Select Committee on Trade and Industry Minutes of Evidence


Memorandum by The Society of Motor Manufacturers and Traders Limited

SUMMARY

  1.  The Society of Motor Manufacturers and Traders (SMMT) welcomes the House of Commons Trade and Industry Committee's inquiry into the economic impact of the End of Live Vehicles (ELVs) directive.

  2.  The motor industry is deeply concerned about the potential impact of the ELVs directive in the UK and believes that it will require a sharing of responsibility between economic operators, Government and vehicle owners.

  3.  The motor industry has taken a very positive approach to reducing the environmental impact of ELVs during a long period of time, particularly through the cross industry ACORD group and the CARE initiative.

  4.  In implementing the directive it is essential that the UK Government respects the dates established in the directive for the introduction of the free take back obligation; 2002 for new vehicles and 2007 for the existing vehicle parc.

  5.  The Government should ensure that the implementation regime introduces a market mechanism to differentiate between ELVs with a positive and negative value. This will maximise the use of the existing market and treatment routes for ELVs and encourage improvements in efficiency and productivity.

  6.  A retrospective obligation for the entire vehicle parc will require companies to recognise a significant liability in their balance sheets and profit and loss accounts. This could have very serious impacts and the Government must ensure that the legislation seeks to minimise this potential threat.

  7.  To minimise the administrative burden associated with establishing compliance with the reuse, recycling and recovery targets the Government must introduce reporting obligations for dismantlers, shredders and waste operators.

  8.  The SMMT has made a preliminary assessment of the options outlined in the Government's consultation document and each of them would impose significant cost, administrative complexity and uncertainty on all the economic operators involved in the processing of ELVs.

  9.  Vehicle manufacturers are currently reviewing alternative options that seek to maximise the use of the existing infrastructure, encourage competition and are in line with approaches being developed in other EU states. There is a particular focus on the approach being adopted in France.

  10.  The DVLA needs to introduce a more effective de-registration system to ensure that the final owner of a vehicle can be accurately identified and action is taken if they do not deliver the vehicle to an authorised treatment facility. The issue of a Certificate of Destruction must ensure that a vehicle cannot return to the road.

INTRODUCTION

  11.  The Society of Motor Manufacturers and Traders Ltd (SMMT) is the leading trade association for the UK motor industry. It represents some 600 member companies ranging from vehicle manufacturers, component and material suppliers to power train providers and design engineers. The motor industry is an important sector of the UK economy. It generates a manufacturing turnover approaching £50 billion and supports around 800,000 jobs.

  12.  The SMMT welcomes the opportunity of making a submission to Trade and Industry Committee on the economic impacts of the end of life vehicles (ELVs) directive. The motor industry has made substantial progress in improving the environmental performance of its products and has devoted significant efforts to reducing the environmental impact of ELVs. The industry is concerned that implementation of the directive could result in unnecessary financial and administrative burdens that may reduce the competitiveness of, and undermine investment in, the UK motor industry.

A FRAMEWORK FOR IMPLEMENTATION

  13.  In implementing the directive it is essential that the UK Government respects the dates established in the directive for the introduction of the free take back obligation; 2002 for new vehicles and 2007 for the existing vehicle parc. Early introduction, as implied in the consultation document, would impose significant extra costs on manufacturers and treatment operators. It also represents a more onerous regime than that being adopted in other major vehicle manufacturing EU states and could threaten future investment in the UK.

  14.  Vehicle manufacturers are required to meet all or a significant part of the costs of providing cost free take back of ELVs with no or a negative value. There is concern that without an effective mechanism for distinguishing between vehicles with a negative value and those that can be processed at a profit vehicle manufacturers will face significant additional costs. There will also be little incentive for treatment operators to improve productivity and reduce costs.

  15.  The free take back obligation is limited to ELVs with no or a negative value. The Government should ensure that the implementation regime introduces a market mechanism to differentiate between ELVs with a positive and negative value. This will help ensure that the existing market and treatment routes for ELVs continues and encourages improvements in efficiency and productivity.

  16.  A key element of the directive is a requirement on national government to report on progress towards the reuse, recycling and recovery targets it sets. To minimise the administrative burden and guarantee consistency it is important that the Government introduces reporting obligations for dismantlers, shredders and waste operators.

  17.  The Government is required to introduce a Certificate of Destruction, so that the last owner of a vehicle has verifiable evidence that their vehicle has been safely disposed. The motor industry is keen that this should be a two step process, with the final certificate only issued when a vehicle has been put beyond use. This is necessary to avoid any potential fraud and enable the tracking of ELVs through the treatment chain.

