4711 Yonge Street, Suite 1102, Toronto ON M2N 6K8, t: 416.226.5113, f: 416.226.1368, www.wdo.ca, @WDOntario

For Discussion

OTR Tires Review Draft Working Paper

October 22, 2014

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OTR Tires Review

DRAFT WORKING PAPER

Contents

Glossary ................................................................................................................................................................ 2

1. Background .................................................................................................................................................. 4

2. Approach ...................................................................................................................................................... 5

3. The Used Tires Program ............................................................................................................................... 5

A. Roles and Responsibilities .................................................................................................................... 5

B. Tire Stewardship Fees .......................................................................................................................... 6

C. Incentives ............................................................................................................................................. 8

4. OTR Stakeholders ......................................................................................................................................... 9

5. Managing OTR Tires ..................................................................................................................................... 9

6. Topics ......................................................................................................................................................... 10

A. Fairness in the marketplace ............................................................................................................... 10

B. Options for reuse, recycling, diversion .............................................................................................. 13

C. Opportunities to further reduce costs ............................................................................................... 13

D. Design, operation and governance approaches to the Used Tires Program ..................................... 15

E. Enhancing consumer involvement in the Used Tires Program .......................................................... 16

Appendix A: Program Request Letter

Appendix B: Ontario Regulation 84/03 and amendments

Appendix C: Off-the-Road (OTR) Tires

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Glossary Consumers or End Users – Includes industries involved in the agricultural, mining, forestry, manufacturing and construction sectors. According to OTS, Off-the-Road tire sales are spread generally among three groups: forestry/mining, agriculture, and industrial/construction.

Cost Recovery Regulation – On February 9, 2012, the Minister of the Environment directed WDO to develop plans to implement a cost recovery and accumulated deficit/surplus recovery approach for the Used Tires Program, which was approved by the Minister on January 29, 2013. A cost recovery regulation requires Ontario Tire Stewardship (OTS) to set annual Tire Stewardship Fee rates based on actual costs and tires supplied from the previous year. Any financial shortfall must be recovered from stewards though a charge OTS calls the Reconciliation Fee. Off-the-Road (OTR) Tires – Those tires that are used on vehicles and equipment off-road (e.g. forklift tires, farm equipment tires, logging tires, mining tires). Stewards who supply OTR tires into the Ontario marketplace are responsible for the cost of recycling these tires. (See Appendix C for pictures of various OTR tires) On-Road Tires – Those tires that are used on passenger vehicles (e.g., cars and SUVs), light trucks and medium trucks. Passenger Tire Equivalent (PTE) – A measurement used to express the weight of a tire in relation to a passenger tire or 10 kgs (i.e., 1 PTE = 10 kgs).

Service Providers – This group provides the services at the end of the tire’s original useful life, including:

I. Retreaders – Along the chain, service providers will identify tires that can still be used and will separate them to either re-tread them or resell them;

II. Collectors who collect the tires from users/consumers; III. Haulers who pick up the tires from the collectors and transport them to the processors; IV. Processors who process the tires into a variety of Tire-Derived Products (TDPs – e.g., crumb &

shredded rubber) and then sell the TDPs on the open market, including to registered Recycled Product Manufacturers (RPMs); and

V. RPMs who use the TDPs from Ontario processors to manufacture new products (e.g., roof shingles, playground tiles, carpet underlay, rubber bricks, etc.).

Stewards [Tire Brand Owners, First Importers and Original Equipment Manufacturers (OEMS)] – Companies that manufacture/import OTR tires or equipment requiring OTR tires, OTR tire dealers and distributors.

Tire Derived Aggregate (TDA) – Tire-Derived Aggregate (TDA) is made from shredded tires and is used for a wide range of public works projects and other civil engineering applications, which may include roadbed preparation, slope stabilization, retaining wall backfill, lightweight embankment fill, and various landfill applications.

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Tire-Derived Fuel (TDF) – Certain jurisdictions use tires to replace coal in high-energy consuming applications such as cement kilns and power plant boilers. In Ontario, the Waste Diversion Act which governs the Used Tires Program does not promote the burning of designated materials and does not count burning as diversion.

Tire-Derived Product (TDP) – Tire-Derived Products are marketable products made or derived wholly or partly from the recycling of used tires. There are five grades of TDP in the Used Tires Program. TDP 1-3 represents varying sizes of crumb rubber with a variety of uses, including: on sports fields, in the production of rubber-modified asphalt, and in the manufacture of finished products such as playground tiles, shingles, athletic matting, and other products. TDP 4 includes fabricated products likes blasting mats. TDP 5 is shredded tires primarily used as Tire-Derived Aggregate (TDA).

Tire Stewardship Fee (TSF) – The amount charged to a steward by OTS for each tire supplied into the market. The fees cover the cost of managing all used tires. OTS uses PTEs to determine costs attributable to each tire class, as part of the regulated methodology to calculate tire fees.

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1. Background

On November 29, 2013, the Minister of the Environment directed Waste Diversion Ontario (WDO) to undertake a review of the Off-the-Road (OTR) tires component of the Used Tires Program.

When WDO received the directive, OTR tire consumers were concerned about the increase in stewardship fees that were levied on April 1, 2013. Prior to April 1, 2013 OTR tire fees ranged from $12.52-250.20, after April 1, 2013 OTR tire fees ranged from $5.88-1311.24. These increases were the result of fees not being adjusted for a period of three years and the introduction of cost recovery in April 2013. Consumers felt that the decision to increase the fees had been made without their involvement.

WDO’s objective over the course of the OTR Review is to work with individuals, associations and organizations to deliver a report to the Minister outlining recommendations that address any underlying issues and concerns with the end-of-life management of OTR tires and their costs.

