Financial Instruments

Polluter Pays Principle

The ‘polluter pays’ principle is the commonly accepted practice that those who produce pollution should bear the costs of managing it and take into account external effects on human health and the environment. The polluter pays principle is an economic principle through which external costs can be internalised and is a way of allocating costs for pollution. This principle has been one of the guiding environmental principles in European Union law since 1975. The principle does not answer the question of who shall be seen as the polluter, when the pollution has been deemed to have occurred or which costs shall be covered. The principle allocates liability for costs for waste disposal or waste management to the final holder of the waste, or the previous holders of the waste. The polluter pays principle encompasses ex ante, as well as ex post applications. The EU Waste Framework Directive provides for liability to be channelled to the producer of the product or the distributors or holders of this product.

The most common ex ante application is producer pays principle whereby the responsibility for the cost of waste management is carried by those who produce the product. Whilst the ex post application is the user pays principle. In Malta, this principle is further divided into two: commercial, industrial and institutional users, who are directly responsible to pay for the waste they generate, and the households whose responsibility is carried by Local Councils and financed for through local taxes.

Ex Ante Application – Producer Pay Principle

The revised Waste Framework Directive contains a number of new rules on polluter pays principle applications. The emphasis being on transparency and full recovery of associated costs. In Malta’s case where pay-as-you-throw schemes are not yet directly applied to households, it would be wise to take the opportunity to revisit them. The current extended producer responsibility (EPR) schemes, were part of a strategy to support better design for managing post-consumer waste streams. These schemes have fallen short of this objective. The recycling targets show little, if any, signs of improvements and there is considerable direct and indirect public funding to the schemes for them to survive.

Ex Post Application – User Pay Principle: Household users and Commercial users

Local Councils are responsible to fund the user pay principle for households, who pay for the collection and disposal of mixed waste. The collection of household dry recyclables is organised and paid for by packaging waste schemes and in some instances supplemented by Local Councils, while household organic bag collection is organised by Local Councils and paid through WasteServ.

On the other hand Regulations oblige the hospitality industry to pay for their collection systems, these Regulations are not robust enough nor exhaustive to cover for all the commercial activities beyond the hospitality industry. Furthermore, the regulations are not clearly obligatory, do not impose separation at source making enforcement weak. Public institutions on the other hand have no regulatory obligations whatsoever. Regulations need to be improved and provisions made so that Local Councils or the collection operator can charge for collection of commercial waste.

Thus, before any consideration for a pay-as-you-throw mechanism for households, a number of measures that need to be taken to improve the system so that the collection infrastructure is made more customer centric and commercial and institutional waste is properly managed.

Extended Producer Responsibility

The concept of Extended Producer Responsibility is one that deserves further consideration and practical application in various areas and sectors, and one which has recently also become very popular within the European Union. The Agency will focus its review of EPRs in the context of the Waste Framework Directive’s 2018/851 definition: extended producer responsibility scheme, means a set of measures taken by Member States to ensure that producers of products bear financial responsibility or financial and organisational responsibility for the management of the waste stage of a product’s life cycle.

EPR models should form an intrinsic element for the transition to a circular economy. Using a multi-actor approach, waste management solutions can be developed focusing on real problems and creating leverage for new circular economy activities. The creation of circular economy business models rests on two pillars. On one hand it is an explorative activity to identify individual products or waste streams or groups of similar products or waste streams, carry out research on sustainable technical solutions and assess market conditions whilst on the other hand, it is the collective action of bringing together the stakeholders from various horizons and motivations with complementary types of knowledge – technical, regulatory, practical and others.

The adaptation of this concept within the local context will revolve along the lines where the producers placing products on the market have the necessary financial and organisational means to meet their extended producer responsibility obligation across the whole territory, product and material coverage. This shall be done without limiting those areas where the collection and management of waste are the most profitable, whilst; ensuring equal treatment of producers of products regardless of their origin or size, without placing a disproportionate regulatory burden on producers, including small and medium-sized enterprises, of small quantities of products; and performing recovery and maximising the preparation for recycling operations.

