Technovation 20 (2000) 677690 www.elsevier.

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Economic issues in recycling end-of-life vehicles

Klaus Bellmann , Anshuman Khare
Received 18 November 1999; accepted 8 December 1999
*

Universitaet Mainz FB03, Jakob Welder Weg 9, Mainz 55128, Germany

Abstract This research paper evolves from problems related to the environment as the result of todays product-based society and especially the end-of-life management of cars. The purpose is to identify key elements in car-scrapping approaches with the potential to meet the following three goals: containing the environmental damage from end-of-life cars, improvement of current end-of-life car management from an environmental and resource utilization standpoint, and fostering manufacturing of scrap-adapted/recycled cars. An attempt is made to analyze how nancial resources could be organized for the ELV recycling system. A few suggestions have been made in order to foster attainment of the above-mentioned goals through an extended producer responsibility through requisite market oriented nancial support. In short, this paper takes a look at the economic feasibility and ingredients for success of a market for recyclables. It lays emphasis on some kind of transparency at the economic and technical levels. 2000 Elsevier Science Ltd. All rights reserved.
Keywords: Automobile industry; Recycling industry; End-of-life vehicles; Polluter pays principle; Economic costs

1. Introductory remarks The activity of collecting materials for recycling has always been practiced by man and recycling already plays an important role in waste management in many parts of Europe and in many industry sectors. Today, metals are among the most recycled materials and the industries that are operating in this area are known as the secondary metals industries. They operate under open market conditions and, as any other business, they aim to make prots. The paper and glass industries are following closely. The factors that determine the recyclability of single materials include the purity of the recovered products, the market for the recovered products, the monetary value of the material, the cost of collection and transport,
* Corresponding author. Present address: Centre for Innovative Management, Athabasca University, 301 Grandin Park Plaza, 22 Sir Winston Churchill Avenue, St Albert AB T8N 1B4, Canada. Tel.: +1780-459-1144; fax: +1-780-459-2093. E-mail address: khare@mail.uni-mainz.de (A. Khare).

the cost of sorting, the cost of transformation into reusable material and the cost of disposing of any residual material. In this context, the recycling activities known to be protable usually concern material uxes which are regular, homogenous, relatively clean, maintain their properties over time and provide savings in manufacturing processes. Among the different groups of products today, one group is especially distinguishable. It is given the name complex goods. Products of this group require special design in connection with their end-of-life management. Characteristic of complex goods is that the products are composed of several different components and material and have a relatively long life span and use. Some examples of complex goods are electrotechnical goods (domestic electronics, appliances, measuring instruments, etc.), machines and vehicles (cars, power units, aircraft, etc.), and technical building and construction products. The car as a central part of modern society is a product that differs from others, for example, in its documentation, potential scrap value, and physical size, and, thus, it affords possibilities for a controlled end-of-

0166-4972/00/$ - see front matter 2000 Elsevier Science Ltd. All rights reserved. PII: S 0 1 6 6 - 4 9 7 2 ( 0 0 ) 0 0 0 1 2 - 2

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Fig. 1.

Recycling of ELVs.

life management. Against this background the car has been viewed as a well-documented case and, therefore, a suitable main subject for a research paper.

2. Emerging recycling industries The emerging recycling industries are often linked to complex waste streams like electric and electronic wastes or end-of-life vehicles. These industries generally emerge because of consumer or regulatory pressure and usually do not benet, at least in the beginning, from favorable economics. Their challenges are often: The separation of the various raw materials present in the product; The handling of very different material streams; The lack of organized collection; The lack of critical mass; The lack of design for recycling, making it difcult to sort; The lack of specic recycling technologies; The poor marketability and poorer product characteristics. The rst, second and the fth issues listed here can be clubbed together as increasing complexity of products. This poses a major challenge today. Fig. 1 (based on VDA, 1994) provides an overview of the recycling system as conceptualized in Germany. The ferrous and non-ferrous metals recycling industries have been well established in the European Union. More recently, paper, glass and textile industries too are

developing fast. Though the principal recycling industries have some common features, they also display highly differentiated characteristics due to the differences in the technical and commercial processes involved with the recycled material. Apart from this diversity of materials and processes, the diversity of sources is no doubt a decisive element when determining the organization of a sector and its protability. There are two major groups (CEC, 1998): the industrial source (which generates fairly homogenous quantities of waste at a limited number of sites) and the post-use or post-consumption source (which is characterized by a large number of points of origin, a high degree of heterogeneous materials and often a high degree of contamination). Here, in this paper, we focus on the post-use source or ELV handling. 2.1. Partners and supporting industries in recycling of ELVs The industrial actors involved in the ELV problem are many and very heterogeneous. They are linked together by technical and economic variables which can be affected by policy and are at the center of industrial initiatives on ELV. The car industry is obviously at the center of ELV, especially if design and material adaptations induced by ELV are considered, and its role can be even more critical if some orientations of ELV policy will prevail. The European car industry typically has an oligopolistic

