Select Committee on Trade and Industry Minutes of Evidence


Examination of Witnesses (Questions 140 - 160)

TUESDAY 23 OCTOBER 2001

MR DAVID HULSE, MR ANDREW MASON, MR STUART COTTAM AND MR SHANE MELLOR

Sir Robert Smith

  140. Back to this depollution. At the moment you say that in effect the oil comes out of the system at a different point where it is easier, in other words you deal with it in bulk, it is in your refined waste and you remove it rather than individually trying to find out where the oil is in the car and drain it. What about the other pollutants at the moment, where do they end up after you process it?
  (Mr Mason) Mostly in the waste going to landfill. You end up with a pollution loading in a way so the mercury light bulbs give a very low level of mercury but it is still there sitting in the waste going to landfill. I do not disagree that we should take them out first.

Linda Perham

  141. You were saying at the moment you pay £3 a car.
  (Mr Mason) It varies all round the country. If you look at my site in Sheffield, for instance, my land costs there are less than a tenth of my land costs in London and, therefore, I could pay more for cars because we are in a competitive market. It is even cheaper the further we go north, so we are in a competitive market, we are fighting with other players in that sector.
  (Mr Mellor) Transportation also comes into it.
  (Mr Mason) There is transportation to the shredding plant.

  142. Going back to what you said about the customer bearing charges and how if your costs go up you might have to charge people to take the car in. You mentioned Option 4 that the manufacturers put forward where there would be an obligation on the shredders to take cars. Do you think that would be a disincentive to people? We were talking about abandoned cars earlier as well. If somebody has got to pay, they have to pay you to take the car and you are obliged to take it under Option 4, is that not going to lead to people thinking "I am not going to turn up at the shredders if I have actually got to pay them to take it away"?
  (Mr Mason) I think if you made it a cost to dispose, yes, you would end up with more fly tipping across all waste streams. I do not think Option 4 says that the last owner would have to pay us. Option 4 says that we would have to have an obligation to take it, which I am not fully sure I understand how, under producer responsibility, the recycler would have an obligation to take that.
  (Mr Cottam) And under market forces as well. Option 4 was presented just now as being driven by market forces. How is it driven by market forces if one operator is obligated to handle vehicles?
  (Mr Mason) We would not be able to charge under the Directive to take vehicles. If we had an obligation to take vehicles and a negative cost and not able to charge then we would be into this deficit assessment system which may or may not be attractive for smaller shredder operators in that system. The more you add cost to last owner or difficulty to last owner you will increase fly tipping. I think fly tipping is probably blown a little bit out of proportion, maybe 100,000 vehicles out of 1.8 million, it is not the majority. The majority of vehicles are natural end of life vehicles, not crashed, the majority go straight into the chain and are not fly tipped.

  143. They are the ones that end up on our local streets and our constituents tell us about them.
  (Mr Mason) Sure.

  144. You mention in your submission about an incentive to last owners, a bounty system as you phrase it. It was suggested earlier I think about this option or suggestion which has been made by the other people who have put submissions in, the APTA and the AA have talked about either a bond system or charging on the price of a new car. Do you think that is a good idea? It would not be your end of it, somebody would pay up front who was buying a new car and the contribution towards the credit would be there and the person gets it back at the end and you issue a Certificate of Destruction presumably.
  (Mr Mason) I think any method to get vehicles into the chain without having them abandoned. The problem with abandoned vehicles is the immense cost for local authorities who have to go and visit the car, assess whether it is abandoned or not. They have to go back again and see if it is abandoned. They have to put a sticker on it and leave it there for 14 days, depending on whatever system they have got. Then they have to arrange for the haulage. That is adding up to £50 to £100 a vehicle. If it is a natural end of life vehicle it will be £3 at our gate currently. Any system which helps to minimise that by encouraging last owners to bring them through would obviously save local authorities a lot of money.
  (Mr Cottam) The bounty system would have to be in conjunction with a more robust licensing system. When a million near end of life vehicles are driving around the roads with no road fund licence then, say, a £25 or £50 bounty would not be sufficient to make those people license their cars before they scrap them at the end of their years.

  145. Who would pay the bounty?
  (Mr Hulse) The bounty would be derived from either some kind of levy on the sale of new cars or, like the Danish system, on the annual insurance. There are various ways that the bounty needs to be drawn in from the process during the life of the vehicle rather than putting a financial burden on the last owner.

