Select Committee on Trade and Industry Second Special Report


SECOND SPECIAL REPORT


The Trade and Industry Committee has agreed to the following Special Report:

END OF LIFE VEHICLES DIRECTIVE:

GOVERNMENT OBSERVATIONS ON THE FIRST REPORT FROM

THE TRADE AND INDUSTRY COMMITTEE

The Committee published its First Report[1][1] of Session 2001-02 on 6 December 2001. The response from the Government, in the form of a memorandum from the Department of Trade and Industry dated 6 February 2002, is published as an Appendix to this Report.

APPENDIX

Introduction

1. The Government welcomes the Committee's Report on this important Directive, which is the first formal EU measure to introduce direct "producer responsibility" for end-of-life products. The Committee's Report is especially timely, appearing as it did shortly after the Department of Trade and Industry had consulted publicly on options for implementing the Directive. 116 responses to the consultation were received by the Department and these, along with the conclusions and recommendations in the Committee's Report, are helping the Government to decide the most appropriate means of introducing the Directive into national law. DTI has formed a consultation group, whose core members comprise the main industry representative organisations likely to be most affected by implementation of the Directive, to help develop implementation proposals.

2. The Government has the following comments on the Committee's conclusions and recommendations:

Abandoned vehicles

RECOMMENDATION

The Government must aim, through a combination of the outcome of the consultation paper and an effective system for disposing of ELVs, to reduce, or even eliminate, the problem of abandoned cars (paragraph 11).

GOVERNMENT RESPONSE

3. The introduction of the new storage, depollution and dismantling standards required by the Directive will result in an increase in the disposal costs of many ELVs. Given the recent growth in the number of abandoned vehicles, caused primarily by a significant fall in the price obtainable for scrap metal, the Committee is right to identify the risk of more vehicles being abandoned once the new standards are introduced. The Government is examining a variety of means to enable local authorities to deal with abandoned vehicles more quickly and cost-effectively and to make it more difficult for vehicles to be abandoned with impunity. A consultation paper issued by DEFRA and DTLR in October 2001 sought views on measures which would reduce the periods after which it is possible for local authorities to remove abandoned vehicles, and the period after which removed unlicensed vehicles can be destroyed, would empower local authorities to act as contractors for the clamping and removal of unlicensed vehicles using powers under the Vehicle Excise and Registration Act 1994, and would improve access by local authorities to the DVLA vehicle record. The consultation also indicated that two further measures - a system of continuous registration, and a more rigorous regime for registering transfer of vehicles - were under consideration for the longer term.

4. The Government is very conscious of the impact on local communities that abandoned vehicles can have, and the cost implications for local authorities.


Processing of ELVs now

RECOMMENDATION

We would hope that the implementation of the ELV Directive will not only reduce considerably the number of illegal dismantlers, but also that a more accurate picture of the market will emerge. We recommend that the DTI continue to monitor the competitiveness of the shredding industry after the Directive has been implemented to ensure that the market is operating competitively (paragraphs 13 and 14).

GOVERNMENT RESPONSE

5. The Government sees the Directive as providing an opportunity to remove from the field those illegal, unlicensed or non-exempted operators who have been able to benefit over the years from undercutting the higher costs associated with operating legitimate dismantling and scrapping businesses. The illegality of these operations has made difficult a quantification of the numbers of ELVs they handle. The Environment Agency estimates that around 2,500 legitimate businesses currently handle ELVs, and it will continue to monitor this sector to ensure compliance with the higher treatment requirements the Directive will introduce. The Government accepts the importance of maintaining an adequate infrastructure, to ensure that ELVs can continue to be dealt with satisfactorily in the UK.

6. The UK ELV shredding sector is subject to the current competition regime, which the Government has significantly improved. The Enterprise Bill will further strengthen it, by introducing reforms to ensure that decisions are taken by strong, pro-active and independent competition authorities equipped with powers and duties to deter and root out all forms of anti-competitive behaviour.