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structure with few producers operating on a large industrial scale and international or global geographical scope. During the 1980s and 1990s, the industry was subject to rapid technological, industrial and strategic transformations which had signicant reciprocal connections (Bianchi, 1989; Graves, 1994; Wells and Rawlinson, 1994). On the technological side, the integrated use of electronics, new materials as well as specic innovation in car design substantially improved car performance from the points of views of comfort, safety, energy consumption and pollution. From the industrial organization side, the extensive processes of vertical disintegration and lean production gave rise to the increasing importance of the component industry, which partly became independent from major car companies, and the spreading out of international production and multi-nationalization in various forms. From the strategic point of view, a complex combination of search for the global scale, specialization in segmented markets and competition through product differentiation emerged. The strategic role that the car industry can attach to ELV is not critical but can be signicant in many respects. The observed response of the car industry to ELV can be interpreted as defensive in order to comply with foreseeable environmental regulations through the most appropriate and less costly solutions. However, the increasing market signicance attributed to rendering the ELV issue as one component of more general environment-oriented strategies which include the attention to energy saving and emission reduction as drivers of future market developments. Responses to ELV, however, can assume importance also on other grounds related to the control of the car production system. For example, at the design and component industry level, the increasing independence of component producers and service suppliers has opened the door to an increasing role of material producers as well as engineering companies. The ongoing simplication of the relationships between the car industry and its suppliers can certainly benet from ELV developments. The dismantling industry has a pivotal role in ELV for reaching substantial increases of recycling rates given the car technologies. The market structure of dismantling industry in Europe is characterized by an great number of operators most of which are small and technically not well equipped as labor intensive operations prevail and with limited geographical scales of activity. In some countries, dismantling is still subject to uncertain or disregarded legislative frameworks as well as limited technical and environmental requirements. While in some countries, a signicant amount of illegal dismantling operations occurs. There is however, in each country, also a core of more efcient and well organized dismantlers some of them also integrated with shredders and the development of the ELV initiatives generally involving dismantler networks

operating under rigorous guidelines tends to enlarge this core. Given this dualistic structure, the strategic interest of the dismantling industry (the core) for ELV can be interpreted as the search for creating a new industry structure where only the best organized, efcient and regulationcomplying operators can survive and enlarge their market share although local-regional scale will remain. The start-up of this strategy, however, raises various technical and economic problems which are being faced through different solutions (in general economic incentives vs. cooperation agreements with the car industry). Another important partner of ELV is the shredding industry which performs the operations leading to metal recovery for recycling and the generation of Automobile Shredding Residue (ASR). In most European countries, the shredders are a few large companies exploiting plant economies of scale, and some of them are also integrated with metal recyclers and producers. The strategic signicance of ELV for shredders depends on: the possibility to increase and stabilise the ow of raw materials processed and thus nal products delivered for recycling; to reduce the economic and environment-related costs of ASR through its cleaning and reduced amount (or through additional economic outlets as ASR energy recovery). This strategy is therefore highly constrained by the developments occurring in other parts of the ELV chain. The other partners in ELV are the material recycling industries and the material producers. They can be considered together given the extensive integration between recycling and primary production in many sectors. It is however at the level of different sectors that different strategies attached to ELV can be envisaged. Primary and recycled plastics producers are generally part of big companies of the chemical industry which, similarly to the car industry, has been subject in the 1980s and 1990s to extensive restructuring under the effects of technological innovation, industrial reorganization and globalization. Given the importance of plastic recycling for solving the ELV waste problem the alternative being a decrease of plastics among car materials plastics producers and recyclers consider ELV as a threat to their increasing control of key segments of the car material market as well as to their increasing role in the components industry. The attempts to develop plastics recycling is not important per se but and it is, instead, instrumental for the possibility to preserve and increase the market for primary plastic materials. The ELV problem can open a new phase of the relationship between the car and the chemical industry.

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In general, the strategic role that producers/recyclers attach to ELV is twofold:

metal

needed and the issue of xing responsibility has to be viewed as a multiple goal problem.

an opportunity to contrast the ascent of plastics in car material market and the possibility to stabilize supply of raw materials (scrap) given the importance of ELV for secondary production and thus for an important segment of the metal industry. These strategic attitudes are obviously different between the different metal industries given the different importance of ELV for their operations, with steel and aluminium makers the most involved in the issue. Some impacts of ELV on non-ferrous industry will also come from the policy provisions on heavy metals being introduced by ELV regulation. Given the limited problems of material competition involved, the other material industries interested in ELV (glass, textile, rubber, others) seem to have a relatively passive attitude towards the problem. 2.2. Polluter pays principle In dealing with recycling and waste management, the concept of responsibility is essential. When there is no attributed responsibility, there is a clear tendency not to tackle the problem. The polluter pays principle is embedded in the European environmental policy and provides a legal basis for attributing the nancial responsibility for pollution. However, putting it into practice does not go without difculty since the pollution caused by the generation and disposal of waste cannot always be attributed to polluters. Also, in focus are the concepts such as shared responsibility and producer responsibility. Shared responsibility means that the responsibility for handling the waste product at the end of its life is shared between all or some of the various actors/users. Technically the producer is often the best placed to handle the waste stream; however, the user cannot be exempted completely and has to bear a part of the nancial clean up cost. Producer responsibility would mean the producer bearing the entire burden of waste management. The concept of extended producer responsibility goes even further as a strategy that attempts to internalize the environmental costs of products throughout their life cycles. This concept extends the responsibility of the producers from their already assumed (e.g., work safety, production waste management, etc.) to the post-consumer stages of the life of a product. The strategy provides an incentive for manufacturers to reduce the environmental impacts of their products throughout their life cycles and promotes the introduction of the new concept of design for recycling. However, compromises are

3. Handling end-of-life vehicles (ELVs) 3.1. Background During the 1980s and 1990s, the change in materials consumption of European cars induced a decreasing share of easily recyclable materials in end-of-life vehicles (ELV). Currently, it is estimated that about 75% of the car by weight (the metal fraction) is recovered or recycled, while the remaining share, the Automobile Shredding Residue (ASR), composed of plastics, glass, textiles, rubber and various hazardous substances, is disposed of by landlling. The amount of ASR is expected to increase and generate additional costs, at the same time the potential toxicity of ASR is putting the ELV on the environmental policy agenda. Various national policy initiatives on ELV took place during the 1990s and, in some countries, nation-wide schemes backed by legislation are the framework for the industrial agreements on ELV lead by car companies. The most signicant policy development on ELV, however, took place in 1997 with the Directive proposal by the European Commission (CEC, 1997). In this section we briey look at the landmark developments. In early the 1990s, although ASR was identied as a relatively unimportant waste stream (equivalent to only approximately 1% of the tonnage of municipal solid waste), the situation regarding its disposal remained unsatisfactory. ASR, consisting of a heterogeneous mix of materials, including plastics, bres, glass (and some toxic substances such as PCB) could be further recovered. Additionally ASR has a high caloric value and could be used as fuel. The main actors involved in the recycling of ELV were the scrap yards and retailers, the operators of shredding plants, the steel and non-ferrous metals industries and the local authorities for the disposal of ASR. Additionally, the entire car manufacturing industry was slowly getting interested and involved in improving the recyclability of cars (CEC, 1993). It had to be kept in mind that besides the car industry, various industrial actors (dismantlers, shredders, recyclers and material producers) were involved in the ELV issue. They all had different strategies and the interactions between policy making and industry was considered rather complex. After shredding the ELV into st-sized pieces, ferrous metals, non-ferrous metals and ASR were separated magnetically and by air classiers. Proceeds from sale of the metal fractions were in the order of 90 ECU per vehicle. The shredding costs were approximately 37 ECU per vehicle (Puchert and Conradt, 1994). This did

