A less Maniac response to Vermont H.106

Over the weekend I drafted a very long and elaborate response to the Vermont legislation, H.106, which was filed this winter. I tried to do everything, to explain the reprecussions on the reuse market, to explain the export business, to address National Geographic. The more I tried to do, the more impossible the blog became to edit.

So I'll leave it there for history, but try to explain more simply what is going on.

1) Scale:

First, whenever society tries to recycle something new, all the start up costs fall due in the first years. The first HDPE plastic collections in Massachusetts in 1992 cost towns over $900 per ton, eventually leading to a "packaging legislation" episode that I'll get into another day. The point is that the legislation never passed, and within 6 years, as an economy of scale was reached, the value of HDPE soared. Now it is just another commodity, and I think MRFs earn over $500 per ton for the stuff.

When we started collecting computers, we charged 21 cents per pound (about $15 per computer), which beat the previous bid of 28 cents. Our price fell to 18 cents within 2 years, as more communities signed up. We added TVs (the cost of recycling the computers had fallen to 12 cents) at the same rate. We currently charge about 12 cents including TVs, and the price of CPUs is can be zero if we can get them in bulk.

Five years later, over 80% of Vermont residents have a permanent site to recycle TVs and computers, open 6 days per week. The number who have to wait for a "one day event" is very small.

So the question is, will the legislation get to the last 20% of Vermonters before the free market does? Or should the $200,000 be put to other environmental problems as this one follows the HDPE curve?

2) Producer Responsibility:

The legislation attempts to fund the program with producer responsibility. It's an attractive idea, that electronics producers should have to pay the cost of recycling. If the fees people paid were more than $5 every 3 years, it might be worth discussing.

But what happens is that the manufacturers negotiate reasonable things that will hurt the consumer and the environment. First, if I'm a manufacturer, I don't want to pay the same $X to recycle the same computer over and over again. I want to make sure it is destroyed. But the resale value of just one in 4 computers or TVs offsets the recycling cost of the others by 75%. If the good one is destroyed, the cost triples (for the lost resale revenue and added weight). Do we think the manufacturers won't pass the costs on to consumers?

The manufacturer gets "Obsolescence in Hindsight" (a redux of Vance Packard's "Planned Obsolescence). They get us to pay to take useful equipment off the market. I toured the Maine program recycler, he had good PCs but had to make a quick judgement whether to try to resell them as commodities or get his money from the manufacturer. That's what happens in California, too. Millions of working TVs and computers get crushed up, taking them off the market. I'm not saying it's evil... Sony is offering to take back its products nationwide for free, and that's a fantastic choice to have. I just question why the state should get involved and make us choose Sony over the reuse market.

Last weekend's blog went into a lot of detail about the connections between the emerging "white box" computer market, the billion dollar industry of converting certain (not all) used USA computer monitors into cheap TVs in competition with new CRT makers (one owned by the China Communist Party). Extending the Manufacturer's obligations over used product end-life extends beyond the consumer's property rights. These are the companies which developed the "killer chip" (designed to make used ink cartridges "expire" before they are empty). Look for references to Fuji vs. Jazz Camera if you are skimming the article.

3) Freezing a dynamic market:

As I asked in the long weekend blog, who heard of Michael Dell in 1991? Who heard of Acer ten years ago? Who heard of Lenovo 5 years ago?

The H.106 law will kick manufacturers out of the state's stores if they don't pay their share of recovery. Sounds reasonable. Except that 50% of all computers sold worldwide are by small manufacturers, called the "white box" market. Some of those are very small manufacturers who sell over ebay, while others are actually growing fast enough to be the next Lenovo. Some of these manufactures purchase obsolete trade names, like "Polaroid", and we think it's a big company with a telephone number, but Maine has found that a lot of the products on retail shelves is very tricky to find the origin of.

Back in college, we studied Japan's use of "non-tariff barriers", which were creative little laws that were so difficult for USA producers to keep track of that they didn't even know why Japanese retailers were not selling their product. This fits that description.

What is the cost to the consumer of reducing retail competition by 50%?

4) Distraction from other problems

I see a lot of people spending a lot of time and energy to resolve a problem which looks like the free market is making quick progress on.

Perhaps we should devote our limited green people resources to other problems. Let's get the greenhouse gases under control. Let's reform the General Mining Act of 1872 (reform of this massive subsidy passed the US House and is headed for the Senate). Let's ban the export of liquid mercury as a "commodity". Gorillas and Orangutans are going extinct while we debate whether Sanyo would have designed their cassette player so as not to go obsolete (as if Producer Responsibility will reveal the next CD or MP3 standard).