WDO is working with a group of key individuals (the “Advisory Group”) to develop the report. Members of the Advisory Group represent key stakeholder groups affected by the OTR Tires Program. This Group has been asked to identify areas to improve the current program and assist with the preparation of material, including the final report.

The report is due to the Minister by December 12, 2014.

The Advisory Group is comprised of:

• 3 OTR stewards • 3 OTR tires consumers • 3 OTR service providers • 1 Environmental Non-governmental Organization • 1 OTS representative • 1 WDO representative

A second group, the Resources Group is tasked with delving into specific concerns and topics identified by the Advisory Group and providing useful input and feedback throughout the process. This work of the Advisory Group will also be informed by input WDO receives from individuals who participate throughout the process including through surveys, direct email, telephone calls and workshops.

This draft working paper was informed by Advisory Group discussions beginning with in-depth confidential one-on-one interviews, a series of meetings, telephone calls as well the survey responses WDO has received to date. It documents the key topics identified by members of the Advisory Group, Resources Group, WDO, and other stakeholders. The paper outlines the key topics, and for each topic, identifies the issues/opportunities, potential solutions and actions required.

In his letter, the Minister also advised WDO that Ontario Regulation 84/03 had been amended (O. Reg. 305/13) to prevent increases to Tire Stewardship Fees (TSFs) for OTR tires for the May 1, 2014 - April 30, 2015 period. A copy of the regulation and its amendment can be found in Appendix C or by visiting the WDO website here.

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2. Approach The OTR Review Advisory Group decided that the best approach for the Review and for the working paper is to address the five topics outlined by the Minister in his letter of November 29, 2013 to WDO. These topics include:

a) Fairness in the marketplace; b) Options for the reuse, recycling and diversion of OTR tires; c) Opportunities to reduce the costs, including through innovative approaches and other

efficiencies; d) Approaches to address consumer concerns over the design, operation, governance and costs of

the OTR component of the Used Tires Program; and e) Program governance and oversight, including changes that would enhance consumer

involvement in decision-making related to the program.

3. The Used Tires Program On August 14, 2008, the Minister of the Environment directed Waste Diversion Ontario to develop a waste diversion program for used tires under Section 23 of the Waste Diversion Act (see Appendix B). The Minister requested that the program “be developed to address the diversion of all motor vehicle tires including ‘off the road’ (OTR) tires, industry and farm vehicle tires that are supplied into the Ontario market.” The Used Tires Program Plan was approved on April 8, 2009 and came into effect on September 1, 2009. The Program Plan can be found here.

With the approval of the Program Plan, tire stewards became responsible for diverting tires used and disposed in Ontario. Part of their responsibility is manifested in the Tire Stewardship Fee (TSFs) they pay to OTS for each tire they supply into the marketplace. The Program Plan ensures that Ontario tire consumers are able to access free drop-off locations to properly dispose of scrap tires at one of OTS’s collection points.

Since its launch on September 1, 2009, the Used Tires Program has diverted over 68 million tires. In 2013 alone, Ontario Tire Stewardship (OTS), the tire steward-funded organization operating the Used Tire Program, collected 120,509 tonnes of On-Road tires (passenger light truck and medium truck tires) and 19,425 tonnes of OTR tires (tires used on agricultural, construction, mining, road building, forestry and manufacturing equipment).

In 2014, OTS marks its fifth full year of operation. OTS has helped transform tire recycling in Ontario, including an estimated $50M+ in investment, resulting in approximately 200 direct new jobs, a doubling of recycling capacity, and a 130% increase in manufactured materials using crumb rubber.

A. Roles and Responsibilities • Ontario Tire Stewardship operates the Used Tires Program on behalf of Ontario tire stewards under

Ontario Regulation 84/03. • Waste Diversion Ontario oversees the Program under the Waste Diversion Act. Waste Diversion

Ontario reports to the Ministry on program performance on an annual basis through its annual reports, and is required to undertake directives issued by the Minister.

• The Ministry sets the policy direction for waste diversion in the province.

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B. Tire Stewardship Fees The Program is funded by stewards of tires through the payment of TSFs to OTS. Ontario Regulation 84/03 defines the methodology OTS must use to set those fees. The calculation of fees is informed by the prior year’s data (actual unit sales versus actual costs). For the 2014/2015 fee period, OTR TSFs were capped at 2013-2014 levels or lower.

The application of the methodology used to calculate TSFs is unique to Ontario. Before TSFs were introduced in Ontario, consumers of OTR tires were responsible for paying for the disposal of these tires. See Table 1 for historic costs.

Table 1: Pre-Program Disposal costs vs. 2014 TSFs Pre-program disposal costs1 2012 TSFs 2014 TSFs (based on

$5.88/PTE) PLT Tires $3-5 $5.84 $5.43 Medium Truck $10-12 $14.65 $14.65 Agricultural Drive

$36-72 $15.29 $5.88 $11.76 $29.40 $47.04 $182.28

Industrial $18-48 $12.51 $11.76 $23.52 $55.80 $182.28 $352.80 $546.84 $1,311.24

Off-the-Road Small Medium Large Giant

$46-60 $192-$408 $468-$750 $750-3,000

$22.24 $97.30 $104.25 $250.20

$5.88 $11.76 $29.40 $47.04 $117.60 $352.80 $546.84 $1,311.24

In other provinces, fees are based on estimated future costs and in some cases fees are set at a level the Program believes will not affect the marketplace in a negative manner.. Table 2 provides a comparison of OTR tire fees across the country.

1 Does not include transportation costs or comparable disposal outcomes. Dumping was also another (illegal) ‘solution’ that was exercised before the Used Tires Program started.

