Regulation for vehicle recyclers will level playing field
With fiscal stimulus being injected into the economy at both the federal and the provincial levels during the depths of the recession, the sovereign debt chickens are now coming home to roost in Canada, not just in other parts of the world.
The federal and Ontario governments have both recognized that despite doing better than most, they have fiscal challenges of their own ahead in the immediate future.
Back last November as part of his fall economic update, federal Finance Minister Jim Flaherty announced that balancing the country’s books was going to take a year longer than expected, or until 2015–16, as a result of the global economic turmoil.
Debts piling up
Meanwhile in Ontario, just before Christmas, Moody’s Investors Services put the Ontario government on notice by issuing a credit watch — one step away from downgrading the province’s credit rating, based on an economy that seems unlikely to grow fast enough to assist the province in alleviating its crippling debt load.
More recently in Ontario we have been reading numerous articles about the work undertaken by former federal finance official and former chief economist of the TD Bank, Don Drummond, for Ontario. Drummond released a report making recommendations to the province about how to contain both its debt and its spending so that the province’s credit rating does not get downgraded — a fate that would make it even more difficult for the province to dig itself out of a deficit that is more than $16 billion and a debt load that is more than an astounding $200 billion.
So what does all of this have to do with the automotive industry you might be asking? Well, a fair bit on a lot of different fronts actually, but I’d like to explore a concept that may be a bit of a stretch, but which could turn out to be a “win-win” situation for the industry and for the province.
In reading one of the articles about Drummond’s report, the Toronto Star suggested that: “Services that are now performed by government will undoubtedly be contracted out to the most competitive bidder with Queen’s Park standing back to define standards and supervise.” In other words it would seem highly unlikely in Drummond’s vision of Ontario that the government and the current services it provides would look anything like what it does today. And that might not be all bad.
Vehicle recyclers mostly unregulated
Consider the situation today with respect to Ontario’s vehicle recyclers. Vehicle recycling is largely unregulated in the province and in most other jurisdictions across Canada, meaning that for a very low cost of entry, someone can hang out their shingle and become a vehicle recycler. However, all vehicle recyclers are not the same.
The members of the Automotive Recyclers of Canada and its affiliate the Ontario Automotive Recyclers Association (OARA) have, as a condition of membership in their respective associations, required adherence to the National Code of Practice that was developed by ARC for those auto recyclers interested in participating in Canada’s “Retire Your Ride” scrappage program that wound down at the end of last March. The Code ensured that vehicles were decommissioned in an environmentally responsible manner with removal of waste oils and other substances of concern before the metal vehicle hulks undergo further recycling.
The problem is that in Ontario, OARA only represents about 130 out of more than 500 businesses thought to be involved in vehicle recycling and as such, abiding by the Code of Practice. So you have an uneven playing field for those businesses doing the right thing by the environment versus those that are simply trying to maximize profit. The latter approach is achieved by recycling the vehicle in the most efficient and least time consuming way possible, which often equates to the least environmentally friendly way possible.
A few provinces, including Ontario, have hinted at putting in place Extended Producer Responsibility (EPR) regimes for End of Life Vehicles (ELVs).
What this means is that government would make vehicle manufacturers, importers and distributors responsible for the proper environmental decommissioning of a vehicle at the end of its useful life. This approach has many flaws, not the least of which is the effect of forcing the automakers to move away from their core business of manufacturing and selling vehicles to assuming a new roll of vehicle recycler or at least as a standard setter for the vehicle recycling industry and a monitor of the recycling process results.
This solution would require additional human and financial resources from the automakers resulting in either increased vehicle costs, if the cost for an EPR scheme is included in the vehicle price, or the inclusion of an “eco fee” to be added on to the cost of the vehicle at the time of sale.
As a first step, wouldn’t a better approach be for governments to use the existing vehicle recycling infrastructure in any province and simply regulate the National Code of Practice for vehicle recycling as a requirement for any business operating as a vehicle recycler? This would put all recyclers on a common footing and leave addressing substances of concern in ELV’s to the entities that are in the best position to deal with them — the vehicle recyclers.
An added benefit for the Finance Minister might accrue from the fact that potentially some of the existing recyclers may not be properly registered businesses and in regulating a standard for vehicle recycling the government may find this results in the inclusion of more businesses on the tax roll as these facilities become legitimized. Surely a little extra tax revenue in challenging times in nothing to sneeze at either.
