The recent decision of the European Union’s Competition Commission sanctioning 3 used battery recyclers raises similar questions for North America’s circular economy regimes such as the mandatory framework recently enacted in Ontario, Canada. How can independent parties, including producers and processors, capture the market efficiencies available under an individual producer responsibility model while not risking sanction with any resulting success?

“Cartel-ing” Used Battery Sourcing Costs

There is, no doubt, much to learn from the Competition Commission’s oversight experience of the European Union in waste diversion. Notably, the EU sanctioned the battery recyclers not for the prices they charged but on the costs they incurred in sourcing used batteries for recycling. In other words, they sought to pay the same price for the same feedstock, after which they would presumably compete with each other in all other recycling and post-processing activities.

The sanction for having done so was 68 million Euros, with the EU Competition Commissioner issuing more denunciation than guidance to:

send out a clear message [the Commission] will not tolerate cartels or anticompetitive behaviour that could damage the circular economy.”

Isn’t Government-Run EPR Fundamentally Anticompetitive?

Participants in EPR schemes run directly by the regulator, or through its designated industry representative, may wonder what individual competitiveness has to do with EPR. Under many schemes, the resource allocations, costs and suppliers/customers are dictated by the regulator/industry representative.

In this command model, meaningful competition does not exist and all participants might be (unfavourably) viewed as participating in a cartel of sorts.

Where to put the “Individual” in IPR?

In moving to a circular economy with IPR from a command model, participants, particularly producers, will naturally, seek to make the transition into this uncharted territory easier by taking advantage of the economies of scale and market presence made available to them through a collective such as a producer responsibility organization (PRO).

But neither the supply (and, by extension, a transparent supply chain) nor sales (and open sales market) can be managed collectively. Given this, will the other residual functions to be collectivized by the PRO outweigh the unease of direct competitor alliances? Would organizations with these types of internal knowledge barriers, if rigorously maintained, be viewed in North America as having lasting value for their participants?

PROs Unique Form of Joint Venture

The general competition rules for producers in maintaining legal compliance through PRO participation include prohibitions on “naked restraints” such as agreements among participants to:

  • coordinate prices;
  • allocate markets; or
  • restrict supply.

The Canadian Competition Bureau, for one, does otherwise endorse joint ventures and strategic alliances as models for PROs to emulate. Such agreements among competitors, however, are rarely in respect of the same activities in the same market, making these model business collaborations of little value to PRO participants.

North American Regulator Guidance Needed

Given the North America’s first circular economy framework is now taking shape in Ontario, Canada it falls to Canada’s Competition Bureau to exactly clarify when the various participants would be in violation of competition rules, such as:

  • how wilfully blind must producers be of the fees paid by others?
  • what can be learned from others about collector and processor performance?
  • do efforts to secure all available recovery services from lower cost, more efficient sources constitute attempts to disadvantage competitors?
  • where the economies otherwise warrant, to what extent may collectors group their waste streams collection offerings?
  • when are commercial agreements deemed effectively exclusive due to limits on supply in a recently deregulated market?
  • to what extent may haulers and processors combine to form a single service offering?

These questions and others need answering now as new circular economy participants scramble to form nascent relationships and strategies. After all, these parties are being asked to transition directly from a command EPR model where they were legally obligated to engage in the same collaborative activities now declared illegal.