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Table 2: Tire Stewardship Fee comparison (As of October 2014)

Tire Recycling Fee BC AB SK MB ON QC NB PE NS NLPassenger Tires, Small RV Tires and Light Truck Tires

$5.00 $4.00 $4.00 $4.00 $5.43 $3.00 $4.50 $4.00 for 17" and less; $11.25 for > 17"

$4.50 ($13.50 for light truck tires exceeding

17.5 inches)

$3.00 (17" and less)

Motorcycle, Golf Cart and All Terrain Vehicle Tires

$5.00 $4.00 $4.00 $4.00 $5.43 $3.00 $3.00 $4.00 for 17" and less; $11.25 for > 17"

$4.50

Forklift, Small Utility and RV Trailer Tires, Bobcat/Skid Steer Tires

$5.00 $4.00 $4.00 $4.00 $5.88/PTE $4.00 $4.50

Medium Truck Tires $9.00 $9.00 $14.00 $9.00 $14.65 $3.00 $13.50 $11.25 $13.50 $9 (over 17")

Skid Steer and Loader Tires $15.00 $4.00 $14.00 $9.00 $5.88/PTE $4.00 for 17" and less; $11.25 for > 17"

Agricultural Tires (Small) $5.00 - $25.00 $4.00 $5.88/PTE $4.00

Agricultural Drive Tires (Medium) $15.00 - $25.00 $9.00 $5.88/PTE $4.00 for 17" and less; $11.25 for > 17"

Forklift, Bobcat/Skid Steer Tires $15.00 $40.00 $14.00 $9.00 $5.88/PTE $4.00 for 17" and less; $11.25 for > 17"

Logger/Skidder Tires $35.00 $100.00 $14.00 $60.00 $5.88/PTE $11.25

Agricultural Drive Tires (Large) $35.00 - $14.00 $30.00 $5.88/PTE $11.25

Small Off the Road Tires - $40.00 $57.00 $60.00 $5.88/PTE $11.25

Medium Off the Road Tires - $100.00 $140.00 $135.00 $5.88/PTE $11.25

Large Off the Road Tires - $200.00 $140.00 $135.00 $5.88/PTE $11.25

Giant Off the Road Tires - - - $135.00 $5.88/PTE $11.25

Passenger/ Light Truck

Truck-Bus

Off the Road

Industrial

Agricultural

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C. Incentives Service providers receive incentives from OTS to divert tires from landfills, dumping and incineration. These service providers include collectors, haulers, recyclers and Recycled Product Manufacturers. OTS has encouraged greater use of used tires in more value-added products by directing incentives from less value-added products such as Tire Derived Product (TDP) 5 (shredded tires) to more value-added products such as TDP 1 (crumb rubber).

Tire shred

Tire crumb

OTS has confirmed that crumb rubber in the 8-20 (TDP 2, crumb rubber) mesh size range comprises the largest portion of recycled product produced. Processors are also producing more crumb than ever before, with 94% of all processing incentives provided for TDP 1, 2 and 3 (crumb rubber) in 2013, up from 60% in 2012. According to OTS, 50% of all crumb made in Ontario is used by Ontario Recycled Product Manufacturers (RPMs) in the production of finished products. The other crumb created by processors is sold to non-manufacturing markets in Ontario, as well as to manufacturer and non-manufacturer customers in other provinces and the United States.

On-Road vs. OTR tire incentives OTS offers different incentives for on-road and OTR tires.. OTS manages these two sets of tires as two different and distinct streams; for example, the average province-wide transportation incentive for haulers is $134/tonne for on-road tires and $185/tonne for OTR tires. The processing incentives for on-road and OTR tires are as follows:

Table 3: On-Road and OTR tire processing incentives On-Road tires OTR tires TDP 1 (crumb) $230 $264 TDP 2 (crumb) $196 $225 TDP 3 (crumb) $132 $152 TDP 4 (i.e. blasting mats) $55 $100 TDP 5 (i.e. shred) $47 $54

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It has been suggested to the Advisory Group that OTR tires produce a higher rubber yield and a higher quality of rubber and should not attract a premium. OTS provides an additional incentive for the collection of tires from northern areas of the province to processors capable of recycling those tires.

Table 4: OTR tires management (2013) On-Road Tires Off-the-Road Tires Total Tires supplied (tonnes) 137,598 17,457 155,055 Tires collected (tonnes) 120,509 19,425 139,934 Program cost $56.1M $9.1M $65.2

4. OTR Stakeholders The Used Tires Program encompasses a broad spectrum of stakeholders ranging from the steward/manufacturer/distributor who sells OTR tires to the consumer and the end-of-the-life service provider who collects, transports and/or processes the used OTR tire. Each stakeholder group plays a role in the OTR Tires Review and is affected by the program in different ways. A brief introduction to the key stakeholder groups and their role and responsibility is provided here:

I. Stewards [Tire Brand Owners, First Importers and Original Equipment Manufacturers (OEMS)] – II. Consumers or End Users

III. Service Providers IV. Supporting Associations – All stakeholder groups are supported by a variety of specialized

associations. In some cases, the associations overlap in their membership bases and serve more than one stakeholder group.

