Computer Recycling Regulations - A Discussion

Selling Computer Recycling Credits on eBay

Last week, Cascade tried a new approach to facilitate the exchange of computer recycling pounds to fulfill manufacturer obligations under the new Minnesota e-waste law - eBay.  Three auctions were posted to sell about 30,000 pounds of collected and processed Covered Electronics Devices ("CEDs") generated by Minnesota households.  The potential buyers of these pounds were manufacturers who are responsible, under the law, for managing and financing the collection and processing of these CEDs. 

After one week of open bidding, there were . . . no bids.  So, this innovative approach didn't yield a successful on-line transaction, but what did it do?

Here are some basic facts.  The auctions were viewed 170 times.  Several individuals registered on eBay to "watch" the progress of the auctions.  The story was picked up by industry publications and discussed at the E-Scrap conference in Atlanta. 

The buzz was more significant.  Cascade received substantial interest and feedback in this initiative from Minnesota counties and CED collectors.  Manufacturers were "intrigued" by the program and wanted us to keep them informed of the progress.

Most manufacturers, when asked if they would bid, said they would pass.  The reasons are mostly logistical.  Large multinational companies don't tend to buy things on eBay, nor do they operate in an environment where cash is paid up front for services or decisions are made within a 7 day auction window.  They also don't know their obligations under the Minnesota law yet, and are not motivated to start buying recycling pounds to fulfill their obligations until the summer of 2008.

So why did we try to sell some of our processed CED pounds on eBay?  We stand by what we said in our announcement from October 25th: 

"By taking advantage of existing technology that allows for real-time trading of these processed recycling weights, this system avoids the need for a new government bureaucracy or a non-profit third party organization (TPO) that has emerged in other states legislating manufacturer responsibility for electronics recycling. By treating the recycling weights as a commodity and trading them in real time, both the manufacturers and recyclers can plan for the future and the market can best determine the true value of recycling and collection."

In addition, we posted these recycling pounds in hopes of jump starting efforts to build a dynamic, technology based commodity trading system.  We prefer to focus our efforts on responsible processing of e-scrap.  We believe manufacturers would rather spend their time making quality products than developing and managing e-scrap collection and processing systems.  We feel government is already stretched in resources to adequately manage a financing program for this industry, and should instead focus their efforts on education and enforcement.  Since the technology already exists to trade CED recycling pounds/credits as other commodities are traded, why not use that technology?  It is not only more efficient, it is the fastest way to determine a fair market value for an effective and sustainable computer recycling program for a state.

It should also be noted that while the weights listed on eBay didn't receive any bids during the listed auction, we were able to sell those weights, and much more, directly to a responsible manufacturer soon after, at a price above the "reserve" set in the auction.  So, for us, this experiment was a success.  We hope in the future the rest of the industry catches up with us to see this as a viable option for managing the financial obligations of e-scrap legislation.

Simple changes to make Minnesota's law fairer (and more effective)

In my previous post, I listed some of the problems I see, through a recycling company's eyes, with the Minnesota e-scrap law.  They can be summarized in two main points.  First, very few resources are allocated to ensure registered recyclers provide responsible and legal processing of Covered Electronic Devices (CEDs).  Second, the annual reporting requirement for OEMs to demonstrate compliance with their obligations creates confusion in the marketplace, where recyclers (and collectors and municipalities) are unsure if the CEDs they collect will be compensated by the OEMs at the end of the year, and OEMs are uncertain of what they might have to pay to fulfill their obligations.

I believe the first problem can be addressed by adopting California's on-site audit and registration requirements used to fulfill the Advanced Recovery Fee (ARF) program it established to manage the collection and financing of their CEDs.  While my company doesn't operate in California, I've spoken with several recyclers who say that some of these on-site visits by the state are quite thorough and effective in establishing the business as credible and responsible.  When a state sponsors and requires its citizens to follow the direction it sets in e-scrap legislation, I believe it ought to provide an assurance to its citizens that the companies which process their CEDs are viable and responsible operations.  If it doesn't have the resources to perform some type of due diligence on registered processors (or allocate resources through the legislation), it should keep the status quo and let the individual or market decide who they want to use.

On the second issue, I believe a simple means to create a more efficient transfer of what is amounting to recycling credits from recyclers to OEMs is a more robust and dynamic exchange system.  Right now, OEMs are seeking out recyclers and recyclers are trying to engage OEMs in an ad hoc fashion.  Due to the maturity of the e-scrap industry, there is an inherent power difference in these negotiations.  OEMs hold the cards in Minnesota, because they hold the funds to pay the recyclers, and they don't need to fulfill their obligations until the end of the fiscal year.  Younger, cash strapped e-scrap recyclers find it difficult to carry what amounts to a huge receivable in the hopes that a manufacturer will buy their recycling credits later in the year.  I do get the feeling that manufacturers have no intent to put recyclers out of business and they are doing good work to advance the industry.  But the way the Minnesota law is written, OEMs may unintentionally bankrupt some recyclers.

How to fix this?  Simple.  Require OEMs to reconcile their obligations on a monthly or quarterly basis.  Sales data for these shorter time frames are available, so there is no legitimate need to have OEMs report on their obligation only once a year.  If the state increased the reporting frequecy, then trading and payments between OEMs and recyclers will become more efficient.  You will also find the market respond to changes more quickly, thereby reducing costs to all involved and increasing service levels.  As things shake out with this new regulation, we need to review costs and service levels more regularly to ensure the citizens of Minnesota get the best deal and the environment is protected.

