The Role of Competition Law in a Circular Economy

Competition

Provinces across Canada have introduced reforms to their product stewardship policies to address the inefficiencies of government-run recycling programs. To incentivize innovation and the re-use of materials in recycling, the responsibility to manage products at the end of their life cycle is increasingly becoming that of producers rather than of government.

Responsibility is heightened in an individual producer responsibility (IPR) framework such as the one provided by the Resource Recovery and Circular Economy Act (the “RRCEA”) and its regulations. By placing more responsibility on producers to manage the end-of-life costs of their products, the recycling system stands to benefit from designs that improve the efficient use and recyclability of resources.

After the wind-up of the Waste Electrical and Electronic Equipment and Used Tires programs, the province of Ontario continues to extend the IPR framework with plans to transition the Municipal Hazardous or Special Waste and Blue Box programs. Given these regulatory shifts, questions regarding IPR’s ability to enhance competition and innovation are growing. Even within a statutory landscape that preserves and promotes competition, there are concerns that anti-competitive behaviour can only be addressed with adequate enforcement.

 

Competition in a Circular Economy

In a circular economy, competition greatly aids the circularity of materials. In an ideally competitive waste management landscape, new service providers and technologies are introduced to facilitate the most efficient and effective reuse of resources.  Tire recycling in Ontario, for example, demonstrates how new technologies can extract more value from resources. A new tire processing technology allows for the use of a tire-derived polymer to retread old commercial truck tires.

As producers have become responsible for waste management costs and, in some provinces, operations, they have formed collectives known as Producer Responsibility Organisations (PROs). The proposed Blue Box transition in Ontario is also expected to shift to these PROs the duty of operating Ontario’s Blue Box programs. Having competition among multiple PROs arguably improves cost efficiency and avoids monopolistic situations. Nonetheless, despite the potential benefits of competition, experience shows that a single PRO tends to dominate the market even where legislation allows more than one to exist.

Competition is further hampered in some Canadian jurisdictions where PROs can rely on the regulated conduct defence to shelter anti-competitive conduct. Anti-competitive conduct may be immunized by validly enacted legislation or the government approval of a PRO’s program plan. Ontario has tried to protect its new IPR system from anti-competitive practices through statutory language in the RRCEA that indicates that the Act does not require nor authorize any entity to engage in anti-competitive activities. As part of its new IPR system, the province also no longer has to approve operational plans developed by producers or PROs.

 

Recycling

Anti-competitive Conduct and its Implications

As an independent law enforcement agency, the Competition Bureau’s enforcement activities consist of voluntary compliance, settlements, and litigation. There have been few instances where the Tribunal has used its powers to punish anti-competitive behaviour in the waste sector. Laidlaw v Canada (“Laidlaw”), decided in 1992, was one of those cases. The Director of Investigation and Research brought an application regarding Laidlaw Waste Systems Ltd.’s conduct on acquisitions, contracting practices, and lessening of competition.

Laidlaw had aggressively persuaded as well as threatened competitors to sell their businesses. This way it had obtained over 87% of the market of waste collection and disposal on Vancouver Island. Upon acquisition, each agreement contained an overbroad clause prohibiting the vendor from competing with Laidlaw in a wide geographical area for many years. Laidlaw’s contracting practices were also at issue as agreements with customers sought to bind customers to Laidlaw for all waste disposal services and included an automatic price increase term that customers were deemed to consent to. When customers attempted to end their agreements and sought services from a competitor, Laidlaw would threaten legal action.

The Tribunal found that the contractual terms did not have legitimate business benefits and did not benefit customers. The terms sought to create barriers to market entry for Laidlaw’s competitors. This amounted to anti-competitive conduct. As a result, the Tribunal prohibited Laidlaw from buying out competitors for a period of three years and from using contracts that bound customers exclusively to Laidlaw’s services.

 

Conclusion

Although Laidlaw was decided in 1992 and the waste management context has since changed significantly, the propensity for monopoly formation in the waste sector indicates that anti-competitive practices can and do occur. PROs, particularly those that have operated as near-monopolies for decades and solidified contracts, collection and post-collection networks and relationships throughout the supply chain, have significant powers in determining contract terms, service fees, and service providers.

Unlike other provinces, producers in Ontario are legally liable for meeting recycling targets. Failure to comply with targets may result in penalties and prosecutions. Nonetheless, a level playing field and a competitive market can only be realized if compliance and enforcement are taken seriously. Data collection and oversight by the Resource Productivity and Recovery Authority and collaboration with the Competition Bureau is essential in Ontario’s shifting regulatory waste management landscape. As the IPR framework continues to expand in Ontario and other jurisdictions, continuous monitoring, educational efforts, and possible recourse to litigation are all available tools that can ensure that theory and practice meet to promote circularity and innovation.

 

Written by Denisa Mertiri and Deniz Yilmaz.

For questions or further consultation, please contact Denisa Mertiri at denisa@greenearthlaw.ca.