5. Managing OTR Tires In most – but not all – cases, OTR tires are delivered to the end-user and installed on the premises (unless the end-user is purchasing new equipment). When tires reach the end of their lives, collectors will bring them back to their operations, where a hauler will pick them up. Large and giant OTR tires are handled differently because of their size. At end of life, an end-user will work with a hauler who has the equipment and the authority to transport the tires to a processor. Members of the OTR Review Advisory Group agreed there is an active market for used OTR tires (small, medium, large and giant). Members also suggested that re-use rates in other sectors (i.e., industrial tires) could be increased if OTS provided re-use incentives. OTS says it faces a number of program challenges, including the following:

I. Compared to other jurisdictions, Ontario has the largest variety of OTR tires in its program (see Table 2);

II. Government policy and regulatory restrictions that:

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a. prohibit cross-subsidization; and b. discourages low-cost recycling options [i.e., Tire Derived Fuel (TDF) )]. According to OTS all

other jurisdictions accept the manufacturing and use of TDA and TDF as diversion. III. OTS must pay HST for services and cannot offset this HST with HST collected, resulting in a significant

net cost to the program. This situation is unique to Ontario.(See the section “HST payments” on page 8 for more information)

OTS Cost Reduction Efforts In an effort to reduce program costs, OTS developed and implemented a number of cost-saving measures for the Used Tires Program as follows:

I. On July 1, 2014: a. Reduce Processor Incentive (PI) rates by 15%; b. Reduce the OTR incentive by 10%; and c. Shift the manufacturing incentive to a flat rate of $120/tonne from a base rate of $40/tonne

and incremental rate of $160/tonne. II. On October 1, 2014, shift the payment of the Transportation Incentive (TI) to the processor as part of

their Processing Incentive (PI). By paying processors the TI instead of paying it directly to haulers, the program is expected to reduce HST payments by approximately $3M annually.

III. On July 1, 2015, reduce the PI by a further 10% and reduce the OTR premium by an additional 5%. IV. Reduce OTS annual promotion and education (P&E) expenditures by 50%. V. Reduce the budget for research and development (R&D).

OTS states that Ontario is the only jurisdiction where processors pay for tires, an important factor in OTS’s conclusion that incentive reductions were needed. As a result of these changes and other cost savings, OTS expects that OTR tire fees will remain flat. OTS does not expect the fees to increase.

6. Topics Working from the five topic areas identified by the Minister, this section provides:

1) An introduction to each of the topics; 2) A short analysis of each issue/concern (if required); and 3) Solutions and/or research and action(s) to further address each issue/concern.

A. Fairness in the marketplace A key question for the OTR Tires Review Advisory Group is, “What is fairness and what does it mean to you?” The Advisory Group acknowledged that fairness means something different to each OTR tires stakeholder group. Key points from Advisory Group discussions include the need for a clear definition of ‘fairness’, what

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constitutes a level playing field, predictability for stakeholders, and fairness in steward fees. These are outlined in more detail below.

i. Defining Fairness

Some OTR tires stakeholders have identified the need to establish guidelines for OTR tires operating and fee-setting decisions. They have suggested that the key elements include ensuring:

• An equitable competitive marketplace (bringing free-riders into compliance); • A predictable and transparent regulatory regime where stakeholders are consulted in advance of

changes; and applicable legislation, regulations and regulatory requirements are fully enforced by the government;

• Adequate time for stakeholders to respond and adjust to new program changes (in steward fees and incentive model and rates);

• A transparent operating environment (communicating decisions made by the program and the rationale behind them); and

• Adequate monitoring and enforcement to make all stakeholders accountable for their role in the program.

ii. Establish a level playing field

All businesses and/or consumers purchasing, using or disposing of OTR tires must be required to comply with Ontario OTR tire program requirements. Establishing a level playing field means: Eliminating Free Riders – Deal effectively with businesses and consumers who avoid paying TSFs.

1. Qualifying businesses that do not register with OTS and therefore avoid paying OTR TSFs are free riders. Currently OTS lacks the ability to enforce and penalize those businesses who have not registered with the program and that avoid paying OTR TSFs.

2. Those who import tires from outside Ontario and do not pay the TSF are free-riders. A mechanism is not in place to ensure that those who import tires pay a TSF upon entry to the province. A Goodyear Tires study cited that an estimated 15% of tires are purchased in the United States and brought across the border in Ontario (“grey market” tires).

OTS informed the group that free-ridership is currently not a substantial concern for the OTR tires portion of the Used Tires Program. OTS will continue to monitor for free-riders given the risk that the occurrence of free-ridership could rise in the absence of compliance activities.

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iii. The need for predictability

Stakeholders have identified a need for greater predictability when OTS seeks to make changes to the Used Tire Program and to incentive rates. Greater predictability would enables service providers in the UTP to make both short term business decisions and long term capital investment decisions. Some stakeholders are concerned with program uncertainties, such as pending legislative change and program stability. Greater program predictability will provide service providers with the lead time they need to adjust to program changes. Notice periods – Under the current agreement signed between OTS and service providers, OTS must provide 30 days’ notice for increases to rates and 90 days’ notice for decreases in rates. Some service providers believe the current 90 days’ notice of pending program changes is not enough to respond effectively and adjust operations. For example, 90 days is not enough notice to adjust business plans and operations when investing in equipment with a multi-year payback. This short notice period does not provide them with a healthy and stable business environment. WDO acknowledges that, OTS has provided more than 90 days’ notice for the last decrease in rates. OTS notified service providers in July 2013 of its intention to reduce rates commencing January 2014. The schedule for these PI rate reductions was then revised to take effect in July 2014, a full year after they were first announced. OTS states that a change in the 90 days’ notice period could only be lengthened if OTS has greater certainty concerning its revenue stream. Stewards also need predictability in fees to plan their annual budgets. Specifically, businesses ideally prefer to know market prices for goods and products in advance of a fiscal year. Any additional fees/costs incurred must be absorbed by the company and usually cannot be passed along in the current operating year.

iv. Fairness in Fees

While many stakeholders recognize that the OTR Tires Program is necessary and, for the most part, has achieved its intended purpose, there should be a mechanism to ensure that the fees are fair. Fees should reflect the true program costs, not place undue burden on one stakeholder group over another, and reflect

Potential Action(s) discussed by Advisory Group: • OTS to continue working with the Ministry to finalize a Memorandum of Understanding on

enforcement in an effort to bring free-riders into compliance. • WDO to discuss enforcement options with the Ministry.

