Annex 2
Dixons Group plc briefing note for meeting
on 24 January 2002 with Rt hon Michael Meacher, MP, Minister of
State (Environment)
1. BACKGROUND:
THE CURRENT
SITUATION
Until 16 November 2001 Dixons Group, parent
company of Currys, had 12 third party contractors who provided
its collection and disposal service for all white goods. These
12 companies are all SMEs which employ up to 50 employees. The
three largest of these companies are responsible between them
for disposing of around 80 per cent of end of life white goods
while the remaining nine disposed of the other 20 per cent. Between
them they collected around 300,000 products per year from Curry's
customers, relieving local authorities of both a cost and a complex
obligation they would otherwise have to meet.
Since they were forced to withdraw from the
recycling of refrigerated products many of these businesses have
ceased to be viable. Our Stevenage contractor recently gave notice
that it would cease to collect other white goods having already
exited fridge collections. It has now exited the scrap industry.
We were given notice last week that the company that collects
scrap appliances from our Epsom Distribution Centre would cease
collection from 18 January 2002 as it too is withdrawing from
the scrap industry. As we are unable to find a substitute contractor
to collect from Epsom we are now contemplating trans-shipping
end of life products from Epsom to the South West to get our scrap
dealt with by an existing contractor there. This however would
require us to pay a unit fee, at least in the case of the three
major contractors who argue that without the cross subsidy they
previously had from disposal of refrigerated products it is no
longer viable for them to collect other end of life white goods.
The additional cost of transhipment combined with a new processing
fee may mean that we will be rendered unable to collect any white
goods (cookers, dishwashers, washing machines, tumble dryers,
etc). This in turn would further increase the pressure on local
authorities to meet their obligations to householders in this
respect. Currys, like other retailers, does not wish to lose this
service for its customers. If, however, these contractors cease
operations, local authorities may well have to deal with the disposal
of these other white goods on a permanent basis. (500,000 to 600,000
additional pieces excluding refrigeration from Currys alone)
2. POTENTIAL
SOLUTIONS
(A) A recycling credit scheme
DEFRA officials have broached the possibility
of extending the waste recycling credit scheme to cover the disposal
of refrigerated products (see annexed outline paper). Under such
a scheme the Government would allocate (ring-fenced?) money to
fund a per unit fee for each refrigerated unit reprocessed by
or on behalf of the local authority. The funding would be based
on a flat fee per unit to be paid to recyclers/disposers and paid
to them by the local authority on proof of each unit processed.
[Working on the assumption that 2.5 to 3 million refrigerated
products are disposed of each year funding allocation would need
to assume that roughly one in 10 households dispose of a product
each year.] The Local Authority could sub-contract the disposal
to third party contractors issuing them a credit (ie a cash fee
per fridge re-processed.) If the contractors collected from other
agents of the customer eg retailers who collect from households
when delivering products, the contractor could claim from the
local authority for each fridge it had recycled on its behalf.
It is likely however that local authorities would only be willing
to pay for fridges within their own constituency. This would therefore
require contractors to preserve proof of where the fridges originated.
It is unclear how this process could be operated or audited.
Problems/issues with such a system
Would a credit cover the full cost of the extraction/disposal?
If it met the full cost there is no incentive for the contractor
to keep prices down. However, if it did not meet the full cost
it is unclear why the contractor would wish to be in the business.
He would surely require the incentive of an opportunity to make
a margin on each unit recycled.
— The contractor must collect the fridge
from the retailer or the householder and demonstrate that the
fridge originated within the relevant borough. If there is a margin
opportunity then the contractor has an incentive to acquire other
fridges from elsewhere in order to obtain the credits. An auditable
process to verify origination would be required which would add
to administrative complexity and add costs and delays.
— Would the incentive be sufficient
to get the recycling plants up and running? The viability of such
plants would require a steep depreciation curve. Given the finite
availability of products containing CFCs (which ceased to be in
the refrigerated products after 1996), it is likely that the plants
will need to be depreciated over a maximum of three-year period.
Contractors would therefore be unwilling to invest without first
having a contract covering this entire term.
— Could the recycler guarantee sufficient
volume over the write-down period of the plant (ie the first three
years)? If not the unit cost of recycling will increase.
