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Too Big to Fail, Too Academic to FunctionProducer Responsibility in the Global Financial and E-wasteCrises

Jaco Huisman

“Only a crisis, actual or perceived, produces real change”(Friedman and Friedman 1982, viii). These wise words orig-inate from a Nobel Prize winner and advocate of free mar-kets and smaller governments. The modern version of the

The ultimate objective to mini-mize the environmental impactsof end-of-life electronics is bestserved by increasing collectionand improving treatment primar-ily . . . the original design for re-cycling prevention incentives arebetter positioned in the Ecode-sign Directive rather than in theWEEE Directive.

same quote, “never waste a good cri-sis,” is famous in the recent globalfinancial crisis that unveiled the flipside of markets without constraints.In this column, individual producerresponsibility (IPR) is analyzed as the“purest and original” form of extendedproducer responsibility (EPR), whichis the starting point for most e-wasteregulations worldwide. IPR as a policyprinciple seeks to incentivize designfor recycling by assigning responsibil-ity for end of life management to com-panies individually rather than collec-tively. To illustrate the merits and shortcomings of IPR, I ex-plore a parallel in short-term thinking and responsibility issuesin the financial and e-waste crises.

Too Big to Fail

Without doubt, both the financial and electronic sectorsbring tremendous prosperity and development to the world.But both face severe criticism and a serious crisis. Both in-dustries have complex products and fierce competition. In thefinancial crisis, banks put too many complex and bad loans onthe market. Brokers and traders tried to maximize short-termprofits by dividing up debt and repackaging loans via “credit de-fault swaps.” This led to sacrificing long-term quality of financialproducts and bringing the entire industry close to a global crash.As such, there is nothing wrong with debts or mortgages, un-less they are not paid back by consumers and become “toxicdebt.” Similarly in the e-waste domain, “toxicity” is spread bytraders and brokers that “divide products into pieces,” cherry-pick the valuables, and leave the environmentally risky parts

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like cathode ray tube (CRT) glass, cooling agents, and mercury-containing components to society. Also, electronic productsonly become “toxic waste” when they are not returned and recy-cled properly. In both cases there is consumer demand for “cheap

products” that become harmful when the risksof the financial and electronic products are ex-cluded from the product price. In both crises,government is inattentive to irresponsible be-havior. As a result of lacking enforcement, pub-lic opinion responds with strong calls “not tobail out” the financials, and realistic proposalsto avoid a global financial system collapse facestrong resistance. Equally, in the e-waste crisis,the public expresses a simplistic demand to for-bid “toxic products,” while product function-ality inevitably requires the use of potentiallyharmful substances. Finally, in the financial cri-sis, ratings agencies overlooked the interwoven

character and systemic risks of the market. Their equivalentsin the electronics industry, the environmental watchdogs, like-wise focus on simplistic benchmarks of producers alone ratherthan the complex systemic problems in the e-waste field withthe many actors involved.

What can we learn from this? “Wall Street should designtheir financial products better” is easy to say and difficult todisagree with. But is financial or electronic product design re-ally the root cause? Or are systemic flaws and widespread irre-sponsible behavior more of a concern? With transparency andtraceability corrupted in both sectors, there is much more at-tention needed toward healthy global financial and electronicsrecycling markets. Consequently, is the initial product-design-oriented version of IPR outdated or can certain elements be“recycled” in other environmental policies?

Too Academic to Function

The original idea of IPR was that when producers are re-sponsible for recycling, to minimize costs, they will make prod-ucts more recyclable. As summarized by Lifset and Lindhqvist(2008), this envisioned design feedback loop in the previousversion of the European Union’s (EU) Waste Electrical andElectronic Equipment (WEEE) Directive never materialized.There simply is no financial mechanism that pays back up-front redesign investments in reduced end-of-life costs that are

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incurred 10 years later. Products do not come back individu-ally to the original producer, but in various mixed collectionstreams, and sorting back into brands is expensive. Moreover,the value of e-waste is well known by local traders and collectionpoints. Transferring ownership to producer responsibility orga-nizations (PROs) and arranging for logistics and quality treat-ment generally costs more than the intrinsic material value.Processing facilities vary greatly in sophistication and materialprices are very dynamic and unpredictable. Thus, requiring allthis to be addressed upfront in product design, many years be-fore the actual disposal of products, has just proved to be naive.The conclusion about the original version of IPR has alreadybeen informally drawn by one of its most outspoken advocatesin the electronics industry: “We have been a little too academicon this.”