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not account for any transport or dismantling cost or ASR disposal costs. Techniques had been developed both for draining the various liquids from the ELV to avoid contamination and for dismantling valuable parts such as catalytic converters, batteries or large plastic parts before shredding in order to reduce the quantity and the hazardous nature of ASR. Because of this ASR, the increasing cost of landlls threatened the protability of the recyclers who lived essentially from the sale of ferrous metal fractions, some non-ferrous metals and of dismantled parts. However, other factors also affect the protability of the recyclers: the share of steel contained in ELV was expected to shrink due to the increasing use of plastics and composites to reduce the weight of new car models. These materials end up mostly as landlled ASR. the price of steel scrap, still the largest part of ELVs, depended on the price set by the world markets and on the imports of cheap steel from eastern Europe and Brazil. scrap yards and retailers contribute signicantly to the reuse of parts and to the ELV recovery infrastructure, but many of them operated in a kind of legislative vacuum. The development of legislation had to be cautious not to threaten their existence. In the second half of the 1990s, one of the rst initiatives to regulate the disposal of ELV was the German draft directive on ELV. This initiative, in favor, as in the Netherlands, of producer responsibility, proposed to oblige car producers to take ELV back. As a reaction, all European car producers started to work on new concepts to improve current ELV disposal practices. Their goal was to avoid legislation and solve the problem on the basis of voluntary agreement. The European Commission recognized ASR as one of the priority waste streams and formed a ELV project group composed of representatives from all concerned industries, associations and governments. In March 1994, this group presented a strategy for the treatment of ELV to Directorate General XI (CEC, 1993). The main objectives of this strategy were: Disposal (landll and incineration without energy recovery) of a maximum of 10% of the weight of the ELV for the car models marketed from the year 2002 onwards. Disposal of a maximum of 5% of the weight of the ELV on average per producer by the year 2015. Depollute the ELV before shredding so that the ASR meet landll standards as of 1995. The voluntary agreements on ELV recycling accepted by the automobile industry in France, Germany, Spain

and ve other EU countries followed these recommendations to a large extent. The nal European directive on ELV (CEC, 1997) is now being discussed within the European Commission that would oblige car manufacturers and importers to take back their used vehicles at no charge and make them responsible for achieving high levels of recycling and reuse. This strict application of the producer responsibility principle is ercely opposed by the automobile industry. The recycling targets currently proposed by the draft directives are: To reuse or recover at least 85% of the ELV weight by 2002 while recycling at least 80% of this. To reuse or recover at least 95% of the ELV weight by 2015 while recycling at least 90% of this. PVC, mercury, lead, cadmium and hexavalent chromium would be banned from cars starting in 2002 and the models sold from then on would have to be designed to achieve the above mentioned recycling rates. The EC Directive includes specic quantied targets for recycling and recovery, economic provisions and various provisions for direct regulation. International harmonization and the need to overcome the limitations of national and industrial agreements are the declared motivation of this Directive. 3.2. Impediments and prospects The main bottleneck for the future of ELV recycling is the cost of dismantling and disposal. Dismantling, because it requires a lot of manual labor and is the most expensive stage of the recycling process. Its cost, inuenced by the current trend towards reduction of the quantity and toxicity of ASR, can be reduced through: Design of cars for recycling.1 Many car manufacturers have now developed design for recycling guidelines and parts suppliers are pressed to include recyclability into their modules, and The development of advanced dismantling systems. Design for recycling is likely to be a strong area of progress for car recycling in the future. However, since todays cars are expected to have a life span of approximately 12-years, designing for recycling, now in its infancy, and related advances in the recycling of cars needs time to show results. One approach developed in industrialized countries over the last few years, is to largely automate or simplify

The program BRITE EURAM helps funding R&D in this area (e.g., project BRE2 CT92 0.269 No. 5671 on the reduction of the copper content of electric motors).

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dismantling and recycling to reduce cost (in developing countries, where labor is cheap, life-time extension and recycling work very well: the average life time of a car can be as high as 35 years compared to 12 years in Europe). However, dismantling the thousands of models of cars on the market by some type of exible automated industrial scale dismantling and recycling plants is a tall order. An alternative approach under development is to design a process that can be fed entire cars and churn out reusable materials, energy, and a small amount of non-reusable material Engineering, Separation and Recycling NV in Handzame, Belgium suggested such a process (IPTS, 1996). In view of the large variety of materials contained in cars, it is difcult to produce secondary materials of good quality with such a process. If the producer responsibility proposed directive on ELV is upheld, the automobile industry could move in the recycling and dismantling area and take full control over it. Additionally, the recycling targets, effectively limiting to 5% the amount of material that can be incinerated, may have the perverse effect of limiting the use of plastics in cars, leading in turn to an increase in the weight of cars and an increase in fuel consumption. On the other hand, the increasing use of light metals should not create too much of a problem for recycling. It requires new thinking. For example, the rst full aluminium chassis are already available on the market and will be available for recycling in due time (Economist, 1998). However, emerging modular car concepts are now opening new opportunities for integrated approaches to production, repair, upgrading and recycling. 3.3. Assessment of recyclability of an automobile Another critical issue is the assessment of recyclability. A uniform calculation is needed in conjunction with the German and European legislation. In order to assist in measuring recyclability, the materials used in the automobiles need to be categorized in one of the following ve categories of recycling: Recyclable infrastructure and technology clearly dened Part is completely recyclable (or reusable), infrastructure clearly dened and functioning (e.g., body sheet metal, engine blocks). Potentially recyclable, but no infrastructure is available Collection network not dened or organized (e.g., plastic interior trim). Potentially recyclable, but process or material development is required Technology has not been commercialized (e.g., glass-ber recycling). Energy recovery potential Known technology/capacity to produce energy with economic value.