Existing regulations

RECOMMENDATION

Whatever system is put in place to deal with ELVs, it is imperative that the Environment Agency has sufficient resources to be able to monitor treatment facilities and ensure compliance with the terms of the Directive (paragraph 20).

GOVERNMENT RESPONSE

7. The Government agrees that proper monitoring and enforcement of the regulations which will implement the relevant provisions in the Directive will be important, not just to establish and maintain the improved environmental standards required, but also to ensure that the viability of compliant companies is not undermined by others not meeting the new standards.

8. The Government is working with the Agency to put in place an effective and proportionate set of regulatory controls and is confident that the necessary resources will be in place.

Processing ELVs under the Directive

RECOMMENDATION

It seems likely that a number of existing dismantlers will cease to operate once the ELV Directive is implemented. We are concerned that there may be a shortfall in the number of Authorised Treatment Facilities ready to deal with ELVs in April 2002. We are not confident that the Government has made an accurate assessment of the condition of the vehicle treatment industry after the Directive is implemented (paragraphs 26, 27 and 28).

Although we understand that the DTI's consultation paper would not wish to pre-empt discussion on such a key issue [as the costs of take-back and treatment] it is unfortunate that with only a few months to go before the Directive must be implemented, the DTI has not set out clearly how these costs will be met (paragraph 34).

GOVERNMENT RESPONSE

9. As noted above, the Government expects to see the closure of unlicensed dismantlers, scrapyards, and others currently handling ELVs and the process of identifying these is already underway. Some businesses currently operating legally may not wish to seek to be permitted under the coming regulations, because of the extra costs of bringing their sites up to the new standards. There must be a degree of uncertainty here, until the regulations are up and running, and the new market starts to operate, but our discussions with the relevant trade bodies suggest that there will continue to be adequate infrastructure to process ELVs arising in the UK.

10. Public consultation on draft regulations relating to the permitting of Authorised Treatment Facilities is expected to begin in March this year. Annex I of the Directive sets out the minimum technical requirements that these facilities will need to meet. The interpretation of these is being considered jointly by the industry and the Environment Agency, who are drawing up operating guidance.

11. The Government took the view that it was better to consult on the mechanics of implementation, before deciding where the costs should fall. It recognises the importance of reaching a decision soon, but must continue to weigh all considerations very carefully, not least the approaches being taken in other member States.


Certificates of Destruction

RECOMMENDATION

It is not yet clear exactly how the system of issuing Certificates of Destruction will work. The DTI and DVLA must issue clear guidance on each step in the process and where the ultimate responsibility lies. We think there is some merit in a two stage process. The owner would receive a document to prove that he/she no longer had responsibility for the vehicle, but the vehicle would not be finally "signed off" until it was actually destroyed. We trust that any problems the DVLA are having with handling large numbers of CoDs are dealt with well in advance of the system going live (paragraph 40).

Given that the electronic system for issuing CoDs will not be rolled out when the Directive comes into force in April 2002, we are concerned there will be some confusion when the initial CoDs are issued. We recommend that the DTI set out clearly how the initial issuing of CoDs will work. We trust that there will be a smooth and speedy transition to the fully automated system (paragraph 41).

GOVERNMENT RESPONSE

12. Article 5 of the Directive requires the Commission to draw up the minimum requirements for the Certificate of Destruction, in order to ensure that this document is mutually recognised across all member States. A draft of those minimum requirements was approved on 30 January 2002 under the Committee procedure provided for in the Directive. This will now be adopted as a formal Decision by the Commission, and is expected to be published shortly.

13. The Government accepts the Trade and Industry Committee's view that clear guidance must be issued on the operation of the Certificate of Destruction, when the system is introduced. Systems which would have the effect of facilitating a "two-stage" notification are already in place, should that approach be adopted. The DVLA, on receipt of the electronic Certificate of Destruction from an Authorised Treatment Facility, and having confirmed the authenticity of the transaction, will deregister the vehicle.