  18.  The final owner of a vehicle has an obligation to ensure that it is disposed of in an appropriate manner. Currently, as the number of abandoned vehicles demonstrates, there is little incentive on vehicle owners to ensure that this happens. Manufacturers are convinced that the DVLA needs to introduce a more effective de-registration system to ensure that the final owner of a vehicle can be accurately identified and action taken if they do not deliver the vehicle to an authorised treatment facility.

  19.  In January 2002 un-depolluted ELVs will be classified as hazardous waste. This will mean that all transport of them will have to be notified to the Environment Agency in advance. The Agency charges an administration fee of approximately £15 for every trip. In order to ensure that unnecessary additional charges are not imposed on treatment operators it is essential that a used vehicle only becomes defined as an ELV when the de-pollution process starts.

  20.  Vehicle manufacturers have been reviewing the likely financial impact of the responsibilities the ELVs directive establishes. The form and wording of the legislation enacting the directive in the UK will be very important. If the legislation establishes a retrospective obligation for the entire vehicle parc, companies will be required to recognise this liability in their balance sheets and profit and loss accounts. The Government must ensure that the legislation seeks to minimise this potential threat.

  21.  Recognising a significant liability will adversely affect the profit and loss account and the creditworthiness of the balance sheet. As a consequence loan covenants could be breached triggering immediate debt repayments and or higher financing costs. The impact of this and the crystallisation of the liability could, in extreme circumstances, result in the insolvency of a business. The collective increase in retrospective liability will have a negative impact on the prospects for the automotive sector including the suppliers to the vehicle manufacturers.

  22.  Currently there are few, if any, treatment facilities that meet the environmental standards established in the directive. The Government must introduce an effective policing and enforcement regime to ensure that authorised treatment facilities meet these standards. There is huge concern amongst treatment operators that there will not be adequate enforcement of standards. This has prevented many from making the investments required to meet them, because they fear that if they do they will be at a competitive disadvantage to businesses that flout the rules.

  23.  The reliability and long life of vehicles means that some may be presented for recycling where a producer is no longer in business. The Government is responsible for these "orphan brands" and must make appropriate arrangements for them.

  24.  The UK Government has taken steps to commercialise the market for "grey imports". These are vehicles originally intended for markets outside the EU and are imported by independent companies using single vehicle approval rules. These independent importers must take responsibility for the vehicles that they introduce into the UK and the Government must ensure that implementation plans establish an appropriate mechanism for doing so.

  25.  The Government must introduce specific arrangements to deal with new multi-stage build vehicles and vehicles that are converted after first registration. These vehicles may contain equipment and materials that the original manufacturer has no control over. Vehicle manufactures should not be liable for the consequences of actions by persons modifying vehicles without their knowledge or consent.

UK GOVERNMENT CONSULTATION DOCUMENT

  26.  In August 2001 the DTI published a consultation document on implementation of the directive in the UK. It outlined three possible options; a brand specific contractual scheme; a tonnage target scheme and a hybrid scheme. The motor industry was disappointed that none of the major financial issues were addressed and that many details still remain uncertain.

OPTION ONE

  27.  Under the brand specific contractual scheme producers would be responsible for putting in place collection systems for their own vehicle-marques, for ensuring that these vehicles were treated to the tightened standards and for meeting the recycling targets in respect of those vehicles. Producers could meet their responsibilities through contracts with treatment facilities or establish their own facilities. Last owners would be able to take back their vehicles to facilities that were not contracted with the producers.

  28.  This first option is the closest to a free market approach to ELV implementation. It gives producers the flexibility to set up both brand specific and collective ELV networks. It allows producers to contract with their preferred treatment facilities giving the opportunity for transparent and auditable payment processes. This would enable the producers to control the material flows from ELVs and operate cost control measures.

  29.  This approach would require producers to make a one off accrual for the historic car parc, with the attendant risks this would have for the credit worthiness of balance sheets. For some, but not all manufactures this could trigger immediate debt repayments or higher financing costs or both. Attempts are being made in other EU states to minimise the potential impact of this risk.

OPTION TWO

  30.  Under the tonnage target scheme vehicles could be delivered to any treatment facility that held a permit. Producers would have to meet all or a significant part of the cost of take back and treatment for negative value vehicles. In addition each producer would be required to meet tonnage recycling targets, which might be set according to each producers' current market share. Producers could meet these targets by purchasing either evidence notes (proof that certain tonnages of ELV material had been recycled) or tradeable permits. The system could also include a "green factor" to reward producers that used more recycled material in their vehicles or that made them easier to recycle.