  146. I did mention the Certificates of Destruction. Do you envisage they would be issued mainly by shredders or dismantlers as well or two stages, which I think someone else mentioned in earlier evidence?
  (Mr Mason) Certainly they could not be solely by shredders or dismantlers. I think there would have to be two stages. I think two stages has some merit. The last owner needs a piece of paper saying they have dropped their car off to an authorised treatment facility and that may be a dismantler, it may be a scrapyard. They need that proof of deposit. Perhaps if we had two stages the shredder would say "Yes, that is now in small chunks of metal, not in something which can go back on the road again". It is going to be quite hard to manage that. Most vehicles do not come to a shredder whole. They are not being brought in as a whole vehicle, they are being brought in as a flat or cube. You do not actually see what type of car it is or even what colour it is necessarily, it is a cube, because you are trying to improve transport efficiencies by moving vehicles from Cambridge down to East London for example.

  147. You are aware the DVLA have been trialing this system with electronics. Have you been involved in the discussions on that?
  (Mr Mason) Yes, we have been involved. We have another meeting with them next week. Yes, we do fully believe it should be electronic. It is the only sensible way to move forward and keep costs down. I think one of my concerns about the Packaging Directive is the administration costs are quite unattractive. I think we should try and use every opportunity on ELV to minimise administration costs of the system, electronically is going to be one way of doing that.

  148. You mentioned in your evidence I think about continuous licensing. Is that something you would definitely like to see for all cars?
  (Mr Mason) Absolutely. It would help to minimise fly tipping.

Mrs Lawrence

  149. I want to come on to implementation of the Directive. First of all, can I just pick up on a point about Option 4 and the idea of obligation and the impact on your industry. This was raised earlier in questions. I just wondered what your view was about the impact of obligation on capacity and the ability of your industry to survive in its current form?
  (Mr Mason) There will be no impact on shredding capacity. We already shred far more than the vehicles there are in a year.

  150. Its viability?
  (Mr Mason) Absolutely. Sitting in a position where you have an obligation means you have a very weak hand in negotiations on the price of depollution or taking those vehicles in or treatment in general. So, having an obligation on the recycler would seem to put the recycler in a very difficult position.

  151. That is the point I was trying to make. Would that not necessarily have a knock-on in terms of the viability of business and the overall capacity?
  (Mr Mason) Yes, it would.
  (Mr Cottam) Our industry is already capital intensive. It is already very highly efficient. It is already fiercely competitive. Any attempt to fix our negotiation position in that way would certainly make it very unattractive for anyone else to enter the industry.

  152. If I can come on to implementation. You do say in your evidence that this would be impossible without specifically addressing the question of the funding of costs of both capital investment of the appropriate treatment depollution facilities and their ongoing operational costs. You also refer again to the point that has been made that ultimately these costs will have to be borne directly or indirectly by the consumer. The industry has known about this Directive for many years. Why are you not better prepared?
  (Mr Hulse) We are as well prepared as we can be, given that we have not been given any guidance on how the costs in implementation are going to be funded. We were extremely disappointed with the DTI consultation paper which studiously avoided addressing the issue of funding because what it has done is left us with a situation where we are sitting here arguing with the car manufacturers about the merits or otherwise of Option 4. They are trying to pass the cost on to our sector and we are saying we are cannot afford to take it, whereas if we had had some clear guidance and decisions from DTI and some funding for this and how it could be achieved, we could be getting on with the task.

  153. So the sort of investment you were talking about earlier, the £240,000, you do not feel that part of that investment could have been foreseen and put in place earlier, bearing in mind that you knew of the existence of the eventual implementation of such a Directive?
  (Mr Cottam) How could we put together a business plan to justify that investment?
  (Mr Mason) We do not know where the return is going to come from. As larger enterprises, yes we can afford a large investment. EMR returns about £600 million and the investment is substantial. But for the many, many smaller enterprises which will be doing depollution, there are not going to be 37 shredders in the country doing most of the depollution, most of the depollution will be done in dismantlers and local scrap yards, and for those independent operators—family companies most of them—how do they justify a potential quarter of a million pound spend?
  (Mr Cottam) They perhaps have to go to a bank manager to borrow that money and they need to be able to produce a robust business plan to demonstrate return on that investment.

