Examination of Witnesses (Questions 140
TUESDAY 23 OCTOBER 2001
Sir Robert Smith
140. Back to this depollution. At the moment
you say that in effect the oil comes out of the system at a different
point where it is easier, in other words you deal with it in bulk,
it is in your refined waste and you remove it rather than individually
trying to find out where the oil is in the car and drain it. What
about the other pollutants at the moment, where do they end up
after you process it?
(Mr Mason) Mostly in the waste going to landfill.
You end up with a pollution loading in a way so the mercury light
bulbs give a very low level of mercury but it is still there sitting
in the waste going to landfill. I do not disagree that we should
take them out first.
141. You were saying at the moment you pay £3
(Mr Mason) It varies all round the country. If you
look at my site in Sheffield, for instance, my land costs there
are less than a tenth of my land costs in London and, therefore,
I could pay more for cars because we are in a competitive market.
It is even cheaper the further we go north, so we are in a competitive
market, we are fighting with other players in that sector.
(Mr Mellor) Transportation also comes into it.
(Mr Mason) There is transportation to the shredding
142. Going back to what you said about the customer
bearing charges and how if your costs go up you might have to
charge people to take the car in. You mentioned Option 4 that
the manufacturers put forward where there would be an obligation
on the shredders to take cars. Do you think that would be a disincentive
to people? We were talking about abandoned cars earlier as well.
If somebody has got to pay, they have to pay you to take the car
and you are obliged to take it under Option 4, is that not going
to lead to people thinking "I am not going to turn up at
the shredders if I have actually got to pay them to take it away"?
(Mr Mason) I think if you made it a cost to dispose,
yes, you would end up with more fly tipping across all waste streams.
I do not think Option 4 says that the last owner would have to
pay us. Option 4 says that we would have to have an obligation
to take it, which I am not fully sure I understand how, under
producer responsibility, the recycler would have an obligation
to take that.
(Mr Cottam) And under market forces as well. Option
4 was presented just now as being driven by market forces. How
is it driven by market forces if one operator is obligated to
(Mr Mason) We would not be able to charge under the
Directive to take vehicles. If we had an obligation to take vehicles
and a negative cost and not able to charge then we would be into
this deficit assessment system which may or may not be attractive
for smaller shredder operators in that system. The more you add
cost to last owner or difficulty to last owner you will increase
fly tipping. I think fly tipping is probably blown a little bit
out of proportion, maybe 100,000 vehicles out of 1.8 million,
it is not the majority. The majority of vehicles are natural end
of life vehicles, not crashed, the majority go straight into the
chain and are not fly tipped.
143. They are the ones that end up on our local
streets and our constituents tell us about them.
(Mr Mason) Sure.
144. You mention in your submission about an
incentive to last owners, a bounty system as you phrase it. It
was suggested earlier I think about this option or suggestion
which has been made by the other people who have put submissions
in, the APTA and the AA have talked about either a bond system
or charging on the price of a new car. Do you think that is a
good idea? It would not be your end of it, somebody would pay
up front who was buying a new car and the contribution towards
the credit would be there and the person gets it back at the end
and you issue a Certificate of Destruction presumably.
(Mr Mason) I think any method to get vehicles into
the chain without having them abandoned. The problem with abandoned
vehicles is the immense cost for local authorities who have to
go and visit the car, assess whether it is abandoned or not. They
have to go back again and see if it is abandoned. They have to
put a sticker on it and leave it there for 14 days, depending
on whatever system they have got. Then they have to arrange for
the haulage. That is adding up to £50 to £100 a vehicle.
If it is a natural end of life vehicle it will be £3 at our
gate currently. Any system which helps to minimise that by encouraging
last owners to bring them through would obviously save local authorities
a lot of money.
(Mr Cottam) The bounty system would have to be in
conjunction with a more robust licensing system. When a million
near end of life vehicles are driving around the roads with no
road fund licence then, say, a £25 or £50 bounty would
not be sufficient to make those people license their cars before
they scrap them at the end of their years.
145. Who would pay the bounty?
(Mr Hulse) The bounty would be derived from either
some kind of levy on the sale of new cars or, like the Danish
system, on the annual insurance. There are various ways that the
bounty needs to be drawn in from the process during the life of
the vehicle rather than putting a financial burden on the last
146. I did mention the Certificates of Destruction.
Do you envisage they would be issued mainly by shredders or dismantlers
as well or two stages, which I think someone else mentioned in
(Mr Mason) Certainly they could not be solely by shredders
or dismantlers. I think there would have to be two stages. I think
two stages has some merit. The last owner needs a piece of paper
saying they have dropped their car off to an authorised treatment
facility and that may be a dismantler, it may be a scrapyard.