— Would such a system enable major
retailers to re-start from their collection services? Theoretically
"yes" although it would require each fridge to be postcoded
or otherwise identified in order that they could then be matched
against funding from a particular Authority. However, recyclers
would not then be able to bulk manage all fridges but would have
to log each unit and match to an Authority. It is not clear how
they could provide evidence to each Authority suitable to meet
their grant giving requirements.
— Nor does this system alone get round
the domestic/commercial waste issue. Local Authorities are only
required to collect or accept domestic waste refrigerated products
from households. Once such waste is transported by an agent, such
as Currys, local authorities and the Environment Agency then reclassify
it as "commercial waste even though it is a domestic product,
and charge a fee for its acceptance if they accept it all.
— Under this scheme the local authority
would want to minimise the amount it spent from its recycling
credit budget as it attracts no volume bonus for recycling.
(B) A "Lead Authority" Solution
Rather than being operated by scores of individual
authorities, this scheme would create a system under which Local
Authorities could bid for regional lead authority status. The
"lead authority" would then take responsibility for
all fridge reprocessing within a cross authority region. Under
such a system the "lead authority" would be granted
funding on a volume basis and would be responsible for collection
from civic amenity sites and retailers' collection depots within
their region without charge. This would enable retailers to re-start
their collection infrastructure and would immediately reduce pressure
on Local Authority collection services. The "Lead Authority"
would not be required to divide fridges and re-allocate to Local
Authorities or postcode areas, speeding up the process, reducing
storage requirements and reducing administration. They would be
paid from Central Government funds based on volume and the number
of fridges they recycle would enable them to fulfil part of their
constituent local authorities' targets under the national waste
strategy. They would have an incentive to maximise volume processed
as the more units they collect and recycle the cheaper the unit
cost of extraction. Because they in turn would be negotiating
on a contract basis with recyclers rather than imposing a centrally
imposed flat fee they would have the opportunity to manage down
prices or, potentially, buy from competing contractors.
Such a system would require licensing which
recognised that all these fridges are domestic in origin including
those collected from retailers' sites. Retailers would thus be
recognised as a channel for domestic disposal ie an agent for
the customer rather than the present insistence by local authorities
that household units, once removed by retailers, are classified
as commercial rather than domestic waste.
3. PRECEDENTS
There are some precedents for the creation of
such collective management schemes. New local authority powers
permit authorities to sell services to each other. The Local Government
Act 2000 Best Value regime enables local authorities to provide
services for other authorities where this is in the interest of
the economic, social or environmental well-being of the area.
Some examples are set out below.
(A) Integrated Waste Management Strategies
In 2000, Hampshire Council achieved Beacon Status
for its development of an integrated waste management strategy
in Hampshire. In 1993, Hampshire County Council and the 13 District
Councils undertook a public consultation resulting in the introduction
of an integrated waste management strategy known as "Project
Integra". The delivery of the strategy depended on joint
working between all the authorities across Hampshire. To co-ordinate
to provide effective waste management the authorities established
a joint memorandum of understanding, setting out the principles
and obligations of the Project's partners, a tri-partite contract
management agreement between the county council, and two unitary
authorities working together, a joint service plan agreement and
a joint promotional campaign.
(B) Waste Disposal Authorities
Alternatively authorities could establish joint
fridge disposal committees along the lines of the small number
of waste disposal authorities which have been established in East
London, North London, West London, Western Riverside, Greater
Manchester and Merseyside.
The Merseyside Waste Disposal Authority is an
independent joint waste disposal authority created under the Local
Government Act 1985. It has a statutory duty to arrange for the
disposal of household and commercial waste collection by the five
District Councils of Merseyside.
The Authority is responsible for the disposal
of household and commercial waste collected by each of the five
Waste Collection Authorities in Merseyside. This is achieved by
way of a waste disposal contract, which is let through competitive
tendering procedures. The current contract is held by the Authority's
wholly owned company, Mersey Waste Holdings Limited. The services
provided by the Authority are paid for by the District Councils
of Merseyside, who then include this expenditure in their own
budgets and council tax calculations.
The amount to be paid depends on the charges
(known as the Levy) made by the Authority to the individual District
Councils. This Levy is made on a prescribed allocation method
and the total amount generated is used to fund the Authority's
expenditure. [In this case the Authority also has investments
in the form of shares in two private sector companies. It wholly
owns Mersey Waste Holdings Limited, whose main business is waste
disposal operation and the second shareholding is a joint venture
in Bidston Methane Limited, who exploit the methane gas in landfill
sites by gas sales or power generation.]
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