery rates of about 50% of residentially generated containers.

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[1] Created in 1994 as an affiliate of Mikhail Gorbachev’s Green Cross International, Global Green USA works with individuals, industry, and government to foster a global value shift toward a sustainable and secure future.

[2] Although all MSRP Task Force members verbally agreed to the report and cover letter during our November 30 meeting in Atlanta, one member, Steve Edelson of Waste Management, Inc., was not able to sign the cover letter.