Behind the Blue Box: Culture Clash and the Cost of Recycling

Across Canada, municipalities run Blue Box programs to collect recyclable materials and to divert them from landfill. The Blue Box is a popular and important environmental initiative, but Blue Box systems have become surprisingly expensive. Early hopes were that Blue Box programs could be funded by selling the recaptured material, but that turns out to cover perhaps a third of the cost. Waste Diversion Ontario (WDO) reported verified net Blue Box costs of about $237 million for 2012 in Ontario alone, after all revenue but before prior year adjustments.

So, who should pay that $237 million? Municipalities and their taxpayers? Or the “stewards” – the brand owners, first importers, and franchisors who sell consumers all that packaging? Or both?

In Ontario, the answer is both. Its Waste Diversion Act, 2002 (WDA) was based on Canada’s original 50/50 cost split deal. The Act says that stewards must pay Ontario municipal Blue Box programs “50 per cent of the total net costs incurred by those municipalities as a result of the program” (the Stewards’ Obligation). That’s the theory, and it started with high hopes. These days neither side is very happy with the deal.

On one hand, stewards are unhappy about the steady rise in their share of the costs, from the $31 million they paid in 2003 to $95 million or more now. In British Columbia, they are about to take over 100% responsibility for processing and marketing collected Blue Box materials. There is a heated debate underway surrounding British Columbia’s move to extended producer responsibility. It is yet to be seen whether this will turn out to be cheaper for stewards than partnering with municipalities.

On the other hand, Ontario municipalities have often settled for less than their full 50%, which means that taxpayers have had to make up about a $62 million hole. The remaining sum has been further eaten away because municipalities have been forced to take part “payment” in (often unwanted) newspaper advertising about waste diversion. The in-kind deduction started at $1.3 million/ year and has ballooned to $6.3 million, just as newspaper advertising is becoming less and less useful in communicating with residents. Meanwhile, Blue Box program costs continue to rise inexorably. (Have you looked at what is in your Blue Box lately? Outside a farmer’s market, when could you last buy lettuce or tomatoes without having them encased in plastic?)

Last year, for the first time, Ontario municipalities did not settle for what stewards offered. In fact, the parties are about $19 to $23 million apart, per year, in what they think Stewards should pay.

Waste Diversion Ontario sent the dispute to arbitration, but without a detailed arbitration agreement. The arbitrator, former Court of Appeal Justice Robert Armstrong, therefore had to decide whether the arbitration should be public, as municipalities wanted, or private, as stewards wanted. Given the significant public interest, and the large amount of public money, at stake, he ruled that it should be public:

This arbitration concerns a significant environmental protection program for the province of Ontario. It also concerns a potentially significant amount of taxpayer money. Every municipality with a population in excess of 5,000 persons is required to have a Blue Box program. The program in issue here involves over 200 cities, towns and other municipalities in the province…… What is not funded by SO will be paid from the public purse….

This is not a typical commercial arbitration dispute carried out pursuant to the Arbitration Act. The crux of the dispute concerns a government program, and the outcome may have significant consequences for Ontario taxpayers. Further, this is not a case where a governmental entity was acting in a private capacity by entering into a commercial contract. The City of Toronto and the members of the AMO are governmental entities engaged in a public program in respect of the protection of the environment….

As I see it, an open and transparent hearing process in this case will serve the public interest and will not detract from the parties’ ability to achieve a fair and just result. Issues concerning confidentiality can be appropriately addressed as they arise.

Of course, that doesn’t necessarily mean that any member of the public will actually show up. But the public v private debate is a fascinating microcosm of the culture clash that so often bedevils public –private partnerships, just as predicted by Jane Jacobs so many years ago.

The hearing will begin in late April, and a decision is expected this fall.

Saxe Law Office is counsel to the Association of Municipalities of Ontario in the arbitration.