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FINAL REPORT

on the

Blue Box In-kind Program

Prepared by

Panel on Blue Box Cost Containment

and the In-Kind Program

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Blue Box In-kind Program Final Report

Table of Contents

1. Introduction ... 1 2. Approach ... 2 3. Background ... 3 3.1 Municipal Position... 8

3.2 Stewardship Ontario Position ... 10

3.3 CNA/OCNA Position ... 12

4. What We Heard From Interviewees ... 12

4.1 Feedback Regarding the Unfairness of the In-kind Program ... 13

4.2 Feedback on Municipalities Not Getting Appropriate Value from Program ... 14

4.3. Feedback on Unfairness of Highest Advertising Rates as Part of In-kind Program ... 15

4.4 Feedback on Opaqueness of In-Kind Program ... 16

4.5 Feedback on Containing or Limiting the In-Kind Program ... 16

4.6 Feedback on Other Issues ... 17

5. Options ... 18

5.1 Option 1: Status Quo ... 18

5.2 Option 2: All Cash ... 19

5.3 Option 3: Split Newspaper Obligation between In-Kind and Cash ... 20

5.4 Option 4: Credit rather than Lineage ... 22

5.5 Option 5: Exempt Newspapers from the Blue Box Program ... 23

5.6 Option 6: Newspapers submit an Industry Stewardship Plan (ISP) ... 24

6. Conclusions ... 25

7. Considerations for the In-kind Program ... 26

8. Recommendations for the In-kind Administration ... 27

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1.

Introduction

Ontario’s Blue Box Program Plan (Plan) was approved under the Waste Diversion Act in 2003.

Section 25(5) of the Act and Section 5.2 of the Plan provides Waste Diversion Ontario (WDO) with the lead responsibility for approval of, and reporting on, the annual obligation or payment required by stewards under the Act to individual municipalities. This includes the obligation of the Canadian Newspaper

Association (CNA) and the Ontario Community Newspaper Association (OCNA) under the Act, known as the in-kind program.

Section 6.5.3 of the original Plan stated that " CNA and OCNA have negotiated with the (then) Ministry of the Environment that their first $1.3 million in obligations as calculated by the pay in model will be in the form of newspaper advertising ".

In November 2005, the then Minister of the Environment approved an amendment to the Plan stating "in future years under the Plan, the CNA and OCNA portion of steward fees representing payments to municipalities, as calculated by the Pay In Model (PIM) will be in the form of in-kind newspaper advertising".

Under the Plan, WDO has made the determination of the annual obligation (including the in-kind

CNA/OCNA obligation) based on advice from its Municipal Industry Program Committee (MIPC), comprised of representatives from the Association of Municipalities of Ontario, the City of Toronto and Stewardship Ontario.

For both years 2014 and 2015, however, MIPC was unable through both negotiation and mediation to reach a recommendation to WDO on the annual obligation. In 2014, the parties agreed to an arbitration process and the arbitrator, Mr. Robert P. Armstrong, Q.C. came to a decision on the 2014 obligation on November 25, 2015.

In his decision, Mr. Armstrong also concluded that the Blue Box In-kind Program under the Plan is extremely unfair to municipalities and that the issue should be addressed by the relevant parties. In particular, Mr. Armstrong stated in paragraph 283 of his decision that:

"However, I am prepared to say that the system of in - kind payments by the newspapers is extremely unfair to the municipalities. On the evidence before me, they clearly do not get what they are paying for. There appears to be no reason why the rates are set at the highest rates that newspapers charge for advertising when the Municipalities on their own are likely to be able to negotiate much lower rates. Also, the process used to determine the total in - kind contribution is still relatively opaque. In my view this issue should be addressed by the relevant parties, including the Minister and representatives of WDO. It would be my strong recommendation that the provision for in- kind payments by the CNA and OCNA to satisfy their portion of the Steward Obligation be removed or certainly limited to a level that is reasonable both as to the total amount and to the rates charged."

On June 16, 2015, the Minister of the Environment and Climate Change wrote to the Chair of Waste Diversion Ontario (WDO) regarding the Blue Box Program. Among other things, he requested WDO to set the obligation for 2015 and requested that the Board develop and report back to him by September 30, 2015 on an "appropriate method of cost containment using all of the information available".

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In response to this request, WDO established the "Panel on Blue Box Cost Containment and the In-kind Program" (the Panel) and released the Terms of Reference for its work on June 26, 2015.

The five person Panel was appointed by WDO, with one representative recommended by AMO/City of Toronto, one recommended by Stewardship Ontario and three directly appointed by WDO.

The objectives in the Terms of Reference charged the Panel with the following responsibilities: 1. Recommending to WDO no later than September 11, 2015, an appropriate methodology to apply the cost containment principles contained in the Blue Box Plan, as amended (December 30, 2004), on the determination of the annual obligation;

2. Submitting recommendations by September 11, 2015, or as soon as possible thereafter, regarding the Blue Box In - Kind Program, to address the concerns raised by the

Arbitrator; and

3. Consulting with stakeholders and gathering information and data, as necessary, to inform their recommendations.

Specific to objectives two and three, this report outlines the Panels stakeholder consultation and observations from that consultation. It outlines the Panel’s overall conclusions, considerations, and recommendations regarding the Blue Box In-kind program and its implementation/administration. It is submitted to the WDO Board for their consideration in meeting the Panel's Terms of Reference dated June 26, 2015.