Proposed Action(s): • OTS to provide stakeholders with a general long-term plan including a gradual reduction in

cost and fees.

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best practice measures to ensure the most effective and efficient OTR Tires Program. Consumers expect a continued effort to reduce program costs to ensure that fees decrease rather than increase.

B. Options for reuse, recycling, diversion

i. Reuse

As suggested in Section 5 of this paper, most Advisory Group members believe that the OTR tires retreading market is robust, with the exception of the industrial and agricultural tire categories where the economics of retreading these tires is not favourable relative to purchasing a new (typically off shore) tire.

ii. Tire-Derived Aggregate (TDA)

Tire-Derived Aggregate can be used in Ontario, but requires an Environmental Compliance Approval (ECA – formally known as a Certificate of Approval) under Part V of the Environmental Protection Act before a company may apply it on land. The Ministry interprets shredded scrap tire to be a waste and its use as a surface aggregate as a deposit of waste; therefore, an ECA is required for its use as TDA. It should be noted that the Ministry considers the application of TDA as diversion. An increase in the use of TDA over other recycled materials like crumb could lower costs. Under the current incentive structure, TDA attracts $54/tonne compared to crumb at $225-$264/tonne. While program costs could decrease and in turn lower TSFs, the Advisory Group suggested that given the investment some processors have made to produce crumb, there is little chance they would switch their operations to produce TDA. OTS cautioned that TDA is a lower value-added product and would need continued assistance from the program via incentives to continue to be a viable commodity.

iii. Tire-Derived Fuel (TDF)

While the Waste Diversion Act stipulates that waste diversion programs may not promote the burning of designated waste the Advisory Group chose to explore all of its options. When the option of TDF was discussed, service providers suggested it was a step in the wrong direction and that they had made investments to process tires for recycling and reuse purposes because of the current provincial policy. However, members did acknowledge that the option of using end-of-life tires as TDF was regarded as less expensive than the current approved processes.

C. Opportunities to further reduce costs

i. Incentives

In 2014, OTS implemented a range of new cost-cutting measures, including reallocating incentives and introducing reductions in incentive payments associated with processing and manufacturing (see Section 5 – OTR Tires Stakeholders for further discussion). The service providers on the Advisory Group thought there would be cost reductions over time. However, some service providers have just made significant investments in the province and would like to recuperate these costs. The changes to Processor Incentives that came into effect on July 1, 2014 are considered too

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steep with inadequate lead-time. Other service providers suggested that the issue is the speed at which OTS implemented the changes, not the amount of the incentive reductions. One stakeholder suggested that material being processed outside Ontario and imported into the province is receiving manufacturing incentives. The stakeholder suggested that more independent inspections are needed of processors, haulers and manufacturers. In the case of the Collection Allowance (CA), OTR tires receive lower incentives per PTE than on-road passenger light truck (PLT) tires. Collectors argue that the current CA doesn’t cover the actual cost of managing OTR tires and should therefore be revisited.

ii. Premiums Like Alberta, Ontario offers premiums to service providers who manage OTR tires. Haulers are paid a premium to transport OTR tires (with the exception of industrial and agricultural tires), and processors are paid a premium to process all OTR tires. The incentives are meant to reflect the added costs service providers incur to manage these tires. The total cost to process OTR tires in 2013 was $2.63 million. With 16,000 tonnes of OTR tires processed in 2013 the average cost to process OTR tires was $158/tonne. In 2014, OTS reduced the OTR tires processing premium from 25% to 15%. OTS will reduce this premium a further 5% on July 1, 2015. With the changes pending on July 1, 2015 the average cost to process is $134/tonne. This figure is based on 2013 production numbers and could change based on a shift in production from lower value products to higher value products. One stakeholder suggested that the premium be provided only to those who manage tires over 6’ in diameter. The suggestion is intended to remove the premium from being applied to agricultural tires. According to OTS, it assumes that agricultural tires make up about 30% of the OTR scrap tire tonnage that enters the program. This assumption is based on sales figures. Using these figures, removing the premium on agricultural tires would result in savings of approximately $52,000 or $0.14/PTE (assuming that 70% of the tire is processed into TDP). For this first suggestion to work, haulers and processors would need to begin tracking and reporting the size of tires. It would also require OTS to develop a weighted-average for those tires so that it could extrapolate the total estimated weight of OTR tire TDP that could be produced. Removing the premium for OTR tires under 6” does not address those tires used by the agricultural community that are over 6”, or those tires that are used by other industries that are under 6” that may require a premium to be collected.

Research Requirements: • OTS to continue to monitor reports of out of province material receiving incentives and verify

through existing audit processes.

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iii. Transportation

Transportation is one of the larger line items in OTS’ Program budget. In 2013 OTS spent $24.1M on transportation incentives (total operational expenses were $60M). One Advisory Group member suggested that the Review should chart where OTR tires are generated and compare generation points to where they are processed to determine if there are efficiencies to be found.

iv. HST Payments

OTS is the only Used Tires Program in Canada paying HST for services. In 2013, OTS paid approximately $5M in HST, for which it could not be reimbursed. The Canada Revenue Agency (CRA) has ruled that two of OTS’s incentives – the Collection Allowance (CA) and the Transportation Incentive (TI) – are considered taxable services. As a result, HST must be paid on these incentives (contrary to a ruling in BC and other jurisdictions). The CRA has also ruled that because of the wording of the Waste Diversion Act, the fees that are charged to stewards are not a taxable service, so OTS may not collect HST from stewards. This means that OTS cannot offset the HST that is being paid on the incentives. HST has become an annual expense to OTS of $5M (approximately 7% of total operating costs). OTS has discussed this concern with the CRA. To date, the CRA has not reversed its decision. OTS suggested to the Advisory Group that the changes to the incentive payment structure will address most of its HST burden.