No potential for recycling known Recyclability technology not known (e.g., leather trim).

3.4. Economic trade-offs the cost of being green The costs of recycling are a combination of the costs of the collection of recyclable materials, of the related pre-treatment operations (logistics) and of the costs of the recycling operation itself. The degree of efciency with which the activities of collecting, sorting and preparing (treatment) the recyclable waste are carried out has a signicant effect on the protability of the whole sector. The overall costs remain for the large part unknown. Economics form a major concern. The economics of recycling has to be viewed in relation to the cost of alternative waste management options such as incineration with energy recovery of landlling. The high relative price of the alternatives clearly helps recycling. The price of virgin raw materials, which can be seen from the perspective of recycling as perfect substitutes for the secondary raw materials, is another important factor for the economic attractiveness of recycling. This price is in general strongly dependent on global trade and on the world prices of raw materials, regardless of local regulations. In fact, many European car manufacturers have throttled down on their efforts to create green cars because they started to realize that there are economic trade-offs. Automobile take-back, dismantling, and recycling can have large associated costs. Some common cost factors could be: Buy back of car (Cost/car). Typically, this is dependent on condition and value of car type. In some cases, there may not be a buy back cost. Transportation costs (Cost/km). These costs may also depend on weight and amount of damage tolerated. Consider the difference in gas prices between Europe and the USA. Tip and storage fees (Cost/car). You typically have to pay dumping material on a landll. The property on which cars are stored also costs money. These costs are strongly inuenced by location of the recycling facility and local legislation. Labor cost (Cost/hour). This speaks for itself. However, labor costs also depend on the level of skills required. Equipment investment cost (Cost) and operating cost (Cost/car, Cost/hr). Inuenced by the need for special (expensive) equipment and the depreciation rate of the equipment. Time necessary to recover parts and materials (hr/car). This is strongly inuenced by the design of the vehicle.

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In order to obtain a prot, these costs have to be offset by revenues. Revenues in automobile recycling can be obtained from: High value (high demand), undamaged recovered reusable components. Additional processing (cleaning, inspection, upgrading, re-assembly, and redistribution) adds to costs. High value, uncontaminated scrap materials. Any contamination which reduces material properties depreciates the material value. Energy recovered and sold from incineration. This has the comparatively lowest revenue of all (steps listed above). In the article Modeling costs of plastics recycling, a technical cost model approach is given which highlights the factors involved in recycling automobiles (Dieffenbach et al., 1993). However, investigating or analyzing the micro-level cost aspects is not of immediate concern. It is, however, important to point out that revenues and costs share a relationship and cost has to be discussed in relation to the purpose for which it is being incurred. 3.5. Specic system components Derived from the system components identied by analyzing the different systems, the following components (some, marked with a star, are still under discussion) may be emphasized in light of their potential capacity to achieve the ELV recycling goals mentioned above (the countries in which the system elements occur, are shown in parentheses) (Ryden, 1995): Car-scrapping premium (Sweden) When the owner delivers his vehicle to an authorized car-scrapping rm, a car-scrapping premium is given. Handing-in duty (Sweden, EU, Germany) According to law, the owner is required to hand in his wornout car to an authorized or otherwise certied scrap rm. Authorization/Certication of car-scrapping companies (Sweden, EU, Germany, the Netherlands) Authorization/Certication means that environmental and professional demands are put upon the car-scrapping companies included in the system. Scrapping certicates (Sweden, EU, Germany, the Netherlands) A certicate that is given to the last car owner as proof that his car has been scrapped and that is required in order to de-register the car. Cost-free scrapping for the last car owner (Germany, the Netherlands)* The car owner may hand in his vehicle for scrapping without cost. The cost is covered by another party. Reclaim and recovery duty (Germany)* Producers

are responsible, without cost to the last car owner, for the disposal of their worn-out vehicles. The producer has a physical and economic responsibility for the nal handling of its cars. Liability to render accounts for individual producers (Germany) The producers must show how they have disposed of their worn-out cars and at the same time render an accounting of the quantities of material re-used or recovered, respectively. Recovery demands/goals (EU, Germany, the Netherlands) Demands or goals that are set up for the parties within the car-recovering sector. Differentiated scrapping fees (the Netherlands) Scrapping fees are paid for every newly registered vehicle. In order to stimulate car manufacturers to construct cars adapted to scrapping, the fees are differentiated according to the criteria required pertinent to scrapping qualities. Subsidized material recycling (the Netherlands) Certied car-scrappers may apply for allowances to retrieve car components that are difcult to recover.

4. A case for the recycling industry Recycling is not only an environmental priority but is also intrinsically protable in an increasing number of applications, thanks to energy savings and economies in materials and of other types which recycling permits compared with traditional processes. In general, the key factors (CEC, 1998) for functioning of the markets and a business framework, the following areas are very signicant. On the supply side, recycling is subject to pressure caused by the growing cost of collection and processing waste, while nding itself in direct competition with corresponding virgin materials. In these conditions, structural and technical weaknesses constitute a signicant brake on the competitiveness of the sector. Ultimately, the efciency of recycling could be improved by ensuring that product design takes into account the requirements of post-use/postconsumption collection, sorting and recycling. On the demand side, the competitiveness of recycling is limited by a lack of preference for recyclable and secondary materials on behalf of processing industries, due to their technical properties, limited applicability and/or negative image. Furthermore, recycling is likely to be hampered by the lack of pertinent industrial standards, or even by the tendency for some standards or specications to ignore or discriminate against recycled materials or products. Lack of transparency in recycling markets is a major impediment for the investment required in order to

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Fig. 2.