Amongst the most pressing tasks that the Agency will undertake will be the finalisation of the regulations and negotiations of the beverage container refund system, which will be operated through the EPR model. The scope is to review the regulations such that they will enable the operators in the sector to carry out their responsibilities under the principles of the extended producer responsibility. The beverage container refund scheme is intended to curtail the plastic littering resulting from single use beverages containers and in the process set up a source segregated system that will lead to a high recovery and recycling of single use beverage containers. The system envisages the establishment of a Beverage Container Refund System where it will introduce a fiscal incentive by means of a deposit payable on every container covered by the scheme which would be fully refunded on return of the container at designated places. This will be operational by the end of 2019.

Plastic bottles and containers are not the only areas where the models of EPR are viable and economically feasible, and it is the Agency’s aim to continue exploring new areas where this concept may be applied locally. The Regulations developed in relation to the beverages container refund system will serve as the basis for future initiatives and will allow the Agency to gather the knowledge and expertise to further improve where necessary. Resources worth considering, and which already are being included in such EPR models within the EU include; the tyres sector, mattresses, end-of-life vehicles and batteries, white goods and other consumer products (including furniture), and textiles. Another area worth exploring is the area of WEEE.

The current schemes are not functioning to their full potential, even though local councils pay for bulky waste collection and Wastserv pays for storage and handling costs. Thus, the development of a plan could be considered together with the respective industry with the aim of having both the recyclers and the current members of the schemes participating. The scope will be to try to identify whether the local recyclers suffice in handling such waste effectively and without excessive costs and having to rely constantly on WasteServ. Once again, this plan should incorporate the entire process; from collection stage to recycling stage.

The Agency further intends to explore the transition into recycling by identifying specific waste streams where reprocessing will lead to new products for which there is existing market demand supplemented through Green Procurement initiatives so that new markets are created. Such an approach is intended to attract private participation and will lead to a step change in recycling industry. For a successful recycling industry, where some technologies are sensitive to economies of scale, will need to consider consolidation of waste streams to address the supply side. On the other hand, the industry may need to explore tapping into export market for their end-product to overcome demand constraints.

Green Financial Instruments

Transitioning to a circular economy will lead to growth in the green economy bringing with it the creation of more jobs. During the transition to a circular economy the Agency should also consider an approach where this process could be accelerated. Green Growth can be stimulated through sustainable innovation that provides positive economic impact and avoids harm to biodiversity, climate and raw materials. However, innovation can encounter barriers which could either delay the process or render it financially unsustainable.

In such circumstances where market failures occur, a feasible initiative may struggle to flourish because of limitations inherent within the market that do not allow the forces of demand and supply to interact as desired. This is no more true than in the case of innovative products and processes, where entering the market may be constrained due to various factors. However, once barriers are surmounted these initiatives may be hugely successful. Government could provide help to overcome such barriers particularly where innovative initiatives are in line with the indicated themes and will result in a faster transition to the circular model.

The Agency will study the possibility of developing a programme that will create the opportunity for initiatives to benefit from adequate financial assistance. The consideration of which initiatives will be able to qualify for assistance will be determined on the following principles:

  • The initiative should contain a clear quantitative and qualitative target within the central themes, and has the potential to bring about sustainable economic growth (green growth);
  • It has the potential to be financially profitable in the near future and inspires other businesses to adopt similar approaches;
  • The initiative should be facing obstacles impeding its implementation and government’s intervention or assistance can help remove such hurdles;
  • It can produce immediate results, preferably within a timeframe of three years, and should contribute to an increase in local added value;
  • The initiative should be technically viable and is undertaken by the proposer who will play an active role.

Support may be given through a mutual pledge under law between the proposer and Government. In order for such a green pledge to be put into practice there needs to be an inter-ministerial committee established between the Ministry for the Environment, Sustainable Development and Climate Change, the Ministry for Finance and the Ministry for the Economy, Investment and Small Business, to design and determine the specific conditions for eligibility and the type of support to be provided.