D. Design, operation and governance approaches to the Used Tires Program

i. Cost Recovery Regulation

According to the MOECC, the cost recovery regulation is intended to strengthen the financial sustainability of the Used Tires Program by requiring that fees charged to stewards be based on actual costs to recycle tires and operate the program.2

The cost recovery regulation requires OTS to set annual TSF rates based on actual costs and tires supplied from the previous year. Any financial shortfall must be recovered from stewards through a charge OTS calls the Reconciliation Fee.

The Ministry requires the use of a fee-setting approach through policy and regulatory direction. This approach does not consider how fees are set in neighbouring and competing jurisdictions.

2 Source: Ontario Government Regulatory Registry at http://www.ontariocanada.com/registry/view.do?postingId=12082

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ii. Operational Models

The OTS operations model of paying incentives to each service provider is one approach. Others include:

• Alberta’s Steward-Self-Managed (Reverse Logistics) Approach – also referred to as producer take-back, where the producer (i.e., retailer) is responsible for collection and storage of the end-of-life product; and

• Quebec’s Competitive Bid Approach – an approach of contracting for collection and recycling services through a competitive bidding process. According to OTS, Quebec uses this approach to collect OTR tire stockpiles and not newly generated OTR tires.

Ontario’s Used Tires Program uses incentive payments to encourage the development of processing capacity. The use of incentives, the Advisory Group was told, resulted in the building of capacity which was one of OTS’ objectives. The following is a comparison of incentive levels provided across the country to manage OTR tires.

Table 4: Comparison of OTR Tire Processing Payment ON BC3 AB SK4 MB5 TDP 2 (Crumb)

$225/tonne $370/tonne $170/MT $210/MT

TDP 5 (Shred)

$54/tonne $69/tonne $150/tonne

E. Enhancing consumer involvement in the Used Tires Program

i. Consumer representation on the OTS Board

On October 25, 2010, the Minister requested that OTS undertake discussions to include a member of the consumer stakeholder group on the OTS Board. In the October 2010 letter, the Minister also requested that WDO work with all three Industry Funding Organizations to establish a subcommittee to advise the IFO’s Boards on matters related to potential program effects on consumers. In response to this letter, both OTS and WDO invited various consumer groups, including CAA and the Consumers Council of Canada to participate as consumer representatives. There has not been any interest from these organizations, partly due to a lack of resources. The Advisory Group welcomes stakeholder suggestions on possible consumer representatives.

3 BC program limited to industrial and agricultural tires 4 Rate applied to all tires processed regardless of tire type 5 Rate applied to all tires processed regardless of tire type

Appendix A: Program Request Letter

Appendix B: Ontario Regulation 84/03 and amendments

Waste Diversion Act, 2002

ONTARIO REGULATION 84/03

USED TIRES

Consolidation Period: From November 29, 2013 to the e-Laws currency date.

Last amendment: O. Reg. 305/13.

This is the English version of a bilingual regulation.

Interpretation 1. (1) In this Regulation,

“OTS Tire Classification” means, in respect of a calendar year, the most recent document entitled “OTS Tire Classification” that is prepared by Ontario Tire Stewardship and that is made available on the website of Ontario Tire Stewardship on or before December 1 in the preceding calendar year; (“classement officiel des pneus”)

“tire” includes a part of a tire; (“pneu”) “used tires” means waste that consists of any of the following materials, or any

combination of them: (a) used tires that have not been refurbished for road use, (b) tires that, for any reason, are not suitable for their intended purpose. (“pneus

usagés”) O. Reg. 84/03, s. 1; O. Reg. 45/13, s. 1 (1). (2) Despite the definition of “OTS Tire Classification” in subsection (1), the OTS

Tire Classification in respect of 2013 and 2014 is the document of that title that is dated April 2013 and that is made available on the website of Ontario Tire Stewardship on or before April 19, 2013. O. Reg. 139/13, s. 1; O. Reg. 305/13, s. 1.

Designation 2. Used tires are prescribed as a designated waste for the purposes of the Act. O.

Reg. 84/03, s. 2.

Industry funding organization 3. Ontario Tire Stewardship is continued under the name Ontario Tire Stewardship

in English and Société de gestion des pneus usagés de l’Ontario in French and is designated as the industry funding organization for the waste diversion program for used tires approved by the Minister under section 26 of the Act. O. Reg. 45/13, s. 2. Composition

4. (1) Ontario Tire Stewardship is composed of the members of its board of directors who shall be appointed in accordance with section 5. O. Reg. 157/09, s. 1.

(2) Despite subsection (1), each member of the board of directors who holds office immediately before Ontario Regulation 157/09 comes into force is deemed to have been appointed to the board in accordance with this Regulation and shall continue to hold office until notice that all members have been appointed under section 5 is published on Ontario Tire Stewardship’s website. O. Reg. 157/09, s. 1.

Appointed members 5. (1) The board of directors shall be composed of the following members: 1. Three members appointed by The Rubber Association of Canada. 2. Two members appointed by Retail Council of Canada. 3. Two members appointed by Ontario Tire Dealers Association. 4. One member appointed by Canadian Vehicle Manufacturers’ Association. 5. One member appointed by Association of International Automobile

Manufacturers of Canada. O. Reg. 157/09, s. 1. (2) If an appointment is not made under subsection (1) within 30 days after the day

Ontario Regulation 157/09 is filed, the Chair of Ontario Tire Stewardship may, after providing 30 days notice to the appointing corporations mentioned in subsection (1), appoint an individual as a member of the board of directors, subject to the approval of the Chair of Waste Diversion Ontario. O. Reg. 157/09, s. 1.