Cradle to reincarnation.

achieve improvements in industrial structure, improve procedures for treating recyclable waste and develop new applications for recycled products. The issue is further affected due to the imperfect transportation system in some parts of Europe which makes it difcult for the proper functioning of the market for recycled products/recyclables and entails high costs for companies.

4.2. Linear economy vs. cyclic economy The terms value added in exclusive relation to (production) activities up to the point of sale, value write-off (depreciation) after the point of sale, and waste at the end of the rst (and only) utilization period of goods, are notions of a linear industrial economy or river economy (Fig. 3based on Stahel and Reday, 1981), where the responsibility for goods stops at the factory gate, and where waste everything that leaves the factory gate is somebody elses problem (and cost). In contrast to such a linear structure, cycles, circles and loops (Fig. 4based on Stahel and Reday, 1981) have no beginning and no end. The producers stewardship for his goods is based on a value concept and never stops an economy in loops thus does not know value added or waste in the linear sense, similarly to natural systems such as the water cycle. When discussing the benets of the changes towards a more sustainable society, and ways to measure them, it is of importance to keep the fallacy of the current reasoning within the historic reference frame (non-sustainable national accounting system, prices of resources that do not exactly relate to the resource value, subsidies to foster unsustainable development) in mind. In order to achieve the goal of economic activity based on loops, a number of changes are necessary in the economic thinking and organization: The industrial structure for manufacturing and remanufacturing activities will have to be regionalized in order to be closer to the assets in the market; this means smaller (re-) manufacturing volumes and appropriate methods using more and higher skilled labour, the cost of which is nanced through the

4.1. Closing the loop questions When people talk about recycling, they often refer to post-use (post-consumer) recycling, that is, the recycling of a product (or material) after it has been used by a consumer. It is important to note that recycling is not the only aspect which makes a product sustainable or environmentally benign. Recycling can occur at different stages during a products life-cycle. Some organizations use the term pre-consumer recycling to characterize the recycling of waste that occurs during the manufacture of a product. The phrase Cradle to Reincarnation emphasizes the fact that products can be reincarnated into new (either higher or lower valued) products through recycling (Fig. 2). The phrase has evolved from the term Design from Cradle to Grave which emphasized the fact that one should think about what happens to a product/system once it has fullled its useful life. Another term to consider here is inter-consumer recycling which would account for recycling done while the vehicle remains in the hands of the consumer. The term de-manufacture is appearing more and more in the literature to characterize the process opposite to manufacturing involved in recycling materials and products after a product has been taken back by a company.

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Fig. 3.

The linear structure of industrial economy (River economy).

Fig. 4.

Closing the material loop (Lake economy).

strongly reduced purchases of materials, and a virtual elimination of disposal costs. Products will have to be designed as technical systems based on a strictly modular master plan, with ease of maintenance and ease of out-of-sequence disassembly by workers or robots. Fig. 4 shows the concept of closing the material loops. The loops of a self-replenishing, more sustainable service economy (or lake economy), and the junctions between these loops and a linear economy (Fig. 3). The service economy and the recycling economy are similar in that they both seek to reduce new material ows into an existing system. However, there are also fundamental differences. Promoting recycling strategies as a way of closing the materials loop (Loop 2 and Loop

3 in Figs. 4 and 5) has the short-term advantage that it preserves the existing economic structures (based on material throughput) and so is easy to implement. Loop 1 represents, to a great extent, inter-consumer recycling and deals mainly with component recycling. The item to be recycled still possesses the necessary value and requires very little or no enrichment. The issue of cascade recycling also appears here due to possible second and third hand use. Cascade recycling could take place in the same region or another one depending on factors like labor cost of the operation, for example. Loops 2 and 3 are both basically post-consumer recycling. Loop 2 representing material recycling where there is a need for change in physical dimensions of the item as it has in the process of use lost a reasonable amount of its value and requires enrichment. The last loop denotes

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Fig. 5.

Closing the material loop (Lake economy).

feedstock recycling where the item possesses very little to negligible value and requires high enrichment. Primarily changes in chemical properties is required. In case this turns out to be a non-economical activity, the option of energy recovery too can be considered (Fig. 5). Ironically, however, recycling becomes less economic as it becomes more widespread. The necessity to enrich in terms of value grows with each recycling cycle and results in a bigger loop where virgin materials hold a distinct advantage. Its very success brings about an increase in the amount of secondary resources, causing oversupply of materials. This depresses the prices of both virgin and recycled resources alike, to which producers tend to react by seeking export markets. Thus overall material ows remain unchanged or indeed are even increased. Future technical innovation in recycling will include improvements in the design for the recyclability of goods, and new recycling technologies, neither of which, unfortunately can overcome the basic price-squeeze phenomenon mentioned (Jackson, 1993). Increased recycling furthermore does not reduce the ows of material and energy through the economy; it does, however, slow down (and not reduce) resource depletion and volumes of waste. In conclusion, recycling is a necessary prerequisite for the service economy, but recycling alone is not sufcient to solve the problem of resource overuse. Recycled materials are more expensive than virgin materials, whereas remanufactured goods are cheaper than new goods: the smaller the loop (in Fig. 4), the higher the competitive advantage.

