System Financing

ARF over PDF

A recycling fee on the product was considered the most viable alternative because it internalises environmental costs in the price of the product in keeping with the polluter pays principle and is much more equitable than municipal waste taxes. The consumers can be charged at two points - at the time of purchase, or at the time of disposal. The vignette system charged the consumer at the point of disposal, while the ARF moves the charges further upstream, to the point of purchase. While designing the SWICO system, the ARF was preferred because, from a psychological point of view, the consumer does not mind a small fee during purchase of a new appliance, as much as paying a fee for the disposal of a product that is worthless. Though a fee at the point of disposal can more accurately estimate the cost of disposal of the particular appliance, an advance fee was considered more consumer friendly and more likely to reduce illegal dumping.

The Swiss ARF is in-fact an intergenerational contract between appliances purchased in the past and those that will be purchased in the future, akin to a pension system. Thus although the fee is called the ARF, the money is used for the recycling of products coming into the waste stream now, which were sold over the past years. In turn, the recycling of products being sold now, and which will appear in the waste stream some years later, will be paid by the new generation of products being sold at that time.

The advantage with such a contract is that it is much easier to estimate the current cost of recycling than what it would cost in the long term future. The problem of making the fee specific for the product itself is quite complicated because during the life time of the product the technology and costs of recycling might change, making the fee lower or higher than required. In case the fee is not sufficient to cover the recycling, then the problem would still remain unresolved. In case the fees charged are higher than necessary, then the cost and procedures for returning the balance or finding a justifiable use for the additional sum might become an administrative nightmare. Thus both SWICO and, more recently, SENS adopted an ARF which is based on recycling costs today for products coming into the waste stream in the present.

The risk of setting such an intergenerational fee is that it needs accurate estimations of how much waste will be generated and how many new products will be sold, which can be a difficult task. For example 1.75 million mobile phones were sold in Switzerland, but only 250,000 were returned[1]. A mismatch, the other way around, with higher quantities of waste generated as compared to products sold, would jeopardise the stability of the system. SWICO and SENS overcome this drawback by keeping a six months reserve and constantly monitoring the quantities of both waste and ARF collected.

Visible Fee vs Inbuilt Fee

A visible fee at the time of purchase was a simple and efficient way of making the system transparent to the consumer as well as creating awareness - so that the consumer knows that the recycling has already been paid for. This was an important consideration because previously consumers had to pay arbitrary fees for the recycling at the time of disposing the product. It was also to prevent unscrupulous retailers or recyclers from charging money on returned products. The visible fee also creates a level playing field for all manufacturers and retailers, making it impossible for undercutting prices on recycling fees.

Setting the ARF

Setting a recycling fee that is at the same time easy to understand, transparent to administer and yet does not cross subsidise products from different categories or cause consumer resentment is indeed a difficult task. A case in point to illustrate the difficulty in setting a fee was that of a cooling box for which the retailer's list price was CHF 75, but the sale price was almost 50% higher because of an ARF of CHF 40 on cooling products. To balance the ARF and the cost of product, without adding too much complexity to the system, a new lower level of fees for smaller cooling appliances had to be set, bringing down the ARF to a more reasonable CHF 25.

The SWICO Environmental Commission, which comprises of manufacturers from the various industry verticals participating in the system, sets the ARF. SWICO uses a product price index according to which the ARF is calculated. The fee ranges from zero, for products below CHF 50, to CHF 1650 for products above CHF 6000. For consumer electronics, the fee is structured slightly differently, depending on product category. Telecommunication equipment and mobiles have an inbuilt ARF, because they are more often than not sold as a package with service contracts.

SENS on the other hand has six distinct fee categories, ranging from CHF 1 to CHF 40, under which all the products are classified. The category under which a product falls depends on the type as well as size of the product. For example, the ARF on a hair dryer is CHF 1 while on a refrigerator it is CHF 40. The SENS project team, with representatives of producers, retailers and recyclers meets twice a year to review the operations and set the recycling fees. The list is adjusted annually, depending on market dynamics.

So far, both systems have had a positive balance and were able to cover the recycling charges. However, for the first time in 2003, SWICO's cost overshot its ARF revenue, possibly due to the high return rate of consumer electronics, which came into the system in 2002.