(3) A member appointed under subsection (2) shall hold office until the appointment is made under subsection (1). O. Reg. 157/09, s. 1. Qualification

6. (1) An individual may be appointed as a member of the board of directors under section 5 only if he or she,

(a) is a director, officer or employee of a corporation that supplies new tires in Ontario, or of a corporation referred to in section 5;

(b) is a resident of Canada; and (c) is at least 18 years of age. O. Reg. 157/09, s. 1; O. Reg. 45/13, s. 3.

(2) Despite subsection (1), an individual shall not be appointed as a member of the board of directors if he or she is a bankrupt or has been found by a court to be mentally incapable of managing property. O. Reg. 157/09, s. 1. Application of Corporations Act

7. Sections 59 and 80 and subsections 283 (4) and (5) of the Corporations Act apply, with necessary modifications, to Ontario Tire Stewardship. O. Reg. 157/09, s. 1.

Base fee 8. (1) In this section,

“base fee period” means,

(a) the period beginning on April 1, 2013 and ending on April 30, 2014, or (b) after April 30, 2014, a period beginning on May 1 and ending on April 30;

(“période des droits de base”) “cost reference period” means, in respect of a base fee period, the calendar year

preceding the calendar year in which the base fee period begins; (“période de référence pour les coûts”)

“tire class” means, in respect of a base fee period, a class of tire set out in the OTS Tire Classification in respect of the calendar year in which the base fee period begins. (“catégorie de pneu”) O. Reg. 45/13, s. 4. (2) The amount of a fee required to be paid in respect of each calendar month

during a base fee period by a steward designated under the Act in respect of used tires shall be determined by applying the method set out in this section. O. Reg. 45/13, s. 4.

(3) Ontario Tire Stewardship shall, (a) determine the cost attributable to each tire class in respect of the base fee

period by, (i) determining the sum of the amounts described in paragraph 1 of

subsection 30 (3) of the Act that were incurred in relation to used tires during the cost reference period, and

(ii) determining, subject to subsection (4), the portion of that sum that is attributable to each tire class; and

(b) determine the cost attributable to a tire in each tire class in respect of the base fee period by,

(i) assigning each tire supplied by stewards during the cost reference period to a tire class if the tire meets the criteria of the tire class, and

(ii) dividing the cost attributable to a tire class, as determined under clause (a), by the number of tires assigned to that tire class under subclause (i). O. Reg. 45/13, s. 4.

(4) For the purposes of subclause (3) (a) (ii), if the tire classes in respect of the base fee period have changed from the previous base fee period, Ontario Tire Stewardship shall determine the portion of the sum determined under subclause (3) (a) (i) that would have been attributable to each tire class, had the tire classes in respect of the base fee period been the applicable tire classes during the cost reference period. O. Reg. 45/13, s. 4.

(4.1) For the base fee period beginning on May 1, 2014, the following rules apply, despite anything else in this Regulation:

1. After making its determinations under subsection (3), Ontario Tire Stewardship shall compare,

i. the cost attributable to a tire in each tire class, as determined for the base fee period beginning on May 1, 2014, and

ii. the cost attributable to a tire in the same tire class, as determined for the previous base fee period and set out in the document entitled “TSF Tire Categories and Definitions”, dated April 2013 and published on the website of Ontario Tire Stewardship on April 19, 2013.

2. If a cost described in subparagraph 1 ii is equal to or higher than the corresponding one described in subparagraph 1 i, Ontario Tire Stewardship shall provide the written notice described in subsection (5) to each steward with respect to the relevant tire class.

3. A steward who receives notice as described in paragraph 2 shall determine fees for the relevant tire class in respect of a calendar month in accordance with clauses (6) (a) and (b).

4. If a cost described in subparagraph 1 ii is lower than the corresponding one described in subparagraph 1 i, Ontario Tire Stewardship shall provide written notice of that lower cost to each steward with respect to the relevant tire class, instead of the notice described in subsection (5).

5. A steward who receives notice as described in paragraph 4 shall determine fees for the relevant tire class in respect of a calendar month as follows, instead of in accordance with clauses (6) (a) and (b):

i. the steward shall assign each tire that is supplied by the steward during the calendar month and meets the criteria of the relevant tire class to that tire class in respect of the base fee period,

ii. the steward shall multiply the cost attributable to a tire in the relevant tire class (namely, the cost described in subparagraph 1 ii, of which the steward was given notice as described in paragraph 4) by the number of tires assigned to the tire class under subparagraph i.

6. A steward shall determine the sum of all amounts determined under subparagraph 5 ii and all amounts determined under clause (6) (b).

7. The fee required to be paid by a steward in respect of a calendar month is the sum determined under paragraph 6.

8. The fees and other amounts required to be paid by a steward in respect of used tires and in respect of a calendar month shall not include anything other than,

i. the fees determined in accordance with this Regulation, and ii. any applicable interest or penalties charged in accordance with a rule made

under clause 30 (1) (d) of the Act. O. Reg. 305/13, s. 2. (5) Ontario Tire Stewardship shall provide written notice to each steward of the cost

attributable to each tire class under clause (3) (a), the number of tires assigned to each tire

class under subclause (3) (b) (i) and the cost attributable to a tire in each tire class under clause (3) (b),

(a) on or before April 19, 2013, if the determination is in respect of the base fee period mentioned in clause (a) of the definition of “base fee period” in subsection (1); and

(b) at least 60 days before the base fee period begins, if the determination is made in respect of any other base fee period. O. Reg. 45/13, s. 4; O. Reg. 139/13, s. 2.