14. The DVLA has for some time been trialling electronic Notifications of Destruction with a small number of dismantlers, in a pilot scheme. These trials are considered to have been successful by both the DVLA and the industry, and efforts are being made by both sides, and the DTI, to encourage greater participation. The more businesses which become familiar quickly with electronic exchanges with the DVLA, the smoother the transition will be to the system of Certificate of Destruction. DVLA are working with those currently involved in the pilot scheme to see how system capacity problems can best be resolved.


'Option 4'

RECOMMENDATION

It appears to us that the obligation 'Option 4' places on shredders to take all vehicles may not work in practice; that under'Option 4' there would be strong incentives on owners of old cars simply to abandon them. We are concerned that there does not appear to have been dialogue between the motor manufacturers and the recycling industry about Option 4 or about the implications of the Directive. We strongly suggest that dialogue takes place to determine, more accurately, the pros and cons of Option 4 and other possibilities (paragraph 46).

GOVERNMENT RESPONSE

15. Dialogue between vehicle manufacturers and shredders on 'Option 4' is now taking place, both bilaterally and, less directly, at a meeting of the DTI's consultation group, consisting of the main industry representative organisations likely to be most affected by implementation of the Directive. One meeting of the group considered the question of mechanisms for distinguishing between positive and negative end-of-life vehicles, different approaches to which were postulated in 'Option 4', and in the shredders' 'Option 1a'. The Government's assessment of 'Option 4' as a possible alternative to the options set down in the DTI consultation paper has identified as a strength the strong free market approach it implies but, as a weakness, the risk of more vehicles being abandoned, as the dismantler and scrapyard network contracts in consequence of having to absorb costs relating to achieving compliance with the new treatment standards without being able to recover them from their usual main source of revenue, the shredder. The Government is examining the best features of several options to find the most effective means of implementation.

Financing

RECOMMENDATION

Given the short timescale, we were somewhat alarmed to discover that the DTI's consultation paper did not address the issue of funding. The question of who pays, and how much, is at the heart of any system of implementation of the Directive. We recommend that the DTI address the issue of funding, and make public their views, as a matter of some urgency (paragraphs 47 and 48).

We understand that the responsibility for all or a significant part of take-back costs lies with the manufacturer. Manufacturers will have to make specific provisions to cover the cost of disposal of ELVs. To finance this, it is likely that original car prices will rise. We believe that the cost to producers of take-back would ultimately be passed on to original purchasers (paragraph 50).

GOVERNMENT RESPONSE

16. As noted above, the Government took the view that it was better to consult on the mechanics of implementation, before deciding where the costs should fall. This issue continues to be discussed within Government. Its importance, in terms of fairness, impact on business competitiveness and costs, the public purse, and the proper and timely achievement of the Directive's environmental objectives, is not under-estimated. The Government expects to reach conclusions in this respect in the near future.

Date of implementation

RECOMMENDATION

Given the DTI's commitment to a "level playing field" with other member States it would seem perverse to insist on a much more stringent timescale for the UK than for other member States (paragraph 52)

GOVERNMENT RESPONSE

17. The Government's policy is to implement the Directive with a light regulatory touch, and to seek to maintain a broadly level playing field with other member States. The Government intends to take advantage of the flexibility which the Directive allows, wherever such flexibility benefits the UK.

Account of the historic car parc

RECOMMENDATION

We appreciate that the issue of how to deal with the historic car parc is a thorny one. We do not presume to recommend any particular option for apportioning costs: whether current or historic market share is chosen, someone will suffer. However, we note that, if the date of implementation for the historic car parc is left at 2007, the'historic' car parc will largely reflect the market share in 1995-1997, given that the average age of a natural ELV is 10 to 12 years. If the date is kept at 2007, we would not expect any particular manufacturer to be excessively penalised. Moreover, given that the free take-back of all cars does not have to come into force until 2007, provision can be made in the interim to cushion the effect of the historic car parc. The solvency of companies could be protected by the adoption of a mechanism which avoids companies having to book substantial reserves rather than contingent liabilities (paragraph 55).