If we set young people's passions ablaze over something we haven't researched, we are doing what the "No Nuke People Power!" people did for me in 1978. Waste my time and turn me a little bit Republican the more I looked back on the effort. The next generation has less leaded gas fumes in their lungs and is potentially smarter and more practical than my generation. We have a responsibility to keep our powder dry, and truly decide this is an issue we need to spend environmentalists blood and treasure for.

Of late the argument I hear is that recycling must be free. Falling in price by 20% per year is not enough. The legislation will save consumers money. First, does it really save the consumer money, or is the cost being passed on as it is in CA, MN, ME? And when consumers are paying $XX per month for cable TV and $XX per month for broadband internet access, how much time should we spend to save them $5 recycling fee every 3 years?

If I give free garbage disposal one day per week, the garbage will pile up on that day, but it does not mean that the total MSW collected at the end of the year will increase. If I give bottles of water away, and my parking lot is swamped for 5 hours, it does not prove that consumers won't buy bottled water. If we spend a billion dollars to save consumers $250,000, we will have wasted limited environmental capital when every cent counts.

5) Silly assumptions distract from better ideas

EPR is monopolizing the airtime on resource conservation policy.

The philosophical principle behind involving manufacturers is that their production methods will be adjusted when they begin taking back the product. Ok, I use DVDs now. Explain to me the justice and cost effectiveness of sending my old VCR back to Samsung? Samsung would have designed it differently? Won't Samsung just outsource it to another scrap processor? How will this teach them to anticipate new DVD technology?

That's the cycle with MOST obsolete products.

Q: What made cassette tape players Obsolete? A: CDs
Q: What made Pentium 1s Obsolete? A: Windows 98
Q: What made Pentium 2s Obsolete? A: Windows XP

What will make the TVs obsolete? Federal analog bandwidth auctions.

Asking the 1980s cassette player manufacturers to take responsibility for a CD technology that hadn't been invented is just silly. If you want to fund the program, apply the costs to FCC auctions and Microsoft Vista.

Polaroid is gone. The Polaroid brand name was auctioned off and is being licensed to a company in Taiwan. Saying over and over and over again that Polaroid needs to take back the Polaroid TVs, Polaroid monitors, Polaroid digital devices is just silly. There is no Polaroid to take them back to. Smart people need to sit down and read some M.I.T. research papers on assembly and component manufacturing (example) and understand what "manufacturing" is. A factory in Taiwan (where land is very scarce) invests in manufacturing tiny little chips. A factory in China molds the frames, and a factory in Mexico hires people to attach the screws. The more 'moving parts' (RAM, Hard drive, video card, plastic base, CDRom, etc.) the more different "producers" are involved.

Wal-Mart basically controls all the money and has final say-so over who assembles where. OK, that's a provocative oversimplification... but it makes more sense than some of the environmentalist theses I've read. Do we want to involve Wal-Mart? Or will the result be rules that the smaller retailers can't follow?

At least Wal-Mart low low prices redistribute wealth to the USA's poor (and do a lot better job than the federal tax cuts). But EPR policy could hurt the poorest.

6) Hurting the poorest

The weekend blog below tried to explain emphatically that the "exports" problem is that unscrupulous companies are mixing in bad stuff with the good stuff. If the good companies stop exporting the good stuff, the bad companies get to mix in even more bad stuff. VT H.106 wades into end-markets with a really simple idea, the only logical response to which will be for good companies to export less.

Like most of the laws out there, Vermont H-106 draws lines around a tiny little state and sets "rules" for recyclers operating inside that state. Look what that did to Maine. Right now, my company in Vermont is benefitting by more complicated rules in New York. If Vermont matches NY, I'd have to move my operations to NH. I'm not trying to be difficult or argumentative (it comes naturally), I'm just saying let's put RFPs out there which reward the behavior you want, and the free market will meet those standards. Using regulations to modify behavior is expensive compared to concentrating market dollars towards the behaviors you want to encourage. (That was a mouthful... I'll leave it in, just in case someone googles that phrase and I meet a doppelganger)

Conclusion:
Vermont House H-106 has the best of intentions, but arrives 6 years late when we already have 80% of the problem solved. For this reason, the unintended consequences are too great to testify in favor of. Let the manufacturers come up with voluntary takeback programs. But don't tell us all that we can't resell our Chevrolet without a law involving General Motors in the negotiation.

First, let's start with less and then add to the laws over time. For starters, Vermont could just pass a simple waste ban, like the ones on auto batteries, tires, and freon equipment (Massachusetts and New Hampshire already have this). Or ANR could issue a state funded contract, bid it out, and then find out how much it will cost to pay the fees.. then they can see if what the manufacturers are offering is worth the cost. As drafted, Vermont H-106 is a million dollar solution to a thousand dollar problem.