2.

Approach

Staff of WDO identified information /documents that would be important to the work of the Panel. As with the Panel's Cost Containment work this was supplied through a shared filing approach, with new

material suggested by Panel members added on an ongoing basis.

At its initial meeting, the Panel reviewed the Terms of Reference to confirm its understanding of its work. Both the AMO and Stewardship Ontario members were asked to provide an overview of their respective positions regarding the in-kind issue. Both members submitted this information in writing, so that it could be reflected in the report.

WDO's Director of Stakeholder Relations also presented background information on the administration of the program, noting a number of issues regarding its implementation. In an effort to better understand how the annual in-kind obligation was determined, Stewardship Ontario staff also presented information to the Panel on the details of the calculation and the methodology used to determine the obligation.

Panel members identified persons with a knowledge of the in-kind issue that could inform its work. The Panel met in person or by teleconference with a number of individuals/experts (see Appendix A). These meetings were extremely important, helping to focus the Panel’s discussions and the recommendations considered. Section 4 of the Report summarizes the observations heard in these meetings.

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Both the Canadian Newspaper Association (CNA) and the Ontario Community Newspaper Association (OCNA) were invited to meet or teleconference with the Panel in order to better understand their

position(s), but declined to participate directly with the Panel. The CNA, however, did indicate their support to consider any of the recommendations coming from the exercise that would improve the administration of the program.

The Panel met directly on six occasions to complete its work. Most of its discussions were centred on understanding the current program, the development of options concerning the cash vs. in-kind payment issue and on improvements to the implementation of the current program.

SO and municipal representatives met separately in an attempt to address the issue of sharing of information used for calculating the obligation and in-kind specifically.

Because of the nature of the in-kind issue the Panel divided its discussions into two parts. The first discussion centred directly on the issue of cash versus in-kind payments under the program. Six options were developed for the Panel to consider for discussion and inclusion in the report (these are set out in Section 5 of the Report). The second area of discussion dealt solely with the current implementation and administration of the program, for which specific recommendations were developed.

Conclusions regarding the program and specific recommendations are contained in Sections 6, 7 and 8 of the report.

3.

Background

The original Blue Box Program Plan (the Plan) was approved in 2003. Stewards of products that result in Blue Box materials, according to Ontario Regulation 273/02, are obligated to pay fees to Stewardship Ontario. These fees are used in large part to pay the stewards’ obligation to municipalities in accordance with the Waste Diversion Act, 2002.

However, Canadian Newspaper Association (CNA) and Ontario Community Newspaper Association (OCNA) newsprint stewards held then, and still hold now, the position that old newsprint (ONP) retains a sale value as a commodity that should be cost neutral in an efficient recycling system. Further, newspapers play an important role in public education and could therefore contribute to recycling efforts by promoting public awareness1.

Section 6.5.3 of the original Plan stated that,

CNA and OCNA have negotiated with the Ministry of the Environment (MOE) that their first $1.3 million in obligations as calculated by the pay in model will be in the form of newspaper advertising. The remainder of the CNA and OCNA obligation would be paid in cash.

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In November 2005, the Minister of the Environment approved an amendment to Section 6.5.3 of the Plan stated that,

Following approval of the proposed amendment to the [Plan] in 2005 and in future years under the Plan, the CNA and OCNA portion of steward fees representing payments to municipalities, as calculated by the pay in model [PIM], will be in the form of in-kind newspaper advertising. The key impact of this amendment has been that all of the CNA/OCNA stewards’ obligation to

municipalities have been “paid” through in-kind, not just the first $1.3M. CNA/OCNA obligations to SO and to WDO for administration of the in-kind program have continued to be paid in cash.

Municipalities have always disagreed with being forced to accept unwanted in-kind lineage instead of cash, since they have already paid the costs of their Blue Box programs in cash two years earlier.2 Similarly, stewards of other Blue Box materials have questioned the fairness of this preferential treatment of newspaper stewards. The arbitrator of the 2014 Blue Box funding dispute, the Honourable Robert Armstrong, ruled that the current in-kind system is "extremely unfair" to municipalities.

Regardless of the municipalities’ and non-CNA/OCNA stewards’ disagreement with the program, it has remained in place. Attempts to resolve those disagreements have had limited success. One current mechanism is an In-kind Steering Committee made up of CNA/OCNA, municipal (AMO and City of Toronto), and Stewardship Ontario representatives, WDO stakeholder relations, and is chaired by the WDO CEO. The In-kind Steering Committee was created to address in-kind issues. It took the place of the Public Affairs Committee (PAC) referred to in the BBPP. It does not have formal terms of reference, but was intended to improve the outcomes and administration of the in-kind program.

Although the in-kind process resulted in mostly consistent levels of in-kind contributions over the earlier years, the situation dramatically changed in 2012, 2013 and 2014 funding years. The in-kind obligation increased significantly, from $1.7 million to $3.5 million in 2012, to $6.1 million in 2013, and then to $7.4M in 2014. It reduced marginally to just under $7M in 2015.