GOVERNMENT RESPONSE

18. The Government take note of the Committee's view of this difficult issue, on which independent accounting advice has been obtained; more is being commissioned, with the objective of identifying the most suitable solution to this problem.

Positive and negative value ELVs

RECOMMENDATION

We are not convinced that leaving the market to decide whether a vehicle has a positive or negative value is in the best interests of the last owner of the vehicle. We recommend that the DTI publish guidelines and information for consumers as to what they may reasonably expect to receive for an ELV (paragraph 57).

The ELV Directive, by imposing legal obligations on the parties, distorts the operation of the current market. That being so, we do not think it would distort the market further to have an agent of last resort (other than the courts) to determine disputes between car producers and ELV processors. We recommend that the DTI consider whether any existing body could be given this task or whether the industry should be required to set up a disputes mechanism itself (paragraph 59).

GOVERNMENT RESPONSE

19. The Government would prefer to approach this from its customary perspective that, in most circumstances, it is better for a strongly competitive marketplace to decide upon the value of a good or service. As the Committee notes, however, the Directive effectively undermines this approach to a degree by first stipulating that, from 1 January 2007 at the latest, the last owner of a vehicle is entitled to "free take back" for negative or no-value complete vehicles, and then determines that the producer is liable to meet all or a significant part of those costs.

20. 'Option 4', from the motor manufacturers, and 'Option 1a', from the shredders, propose very different approaches. As noted in paragraph 15 above, DTI, through the medium of its consultation group, has sought to establish whether either approach, with or without modification, might contain sufficient common ground to provide the basis for a mechanism for distinguishing between positive and negative value ELVs.

21. The consultation group can envisage indicative guidance to the last owner on approximate values of vehicles based on marque, model, age and condition - similar to commercial guides for second-hand vehicle values - but the motor manufacturers do not see this as a sufficiently competitive background against which they would be asked to pick up costs. DTI is considering how such guidance might be constructed, given the regional variations in values, the differing "spare part" attractiveness of certain models, and the unpredictability of scrap metal prices. The need for the establishment of an arbiter will become clearer after the Government has decided upon funding arrangements.


Complete vehicles

RECOMMENDATION

It is imperative that the last owners of vehicles are aware both of their obligations and what they may expect on handing in their car. We recommend that the DTI set out clear and unambiguous guidelines for what determines a 'complete' car (paragraph 60).

GOVERNMENT RESPONSE

22. Article 5.4 of the Directive goes some way to defining a complete vehicle by requiring that its essential components must be present, and naming "in particular the engine and the coachwork". A definition will be set down in the implementing regulations and guidance will be provided.


Other Member States

RECOMMENDATION

The DTI should continue to monitor the implementation of the Directive in other member States, and ensure, so far as possible given the different situations in other member States, that the UK car and scrap industries are not disadvantaged by the way the Directive is transposed here (paragraph 62).

GOVERNMENT RESPONSE

23. The DTI will continue to monitor implementation in other member States, to seek to ensure that the UK's approach does not comparatively disadvantage UK business.


Conclusions

RECOMMENDATION

We urge the Government to clear up the uncertainty over the funding of the implementation of the Directive as soon as possible (paragraph 64).

The DTI should monitor the situation closely to ensure that the Directive is implemented in an efficient and speedy manner to minimise confusion and disruption (paragraph 65).

We recommend that the DTI run an information campaign early in the New Year to ensure all players, including last owners, are clear where their responsibilities lie (paragraph 66).

GOVERNMENT RESPONSE

24. As noted above, the Government will decide upon funding of the implementation of the Directive in the near future. Transposition and implementation will follow as quickly as possible thereafter. Dissemination of information regarding the operation of the implementing regulations will form a fundamentally important part of that programme.


1   1   First Report from the Trade and Industry Committee, Session 2001-02, End of Life Vehicles Directive (HC 299). Back

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