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SpirE-Journal 2006 Q4

Recycling for the Next Generation: How impending recycling legislation will change the way businesses work

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Recycling for the Next Generation: How impending recycling legislation will change the way businesses work

“Recycle, reduce and re-use” – these words are the mantra in the now universal drive to fend off global environmental crisis. But in spite of the hype, recycling has yet to make a big impact on the way companies do business. Governments, on the other hand, are taking a stronger stand. Stricter regulatory regimes are likely to drive the emergence of a vibrant recycling industry in Asia. Spire takes a look at the role of recycling in Asia’s future – and what it means for business.

Waste Not, Want Not

The tremendous economic upturn in Asia over the past few decades has seen a rise in population growth, industrialization and consumption. Amidst this vast expansion of human life and economic activity, the amount of waste produced has accelerated perhaps even more sharply than the rate of economic growth. With the continuous development of the region, the sustainability of demographic and economic growth will clearly be endangered if no action is taken to tackle environmental challenges. Such concerns have led to the exploration of more environmentally friendly methods of waste management. Recycling is rapidly becoming a key element in this drive.

The recycling trend is offering immense potential to enhance resource management and reduce waste disposal pressures, especially in land-scarce Asian countries. Recycling helps to prolong the lifespan of landfills and reduce the need for costly incineration. It also slows down natural resource depletion to ensure sustainable development of resource-intensive industries. The use of recycled materials as a substitute for raw materials also drives down the latter’s costs. Furthermore, higher efficiency in recycling, which comes with technological improvements, has made recycling a progressively more popular alternative to waste disposal.

Globally, recycling is primarily driven by government regulation. Most recycling efforts and technologies presently reside in developed countries in the West and in Japan – recycling is still in its infancy in most parts of Asia. Even within Asia, a great disparity in the extent of recycling efforts is observed. Countries such as Taiwan, Japan and South Korea have more dynamic waste management and recycling industries as a result of extensive environmental regulations. In other emerging economies such as the Philippines and Indonesia, the basic legal infrastructure necessary to deal with domestic environmental issues is still lacking. Even where regulations are in place, the success of enforcement still varies, as is most clearly seen in India and China.

Current Recycling Legislation in the Asia Pacific

As part of a comprehensive environmental compact, 16 countries have legislated mandatory take-back for electronic products. Most of these countries are European. In Asia, Japan, South Korea and Taiwan have been the forerunners in imposing such laws.

Within the next five years (2007-2011), it is expected that compulsory take-back laws would be extended to more than 30 countries worldwide, with Asia-Pacific countries such as Australia and China joining the league table in the nearer future (see Table 1).

Who will bear the costs?

The implementation of product take-back requires a consensus on the extent to which consumers, manufacturers and the government will pay for the additional costs.

Two popular concepts have emerged – Product Stewardship and the more popular Extended Producer Responsibility (EPR). Product Stewardship is a multi-stakeholder approach that encourages everyone involved in the product life cycle chain, from the manufacturers to end users, to share responsibility for managing the product’s environmental impact. In contrast, EPR follows a producer-pay principal, whereby the manufacturer of a product is responsible for all the environmental and social costs of that product over its life cycle. However, it is likely that manufacturers under EPR will pass on part of their expenses to consumers in the form of higher prices.

Different countries have adopted divergent stands. In Japan, the cost of recycling electronic appliances is mainly borne by the consumers. Japanese consumers are required to return unwanted electronic appliances to the retailers and pay a national recycling fee and an additional fee to cover the retailers’ transport costs to the collection point. For used computers, the recycling fee has now been added to the purchase price and consumers can return used PCs free-of-charge to manufacturers for recycling.

Australia is also contemplating a new scheme to discourage irresponsible disposal of used products. Manufacturers may attach an additional cost to the purchase price of computer products and allow consumers to redeem part of the cost when they send the used product for recycling.

However, such schemes, whereby consumers bear most of the recycling expense, may not translate successfully into many other Asian nations. In countries with low per capita income levels or where the industry is very competitive, manufacturers may lobby for government support to bear the recycling costs. In the initial stage, local governments may need to provide support, either through subsidies or tax incentives, to help manufacturers bear the burden of additional recycling costs.