Better yet, technology now exists that allows for real-time trading of these new recycling credits.  There's no need to create a government bureacracy or non-profit Third Party Organzation (TPO).  Let's auction off these credits as we do with so many other commodities that are traded through on-line auctions.  As recyclers collect CEDs from collection events or through the normal course of business, they would post these credits on the trading site for a short time period.  OEMs would bid on these credits.  The OEMs that bid early (and pay the recycler early) in the quarterly (or monthly) reconciliation period would probably pay less for the credits.  The recyclers would be willing to accept less for the credits because they get the cash sooner - and that matters a lot to these small businesses.  OEMs that bid later risk paying more and recyclers that post later risk not getting paid at all. 

An on-line trading program would also provide real-time information on the value of these recycling credits, helping both OEMs and recyclers plan for the future.  It will also be the best way to determine the fair price for recycling.

Now the only way this trading system would work is if the credits are treated as a commodity.  So the value and legitimacy of recycling credits from Recycler A are worth the same (per unit) as from Recycler B.  But if Recycler B is just speculatively accumulating the e-scrap or shipping it unprocessed overseas while Recycler A does responsible demanufacturing in the state, then we would have a problem and the system would not be effecient.  So, to make the trading fair and to meet the needs of the citizens of Minnesota, the state would need to ensure all recyclers do in fact meet a set of minimum requirements in order to list CEDs for trade.  If they discover that a recycler does not perform to these standards, it could be barred from participating in the program and face fines.

I would be very interested to hear what others think about these ideas.  As more states consider Producer Responsibility for the financing of e-scrap recycling, I hope they consider including these two components in the legislation.

Minnesota e-Scrap law's adoption creates "unforeseen" challenges - a recycler's perspective

The Midwest may be relatively late to the game, but that doesn’t mean we can’t add to the excitement on the electronics recycling legislation front.  With the adoption of Minnesota’s Producer Responsibility legislation this past summer, a flurry of activity is breaking out among municipalities, recyclers and OEMs to figure out how they will come out best under this law.  This chaos is bringing to the forefront some of the unforeseen, and perverse, consequences of this approach to e-scrap recycling.  It also provides a real world case study to better define new opportunities that are more difficult to define when hypothesizing about the consequences of potential legislation.

I don’t want to restate what’s involved in the Minnesota legislation, because I believe most people reading this have a good understanding of its framework.  If not, the Minnesota Office of Environmental Assistance put together a great web site to serve as a comprehensive resource and information guide for this legislation at www.pca.state.mn.us/electronics.  I’d rather start a discussion among interested parties about how we are impacted by this law and how we thing we can make it better.

For the record, I serve as CEO and co-founder of Cascade Asset Management, an IT Asset Retirement company with headquarters in Madison, WI.  Our company has been around since 1999 and we’ve processed more than 38 million pounds of electronics since inception.  We are a registered “recycler” under the Minnesota Electronics Recycling Law and partner with Retrofit Recycling of Little Canada, MN to collect electronics from municipalities throughout Minnesota.

From a recycler’s perspective, we are in the precarious situation of trying to collect Covered Electronic Devices (CEDs) through municipal collection programs at no cost to the individuals and municipalities while hoping we can match up with an OEM to cover the cost as we “sell” the volume we collect to cover the OEM’s obligations under the law.  It’s been difficult to find OEMs to commit to purchase these volumes up front, because they don’t need to report on how well they cover their obligations until July, 2008. 

We’ve had several municipalities tell us they want to use the Cascade/Retrofit solution because we provide the highest quality collection service and most responsible processing option.  They tell us they need the equipment removed efficiently and they don’t want to export their old computers, even though these service criteria are not addressed in the legislation.  There’s good reason for them to make these demands, because they are the ones who need to deal with poor collection service issues (not the OEMs) and their reputations and exposure are at risk if e-scrap they collect is sent to a processor who doesn’t properly destroy the data or if equipment is dumped improperly.  Since the legislation has no provision to license or audit processing facilities, the municipalities are feeling the need to step up in this role.

Meanwhile, we’ve seen some OEMs team up with the lowest cost processor to collect and recycle electronics in the state, because that’s in compliance with the law.  I guess I can’t fault them for that.  We’ve had numerous OEMs tell us they’d never pay us more than $0.20/lb to collect and process electronics.  Remember that the current reimbursement rate in California for the Advanced Recovery System (ARF) is $0.48/lb to collectors and processors. While the cost of doing business in Minnesota is cheaper than in California, this is a ridiculous expectation.  There are deeper reasons as to why the compensation rate is so low.  It is because there are essentially no provisions in the Minnesota law to specify minimum health and safety standards for e-scrap processing, whereas in California processors must pass an on-site audit by state officials?  Is it because other stakeholders (like the taxpayer via the municipality) are still expected to share some of the costs?

Unfortunately for us, we can’t provide our domestic, independently audited, responsible processing and collection service at that low rate.  As a result, we can’t get commitments from OEMs to compensate us for collected volumes they can apply to their obligation to the state.  At the same time, municipalities are telling us they won’t do business with the low cost collectors and processors because of the risk they see in working with them.  What a paradox!  OEMs have contracts with processors that can’t secure volumes of e-scrap to meet their obligations while municipalities have agreements with responsible processors who can’t get compensated by OEMs.

There must be a better way.  I believe the free market can make this work for everyone, and it can be done through the framework of the Minnesota legislation.  Read the next post for our plan to make it work.