(6) A steward shall determine the amount of the fee required to be paid by a steward in respect of a calendar month by,

(a) assigning each tire supplied by the steward during the calendar month to a tire class in respect of the base fee period if the tire meets the criteria of the tire class;

(b) multiplying the cost attributable to a tire in each tire class, as determined under clause (3) (b), by the number of tires assigned to the tire class under clause (a); and

(c) determining the sum of all amounts determined under clause (b). O. Reg. 45/13, s. 4.

(7) Unless a rule has been made under clause 30 (1) (c) of the Act prescribing the times when a fee determined under this section is required to be paid, the fee shall be paid no later than 60 days following the end of the calendar month in respect of which the fee is required to be paid. O. Reg. 45/13, s. 4.

Reconciliation of fees for calendar year 9. (1) In this section,

“tire class” means, in respect of a calendar year, a class of tire set out in the OTS Tire Classification in respect of the calendar year. O. Reg. 45/13, s. 4. (2) The amount of a fee required to be paid under this section in respect of each

calendar year starting in 2013 by a steward designated under the Act in respect of used tires shall be determined by applying the method set out in this section. O. Reg. 45/13, s. 4.

(3) Ontario Tire Stewardship shall, (a) determine the cost attributable to each tire class in respect of the calendar year

by, (i) determining the sum of the amounts described in paragraph 1 of

subsection 30 (3) of the Act that were incurred in relation to used tires during the calendar year, and

(ii) attributing a portion of that sum to each tire class;

(b) determine the cost attributable to a tire in each tire class in respect of the calendar year by,

(i) assigning each tire supplied by stewards during the calendar year to a tire class if the tire meets the criteria of the tire class, and

(ii) dividing the cost attributable to a tire class, as determined under clause (a), by the number of tires assigned to that tire class under subclause (i); and

(c) determine the amount of the fee required to be paid by a steward in respect of a calendar year by,

(i) assigning each tire supplied by the steward during the calendar year to a tire class in respect of the calendar year if the tire meets the criteria of the tire class,

(ii) multiplying the cost attributable to a tire in each tire class, as determined under clause (b), by the number of tires assigned to the tire class under subclause (i),

(iii) determining the sum of all amounts determined under subclause (ii), (iv) determining the amount of fees required to be paid under section 8 in

respect of the calendar year and any other fees that were required to be paid by the steward under the Act in respect of used tires and in respect of the calendar year, and

(v) subtracting the amount determined under subclause (iv) from the sum determined under subclause (iii), in order to arrive at the amount of the fee required to be paid under this section by the steward in respect of the calendar year. O. Reg. 45/13, s. 4.

(4) If the amount arrived at under subclause (3) (c) (v) is less than zero, that amount is owed to the steward by Ontario Tire Stewardship and no fee is required to be paid by the steward under this section. O. Reg. 45/13, s. 4.

(5) Ontario Tire Stewardship shall, no later than May 1 in the calendar year following the calendar year in respect of which the fee is required to be paid, provide written notice of the following to the steward:

1. The cost attributable to each tire class under clause (3) (a). 2. The number of tires supplied by the steward that were assigned to each tire class

under subclause (3) (c) (i). 3. The amount required to be paid by the steward in respect of each tire class, as

determined under subclause (3) (c) (ii). 4. The sum determined under subclause (3) (c) (iii).

5. The portion of the amount of fees determined under subclause (3) (c) (iv) that was required to be paid by the steward in respect of each tire class.

6. The amount of the fee required to be paid under this section by the steward in respect of the calendar year, as arrived at under subclause (3) (c) (v).

7. If the amount set out under paragraph 6 is greater than zero, the date on or before which that amount is required to be paid by the steward.

8. If the amount set out under paragraph 6 is less than zero, the date on or before which that amount is required to be credited or paid to the steward and a statement that no fee is required to be paid by the steward under this section. O. Reg. 45/13, s. 4.

(6) A fee required to be paid by a steward in respect of a calendar year, as determined under clause (3) (c), shall be paid no later than June 30 in the calendar year following the calendar year in respect of which the fee is required to be paid. O. Reg. 45/13, s. 4.

(7) If an amount is owed to a steward under subsection (4), Ontario Tire Stewardship shall,

(a) subject to clause (b), (i) apply the amount as a credit against fees payable by the steward under the

Act in respect of used tires no later than June 15 in the calendar year that is two years following the calendar year in respect of which the amount was determined, and

(ii) pay any amount not applied as a credit under subclause (i) to the steward no later than June 30 in the calendar year that is two years following the calendar year in respect of which the amount was determined; and

(b) if the steward ceases to be designated as a steward in respect of used tires, pay the amount to the steward no later than June 30 in the calendar year following the calendar year in respect of which the amount was determined. O. Reg. 45/13, s. 4.

Appendix C: Off-the-Road (OTR) Tires

© 2009 Ontario Tire Stewardship

www.ontariots.ca

Tire Definitions

Passenger & Light Truck Tire

1

© 2009 Ontario Tire Stewardship

www.ontariots.ca

Tire Definitions

Medium Truck Tire

2

© 2009 Ontario Tire Stewardship

www.ontariots.ca

Tire Definitions

Agricultural Tire

3

© 2009 Ontario Tire Stewardship

www.ontariots.ca

Tire Definitions

Industrial Tire

4

© 2009 Ontario Tire Stewardship

www.ontariots.ca

Tire Definitions

Small OTR Tire : 1300R24 to 23.5R25

5

© 2009 Ontario Tire Stewardship

www.ontariots.ca

Tire Definitions

Medium OTR Tire : >23.5R25 to 33”

6

© 2009 Ontario Tire Stewardship

www.ontariots.ca

Tire Definitions

Large OTR Tire : >33” and up to 39”

7

© 2009 Ontario Tire Stewardship

www.ontariots.ca

Tire Definitions

Giant OTR Tire : > 39”

8