They need that proof of deposit. Perhaps if we had two stages
the shredder would say "Yes, that is now in small chunks
of metal, not in something which can go back on the road again".
It is going to be quite hard to manage that. Most vehicles do
not come to a shredder whole. They are not being brought in as
a whole vehicle, they are being brought in as a flat or cube.
You do not actually see what type of car it is or even what colour
it is necessarily, it is a cube, because you are trying to improve
transport efficiencies by moving vehicles from Cambridge down
to East London for example.
147. You are aware the DVLA have been trialing
this system with electronics. Have you been involved in the discussions
(Mr Mason) Yes, we have been involved. We have another
meeting with them next week. Yes, we do fully believe it should
be electronic. It is the only sensible way to move forward and
keep costs down. I think one of my concerns about the Packaging
Directive is the administration costs are quite unattractive.
I think we should try and use every opportunity on ELV to minimise
administration costs of the system, electronically is going to
be one way of doing that.
148. You mentioned in your evidence I think
about continuous licensing. Is that something you would definitely
like to see for all cars?
(Mr Mason) Absolutely. It would help to minimise fly
149. I want to come on to implementation of
the Directive. First of all, can I just pick up on a point about
Option 4 and the idea of obligation and the impact on your industry.
This was raised earlier in questions. I just wondered what your
view was about the impact of obligation on capacity and the ability
of your industry to survive in its current form?
(Mr Mason) There will be no impact on shredding capacity.
We already shred far more than the vehicles there are in a year.
150. Its viability?
(Mr Mason) Absolutely. Sitting in a position where
you have an obligation means you have a very weak hand in negotiations
on the price of depollution or taking those vehicles in or treatment
in general. So, having an obligation on the recycler would seem
to put the recycler in a very difficult position.
151. That is the point I was trying to make.
Would that not necessarily have a knock-on in terms of the viability
of business and the overall capacity?
(Mr Mason) Yes, it would.
(Mr Cottam) Our industry is already capital intensive.
It is already very highly efficient. It is already fiercely competitive.
Any attempt to fix our negotiation position in that way would
certainly make it very unattractive for anyone else to enter the
152. If I can come on to implementation. You
do say in your evidence that this would be impossible without
specifically addressing the question of the funding of costs of
both capital investment of the appropriate treatment depollution
facilities and their ongoing operational costs. You also refer
again to the point that has been made that ultimately these costs
will have to be borne directly or indirectly by the consumer.
The industry has known about this Directive for many years. Why
are you not better prepared?
(Mr Hulse) We are as well prepared as we can be, given
that we have not been given any guidance on how the costs in implementation
are going to be funded. We were extremely disappointed with the
DTI consultation paper which studiously avoided addressing the
issue of funding because what it has done is left us with a situation
where we are sitting here arguing with the car manufacturers about
the merits or otherwise of Option 4. They are trying to pass the
cost on to our sector and we are saying we are cannot afford to
take it, whereas if we had had some clear guidance and decisions
from DTI and some funding for this and how it could be achieved,
we could be getting on with the task.
153. So the sort of investment you were talking
about earlier, the £240,000, you do not feel that part of
that investment could have been foreseen and put in place earlier,
bearing in mind that you knew of the existence of the eventual
implementation of such a Directive?
(Mr Cottam) How could we put together a business plan
to justify that investment?
(Mr Mason) We do not know where the return is going
to come from. As larger enterprises, yes we can afford a large
investment. EMR returns about £600 million and the investment
is substantial. But for the many, many smaller enterprises which
will be doing depollution, there are not going to be 37 shredders
in the country doing most of the depollution, most of the depollution
will be done in dismantlers and local scrap yards, and for those
independent operatorsfamily companies most of themhow
do they justify a potential quarter of a million pound spend?
(Mr Cottam) They perhaps have to go to a bank manager
to borrow that money and they need to be able to produce a robust
business plan to demonstrate return on that investment.
154. You do not think that there are any companies
that have put in place that investment and are ready for the Directive
(Mr Mason) Some have. One large plant has and two
or three dismantlers have but they are really having a punt at
it. They are having a look, and making an assessment of the cost.