The reasons for the dramatic change were explained by Stewardship Ontario. BB material density and Activity-Based Costing (ABC) studies that are key inputs to the steward fee (and in-kind) calculations were commissioned by Stewardship Ontario in 2012. The previous ABC studies had been completed in 2008 and the data was in need of updating to reflect changes to Blue Box material management (e.g. a shift from multi-stream to single stream, increased automation, etc.). Stewardship Ontario also engaged in bale and curbside waste studies to refresh the material composition and generation numbers. SO explained that the increase in the CNA/OCNA obligation and in-kind was a result of many factors changing from 2008 to 2012. The studies revealed systemic changes and changes to the relative density of PPP that resulted in higher costs being allocated to the entire printed paper category and lower gross costs being allocated to

packaging. The four figures below provide the gross cost, revenue, and net cost changes from 2012 to 2013 for printed paper, packaging, CNA/OCNA and magazines/catalogues.

2 Under the Blue Box Program Plan, the annual Steward Obligation is calculated on the basis of verified municipal costs incurred 2.25 years earlier.

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Figure 1: Net Cost Increase for Printed Paper (millions)

Year Gross Cost Revenue Net Cost

2012 $66.8 $41.4 $25.4

2013 $86.7 $44.5 $42.2

Difference ($) $19.9 $3.1 $16.8

Difference (%) 29.8% 7.5% 66.1%

Figure 2: Net Cost Decrease for Packaging (millions)

Year Gross Cost Revenue Net Cost

2012 $221.9 $60.4 $161.5

2013 $220.5 $65.7 $154.8

Difference ($) -$1.4 $5.3 -$6.7

Difference (%) -0.6% 8.8% -4.1%

Figure 3: Net Cost Increase for CNA/OCNA Newsprint (millions)

Year Gross Cost Revenue Net Cost

2012 $27.7 $18.1 $9.6

2013 $35.5 $18.5 $17.0

Difference ($) $7.8 $0.4 $7.4

Difference (%) 28.2% 2.2% 77.1%

Figure 4: Net Cost Increase for Magazines and Catalogues (millions)

Year Gross Cost Revenue Net Cost

2012 $10.8 $7.1 $3.8

2013 $13.1 $6.8 $6.3

Difference ($) $2.3 -$0.3 $2.5

Difference (%) 21.3% -4.2% 65.8%

Both newspapers and municipalities expressed concern about these findings, but for different reasons. Figures 5 and 6 below outline the steward obligations and in-kind amounts over recent years, 2004 to 2015, and 2009 to 2015 respectively.

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Figure 5: Value of Steward Obligation and In-Kind Over Time Funding

Year Program Year Total Steward Obligation (incl. CIF & E&E) Cash Pay-out CNA/OCNA Recent Incr. Yr. to Yr.

2004

(Jan-May) 2001(Best Est.) $20,833,333 $866,667

2004 2002 $42,000,000 $40,700,000 $1,300,000 2005 2003 $58,774,083 $56,982,876 $1,791,207 2006 2004 $55,463,771 $53,986,807 $1,476,965 2007 2005 $55,048,166 $53,688,504 $1,359,661 2008 2006 $66,523,904 $64,694,847 $1,829,057 2009 2007 $78,519,911 $75,218,507 $3,301,404 2010 2008 $83,474,917 $82,050,416 $1,424,501 2011 2009 $91,838,463 $90,134,486 $1,703,976 19.6% 2012 2010 $93,449,346 $89,877,874 $3,571,471 109.6% 2013 2011 $98,500,681 $95,810,272 $6,140,409 71.9% 2014 2012 $115,161,620 $105,765,410 $7,396,210 20.5% 2015 2013 $114,600,548 $105,655,537 $6,945,011 (6.1%)

Figure 6: Outline of the In-Kind and Total Fees per Tonne

Figure 7 on the next page highlights the in-kind trend and its significant increase as a percentage of the obligation since 2011. $0 $20 $40 $60 $80 $100 $120 $140 2009 2010 2011 2012 2013 2014 2015 Fe e pe r T on ne Fee Year

In-Kind and Total Fees per Tonne 2009 - 2015

In-kind Fee/ Tonne Steward Obligatio n/Tonne

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Figure 7: In-kind payment vs the total obligation from 2004 to 2015

Note: This table was provided by municipalities.

The dramatic in-kind increases were unexpected and caused serious concern and frustration for

municipalities, since this meant they would receive a decrease in cash funding that was proportional to the increase in the in-kind advertising. To address the unexpected large increase in in-kind payments to the municipalities for the 2013 funding year, municipalities requested and WDO approved a one-time transfer of $3.45M from the CIF to the cash payout for municipalities.

This significant increase in the in-kind amount has renewed the municipalities’ determination to ensure their concerns about the program be addressed. In December 2012, AMO asked the Minister of the Environment for a return to the original $1.3M cap on in-kind. Also that month, a municipal member of MIPC presented to the WDO Board on the issue. Through the first few months of 2013 there were a number of letters and efforts by AMO to get the program changed. The Chair of AMO presented to the WDO Board the municipalities’ concerns about transparency of the in-kind methodology and fairness in the marketplace. AMO also sent their concerns about the program to the President of CNA.

During this time the Minister directed WDO to investigate the in-kind program and to provide solutions for the Minister’s consideration. In April 2013 the WDO responded to the Minister saying that WDO had determined that the in-kind program was a sub-set of a larger problem with the Blue Box Program, and that the BBP needed a complete review. The review did not occur.