  31.  If the tonnage target were based on current market share then option two would avoid producers having to make one-off accruals for the historic car parc. This may also be the case if the likely deficit could not be estimated due to the fluctuation in the VRN market.

  32.  The consultation document seems to imply two sets of costs. The first to cover the costs of take back and treatment, and the second to secure the information that demonstrates compliance with the recycling targets. This does not represent a very attractive scenario for vehicle manufacturers. Producers do not think it practical to make arrangements with all the countries authorised treatment facilities.

  33.  The process for setting the tonnage targets would be complex and inaccurate. The material content of every vehicle varies widely based on items such as the engine, transmission and options. The number of ELVs arising in any year varies considerably and it could be that the targets would be higher than the available material.

  34.  It is essential that competition and capacity exists in the reprocessing industry to ensure performance and control costs. Recovery targets for ELVs are due to increase from 85 per cent to 95 per cent; to achieve them the reprocessing industry must develop new and more efficient technologies. There is concern that producers would be faced with significant costs and no certainty of increased material re-utilisation.

  35.  The trading of permits, which demonstrate the reprocessing of materials, would create uncertainty. Producers and re-processors need financial stability to plan the investments required to meet the conditions established in the directive. Significant variations in costs and revenue would undermine this.

  36.  Notwithstanding the manufacturers reservations with this option, it would be more acceptable if, as in packaging, others who derive profit or income from vehicles through their life had a proportional recovery obligation placed on them.

OPTION THREE

  37.  The hybrid scheme differentiates between the historic car park and vehicles sold from 2002 onwards. For the historic car park, producers would be set tonnage targets based on their current market shares—producers could either meet these targets by purchasing evidence notes or tradeable permits (as option 2). For new vehicles, producers would be required to pay bonds into funds for each vehicle sold, and these funds would then meet treatment and recycling costs when the new cars began to be scrapped. Importers would be obliged to pay into the relevant funds at the same rate as the producer in question. Producers would be able to set their own bond or levy rate. In other respects this would work as the first option.

  38.  The hybrid option retains the main disadvantages associated with the tonnage target scheme with the additional concern that it may still require producers to make a one-off accrual for the historic car parc. In addition the creation of a bond system will increase administrative complexity and drain resources from producers well ahead of any recycling requirement for vehicles sold from 2002.

AN INDUSTRY ALTERNATIVE

  39.  The three options presented in the Government's consultation document do not meet all the criteria established by vehicle manufacturers, and each would need to be amended to achieve universal support. The consultation document indicates that the Government is prepared to consider amendments and alternatives to those that it has outlined.

  40.  In response the SMMT is working with vehicle manufacturers to develop an approach that may better meet the implementation criteria that the industry has established. It is currently examining the legislative proposals that are being developed in other EU states. These might include the following points.

  41.  The last owner is required to deliver a vehicle intended for destruction (ELV) to an authorised dismantler or authorised shredder. The dismantler has the option to accept or reject any ELV presented to them. If the authorised dismantler accepts the ELV, it must be at no cost to the last holder/owner. All ELVs accepted by an authorised dismantler are presumed to have a "positive value". Shredders have an obligation to accept all ELVs directly from last owners at no cost, but only if the vehicles are complete.

  42.  In the event that the shredding industry demonstrate a deficit in the processing of complete ELVs, producers are required to organise the free take back of vehicles, in accordance with the methods that they judge most appropriate. The assessment of any deficit is to be made by an independent third party jointly appointed by producers, importers, authorised shredders and government representatives.

WORKING WITH GOVERNMENT

  43.  The motor industry has sought to work closely and constructively with Government on the implementation of the ELVs directive. It is a complex and wide ranging piece of legislation that presents a variety of commercial challenges for all economic operators. The industry is committed to continue this collaborative approach to ensure that the most effective solutions are achieved.

BACKGROUND PAPER

  1.  The European Parliament called on the European Commission to legislate on ELVs in November 1996. The Commission took the view that a specific directive was necessary given the importance of vehicle waste.

  2.  The directive requires that vehicle, material and equipment manufacturers must:

    —  endeavour to reduce the use of hazardous substances when designing vehicles;

    —  design and produce vehicles which facilitate the dismantling, re-use, recovery and recycling of ELVs;

    —  increase the use of recycled materials in vehicle manufacture; and

    —  ensure that components of vehicles placed on the market after 1 July 2003 do not contain mercury, hexavalent chromium, cadmium or lead, except in the cases listed in Annex II of the directive.