The Pot of Gold at the end of the recycling rainbow

It is perhaps inevitable that the push towards more stringent environmental rules would meet resistance from much of the private sector. Many companies still associate recycling activities with increasing cost and diverting attention away from the core business. Frequent environmental inspections and compliance requirements imposed by legislation, for example, place greater pressure on companies, especially small and medium enterprises (SMEs) that are already grappling with existing environmental regulations. In Korea, industry lobby groups such as the Korea Automobile Manufacturers Association and the Korea Electronics Association are opposed to some of the proposed environmental legislation, citing the high cost of compliance.

As a result of these attitudes, many companies are adopting a wait-and-see attitude – delaying the adoption of recycling and waste management practices until it becomes mandatory. However, the reality is that such companies are failing to see the opportunities that lie in taking a proactive stance towards recycling.

Anticipating regulations by incorporating recycling into business planning early on may benefit a company’s bottom line. According to the NEA in Singapore, a company benefited from lower packaging costs after a revamp to facilitate the recycling of disposed packages. Adopting green processes earlier than competitors also allows companies to project a superior brand image to increasingly environment-conscious consumers. Furthermore, companies would be better placed to meet the stringent regulations likely to be imposed in the future; there would be less disruption to their operations compared to if they were forced to react only when laws had been passed. Although recycling efforts are fundamentally driven by the government, there has been an increase in the number of businesses which have incorporated environmental considerations into their operations and strategies. Many companies have realized that such efforts are necessary to conform to evolving environmental standards and to maintain good corporate citizenship on environmental issues.

Although recycling is presently still very much a fee-for-service business, it is possible that it would develop into a profitable activity such that third party recycling companies may one day pay manufacturers to acquire recyclable products. This possibility remains confined to the distant future but, if realized, would mark a giant leap towards enhancing environmental conservation efforts.

Companies leading the charge

Competitive pressures have generally made the private sector a laggard on environmental issues. Companies that aspire to leadership on environmental issues should therefore begin incorporating recycling concepts into their internal business processes, from the supplies procurement and product design to the distribution stages. For example, businesses can design products to ensure that end products are easy and cost-effective to dismantle and recycle. Eco-designs could even have the side-effect of actually helping to lower costs by reducing the number of parts in products.

The Ricoh Group is an example of a company that has taken a proactive approach toward sustainable environmental management. Based on their “all-employee participatory approach”, all company divisions are required to incorporate recycling and environment-friendly processes into their activities. According to Ms Masayo Hada, Assistant Manager of the Regional Environmental Management Group in Ricoh Asia Pacific, future enactment of compulsory recycling legislation would not disrupt Ricoh’s business operations as they have anticipated much of the effect of such legislation. Ricoh sees its commitment to recycling as a competitive advantage, one that lends them greater preparedness in the face of the future.

Companies in some industries have also explored the possibility of forming partnerships to establish joint recycling networks to facilitate product take-back. For instance, the Home Appliance Recycling Law in Japan prompted two large industry groups, one including Matsushita and Toshiba, and the other including Hitachi, Sanyo, Sharp, Mitsubishi and Sony, to collaborate and establish recycling plants and collection centers, as well as set recycling charges within their own group.

Role models for recycling

Many organizations have begun aggressively pursuing recycling efforts in recent years in response to calls for environmental conservation as well as new legislation. From the ranks of these, there are several companies that have earned a pat on the back. Hewlett Packard’s Planet Partners TM Programme, for example, offers take-back and recycling services to corporate customers in Asia. Take-back schemes are offered on any manufacturer’s end-of-life printers, PCs and other computer equipment. All used hardware returned is either disassembled into parts for reuse in new HP products or other commodities or recycled to reclaim valuable materials. In May 2006, HP aligned its trade-in, refurbishing and recycling operations to provide full-asset recovery services.

Ricoh’s Comet CircleTM concept also promotes the recirculation of used resources by prioritizing the reusing and recycling of products on the inner loop, promoting a multitiered recycling system and more economically rational recycling. Ricoh has developed recycled copiers and launched toner take-back and machine take-back programmes.

Dell also recently introduced free recycling services to corporate customers and households in China, in line with new guidelines on e-waste. Sony and Nokia are also involved in recycling take-back schemes for old batteries in various Asia Pacific countries such as Japan, Australia and Taiwan.

E-waste – the threat and the opportunity

Currently, e-waste is one of Asia’s fastest growing waste streams. Asia discards an estimated 12 million tons of e-waste each year (an estimated 20 to 50 million tons of electronic products are discarded globally). Increasing e-waste volumes in Asia are the result of rising consumption and production. Technological advances and a more competitive electronics industry have also reduced the lifespan of products tremendously. According to the US National Safety Council, the average lifespan of a PC has shrunk from four or five years to only two years now.