Both AMO/City of Toronto and CNA/OCNA are of the opinion that there are significant shortcomings in the generation, ABC and composition studies, and the fee calculation methodology. They would like to see a review of the protocol and methodology. These parties, as well as WDO, have requested an opportunity to review the data and methodology used in the ABC study, as well as waste audits, that resulted in the significant increase in the 2013 and subsequent in-kind calculations.

Waste studies used by Stewardship Ontario for setting fees are conducted by third party consultants, comprised primarily of the same pool of consultants used by municipalities to conduct waste studies. Many municipalities and the Continuous Improvement Fund use Stewardship Ontario’s methodologies for

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The fee setting methodology used by Stewardship Ontario is prescribed in the Blue Box Program Plan, which Stewardship Ontario is contractually bound to use. Material changes to the fee setting methodology are considered a material change to the Blue Box Program Plan, and therefore cannot be made without the Minister’s approval. The fee setting methodology resulted in an in-kind amount of $6.9 million for 2015. This is $2.9 million less than 50% of the reported net cost to manage CNA/OCNA newsprint, which was calculated to be $9.8 million. This means that the three factor fee setting methodology is allocating $2.9 million, or 30%, of the cost to manage CNA/OCNA newsprint to other printed paper material categories, which are paying cash, because their recycling rate is below 60%.

An overview of the fee setting methodology has been presented at MIPC on numerous occasions since program inception. The methodology overview is posted on Stewardship Ontario’s website along with annual PIM tables. A summary of the study methodology and data is also provided.

At the request of the Panel Chair, staff from Stewardship Ontario and AMO are engaged in discussions to further address municipalities’ concerns about the calculation of the CNA/OCNA in-kind contribution. These discussions will continue beyond the publication date of this report and may include staff from WDO. CNA and OCNA have questioned the validity of the cost increases to recycle newsprint. There are many variables that contribute to increasing the cost allocation to newsprint, e.g., single stream processing, light weighting of containers, changing type of material, and increasing OCC, among others. Changes in weights, volumes and quantities of other types of materials have impacts on costs from the Activity Based Costing (ABC) studies and have resulted in increased newspaper costs.

Municipalities have had concerns with the administration of the program. In late 2012/early 2013 AMO asked WDO to stop the practice of distributing unused municipal in-kind to the Waste Diversion IFOs at no cost. WDO stopped the practice.

About June 2014, WDO stated there was a policy that all unused municipal lineage/in-kind needed to be used within the year or it would be lost (“use it or lose it”). This policy has been in existence since 2006. The 2006 In-kind Guideline states: “if insertion orders have not been received by September 15, WDO will contact each non-responsive municipal program by email to request their insertion orders. If the program does not respond by providing their insertion orders, WDO will arrange to place provincial advertising in the remaining lineage”. This policy was established by the PAC, but remains an issue for municipalities.

3.1 Municipal Position

This municipal position section is provided by the Panel municipal representative. Municipalities have a number of concerns with the in-kind program, which they consider to be a very inefficient use of a large amount of public money. In summary:

a) Newspaper ads as an effective means to communicate with residents are becoming obsolete. b) It uses full CARD (Canadian Advertising Rates and Data) rate which is a much higher rate than what

municipalities can negotiate on their own.

c) It can only be used on waste diversion ads and WDO has adopted a narrow interpretation of what is permitted in the advertisement (i.e., AMO’s annual inserts are generally determined by WDO to be outside the BB program parameters).

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d) The newspaper linage allocated to each municipality is often a very poor match to its target audiences.

e) Many municipalities can’t use the small fragmented allocations that are assigned by CNA/OCNA based on their membership.

f) Terms of use are typically slow and inflexible.

g) CNA/OCNA has been very resistant to any changes to the program to make the in-kind program more usable for municipalities.

As to the amount of the in-kind deduction:

i. The in-kind amount set by Stewardship Ontario is too high and continues to increase each year (exception being 2015). The total is much too high for municipalities to reasonably use it for waste diversion advertising in newspapers.

ii. Unlike the rules that apply to all other public expenditures, and to the data reported by

municipalities to the Datacall, the data and methodology that Stewardship Ontario uses to calculate the in-kind deduction are not transparent, reliable or objective, and the outcomes are not validated by any third party.

iii. The 2012 review by MIPC (a limited review) provided some recommendationsas to how to address deficiencies in the Stewardship Model. They have not been implemented.

iv. SO has not held a consultation with the newsprint stewards and municipalities on the methodology since 2011 (when it was based on 2008 curbside audit data). Consultation has been requested by municipalities and CNA/OCNA.

To overcome the "extreme unfairness" identified by the arbitrator with the in-kind program, the municipalities’ preferred result would be:

• CNA/OCNA stewards should pay cash like all other stewards3;

• If this is not achievable, the in-kind value should be capped at the original $1.3M with remainder of CNA/OCNA obligation being paid to municipalities in cash;

• If Stewardship Ontario fails to collect the fees that newspaper stewards owe, Stewardship Ontario should bear the loss, not municipalities.

To the extent that municipalities are forced to continue to accept any of the steward obligation in the form of unwanted newspaper advertising:

• The data and methodology to calculate the in-kind deduction should be transparent, reliable and objective, and the outcomes must be validated by a credible third party, such as WDO or the Auditor General;

• The mechanism for assigning lineage to individual municipal Blue Box programs should be transparent and objective, and should match the communication needs of those programs;

• Municipalities should be charged at true market rates (consistent with the rates they are charged for other advertising), not the artificially high CARD rates; and

• Lineage should be recognized as a municipal asset that municipalities have already paid for: o It should not expire.