  154. You do not think that there are any companies that have put in place that investment and are ready for the Directive now?
  (Mr Mason) Some have. One large plant has and two or three dismantlers have but they are really having a punt at it. They are having a look, and making an assessment of the cost.
  (Mr Cottam) To see what costs are involved.
  (Mr Mason) The vast majority will have to wait to see some clarity about where those returns are going to come from.

  155. Do any of your members currently have private contracts with vehicle manufacturers for the disposal of ELVs?
  (Mr Hulse) No.

Richard Burden

  156. Could I just ask a question about what you may have been doing anyway again because you said you could not really have foreseen the capital investment that would have come with this Directive. Hypothetically, if the Directive did not exist, would you not already be being required to look forwards towards depollutants, apart from anything else because of the trend in landfill? Have you not been preparing for that anyway, forgetting the Directive?
  (Mr Mason) Absolutely. If the Directive were not here and we were driven to depollute, we would be charging the last owner £30 for a vehicle.

  157. Have you not already been preparing?
  (Mr Mason) Because the drivers have not been there yet. The Landfill Directive is sitting behind the ELV Directive so we are waiting for the ELV to come through rather than the Landfill Directive or any other drivers.

  158. Can I ask one final question. You talked about fixing a negotiating position by manufacturers shifting costs onto you. From your point of view, if you were looking at this from the outside, what drivers would make you more efficient rather than allowing you to pass your costs on to someone else?
  (Mr Mason) Competitive tendering of contracts.
  (Mr Cottam) One has to be careful with this one because there is a fixation that if one reduces the number of players it makes those players more effective. In terms of end of life vehicles the costs that have to be considered are the logistical costs from the point of arising, the depollution costs, the compaction for transport to maximise the efficiency of that transport, and the ultimate shredding costs. It is not just a case of minimising the number of shredders, winding up the production of each shredder and therefore you have got a more effective system. Chances are you have not because you will ruin the logistics of that system by whole cars having to go to shredders for depollution rather than being compacted ready for transport. We have an effective network, a network which exists in the UK because it is commercially effective, it is competitive.

Mr Berry

  159. You rightly point out that the DTI consultation paper does not say anything about financing issues. Does that influence your view about the three options that are in the DTI paper? May I rephrase that: what are your views on the three options in the DTI consultation paper?
  (Mr Mason) We are always as a sector going to have trouble with option two which is the tradeable permit section. I personally am not against tradeable permits per se, I think they have some advantages, but in current UK law we do not recycle anything in our sector, it is the steelworks that recycle. So currently we would not be issuing the tradeable permits so we are never going to be overly keen on an option where the people we sell our materials to issue tradeable permits and not us. It becomes a non-starter for us in that respect. We would do all the work but we do not issue the tradeable permits with the value on it. I am not wholly sure how tradeable permits work. They work quite well in packaging in some respects because it is a very basic material and does not require depollution. A paper bag does not require to be depolluted and therefore it is quite easy to manage. At the end of the day depollution costs are more than recycling costs would be. I am not sure how you tie the depollution to a tradeable permit.

  160. And you have referred to the motor manufacturers' so-called option four. Could you briefly summarise your attitude to that?
  (Mr Mason) To be fair, we have not had an official version of option four. I do not think anybody has publicised a version. However, on option four I can fully understand the motor manufacturers wanting to avoid accruals because that is a big cost for them. I can understand the thrust for a commercial decision on positive to negative vehicles. I cannot disagree with that, although I am not sure how that works. If the dismantler in Cambridge said he did not want the vehicle, would the last owner have to drive all the way down to East London to take it to my plant? It is going to have to go to somebody else in Cambridge. It may even be the same dismantler with a positive and negative door. He may be the only person
  (Mr Cottam) You could have two Ford Cortinas and one has got a positive value because it has got a buyer for the engine and the other one has not. That is how basic it could get.
  (Mr Mason) I fully appreciate how the manufacturers have driven this concept forward to differentiate between positive and negative. I am not sure how it can be audited and measured and managed. We are wholly against a statutory obligation on those who recycle under producer responsibility legislation. The obligation that we must take in vehicles is fundamentally flawed, we believe. We would love the opportunity to contract with manufacturers where we would have an obligation under contract law, wonderful, but a statutory obligation we do not see how that fits into producer responsibility.

  Chairman: Thank you very much, gentlemen, for your information and your evidence. If there is anything else we will come back to you, but thank you very much, that is very helpful.





 
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