4.3. Strategic outlook In contrast to recycling, strategies for higher resource efciency through optimization of the utilization of goods, measured as resource input per unit of utilization over long periods of time, will cause substantial structural changes within the economy. The key to this is closing the product-life extension loop, which reduces the volume and ow of resources through the economy. This closure can be achieved through the adoption of take-back strategies (we can call it end-of-life recycling). Because of the inherent structural changes they are more difcult to implement than materials recycling which can be considered as a mid-life recycling of the vehicle. However, as these strategies are based on innovative corporate approaches, they are highly competitive and contribute to sustainable development. They will become even more competitive as this kind of economic activity develops up the learning curve (Stahel, 1994). Future technical innovations that can be expected in this eld are technologies enabling the use of re-manufactured and technologically up-graded components and goods, and commercial innovations to keep goods in use as long as possible (Stahel, 1984). 5. Issues involved in developing markets for recycled parts 5.1. Creating an efcient and effective automobile recycling system To create incentives regarding scrapping-adapted product development, a system is required that leads in this

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direction and, thus, favors car manufacturers and importers who invest successfully in this area. Such a system must also be designed in a way that eliminates the risk of being regarded as a commercial impediment. In principle, any kind of regulation that is not internationally harmonized, and which imposes costly obligations for the industry, has the potential of being looked upon as a commercial impediment. The use of economic policies/mechanisms, which, by the allocation of scrapping costs better highlight the environmental properties of single cars, should to a lesser degree risk being regarded as a commercial impediment than direct regulation of the construction of cars. 5.1.1. Future strategies for funding ELV recycling The demands that need to be placed on an economic model for handling ELVs are that the ow of money for scrapping be both stable and assured over a longterm period. In this context, the car manufacturers have a decisive role to play: In their capacity as primary players, the car manufacturers may inuence the activities of other players. The activities of the car manufacturers can be guided by dynamic policies in the area of scrapping-adapted car construction. By making the car manufacturers responsible for the end-of-life management of cars, a feedback mechanism regarding scrapping properties is created. The driving force for the car manufacturers in such a system is obtained primarily through the introduction of economic policies that favor those car manufacturers who assume responsibility. Thus, a car manufacturer who produces cars with little environmental impact when scrapped should be favored economically in the system. A problem that can arise in a scrapping system based on extended producer responsibility is that car manufacturers may disappear from the industry for different reasons, e.g. bankruptcy, etc., before they have fullled their obligations. In such cases, there is no responsible player when the worn-out cars are being processed. In order to avoid this situation, it is necessary that funds be reserved and invested in a suitable way when the cars are sold. In order to avoid any problems in connection with a possible differentiation of scrapping fees, all car manufacturers could be asked to pay a uniform fee, which is charged in connection with the sale of a new car. This minimizes the risk of the scrapping fee being regarded as a commercial impediment. There also arises the question of handling of imported cars. This leads to the signicance of harmonization of national policies with the European and of the European with the global. However, this too is a complicated issue

as it appears in the section ahead where we discuss the legal framework. 5.1.2. Funding of scrap fees The fees paid could be consolidated in a fund to ensure that there are means available when a car is to be scrapped. Fees paid for cars could be linked to a specic car for later use when scrapping. This can be managed through fund shares owned by the respective car manufacturers. The fees could be administered in such a way that interest is generated. This means that fees to be paid when a new car is purchased can be set at a lower scale than otherwise would have been the case. The proceeds from the fund could be divided among the different fund shares in relation to their size. Restrictions on the withdrawal of money by the car manufacturers from the fund share could be built into the system so that the fees paid into the fund remain in the fund share and could be used for car-scrapping, even if a manufacturer disappears from the market for one reason or another. In order to avoid fees being set at too low a level, a guarantee commitment could be built into the system so that means are transferred from the fund share of each manufacturer to a collective fund, covering any decits that might arise when a manufacturer disappears from the market and the scrapping fees deposited for the vehicle are not sufcient. Since no car manufacturer wants to pay in practice for the care taking of the cars of other manufacturers, this will in itself provide a deterrent against fees being set at too low a level. 5.1.3. Agreement with the dismantling and recovery industry Each car manufacturer could negotiate an agreement with authorized dismantling and recovery companies regarding the handling of worn-out ELVs. This arrangement must provide for the compliance with environmental requirements, as well as full the demand for cost efciency. When the time comes to scrap a car, the last owner hands in his car to an authorized receiving facility where the car is scrapped according to the methods specied by the car industry and the minimum requirements specied by the authorities. Possible net costs for the handling of the respective worn-out car are covered by nancial resources from the respective car producers fund share, including interest, thus rendering the end-oflife management free of charge for the last car owner. 5.1.4. Incentives for collection In order to introduce incentives for the collection of worn-out cars, a hand-in obligation could be employed. With hand-in obligation, it is meant that the last car owner must turn to an authorized car-scrapper in order to receive the scrapping certicate required for de-registration. To further increase the incentive for the last car

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owner, some form of reimbursement could be granted to cover any net costs that may arise in connection with the scrapping. 5.1.5. Incentives for scrap adaptation The opportunity for car manufacturers to make withdrawals from their fund shares could create incentives for the car industry to develop better cars, from a recovery and dismantling standpoint. This means that if the future scrapping costs for a certain car manufacturer are less than what was estimated, e.g. if the individual car manufacturer has improved the scrapping characteristics of his cars or developed better scrapping methods for his vehicles, the manufacturer should be able to receive a refund equalling the surplus in his own fund share. Likewise, if a decit should arise in a car manufacturers fund share, it is primarily the individual car manufacturer who is responsible for payment. To guarantee that every car manufacturer can full his obligations, even if his company has disappeared from the market, a collective payment responsibility for other car manufacturers could be required, as mentioned previously. Or as an alternative, a form of insolvency insurance could be made obligatory. Again, one set of standards may not be effective as the size of the car is another issue to consider. 5.1.6. The responsibility for the cars in existence The system suggested is based on the principle that for each newly manufactured vehicle a fee reserved for its future scrapping should be paid. The system will, thus, come gradually into force and reach full effect when todays existing cars have been scrapped. During the time period until then, other ways of nancing the scrapping must be employed. From a steering point of view, it is probably of less importance which player will be charged with the cost. The costs for the scrapping of todays existing cars could be covered by introducing fees or taxes. However, from a cost efciency point of view, it might be of greater importance where the fees are charged and who makes the decision about how the collected fees are to be used. This big system needs to be administered. This is where either the voluntary agreements could be effective or the presence of a coordinating body like the German VDA. 5.2. Problems in the market for recyclables The basic problem with recycling is that the products/cars in use were not designed to be recycled. Recycling has been ignored or, at best, treated as a second order issue by manufacturers. The result is attempting to recycle products that were designed for a once through use, such as the plastic in cars. A second problem is that the market for raw materials