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o Municipalities should be permitted to use it on the same terms as paid advertising, and for any proper municipal purpose (including water boiling notices, road closures, and

planning), without editing or censorship by WDO or other parties. o Municipalities should be able to trade it among themselves.

o No third party, including WDO, should be able to use or dispose of municipal lineage without municipal consent.

3.2 Stewardship Ontario Position

This Stewardship Ontario position section is provided by the Panel SO representative.

WDO utilizes the value of the steward fees due from members of CNA/OCNA for program management (municipal payments) each year to administer the annual CNA/OCNA in-kind program as stipulated in the BBPP as amended.

Stewardship Ontario is able to provide comments on the fee-setting process and as an observer of the WDO’s administration of the in-kind program.

Stewardship Ontario acknowledges that stakeholders’ views of the in-kind program are varied. As such, Stewardship Ontario supports the Panel’s consultation with stakeholders affected by the in-kind program while developing recommendations to WDO.

Use of In-Kind Lineage for Purposes Other than the Blue Box Program

Municipalities have requested that the in-kind lineage be available for purposes other than the Blue Box Program or waste diversion programs generally. Municipalities have, for many years, been able to use the in-kind lineage to promote any waste diversion activity. The 2015 Municipal In-kind Advertising Program Guide, prepared by WDO in co-operation with its Public Affairs Committee (PAC), and subsequently revised by the In-kind Steering Committee, which includes municipal representatives, states “Advertisements used in the program must be created for the purpose of promotion and public education for any type of municipal waste diversion program and/or service, (e.g., waste materials identified as part of the Blue Box, MHSW, WEEE and Used Tires programs) (emphasis in original).

Consistent with the bold text in the excerpt from the 2015 Guide above, the Panel should clarify that in-kind lineage and the annual insert available to AMO as set out in the 2015 amendment cannot be used for lobbying efforts. Lobbying efforts include, but are not limited to, statements of a policy or political nature that may affect one or more of the Premier of Ontario and her staff, Members of Provincial Parliament, the Ministry of the Environment and Climate Change officials and staff, Waste Diversion Ontario and its staff, Industry Funding Organizations and their staff or stewards and their staff.

Value of Used Lineage Is Not a Cost Incurred

The honourable Mr. Armstrong’s ruling that the value of in-kind lineage used by municipalities be included in the calculation of the annual steward obligation has resulted in an unfair allocation of costs to stewards by including costs that were not incurred by municipalities.

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Section 25(5) of the Waste Diversion Act states:

A waste diversion program developed under this Act for blue box waste must provide for payments to municipalities to be determined in a manner that results in the total amount paid to all

municipalities under the program being equal to 50 per cent of the total net costs incurred by those municipalities as a result of the program. (emphasis added)

Municipalities make use of in-kind lineage. Municipal costs to prepare advertising content and staff time to make use of the in-kind lineage represent costs incurred by municipalities, are to be reported as P&E costs in the Datacall and are part of the total net costs incurred by municipalities as a result of the Blue Box Program. However, the value of the in-kind lineage used by municipalities does not represent a cost incurred by municipalities, does not appear on municipal financial statements and is not part of audits performed on municipalities’ financial records. The value of the in-kind lineage used is therefore not part of the total net costs incurred by municipalities as a result of the program for determination of the steward obligation.

Is Newspaper Advertising Considered Best Practice?

One of the primary criticisms of the in-kind program raised by municipalities is that the lineage is not effective in promoting increased participation in the BBP. It seems, therefore, that newspaper advertising may not be a best practice and the value of in-kind lineage may therefore not be a best practice cost. The Best Practice Study, previously recommended by the Panel, should consider whether the costs of

newspaper advertising generally and the in-kind program in particular should be excluded from the best practice system cost.

In-Kind versus Cash Payments

Municipalities have made it clear that they would prefer to receive cash payments from CNA/OCNA

newsprint stewards rather than in-kind lineage. This would be a significant change to the Blue Box Program and would result in Ontario being the only province in which CNA/OCNA stewards pay their full fee

obligation in cash.

If the Panel chooses to recommend a change to cash payments, there are a few successful implementation criteria that the Panel must consider. These include, but are not limited to:

• The Ministry of the Environment and Climate Change (MOECC) must recognize the change in obligation/responsibility and be equipped to manage any compliance escalations in the event that one or more CNA/OCNA stewards do not report and pay fees to Stewardship Ontario; and

• A mechanism must be developed to reduce Stewardship Ontario’s payments to municipalities in the event that the MOECC is undertaking compliance activities with respect to one or more CNA/OCNA stewards such that any in year deficit created by this non-compliance is not a cost borne by the remaining SO stewards.

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3.3 CNA/OCNA Position

Information on this issue is available on the Newspapers Canada website at http://www.newspaperscanada.ca/public-affairs/recycling.

CNA and OCNA have questioned the validity of the significantly increasing costs to recycle newsprint in 2012 and thereafter. Since municipalities are solely responsible for material processing decisions which in some cases have increased BB system costs, e.g., single stream, the newspaper industry argues that they should not be obligated to compensate for these higher net BB costs. Further, on an individual steward level, there is a concern that a number of smaller newspapers, who are above the de minimis4 threshold, are not reporting to Stewardship Ontario and are thus acting as free-riders in the system. CNA have assisted Stewardship Ontario in its investigation of potential free-riding stewards.