  3.  The directive also introduces provisions for the collection and treatment of all ELVs. Member States must set up collection systems for ELVs and for waste used parts. They must also ensure that all vehicles are transferred to authorised treatment facilities, and must set up a system of de-registration upon presentation of a certificate of destruction. Such certificates are to be issued when the vehicle is transferred, free of charge, to a treatment facility.

  4.  The last owner of an ELV, complete with all essential components, that has no or a negative value will be able to dispose of it free of charge, with producers meeting all, or a significant part, of the cost of applying this measure.

  5.  The storage and treatment of ELVs is also subject to strict control. Establishments or undertakings carrying out treatment operations must de-pollute ELVs before treatment and recover all environmentally hazardous components. Priority must be given to the re-use and recycling of vehicle components.

  6.  At the moment, around 80 per cent of ELVs by weight are recycled. The aim of the directive is to increase the rate of re-use and recovery to 85 per cent by 2006, and to 95 per cent by 2015, and to increase the rate of re-use and recycling over the same period to at least 80 per cent and 85 per cent respectively by average weight per vehicle and year. Less stringent objectives may be set for vehicles produced before 1980.

  7.  Member States must ensure that producers use material coding standards that allow identification of the various materials during dismantling. The Commission must establish European standards on material coding and identification.

  8.  Economic operators must provide prospective purchasers of vehicles with information on the recovery and recycling of vehicle components, the treatment of ELVs and progress with regard to re-use, recycling and recovery.

  9.  Member States must report to the Commission every three years on the implementation of the directive. The Commission must then publish a report on the implementation of the directive.

THE UK DISMANTLING AND SHREDDING INDUSTRY

  44.  The SMMT has estimated that there are between 3,000 and 4,000 dismantling businesses currently operating in the UK. The number of licensed or licensed exempt sites is closer to 2,000 and on average these sites handle significantly fewer than 1,000 ELVs per annum. Information gathered by individual manufacturers indicates that for most of these businesses more than 50 per cent of their turnover is derived from non-dismantling activities. For many their most profitable activities are the sale of parts and used cars.

  45.  There are 37 shredder sites operating in the UK and four Heavy Media Plants, two companies' control 80 per cent of this capacity.

  46.  Industry studies into dismantlers across the EU have determined that the costs of the dismantling process are highly volume sensitive. The de-pollution rigs required to meet the standards outlined in the directive would be under utilised with a throughput below 2,000 ELVs per year. It is estimated that it would be necessary to process close to 5,000 ELVs per year to minimise unit costs.

  47.  A study of shredders has indicated that the aluminium content of the material they handle has a significant impact on their profitability. Scrap aluminium is worth up to 10 times more than scrap steel and ELVs currently make up between 30 and 50 per cent of shredder feed. The shredding industry is also able to commercially handle ELVs hulks sold on by dismantlers.

  48.  The shredding and dismantling industries are currently handling ELVs profitably and there are significant opportunities to improve the efficiency and productivity of significant parts of these sectors. In implementing the ELVs directive it is essential that competition is encouraged and that the free take back requirement is not allowed to subsidise inefficient operators.

ASSESSING THE COSTS

  10.  The UK Government's consultation document includes a draft regulatory impact assessment. This estimates that the total cost to business is in the range of £161 million to £346 million per annum from 2006 to 2015, and £209 million to £438 million per annum from 2015. These do not include costs associated with the redesign, heavy metal restrictions, dismantling manuals, coding of parts and provision of information requirements.

  11.  There continues to be a great deal of uncertainty about the nature and extent of the costs associated with the directive. The European Commission conducted a business impact assessment of the ELVs directive when it was first presented to the Parliament in 1997. This suggested that the directive would result in increased employment in the vehicle disposal industry. It argued that these would be low qualified manual jobs.

  12.  The Commission recognised that manufacturers would be involved in developing vehicles that were more easily recycled, but failed to identify any cost associated with this. They also did not identify any costs for the provision of cost free take back.

  13.  The Consortium for Automotive Recycling (CARE) undertook a survey of the dismantling industry in 2001 to identify the gap that existed between the current ELVs practice and the requirements of article 6 and annex 1 of the EU Directive. The survey found that no sites were complying with these requirements. There were a number of high volume salvage dismantlers that had invested in annex 1 requirements and could meet the needs of the directive but these sites would only be able to deal with around 15 per cent of the ELVs arising due to capacity restrictions and geographic location.