is cyclic with wide price uctuations (Hendrickson et al., 1996). Raw material producers have very good or very bad years; they rarely have a normal year of business. The market for recyclables is even more cyclic with wider price swings. The extreme price swings mean that an investor has to time his activities well or else he takes a risk of going bankrupt. The swings require high capitalization or access to large loans. This is not popular among recyclers as the average recycler is small and under-capitalized. Rapid changes in technology also dampens the wish to build up stocks during the bottom part of the cycle. The technology changes mean that demand for a material could disappear leaving the owner of the stocks with worthless inventory. The timing of supply and demand poses another problem. The demand for recyclables rises in the early upswing of the cycle, climaxing before the height of the cycle is reached (Hendrickson et al., 1995). In contrast, the availability of recycled materials can lag demand by months or even years. Accumulating inventory is an obvious solution to the timing mis-match, but inventory accumulation is attractive only if there is reasonable assurance that technology is not going to remove the demand for this material. With the exception of metal and paper recycling industries, large scale commercial recycling is relatively new. Until the standardization of recyclables and associated market institutions is reached, these markets would continue to require individual assistance with all the associated transaction costs. The problem is further aggravated due to the absence of institutions that could facilitate marketing the recyclables. For example, if in the car industry, the items are sold with the name of the car maker, it could make a remarkable difference. The direct involvement of the car makers at one or the other stage is essential for the success of the recycling industry. Presently there is a lack of free and condent trading of recycable parts due to the absence of standardization and non availability of listed prices. Very few companies believe that recycled products and/or spare parts could be sold at a high price. Generally, recyclers do not believe that they can gain market share by selling products or spare parts with recycled content. This means companies buy recycled materials only to save money. The recycling decision appears to be strictly a business decision based on whether a company thinks it can decrease costs by recycling or not. Technology for extracting materials from natural ores is far advanced compared to recycling technology. These extraction processes deliver a product of high purity and known characteristics. These characteristics simplify the producers task. In contrast, recycled materials are generally less pure and of lower quality. There are some

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associated problems as well with recycled products like difculty in coloring. Large scale recycling requires an assured supply and expensive plant and equipment. Entrepreneurs would invest in these facilities only if they and their nanciers think that there is a stable market and that the risk is small relative to the prots. Also, there exists the issue of long gestation periods before the revenues start owing in and the setting up of the facilities. Industries (chemical, petroleum, paper, etc.) devote extensive resources to market their products. They support technical standards and research that show customers how to use their products for an expanding range of applications. No adequate infrastructure exists yet for recyclables. It takes years to convince the customers to adopt recycled products (for example, the various oils from cars that can be recycled and reused). The industries themselves have to support such recycled products. Without such support the recycled products will always lose out to virgin materials. Many purchasing standards or guidelines call for virgin materials (Lave et al., 1994), regarding recycled materials as inferior in quality. Even in the absence of such guidelines, purchasers decision is governed by such prejudices. Information is needed on the prices and qualities of recycled materials and on whether recycling these materials helps environmental quality and sustainability. To encourage recycling we need to shelve standards that specify virgin materials in favor of performance standards that specify performance levels of materials. Cheaper recycled products would be acceptable in the markets and the producers and recyclers need to think how and where the recycled materials perform best. However, for some recycling one has to think about local markets and not national markets (Hendrickson et al., 1996) as the transportation costs may be high, for example. 6. Concluding remarks: prospects for the recycables market Laws are being enacted in Europe requiring take back and recycling of packaging materials and a range of products. The automobile is one such product. These regulations have motivated major car makers to think of redesigning their products for Europe. The global impact of these laws is however limited due to lack of supporting laws in other countries outside Europe or in east European countries. Also, instead of designing and packaging for the world, these products are being designed and packaged for specic markets. The take back legislation in Europe mandates recycling. Available markets are now familiar with recyclables. In Germany, authorities are interested in subsidized funding systems funded by the consumer for recycling and collection of materials.

Laws are leading to changes in the product design. Since designers and companies lose track of products after they are sold, it is not surprising that they give little thought to design for recyclability. The health and wellbeing of the large industry that reuses components or recycles materials from products is not of concern to the manufacturer. Products have traditionally not been designed to be recycled. In a number of cases, like the automobile, changes in product design would do much to enhance product reuse or recycling. In theory, an efcient market would provide incentives for companies to think about their products at the end of their lives because the higher value would translate into a higher selling price. However, for durable goods (like computers, electric appliances, ELVs) that last for years and for consumers who are not likely to be bothered with getting the value of the discarded product, the manufacturer will not be able to charge much, if at all, more for products that will have great value at the end of their lives. The question that faces us is how can society get product designers and manufacturers to pay attention to design for reuse or recycling? The Germans have provided an answer the manufacturer must take back the product at the end of its useful life. When the manufacturer is responsible for reuse, recycling, or disposal of a discarded product, there will be a direct incentive to think about the end of a products life during disposal. However, a word of caution. Take back in the automobile industry cannot be interpreted literally, since the cost of getting the ELV to the manufacturer could be high. Rather, the manufacturer assumes responsibility for the ELV and must arrange for reuse, recycling or disposal. Also, getting back the ELV opens a range of possibilities for using more expensive materials that could be recovered. The European Commission and German legislation go a step further mandating that a proportion of the ELV may be recycled. What has to be kept in mind is that recycling is not necessarily good for the environment; especially when large amounts of energy are required to collect and process the materials to be recycled. If disposal and material prices reect the externalities associated with extracting, processing, and disposing of materials, more recycling will occur. Under these conditions, it is unclear what benet an additional recycling mandate would bring. This leads to the question of Life Cycle Assessment of the recycled constituent in relation to certain set guidelines like the ISO 14 000 series on environment. There is a chicken and egg situation in case of recycling: until there is an assured supply of recyclables and a market for goods made with recycled materials, no one wants to risk investments to use the recyclables. The rst issue is handled by the recycling laws which guarantees a large supply of recycled materials. The second prob-