CNA/OCNA have worked with the In-kind Steering Committee to make changes to the program including:

• expanding their offering to include digital ads;

• adjusting the timelines for using the lineage; and

• working with the steering committee to streamline the ad placement process.

The newspapers have stated they will provide ideas and support for making the advertising program more effective, e.g., a larger across-province advertising campaign.

Newspapers are not included in many BB programs (e.g., Europe), where they are obligated payment is not enforced (e.g., B.C.), or the cost of newsprint recycling is paid for by the provincial government (e.g., Manitoba).

4.

What We Heard From Interviewees

Stakeholders, as well as other identified informants, were interviewed by the Panel to collect information and inform options development and our recommendations on the in-kind issue. A number of specific questions were sent to the interviewees ahead of time, to focus the interviews. For a list of interviewees see Appendix A.

One interview was held at the WDO offices with four of the five Panel members in attendance. Other interviews were held by teleconference with some or all Panel members present. In other cases, people had been interviewed as part of the cost containment research process, and these were re-contacted to confirm their comments on the in-kind program by phone or email.

A presentation was also made to the Panel on how steward fees are calculated, in an effort to understand the impact of the in-kind program on fees paid by other stewards.

The following sub-sections summarize the feedback from the interviews under headings which match the four points raised by the arbitrator.

4 Stewardship Ontario’s de minimis rule states that stewards that annually produce less than 15,000 kg of Blue Box waste and receive less than $2

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1. The system of in-kind payments by the newspapers to the Municipalities is extremely unfair; 2. The municipalities do not get what they pay for;

3. There appears to be no reason why the highest advertising rates are used, when the Municipalities on their own could get better rates; and

4. The process is relatively opaque. A general category is also included.

4.1

Feedback Regarding the Unfairness of the In-kind Program

There was unanimous agreement among municipalities, municipal representatives, SO and steward representatives that the current in-kind system is extremely unfair, not just to municipalities, but also to other stewards, particularly other printed paper stewards, all of whom have to pay their obligation in cash. For the municipalities, there are a number of reasons why the program is unfair:

No newspapers in some parts of province: Some municipalities complained that there are no local newspapers where they can use their in-kind allocation. This is assigned to the next closest

newspaper that is part of the CNA/OCNA program, but this may not even be a newspaper that goes to the local community that received the in-kind as part of their Blue Box payment.

Northern and rural communities unfairly impacted: Because of the way the in-kind is allocated, northern or rural areas are under-represented in their use of the in-kind program. They leave dollars on the table – usually not by choice and significant to them. Many northern communities have no local paper, or their local paper is not part of the in-kind program. Many are forced to use lineage at top rates in newspapers that don’t have distribution in the subject communities. Many municipalities do not know that the in-kind program exists, because the staff person looking after recycling “wears 6-8 hats”, and do not have time to think about using the in-kind program. Or there has been turnover of staff or responsibility, and the ‘new’ person are not aware of the program.

CARD rates: The issue of CARD rates is discussed in section 4.3 below.

Newspaper advertising is less effective today: Whereas newspaper advertising was used extensively when the in-kind program began in 2004, and readership of print newspapers was much higher than today, in 2015 many more people get news on-line and newspaper advertising is less effective than it used to be – one interviewee noted that this has happened at a time when ironically the value given to municipalities has gone up almost 350%.

Promotion and Education campaigns use less print advertising: Print is not the main media used for many recycling and waste diversion campaigns today, although it is generally a component of a media plan, but only one of the tactics. Newspaper advertising might not be used if not for the in-kind program. Media plans today don’t always include print advertising. For example, the City of Toronto is launching a pure radio ad campaign soon. Media plans now focus more on more digital and online. Tactics are moving to Facebook and Twitter. Four of the 30 publications that the City of Toronto deals with provide on-line space (Globe, Star, Sun and Sing Tao).

Lack of flexibility: Newspaper advertising is not what municipalities would choose to spend $7 million on. This eats into the obligation significantly and if given cash rather than in-kind

municipalities could make better use of the cash. One interviewee commented that it is great to get free advertising, but “free isn’t always free” – municipalities incur costs to be able to use the space

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– they may need to spend money on translation and creative/design, and they must use papers they would not normally use – e.g. some ethnic papers do not reach the target audience.

Unfair to other printed paper stewards: Other printed paper stewards (magazines, flyers, directories, etc.) do not have the option to discharge their obligation using in-kind advertising – they all pay cash.

Unfair to other stewards: Other stewards commented that they would like the option to pay their obligation through in-kind – contributions of free coffee and soap were made as examples to illustrate the unfairness of the in-kind program.

Cannot use the large amount allocated: When the in-kind was $1.3 million, and print media were used more in campaigns, it was easy to use most or all of the in-kind. However, since it increased to $7 million, and print media are not used as much in campaigns, it is hard to use up the in-kind. About 75% of the 2015 total in-kind amount was still unused in the summer of 2015, and was not fully used in the previous two years.

