What are Modulated Fees and how do they work?
Mark Hilton, Head of Sustainable Business at the environmental consultancy Eunomia has over 35 years’ experience supporting businesses to become more resource-efficient. In a recently completed study for the European Commission Mark led on the development of recommendations for fee-modulation for electrical and electronic equipment and batteries. We asked Mark about the key features of this approach and what needs to happen to make this new system work. Mark said:
Fee modulation – incentivising eco-design
“Fee modulation can be applied within an Extended Producer Responsibility (EPR) system – a policy approach where producers (typically brands/manufacturers, importers and distributors/retailers) take financial responsibility for the end of life management of products and packaging. At the European level EPR is in place for Waste Electrical and Electronic Equipment (WEEE), Batteries and Packaging, although some countries have schemes covering other items, e.g. tyres and furniture. Most of these schemes are delivered collectively on behalf of the individual producers, through a Producer Responsibility Organisation (PRO, sometimes called a Compliance Scheme). The PRO organises the waste management on behalf of its members, with these members typically being charged a fee (per unit of product placed on the market) for a given category based on the average costs of collection and treatment of all the items in that category. This means, for example, that items that are not, in practice recycled due to their design pay the same unit cost as items that are designed to be easily recycled. Accordingly, with such ‘flat’ fees, there is no incentive within the EPR scheme for producers to improve their products, all being charged equally.”
“Under a modulated fee approach, the fees paid by the producer will vary according to specific criteria relating to aspects of their products’ environmental performance. So the idea is that the more ‘environmentally-friendly’ products and packaging are charged at a lower rate than those that are less ‘environmentally friendly’ to incentivise eco-design. While the concept is simple enough, there are significant practical considerations, for example, in terms of the criteria to be used to determine fees. France has been forward-thinking in this area and has already introduced modulated fees within EPR schemes for product groups including textiles, furniture, and electrical equipment, although the impact has been limited due to the relatively small fee variations applied.”
“In our recent study for the European Commission we developed recommendations for guidance to Member States around modulated fees in respect of WEEE, Batteries and Packaging. Packaging is relatively straightforward as we can use design for recyclability criteria in the short term, and ultimately the actual recycling rate, as the basis for fee modulation. However, EEE and batteries are far more complex. After a lot of debate, the modulation criteria that have been recommended for EEE have focused on design for disassembly (relevant to repair, upgrade and end-of-life recycling), the availability of reasonably-priced spare parts (or 3D printing files), the extent of the free warranty period (as a proxy for durability/reliability), the reduction in hazardous substances over and above RoHS (Restriction of Hazardous Substances Directive requirements), and the inclusion of post-consumer recycled content plastics.”
“The aim is to keep the system manageable for producers and system administrators alike, while still being effective in driving better environmental outcomes. Consequently, only a small number of criteria have been recommended for each sub-group of EEE (e.g. those that are appropriate for IT equipment may not be the best for white goods) and ones that are relatively simple for producers to report upon.”
Ambitious brands can lead the way
“If we get fee modulation right, it could play a significant role in moving us far more quickly into a circular economy. In areas where EPR is not yet applied in most countries, for example, textiles, carpets, furniture and mattresses, we would encourage the more sustainability-driven producers to push governments to implement it. Companies will go so far to improve their environmental performance, but have to remain competitive. EPR with fee modulation, if well designed, can prevent cross-subsidy between brands and provide the appropriate incentives to spur continuous innovation in terms of eco-design.”
For the full recommendations for guidance developed by Eunomia see: Study to Support the Preparation of the Commission’s Guidance for Extended Producer Responsibility Schemes.
Picture courtesy of Shane Aldendorff via Unsplash.