The United Nations University 2008 WEEE review reportindicates that the “system development” or “waste manage-ment” element is more urgent than the original “prevention”element (Huisman et al. 2007). The ultimate objective to min-imize the environmental impacts of e-waste is best served byincreasing collection and improving treatment. Besides pro-ducers, other stakeholders need to be assigned responsibility forareas where they can contribute most to proper waste man-agement. That is why, ultimately, in the recast of the WEEEDirective,1 much more emphasis is placed on other actors. Thekey changes adopted by the European Parliament and Councilrelate to reporting and (collection) supervision responsibilitiesnow primarily assigned to EU member states. The retail sec-tor has an obligation for collecting small appliances, regardlessof whether customers buy new equipment. PROs and recyclersmust develop minimum standards for treatment and are ac-tively shaping these, similar to U.S. standards for electronicsrecyclers.2 There are more stringent export, product testing,and enforcement requirements to reduce the shipment of e-waste to developing countries. Last, but not least, an ambitiouscollection target has been set for member states. This target isa change from the original 4 kilograms (close to 9 pounds) perinhabitant toward at least 45% of three preceding years of salesby 2016 and 65% by 2019, or alternatively 85% of the “WEEEgenerated” by 2019, when member states must document thee-waste generation and flows in their country.

These legal changes are more than just a set of “admin-istrative details” or a dilution of the original IPR concept asMayers and colleagues (2011) characterized the changed focusbeyond responsibilities of producers alone. They are necessaryevolutions, as intervention is needed to reduce the amount ofresource-laden small appliances in the waste bin and to stopillegal or semilegal exports to developing countries. With thesenecessary changes, the questions remain: What about the origi-nal IPR design and financial responsibility? Is the starting policyprinciple of the WEEE Directive now obsolete?

Regarding design responsibility first: there are more envi-ronmental concerns than design-for-recycling alone. What isgood for recycling may be not so good, for example, for ma-terials selection or energy consumption. Eco-design requires acareful balancing act in the early product-creation stages. In

2009 the EU adopted the Ecodesign Directive,3 mainly tar-geting energy-related products. Here, the procedure for settingeco-design requirements and standards includes the necessarybalancing of environmental impacts of the end-of-life stagewith those arising in other life cycle stages. However, the cen-tral question is whether this balance is served by more rules. Inpractice, a lot of creativity is required to achieve long-term soci-etal goals and higher levels of sustainability: more functionalitywith fewer materials, more quality, products that last instead of“fast-food electronics,” and further dematerialization. It is likelythat such dynamic creativity is more hindered by static legisla-tive requirements and long compliance checklists than actuallysupported.4 It may be supported to some degree by proceduralelements, life cycle assessments, eco-design checklists, and mar-keting of a few green products in annual environmental reports.However, more relevant for the long term is to have eco-designstructurally embedded in the heart of the product creation andintegration process and permanently resident in corporate cul-ture and management bonus systems internally rather than inexternal legal compliance layers. Therefore, at a minimum, theoriginal design for recycling prevention incentives are betterpositioned in the Ecodesign Directive rather than in the WEEEDirective.