4.2

Feedback on Municipalities Not Getting Appropriate Value from Program

Those interviewed raised the question of the in-kind not actually having any value to municipalities and AMO who are forced to use it in lieu of cash. Specific comments on this aspect included:

• One interviewee was not convinced that advertising in newspapers drives the goals of the Blue Box Plan, and they suggested that there is no evidence that advertising in any way drives activities in the Blue Box.

• Newspaper advertising is only one of a host of communication tools that can be used to promote recycling, and may be not very effective – therefore municipalities are effectively paying for something that does not have much value to them – like having a voucher for a store where you would not normally shop.

• AMO has never used newspaper advertising to advance its broader goals; therefore the annual flyer is of little or no value to AMO (see discussion later regarding editorial control of the flyer content). AMO pays for the design and management of the flyer, which is considered an “expensive

distraction” – the money could be used in other areas with a better return on investment. Municipalities do not feel that they get appropriate value in the following specific ways:

Bumping” of booked municipal in-kind ads: Municipalities launch promotion and advertising programs within a coordinated communications plan where newspaper advertising may be one small part of the complete program. One of the complaints with the “in-kind” program is that is it unreliable for municipalities – their advertising often gets “bumped” when paid advertising comes along, even though it was booked for a specific time slot weeks in advance through the in-kind program. This unreliability causes many municipalities to simply pay for newspaper advertising to make sure the ads run when they are supposed to, not when a newspaper can fit them in. When the municipalities make a late request, they are often told there is no room.

Location of ads challenge: in the in-kind program, municipalities are not treated the same as a full paying advertiser. They cannot guarantee the location where their ads are placed or what the ad is near. Sometimes the ad runs black and white when colour was requested and booked. Large

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municipalities have more “clout” in this aspect of the in-kind program than small municipalities, particularly if they are already a large volume buyer with the newspaper.

CARD rates: See the next section (4.3).

In-kind is limited to waste related topics: The in-kind advertising can only be used for waste related topics, and even within this category, municipalities feel they are constrained, with editorial control of the message out of their hands (discussed below). If the in-kind could be used to cover all municipal advertising needs it would be much more valuable to municipalities. However, the Panel notes that municipal advertising is a large source of revenue for newspapers, particularly community newspapers, and allowing in-kind to be used for all municipal needs would reduce advertising revenues, particularly for smaller newspapers.

Editorial control not with municipalities: Municipalities complain that WDO sometimes exerts editorial control over ads used using the in-kind allocation. Therefore they don’t feel fully free to publish what they want – this again limits the value of the in-kind to municipalities.

Editorial Control of the AMO Insert: The flyer format and its editorial control is not useful for AMO’s core business. Because AMO is a policy driven organization, its target is governments, not the general public. It uses earned media to push government hard on particular issues, therefore an annual flyer is not very useful to its core purpose. If AMO is going to use a flyer, it would be to motivate the public to bring about policy changes with the government, and possibly inspire and motivate the public to question waste. The ads suggested by AMO were designed to speak to the masses on policy, not on waste diversion operations, behaviour change, etc. The Panel received feedback from one interviewee that efforts have been noted to “moderate, change or mute long standing AMO messages that are surprisingly benign”.

Can’t Use Their Allocation: Municipalities are often assigned lineage in newspapers that do not reach their target audience.

4.3.

Feedback on Unfairness of Highest Advertising Rates as Part of In-kind Program

The municipal in-kind allocation is calculated and distributed using CARD rates to convert the in-kind value to lines of advertising. CARD rates are effectively “full price” or highest advertising rates which most advertisers could be charged. CARD rates refer to the value of advertising lineage – a line might cost $3.50 for a suburban paper and only $0.30 in rural/smaller communities. The in-kind allocation is converted to advertising lineage using CARD rates. A volume discounts are applied after a certain point for large volume municipalities.

Municipalities and other advertisers can generally negotiate substantial reductions on CARD rates when buying actual newspaper advertising. One example was provided during the interviews where a

municipality bought a quarter page ad for $6,700 which would have cost $19,597 if purchased at CARD rates or the value was claimed through the in-kind program – the municipality could negotiate a price which was 1/3 of the official card rate. This problem effectively means that the value of the in-kind program is not actually $7 million, but an amount much lower than $7 million.

Also, the reverse is probably true for smaller communities where the CARD rates and municipal in-kind methodology (discussed below) translate to a significant amount of lineage which cannot be effectively utilized.

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4.4

Feedback on Opaqueness of In-Kind Program

Considerable feedback was received that there needs to be improvements in helping municipalities understand how the in-kind program works, i.e., how lineage is calculated, assigned and tracked, and how to book, etc. The Panel obtained clarification on how the program works through various interviews, including the WDO staff, and the In-kind Program Guideline. As well an SO representative presented the methodology for calculating the in-kind municipal obligation to the Panel.