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lem, nding a market for recycled materials is more difcult. Short of government or some institutions subsidizing manufacturers to use recycled materials, the demand for these materials is likely to grow slowly, as recyclers take small risks and then are rewarded by eventual sales of their recycled materials. Recycled materials are viewed as inferior to virgin materials and therefore, purchase of products made from recycled materials would be considered a sacrice for the environment. The educated and afuent, considered less sensitive to price, would perhaps be willing to pay a higher price, but low income consumers may not be willing to pay unless there is a price inducement. Labeling and branding of the ELV components by major players in the automobile industry could help this cause to a great extent. There is and will always be a close competition between recycled products and virgin materials. Incidentally, in this case too the competing factors are cost and quality.

Lave, L.B., McMichael, F.C., Hendrickson, C.T., 1994. Recycling decisions and green design. Environmental Science and Technology 28 (1), 19A24A. Puchert, W., Conradt, R., 1994. Altautorecycling. Economic Verlag. Report by IPTS for the Committee for Environment, Public Health and Consumer Protection of the European Parliament, 1996. Ryden, E., 1995. Car Scrap Throw It Away? Or Make It Pay? Dissertation for Licentiate in Engineering, The International Institute for Industrial Environmental Economics, Lund University, Sweden. Stahel, W.R., 1984. The product-life factor. In: Orr, S.G. (Ed.) An Inquiry into the Nature of Sustainable Societies: The Role of the Private Sector; HARC, The Woodlands, TX. Stahel, W.R., 1994. The utilization-focused service economy: resource efciency and product-life extension. In: Allenby, B.R., Richards, D.J. (Eds.), The Greening of Industrial Ecosystems. The National Academy of Engineering, National Academy Press, Washington DC. Stahel, W. and Reday, G., 1981. Jobs for Tomorrow, the potential for substituting manpower for energy. Report to the Commission of the European Communities, Brussels/Vantage Press, NY. The Economist, 1998. The Aluminium Vehicle, Nov 14. VDA, 1994. Verein der Automobilindustrie, Gemeinsames Konzept zum Kfz-Recycling, Frankfurt am Main. Wells, P., Rawlinson, M., 1994. The New European Automobile Industry. St. Martin Press, New York.
Klaus Bellmann is a Full Professor at Johannes Gutenberg Universitaet Mainz, Department of Law and Economics. His research and lectures are focused to the elds of business administration and production management, as well as environmental economics and research and development related to industry. After obtaining his degree in control engineering and technical informatics from Technische Hochschule Darmstadt, he completed his doctoral research in the subjects of economics and technology at the University Mannheim. As an Associate Professor at Mannheim, he pursued intensively post-doctoral research and completed extensive projects for the federal and regional government departments, industrial associations, and industrial corporations on the economics of energy supply, manufacturing, automobiles, and environment. He completed the tenure at Mannheim with his Habilitation. He has published eight books and over fty articles and papers. Anshuman Khare works as a Research Scientist for the University Grants Commission, India and is placed at the Motilal Nehru Institute of Research and Business Administration, University of Allahabad, India. He teaches Quantitative Analysis and Business Policy. His research interests are Japanese Business philosophy and responsible manufacturing. He has done his post-doctoral research at Ryukoku University, Kyoto, Japan on a Japanese Government Scholarship (199597). He has also delivered lectures at the Kyoto Institute of Technology, Ryukoku University, Kyoto, and Kansai Gaidai, Osaka, Japan. Presently he is a Research Fellow of the Alexander von Humboldt Stiftung at the Johannes Gutenberg Universitat Mainz, Mainz, Germany and works on environment related techno-managerial issues in automobile manufacturing. He has published three books and over a hundred research papers and articles in India and abroad.

Acknowledgements This research work is supported by the Alexander von Humboldt Foundation in Germany and is being carried out at Universitat Mainz with University Professor Dr. Klaus Bellmann at the Lehrstuhl fhr ABWL und Produktionswirtschaft.

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Bianchi, P., 1989. Industrial Reorganization and Structural Change in the Automobile Industry. CLUEB, Bologna. Commission of the European Communities, 1993. ELV Information Document (5th draft). Commission of European Communities, 1997. Proposal for a Council directive on End of Life Vehicles, COM(97) 358 nal 97/0194 (SYN). Commission of European Communities, 1998. The competitiveness of the recycling industries, COM(98) 463 nal. Dieffenbach, J.R., Mascarin, A.E., Fisher, M.M., 1993. Modeling costs of plastics recycling. Automotive Engineering. Graves, A., 1994. Innovation in a Globalizing Industry: The Case of Automobiles. In: Dodgson, M., Rothwell, R. (Eds.), The Handbook of Industrial Innovation. Edward Elgar, Aldershot. Hendrickson, C.T., Lave, L.B., McMichael, F.C., 1995. Time to dump recycling? Issues in Science and Technology (Spring) pp. 7984. Hendrickson, C.T., Hovarth, A., Lave, L.B., McMichael, F.C., 1996. New markets for old materials, TR News (MayJune) pp. 3235. Jackson, T. (Ed.), 1993. Clean Production Strategies, Developing Preventive Environmental Management in the Industrial Economy Stockholm Environment Institute, Boca Raton, Ann Arbor. Lewis Publishers, London.