Chapter 9 Product TakeBack Legislation and Its Impact on Recycling and Remanufacturing Industries

Take-back legislation holds producers financially responsible for handling and treating their products at end of life. A growing number of countries around the world have enacted such legislation, especially for electrical and electronic products. Clearly, such legislation impacts the strategic and operational decisions of companies operating in the affected industries and the operations management literature recently started to analyze these problems. In this chapter, we provide an overview of existing take-back legislation and the papers that have studied various research questions associated with them. Our focus is particularly on papers that have studied the impact of these regulations on the recycling and remanufacturing industries. 9.1 Overview of Product Take-Back Legislation In this era of information technology, customers enjoy prosperity, convenience, and the low prices of various electric and electronic products. As the demand for these products increases, the amount of such products being discarded by customers has been increasing, too. Electronic waste (e-waste), such as televisions, computers and cell phones, is the fastest growing municipal waste stream in the US. In 2006, total volume of waste increased by only 1.2%, but the total volume of e-waste increased by 8.6% (http://www.electronicstakeback.com/). US Environmental Protection Agency (EPA) estimates that 400 million units of e-waste are discarded each year and the figure is going up steadily. It is unfortunate that only 11.4% of the disposed e-waste is being treated properly. The massive amount of untreated electronic waste leaves behind lead, cadmium, mercury and other hazardous substances, and poses a threat for G. Esenduran ( ) Fisher College of Business, The Ohio State University, 2100 Neil Avenue, Columbus 43210, OH, USA e-mail: esenduran.1@osu.edu E. K. -Ziya · J. M. Swaminathan Kenan-Flagler Business School, University of North Carolina at Chapel Hill, CB Number 3490, Chapel Hill 27599, NC, USA e-mail: Eda_KemahliogluZiya@unc.edu J. M. Swaminathan e-mail: ms j@unc.edu T. Boone et al. (eds.), Sustainable Supply Chains, 129 International Series in Operations Research & Management Science 174, DOI 10.1007/978-1-4419-6105-1_9, © Springer Science+Business Media New York 2012 130 G. Esenduran et al. human health and the environment. As a remedy to this issue, legislators have been imposing product take-back legislation in many countries. These take-back laws hold manufacturers responsible for the collection and proper disposal of their products discarded by customers. Examples include theWaste Electrical and Electronic Equipment (WEEE) Directive in Europe, Japanese Specified Home Appliances Recycling Law (SHARL), Japanese PC Recycling System, and state specific e-waste take-back programs in twenty four states in the US (http://www.electronicstakeback.com). Although these regulations receive enthusiasm from environmentalists in general, there is debate on implementation details and it is not clear exactly what type of legislation will achieve the ultimate goals of reducing the amount of waste by increasing product take-back and recovery levels and creating incentives for environmentally-friendly product designs. It is clear that the legislation’s requirements affect companies’ responses, which in turn, determine the success of the legislation in terms of achieving these main objectives. One of the main differences in implementation is whether the legislation imposes individual producer responsibility (IPR) or collective producer responsibility (CPR). Under IPR, each producer is responsible for the discarded products of her own brand, whereas under CPR manufacturers of similar products collectively fulfill the requirements of legislation and pay for the total volume of collected products regardless of brand. In a take-back program implementing CPR, the total cost of compliance is generally divided among the members of the program with respect to their market shares. From the view point of producers affected by legislation, there are pros and cons of each type of producer responsibility. For example, IPR gives companies greater control over end-of-life (EOL) product management. Under IPR, companies pay for the collection and treatment of their own brand-name products only. Thus they are in a better position to recoup the benefits of their environmentallyfriendlier product design. For example, companies might choose to make costly design changes to facilitate EOL product treatment and to benefit from savings in recycling/treatment costs under IPR. In short, the rationale for pursuing IPR is that it provides incentives for producers to incorporate the environmental concerns into their product designs and to make design changes that would facilitate the EOL treatment. For the same reason, recently many researchers (e.g., Dempsey et al. 2010; Atasu et al. 2009) as well as some initiatives (e.g., “IPR works” set up by a group of companies and NGOs) passionately urge/support the implementation of IPR principle. On the other hand, CPR might be preferred over IPR by producers for a couple of different reasons: i. In some countries (e.g., the WEEE Directive in EU) CPR is allowed but only for historical waste (i.e., products put on the market before August 2005). However when it comes to implementation, many countries found it easier to allow for/impose collective systems for both historical and non-historical products. It is argued that once the historical waste is cleaned up (approximately around 2020) it will be much easier to implement IPR (Clean Production Action 2007). ii. It is known that recycling/treatment activities turn out to be economically infeasible if the total volume of products recycled/treated is low (Tojo 2003b) which might be the case under IPR. Hence, collective systems (where collection and 9 Product Take-Back Legislation and Its Impact on Recycling . . . 131 treatment activities are handled collectively) benefit from economies of scale in costs of compliance (Van Rossem et al. 2006). However, one should keep in mind that IPR can still be implemented in a collective system if the actual cost of compliance is calculated for each member firm (e.g., as in Japanese SHARL) (Van Rossem et al. 2006; Dempsey et al. 2010). In the following, we discuss this issue in more detail. There has also been some confusion about which existing compliance schemes can be classified as IPR. We note that it is not required for producers to have individuallyowned collection/treatment systems for their own products in order to implement IPR. Similarly, being a part of a collective collection system where the products are collected and treated in a common facility regardless of brand does not necessarily imply that CPR is being implemented. The literature clearly states that IPR can be achieved through brand segregation under a collective collection/treatment system because these systems can be set up so that they encompass individual responsibility (Van Rossem et al. 2006; Van Rossem 2008; Dempsey et al. 2010). Therefore it is not necessary to have a separate collection/treatment infrastructure for each producer. To summarize, as long as the producers are responsible for and have control over their own-brand end-of-life products IPR can be implemented regardless of how the collection and treatment are performed. Japanese SHARL, Japanese PC Recycling System, Maine’s Electronic Waste Recycling Law and ICT Milieu (Dutch take-back program for information and communication technology (ICT) equipments from 1999–2003) (Van Rossem 2008; Dempsey et al. 2010) are examples of legislation that incorporate the individual responsibility principle. In order to fulfill the requirements of a legislation, depending on whether it imposes IPR or not, firms need to either set-up an individual take-back program or join a collective one. However, in the context of product take-back this is not the end of the matter. One of the other key questions is how to treat (or recover the value in) the end-of-life products, i.e., which end-of-life treatment alternative to choose. Depending on product characteristics and legislation requirements, there might be various different treatment alternatives. Although requirements of take-back legislation can be different from one country to another, a common characteristic is that they set minimum target levels on the amount of products that should be collected and treated properly (e.g., e-waste laws of Minnesota, NewYork State, Illinois, etc.). Most legislation refer to “recovery” as the end-of-life “treatment” of discarded products. Recovery includes burning with energy recovery, composting, and recycling, which is defined as the reprocessing of waste materials into the production process. Another end-of-life treatment alternative for discarded products is reuse. Reuse refers to the situation where the whole appliances or components are used for the same purpose for which they were conceived. Since reuse reduces the consumption of virgin materials, it is typically perceived as being environmentally-friendlier than recovery (or recycling). A particular type of reuse is remanufacturing, which brings the appliance to “as new” condition. Concerns about various implementations of take-back legislation are not limited to the type of producer responsibility or to treatment options per se. There are also concerns about the impact of these regulations on particular industries. Before 132 G. Esenduran et al. getting into these concerns, it would be helpful to understand the prevalent structures in the recycling and remanufacturing industries: Some companies manage/monitor the recycling of their products and feed recycled materials back into their manufacturing process. For example, HP has a strategic alliance with Noranda Inc., a third-party recycling company. Noranda occupies some space in HP plants and HP monitors the recycling in these plants. Simi