(Mr Cottam) To see what costs are involved.
(Mr Mason) The vast majority will have to wait to
see some clarity about where those returns are going to come from.
155. Do any of your members currently have private
contracts with vehicle manufacturers for the disposal of ELVs?
(Mr Hulse) No.
156. Could I just ask a question about what
you may have been doing anyway again because you said you could
not really have foreseen the capital investment that would have
come with this Directive. Hypothetically, if the Directive did
not exist, would you not already be being required to look forwards
towards depollutants, apart from anything else because of the
trend in landfill? Have you not been preparing for that anyway,
forgetting the Directive?
(Mr Mason) Absolutely. If the Directive were not here
and we were driven to depollute, we would be charging the last
owner £30 for a vehicle.
157. Have you not already been preparing?
(Mr Mason) Because the drivers have not been there
yet. The Landfill Directive is sitting behind the ELV Directive
so we are waiting for the ELV to come through rather than the
Landfill Directive or any other drivers.
158. Can I ask one final question. You talked
about fixing a negotiating position by manufacturers shifting
costs onto you. From your point of view, if you were looking at
this from the outside, what drivers would make you more efficient
rather than allowing you to pass your costs on to someone else?
(Mr Mason) Competitive tendering of contracts.
(Mr Cottam) One has to be careful with this one because
there is a fixation that if one reduces the number of players
it makes those players more effective. In terms of end of life
vehicles the costs that have to be considered are the logistical
costs from the point of arising, the depollution costs, the compaction
for transport to maximise the efficiency of that transport, and
the ultimate shredding costs. It is not just a case of minimising
the number of shredders, winding up the production of each shredder
and therefore you have got a more effective system. Chances are
you have not because you will ruin the logistics of that system
by whole cars having to go to shredders for depollution rather
than being compacted ready for transport. We have an effective
network, a network which exists in the UK because it is commercially
effective, it is competitive.
159. You rightly point out that the DTI consultation
paper does not say anything about financing issues. Does that
influence your view about the three options that are in the DTI
paper? May I rephrase that: what are your views on the three options
in the DTI consultation paper?
(Mr Mason) We are always as a sector going to have
trouble with option two which is the tradeable permit section.
I personally am not against tradeable permits per se, I
think they have some advantages, but in current UK law we do not
recycle anything in our sector, it is the steelworks that recycle.
So currently we would not be issuing the tradeable permits so
we are never going to be overly keen on an option where the people
we sell our materials to issue tradeable permits and not us. It
becomes a non-starter for us in that respect. We would do all
the work but we do not issue the tradeable permits with the value
on it. I am not wholly sure how tradeable permits work. They work
quite well in packaging in some respects because it is a very
basic material and does not require depollution. A paper bag does
not require to be depolluted and therefore it is quite easy to
manage. At the end of the day depollution costs are more than
recycling costs would be. I am not sure how you tie the depollution
to a tradeable permit.
160. And you have referred to the motor manufacturers'
so-called option four. Could you briefly summarise your attitude
(Mr Mason) To be fair, we have not had an official
version of option four. I do not think anybody has publicised
a version. However, on option four I can fully understand the
motor manufacturers wanting to avoid accruals because that is
a big cost for them. I can understand the thrust for a commercial
decision on positive to negative vehicles. I cannot disagree with
that, although I am not sure how that works. If the dismantler
in Cambridge said he did not want the vehicle, would the last
owner have to drive all the way down to East London to take it
to my plant? It is going to have to go to somebody else in Cambridge.
It may even be the same dismantler with a positive and negative
door. He may be the only person
(Mr Cottam) You could have two Ford Cortinas and one
has got a positive value because it has got a buyer for the engine
and the other one has not. That is how basic it could get.
(Mr Mason) I fully appreciate how the manufacturers
have driven this concept forward to differentiate between positive
and negative. I am not sure how it can be audited and measured
and managed. We are wholly against a statutory obligation on those
who recycle under producer responsibility legislation. The obligation
that we must take in vehicles is fundamentally flawed, we believe.
We would love the opportunity to contract with manufacturers where
we would have an obligation under contract law, wonderful, but
a statutory obligation we do not see how that fits into producer
Chairman: Thank you very much, gentlemen, for
your information and your evidence. If there is anything else
we will come back to you, but thank you very much, that is very