National Resource Efficiency Policy (NREP): Can it revive the circular economy?

Over the last decade, much has changed in the regulatory landscape of waste management sector as number of old rules (Plastic Waste Management Rules 2011, Solid Waste Management Rules 2000) have been upgraded and new rules (E-Waste Management Rules 2016, Construction and Demolition Waste Management rules 2016) have been implemented. However, the ground realities remain grim: on the one hand, our cities are crumbling under piles of uncollected waste, while on the other hand waste management companies are unable to get enough waste.

In this context, the draft National Resource Efficiency policy (NREP), aims to create an overarching policy framework to promote resource efficiency across all sectors. It recommends a life cycle driven approach for managing resources right from their extraction to disposal. It proposes penalties for extraction of virgin material, design standards for product longevity and reuse, encouragement of production of green products, strict rules for collecting waste from consumers/bulk generators and taxes on landfills. The policy has good intent, but may not be able to achieve the desired impact in absence of a robust circular industry that can collect and process waste.

Historically, waste management policies have been implemented through Pollution Control Boards (PCBs), who are responsible for licensing and regulating the industry. As such, the emphasis has been on regulation, which now needs to shift to industry enablement. Further, NREP must address issues such as lack of access to waste, small scale of operations and high taxes that render circular companies uncompetitive.

Access to waste

India’s circular industry is nascent, with only handful of public listed companies and no unicorns. It mostly exists in selected sectors such as electronic waste, plastic waste and to some extent in tyre, metal recycling and municipal solid waste processing.

Getting access to segregated waste in large quantity is a big constraint for the industry. For example, while annual e-waste generation in India is estimated to be 20 Lakh tonnes, most formal sector recyclers are not able to collect even 5000 tonnes per annum. Similarly tyre recyclers that reclaim rubber from tyres face challenges in collecting waste tyres. Many waste and biomass based power plants have been closed down due to unavailability of segregated waste. Metal recycling industry relies on imported scrap, and construction waste recycling is yet to take off as segregating waste and converting it to useful products is not profitable.

Unlike regular manufacturing industries, where raw material can be bought from other sources, circular economy companies need to collect waste (their raw material) from a wide variety of sources and incur considerable cost in transporting it to the recycling centres. Additionally, generators of waste are not ready to pay for its disposal; instead, they expect to be paid for their waste. Moreover, composition of waste changes on a daily basis, making it difficult for companies to deliver standardised products, thus affecting their financial viability.

Waste can be divided into two categories; post-consumer waste and pre consumer (industrial) waste. The cost of collection of post-consumer waste is high and volumes are low, as consumers do not have sufficient incentives to dispose the waste in a responsible manner. For example, most of the Multi-Layer Plastic (MLP) waste cannot be recycled as it is mixed with household waste and the cost of cleaning MLP waste makes the recycling unviable. Industrial waste is somewhat easier to collect, but the waste generators are nonetheless unwilling to pay for its disposal. To add to this, high end machinery for recycling is mostly imported, adding to the project cost of recycling ventures.

Some of the remedial measures that could be implemented for this could are:

  • Funding mass awareness programmes on waste segregation, waste disposal and capacity building of informal sector should be routed through waste management companies who have incentives for doing it effectively as they stand to gain from higher waste collection
  • Incentivise domestic machinery manufacturers to develop indigenous machinery for onsite waste segregation/processing

Financial incentives to achieve economies of scale

India’s recycling industry is dominated by a large number of micro enterprises with low processing capacities. For example, a majority of the 7500 (Report by FICCI, 2017) plus formal and informal plastic recyclers, have capacities lower than 10 tonnes per day, whereas globally new plants are being built with a capacity of more than 100 tonnes per day. Similarly, most of around 300 e-waste recycling companies dismantle e-waste manually and have not invested in modern facilities for recycling/refining the waste. The tyre recycling companies that have been dismantling cross ply tyres need to invest in technology to be able to process radial tyres.

NREP has proposed to set up a green fund to facilitate access to finance for technology and process improvement. A part of this fund could be exclusively reserved for financing value addition related to capex of circular economy companies. This fund could work on the lines of energy efficiency cluster financing program of the World Bank/SIDBI which provides financing for energy efficiency/pollution reduction measures to foundries.

Rationalising taxes in the entire value chain

NREP proposes rationalization of the tax regime to make secondary raw materials price-competitive. The taxes would need to be rationalised throughout the product value chain. For example, the GST rates on plastic scrap have already been reduced to 5%, but the products made out of the plastic waste such as plastic granules, roofing sheets, furniture, sacks etc. attract 18% GST, in line with the products made from virgin material. Further, since recyclers buy their raw material from scrap sellers, many of whom are not registered with GST, they are not able to claim input credit, and therefore their effective taxation is higher than that of manufacturers of products based on virgin products.

Further, NREP may also want to advocate the case of rationalisation of taxes/subsidies on the products that compete with the recycled products. For example, organic fertilsier (made from food waste) competes with chemical fertilsier such as Urea/DAP, which are heavily subsidised. Rationalisation of subsidies on chemical fertilsier will provide a boost to the organic fertiliser sector and make the operations of agri waste recycling companies profitable.

Monitoring the health of circular industry

The new policy lists resource productivity, domestic material consumption, extraction and output as indicators for measuring resource efficiency. It may be prudent to add circular industry health to the list of indicators, which could be measured in terms of growth in sales of formal sector enterprises, their employee strength and capital expenditure.

In summary, NREP with its proposed measures of life cycle management of resources, is a good step toward building the circular economy. However, the implementation approach needs to be different though, one that gives priority to the entrepreneurs /enterprises in the sector.

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