The second producer responsibility element is financing.Some IPR advocates characterize collective national PROs asmonopolistic and visible fees as barriers to cost competition-driven approaches. Again, there is nothing wrong with com-petition as such. But when the industry alone is to pay thebill directly, there is a negative driver for increasing collectionand quality of treatment. Especially in countries with multiplePROs, there are no incentives to collect more than their re-spective shares. Organizationally, some countries are too smalland lack economies of scale in logistics and treatment to al-low for multiple competing PROs. Except in cases where profitfrom material recovery can be maximized, efforts to improvethe quality of treatment and achieve better separation of toxiccomponents or higher grades in plastics recycling only add tonet costs (Huisman and Magalini 2007). The same applies toconsumer education, school projects, and research as meaning-ful long-term system investments.5 In any case, without co-operation and government oversight, it is just odd to blindlystimulate competition to achieve lower prices for an industrywhere short-term competition is already a problem in itself.Recent and more pragmatic IPR financial approaches (Mayerset al. 2011) provide some creative ideas such as differentiationin end-of-life fees. This can appropriately discriminate betweenbad and good designs, but with a reduced focus on only a fewproducts instead of the original full-scale design feedback loopfor all electronic products.

The extended version of the quote from Milton Friedman(Friedman and Friedman 1982, viii) is:

There is enormous inertia, a tyranny of the status quo, inprivate and especially governmental arrangements. Only acrisis, real or perceived, produces real change. When thatcrisis occurs, the actions that are taken depend on the ideas

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that are lying around. That, I believe, is our basic function:to develop alternatives to existing policies, to keep themalive and available until the politically impossible becomespolitically inevitable.

In my view, that is exactly why and how the evolution of theoriginal IPR concept in the EU WEEE recast leads to a muchmore on-target EPR 2.0 type of legislation. It is a process fromwhich other countries adopting similar legislation can learn. Itis time to discuss its merits and implement this renewed versionpragmatically, effectively, and quickly. Because, in the end, ourplanet is the thing that truly is too big to fail.

Notes

1. The recast, a revision of the WEEE Directive, was en-acted in July 2012. See http://ec.europa.eu/environment/waste/weee/index_en.htm.

2. In 2008 the LIFE committee, an EU panel composed of representa-tives of the member states and of the European Commission, fundeda project called WEEELABEX. The project, led by the WEEE Fo-rum, an association of PROs, aims to develop a set of European stan-dards for the collection, treatment, recovery, and recycling of WEEEand monitoring of the processing companies. See http://www.weee-forum.org/weeelabexproject.

3. See http://ec.europa.eu/enterprise/policies/sustainable-business/documents/eco-design/legislation/framework-directive/index_en.htm.

4. For interesting eco-design examples, see this gallery in The Guardian:http://gu.com/p/3ad6z/em.

5. As an example of long-term investment, see the Dutch “multistake-holder” research study that identified how and where to achievethe upcoming collection targets (http://isp.unu.edu/news/2012/unu-study-documents-dutch-ewaste-flows.html).

References

Friedman, M. and R. Friedman. 1982. Capitalism and freedom. Chicago,IL, USA: University of Chicago Press.

Huisman, J. and F. Magalini. 2007. Where are WEEE now? Lessonsfrom WEEE: Will EPR work for the US? Proceedings of the 2007IEEE International Symposium on Electronics & the Environment:149–154. New York: IEEE.

Huisman, J., F. Magalini, R. Kuehr, and C. Maurer. 2007. 2008 reviewof Directive 2002/96 on Waste Electrical and Electronic Equipment(WEEE). Final report. Bonn, Germany: United Nations Univer-sity.

Lifset, R. and T. Lindhqvist. 2008. Producer responsibility at a turningpoint? Journal of Industrial Ecology 12(2): 144–147.

Mayers, K., R. Peagam, C. France, L. Basson, and R. Clift. 2011. Re-designing the camel: The European WEEE Directive. Journal ofIndustrial Ecology 15(1): 4–8.

About the Author

Jaco Huisman is a scientific advisor to the United NationsUniversity Institute for Sustainability and Peace (UNU-ISP)Sustainable Cycles (SCYCLE) unit in Bonn, Germany, andassociate professor in Design Engineering at Delft University ofTechnology, Delft, the Netherlands.

Address correspondence to:Dr. Jaco HuismanDesign for Sustainability LabDelft University of TechnologyDelft, The Netherlandsj.huisman@tudelft.nl.

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