Scottish Government

COUNCIL DIRECTIVE 1999/31/EC ON THE LANDFILL OF WASTE

1. Taking 2000 as a hypothetical example, say there is an obligation to recover 363 tonnes of tyres plus 58 tonnes of Temporary Tyre Notes that need to be redeemed against evidence of final reuse or recovery (i.e. in 1999, 58 tonnes of tyres were retreaded). In 1999, there were market shares of 63% for replacement tyre sales (split 50/50 UK/imports), 9% for UK vehicle manufacturers and 21.5% for imported vehicle manufacturers and 6.5% imports of used casings. In this example let us also assume there is only one company per obligated sector. Also that the UK tyre manufacturer holds all the Temporary Tyre Notes. Obligations might initially therefore be:

2. UK replacement tyre sales - 172 tonnes
   Imported replacement tyre sales - 114 tonnes
   UK vehicle manufacture - 33 tonnes
   Imported vehicle manufacture - 78 tonnes
   Used casing importer - 24 tonnes

3. There is no certainty of direct contractual arrangements between these obligated parties and the reprocessor.
4. Taking as an example UK replacement tyre sales, the manufacturer will wish to be satisfied that there is sufficient reuse and recovery capacity in place to reuse or recover 172 tonnes of material in the current reporting period and that they can secure access to this capacity. If they are not satisfied, for planning and liability purposes, it is likely they will wish to take steps to address. The manufacturer could choose to defer part of the obligation to the next reporting period by using retreaders' services or arrange for the export of used tyres to overseas reprocessors or other users of used tyres .
5. The normal supply route of new tyres from the tyre manufacture to fitment on vehicles will be direct to the retailer or via an intermediate step through a wholesaler. The retailer is the usual point of disposal for a used tyre although vehicle dismantlers are another such point. As a disposer of used tyres, retailers could be in a position to receive evidence of reuse and recovery through their used tyre collector/disposer, either by way of one of the developing industry schemes (eg TIC Responsible Recycler initiative) or by building on regulatory audit requirements, ie Waste Transfer Notes.
6. Let us assume that the manufacture supplies to two retailers and one wholesaler. One retailer is a member of an industry scheme and receives evidence of recovery from reprocessors accredited under the scheme in the form of Tyre Recovery Notes (TRNs). The term accredited reprocessor simply means that the reprocessor has met the audit requirements called for by that particular scheme.
7. The other retailer and its collector are not signed up to an industry scheme. The collector uses three reprocessors, which may or may not be party to one or more of the industry schemes. The collector issues Waste Transfer Notes, as required by existing legislation which demands that the used tyres are only delivered to Environment Agency licensed ⁴ sites unless exempted ie. the person to whom the used tyres are delivered must be authorised to take it whether that be a rubber crumber or other reprocessor. Both persons involved in the waste transfer must keep copies of the Transfer Note and the description of the waste for two years, and copies of these Transfer Notes, augmented with proof of actual recovery of the tyres, could be passed back to the retailer as evidence of recovery.
8. Both retailers therefore have information on their recovery performance. The manufacturer may wish to develop arrangements with these retailers to gain access to this information; this would require changes to existing market practice. It is likely that whilst obligated companies might contract with their retailers, for example, to obtain proof of recovery the retailers (and the reprocessors they use) are likely to charge for this (either explicitly or implicitly). As with the manufacturer, it is likely that there is no direct link between the wholesaler and reprocessor and no natural conduit for information to flow from the reprocessor back through the supply chain to the wholesaler and ultimately the manufacturer. Again, the manufacturer may wish to develop arrangements with the wholesaler, who in turn will need to develop arrangements with their customers, to provide for this flow of information.
9. Similar arrangements could by developed by tyre and used casing importers.
10. There is a more remote link between vehicle manufacturers and tyre disposers. As a consequence of the End of Life Vehicle Directive, it is likely that car manufacturers will develop closer relations with vehicle dismantlers (Authorised Treatment Facilities under the ELV Directive). ATFs should be able to access reuse and recovery information through existing channels (augmented Waste Transfer Notes) or currently developing initiatives and requirements flowing from the ELV Directive. Again, vehicle manufacturers may wish to develop arrangements with dismantlers to access this evidence.
11. It is unlikely that all used tyres from a particular retailer or dismantler will tie neatly with the obligations for that particular set of retailers suppliers, etc. Any balance of evidence not accounted for contractually by a retailers upstream suppliers could form the basis of tradable evidence, which is redistributed on the open market according to obligated needs.
12. As an alternative to the development of complex layers of contractual arrangements between market participants to provide for the flow of information between those extracting value from used tyres, such as reprocessors, and obligated parties, wider scale use could be made of tradable evidence. It is likely that even if an explicit tradeable permits regime was not set up, there would be widespread trading because of the value attached to evidence. While, doubtless some obligated parties would wish to have a proportion of their obligation accounted for outside a trading scheme (eg securing capacity directly with a reprocessor) the balance could be met using such a scheme. Under such a scheme, the reprocessor, scheme operator or other competent party would place evidence of recovery on the open market. That recovery evidence would attract a value based on the current market position. So if there was an excess of recovery capacity or obligations had been met, the value attached to that recovery would fall and if there was insufficient recovery capacity and obligations not yet met, the price would rise.
13. The Packaging Regulations provide for obligated companies to pool their obligations with others within schemes such at that operated by Valpak. Such schemes take over the responsibility for meeting the obligations of their members and demonstrate compliance through securing sufficient Packaging Recovery Notes (PRNs), whether directly from accredited reprocessors ⁵ or from PRNs traded on the open market.
14. Tradeable permits allow recovery to be carried out by those for whom it is least cost. Firms who face lower costs could engage in additional recovery and sell extra permits to higher cost firms. However, the operation of this (and more generally the incentives, costs and working of this producer responsibility scheme) may be affected by the need to recover all tyres. The process for dealing with the excess tyres (ie those above the 95% obligation plus deferred Temporary Tyre Notes described above) may be crucial. A further advantage of tradeable permits is the greater recovery cost transparency it should bring.
15. Another potential advantage of a trading scheme is that it can be used as a tool to address any mismatch between the initial estimated obligation, in year adjustment to that obligation if deemed beneficial and any final resolution of the obligation in light of actual figures, if necessary. So if a company has under or over recovered against its obligations at any point in the reporting period, it could choose to purchase additional recovery evidence or sell surplus recovery evidence.
16. For example, one possibility might be to allow proof of recovery to be valid for more than one year. When a firm's annual obligation is calculated it could include an element that reflects the amount of recovery done in the preceding year. Thus if arisings were 10,000 tonnes higher than the combined 95% and retread obligation then the next year companies' obligation could be increased by 10,000. Clearly such a possibility raises a range of issues. One advantage would be that companies holding tyres in excess of the obligation can sell the resulting proof of recovery rather than having to bear the cost themselves uncompensated. This may be more equitable and reduce incentives for fly-tipping. Other points that may need to be addressed are administration and enforcement issues, how to calculate the amount of 'excess' recovery, whether it introduces further uncertainty, etc.
17. There are a number of potential drawbacks, however, with such trading schemes. There may be issues relating to the transaction costs to trading, and (in the short term) issues as a result of the immaturity of the market for tradeable permits leading to fluctuating prices and hence fuelling firms uncertainty. Also there may be fears that a few large firms will somehow "corner" the market in tradable evidence, thereby increasing the costs of compliance for producers. In addition there may be issues concerning the use of revenue from the sale of the evidence. Checks and balances would need to be incorporated in a trading scheme to cover such eventualities.