  14.  There is great uncertainty in the costings associated with the implementation of the directive. This is in part due to the uncertainty surrounding how the directive will be implemented and responsibilities shared. There is in addition a reluctance, within some sectors of the treatment industries, to reveal an accurate picture of the potential costs associated with the new treatment requirements.

INDUSTRY ACTION

  15.  The motor industry has been engaged in addressing the issues raised by ELVs for some considerable time. In 1991 the Automotive Consortium On Recycling and Disposal (ACORD) was established to develop and implement a voluntary multi-industry strategy to improve the existing disposal process. Its objective was to achieve a reduction in the amount of automotive shredder residue going to landfill.

  16.  In 1997 ACORD signed a voluntary inter-sector agreement on the treatment of ELVs. The agreement contained a commitment to improve the recovery of material from ELVs to 85 per cent by 2002 and 95 per cent by 2015. It was recognised that a lot of effort would be needed to ensure that new processes were implemented to make recovery of non-metallic materials, and in some instances, the energy value contained in them, considerably more effective.

  17.  Alongside the work being undertaken by ACORD, motor vehicle manufacturers/importers and vehicle dismantlers established the Consortium for Automotive Recycling (CARE). It was initiated by a group of 10 of the leading car manufacturers who, collectively, account for around 75 per cent of UK car sales. Their objectives are to research and demonstrate the technical feasibility of recovery and recycling processes. CARE has a network of affiliated dismantlers and has undertaken a variety of projects.

  18.  These have included improving depollution techniques to increase recovery of oils and fluids; trials to collect, regrind and recycle polypropylene bumpers and analysis of shredder residues to determine contamination levels and potential processing necessary to convert it into a usable fuel.

  19.  In addition they have undertaken a variety of work in preparation for the introduction of the ELVs directive. They have collected data on the nature of the vehicles being processed, as well as current dismantling and recycling practices. They have established a draft code of practice for the conditions, processes and procedures to be adopted by authorised treatment facilities. As part of this process they have also researched the likely cost implications of bringing treatment facilities up to the standards required by the directive.

DESIGN FOR RECYCLING

  20.  Vehicle manufacturers have dedicated technical centres engaged in the research and development of new models. Their work is focused on ensuring vehicles meet future legislative requirements. As a consequence improved recyclability and easier dismantling have been key objectives for some time, but these have also to be balanced by efforts to improve passenger and pedestrian safety, reduce emissions, improve fuel efficiency and continually improve quality and reliability.

  21.  Design for recycling seeks to minimise the number of parts used and avoid the mixing of plastic parts in an assembly. Component attachment methods are designed to speed dismantling with pull out rivets replacing screws, where possible.

  22.  The majority of ferrous and non-ferrous material used in vehicles has a high-recycled content. Vehicle component engineers are increasingly specifying plastic parts to have a post consumer recycled content. Engine compartment plastic, heating ducts and air intake grills are typical uses of recycled plastic. Examples include mud flaps that are made from recycled polypropylene and the soundproofing using recycled textiles. These and other applications are an increasing feature of new model programmes. Manufacturers are developing a variety of recycling/recovery programmes these include:

    —  treatment technologies for tyres;

    —  pyrolysis of shredder residue recovers steel and plastic;

    —  pyrolysis of thermoplastics to recover fibres, oils and wax. Various uses are on trial;

    —  glass is on trial as aggregate in road building;

    —  recovery of seat foams by air extraction at the shredder, for use as soundproofing; and

    —  the establishment of generic recycled plastic standards to encourage its use.

  23.  To aid recycling at end of life manufacturers have created dismantling manuals for all new cars and older models. These manuals provide a detailed depollution and dismantling process that describes the types and quantities by weight of fluids and materials to be removed and includes information on tools and methods. This dismantling information is also available in a CD-ROM package from The International Dismantling Information System (IDIS). Manufacturers from Europe, Japan, Korea and the US have created a database for the correct pre-treatment and dismantling of their past and current models.

  24.  The dismantling manual describes the type of plastic used in the construction of a component. In conjunction with this all plastic parts over 100 gm in the vehicle have a material type code incorporated in the moulding tool. This mark is in accordance with international standards for plastic identification. This helps the recognition and separation process and can allow for discreet material recovery streams at the dismantler.


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 6 December 2001