Furthermore, the hazardous substances in e-waste streams such as lead and mercury make e-waste disposal more complicated. These substances are harmful to humans and damaging to the environment if not properly treated. In Asia, many developing countries still lack the facilities to treat e-waste efficiently and effectively.

In Asia, the e-waste problem is compounded by illegal e-waste dumping from the developed countries to take advantage of lower recycling costs in Asia. Currently, China and India face the biggest e-waste problems in Asia. In 2006, an estimated 115,200 tons of e-waste will be produced in Beijing alone and by 2010, the e-waste volume is expected rise to 158,300 tons. China has recently enacted legislation to prohibit e-waste dumping. However, disguised trade in e-waste has been continuously reported. India is also fast emerging to be the world’s capital for e-waste. New Delhi is
now becoming the hub of waste recycling in India and it receives around 70 percent of the e-waste generated in the developed world.

Recycling has been identified as one of the most effective methods to minimize the amount of e-waste in Asia. Total global revenues for e-waste recycling are estimated to be USD7.2 billion in 2004 and sales are expected to grow at 8.8% annually to USD11 billion in 2009.

South Korea and Japan have implemented legislation to minimize the e-waste volumes going to landfills, modelled on EU directives such as the Waste from Electrical and Electronic Equipment (WEEE) and Restriction on the uses of certain Hazardous Substances in electrical and electronic equipment (RoHs). Manufacturers are now responsible for recycling e-waste through the Extended Producer Responsibility policy.

It is expected that in the near future, directives for e-waste will become more prevalent in Asian countries. Governments are also expected to play a more active role to help establish the necessary recycling infrastructure to develop the e-waste recycling industry. The cross-boundary exports of hazardous wastes are also likely to be more clearly regulated and more specific standards and quantitative guidelines imposed.

As environmental challenges are global in scope and impact, it is likely that Asia will move towards a harmonized regional framework relating to e-waste management in the longer-term. A common framework would be helpful to promote cooperation on recycling technology development, as well as to address the problems of disguised trade, illegal dumping and unsuitable disposal within the region. Furthermore, the harmonization of e-waste legislation would also help multinational companies that currently have to comply with different recycling requirements in different countries.

Conclusion

In an environment where commodity prices are soaring and environmental concerns loom large, the future of recycling in Asia looks bright. The inevitable move towards mandatory recycling will act as a major stimulant to the growth of Asia’s recycling industry. A thriving recycling sector will in turn engender a virtuous cycle by keeping recycling costs reasonable through economies of scale. While Asia as a whole is not likely to adopt the equivalent of Europe’s WEEE directive any time soon, movement in this direction has already begun and progress is inevitable.

What does the future hold for the recycling business?

As far as recycling is concerned, more and more large organizations are “getting it”. This development is expected to continue as established Multi-National Companies, and those that aspire to become established Multi-Nationals, decide to embrace recycling ahead of, and not in reaction to, legislation.
More companies are expected to outsource recycling to third party specialists who possess better scale economies and expertise. Recycling may become the newest addition to the family of services known as “business process outsourcing”, alongside functions such as accounting, customer service and logistics. Third party companies active in Asia’s recycling arena include Ramky Group (India), ShinMaywa (Japan), Centillion and Sembcorp (Singapore), Nine Dragon’s Paper (China) as well as Visy Industries and Sims Metal (Australia).
The huge costs of investing in state of the art technology will create pressures promoting consolidation in the recycling industry. In the next 10 years or so, a handful of third party recycling giants are likely to emerge. These are likely to be focused on electronic waste and waste paper recycling, which will represent the most attractive business opportunities in the field of recycling.
Industry experts foresee a rise in cross-country movement of recyclables. Recycling activities in the West and Japan may gradually shift towards Asia, where the cost of recycling is lower. This would lead to a gradual diffusion of advanced recycling technologies to Asia and the likely emergence of regulations to govern cross-country waste dumping. China and India are wellpositioned to benefit from the trend towards international third-party recycling. Singapore companies such as SembCorp and Centillion, for example, have established e-waste recycling operations in China. Waste paper recycling companies such as Nine Dragons Paper have also been successful in China since 1995.

Companies should seize on recycling as a business opportunity, before it needs to be addressed as a disruptive compliance cost.

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