The steps to assign in-kind allocation to municipalities are as follows:

• CNA is a national organization that represents daily newspapers. OCNA represents community newspapers (weekly or twice weekly, and a handful of monthlies). OCNA represents 310 community papers – approximately a dozen are multi-cultural/ethnic titles. Many community newspapers are not members. There are an estimated 250-350 ethnic titles in the GTA alone, most of which are not members. Of the OCNA membership, approximately 56% are corporately owned and 46% are independently owned. The 56% corporate members also own the dailies;

• SO identifies the CNA/OCNA obligation/contribution in dollars;

• CNA/OCNA get a spreadsheet from WDO that lists all the municipalities in Ontario and the dollars attributed to each municipality (that is based on the pay-out model proportions);

• CNA/OCNA divide the total obligation between dailies and community newspapers in a 60:40 split;

• CNA/OCNA allocate the in-kind to newspapers in each municipality based on a weighting formula which includes; 1) page format, 2) page count, 3) frequency of publication, and 4) circulation. For instance, if a municipality has 5 newspapers, each newspaper’s share of the total in-kind allocation dollar value is split based on the weighting formula;

• The allocation gets complicated when one newspaper services a number of municipalities;

• The dollar value assigned is converted to lineage that the municipality can use based on the CARD rate with volume discounts where appropriate; and

• Where the amount due to a municipality is less than the value of a ¼ page ad, the in-kind is bumped up to a ¼ page minimum.

This approach is confusing for newspapers themselves – a big paper might be assigned 500 lines for a certain dollar value, but a smaller paper might be assigned more lines because their rate is lower.

Many papers don’t use the language of lineage anymore – they sell ads by modules – the lineage in the in-kind program is hard to translate to modules, so when municipalities book with papers, the conversion is difficult as they are effectively speaking different languages. The WDO in-kind guideline is provided to assist in the conversion.

Municipalities commented that tracking of the in-kind program and the lineage used and assigned is not clear to them.

4.5

Feedback on Containing or Limiting the In-Kind Program

There was a clear message from all those interviewed that the in-kind program should be eliminated and replaced with cash, or at least the value of the in-kind be limited. Some of the comments included:

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• One municipal group stated that the in-kind needs to be cash – plain and simple. Municipal governments are a mature and responsible level of government that need to be trusted to use the funds wisely to increase the level of awareness and participation in recycling. They don’t need to be guided or told what to say by any other body.

• The AMO flyer was not considered of value by one interviewee who suggested that if AMO could use free ads as they see fit, then the program would have more value.

• Currently all CNA and OCNA members pay their Blue Box obligation through the in-kind program. If there was no in-kind program and there was a de minimis, there would be numerous small

newspapers that would be under the de minimis and therefore not have any obligation.

4.6

Feedback on Other Issues

Other comments received from those interviewed by the Panel fit into a few broad categories.

Magazines

• Newspapers and magazines are similar in that they have a consumer that wants the product. They do not have the ability to reduce the content without losing readership, advertising and therefore revenue.

• Newspapers have a competitive advantage over magazines as the newspapers don’t have to pay stewardship fees.

• One magazine company has closed 3 magazines in the last 7 years because they are no longer profitable, and are not viable with increasing costs, including stewardship fees.

• Magazines are about a $1.3 billion industry in Canada; larger than film and book industry in Ontario in generating revenue. Magazines are not a highly profitable business.

• Magazine fees rates have increased by approximately 8,000% since the Blue Box program began. No-one in the magazine industry understands how this happened.

• Free ridership is a big issue for magazines. About 50% of the tonnage of magazines in the Blue Box is from magazines mailed from the United States – these magazines don’t pay fees and the

remaining magazines who are obligated have to “cover the freight” for the free riders.

Newspapers

• CNA/OCNA members contribute to the kind if they are members, with no de minimis. If the in-kind program went to cash, many newspapers would be under the de-minimis provision and would not be obligated. Some may choose to give up their CNA/OCNA membership.

• With a cash contribution, newspapers cannot pass the costs onto customers. The vast majority of community newspaper revenue is advertising – they are mostly free newspapers with no

subscription revenue. Raising advertising costs in small communities would not go over well. They are already losing advertising to on-line, and are losing revenue.

• In-kind ad space takes up space that would otherwise be paid for, so in-kind is a form of lost revenue.

• Municipal advertising is a significant portion of the advertising revenue for community papers, therefore converting all of the in-kind to cash, or requiring the in-kind to be for all municipal advertising would significantly impact revenues for small newspapers.

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Miscellaneous

• On-line advertising has a different design format and is measured differently in the in-kind program. Only a few municipalities have experience designing and booking on-line. The on-line option to use up the in-kind has not had a great uptake to date. Few municipalities have the budget for design of on-line ads. They are less expensive, however frequency is the key to reaching the audience. Bad ads don’t work – it is important to have excellent design and messaging to break through the cluttered space.

• Time is still a barrier to using the in-kind. Two weeks’ notice is required to book the in-kind whereas a few days is sufficient if buying directly with the newspaper. One municipality

commented that sometimes in-kind is booked through a different person at the newspaper than regular advertising.

• In September, WDO calls each of the 236 municipalities that have used under 50% of their allocation to remind them about their unused in-kind allocation and the resources (ads already designed, website, etc.) that they can use. During these calls, the name of the contact person is confirmed. There is usually a 30% turnover in municipal in-kind staff which may contribute to lack of understanding of the program and utilization of the in-kind.

• In the past, unused lineage would be given to other non-Blue Box programs (WEEE, tires, MSHW) at a certain point in the year to “use it rather than lose it”. AMO objected to this practice.

• Interviewees commented that it is difficult in some cases to use the in-kind allocation because it is harder to book through WDO than directly with the newspaper. This problem was solved 18 months ago by allowing municipalities to deal directly with newspapers and report usage back to WDO. It appears that additional communications of this solution to municipalities and their representatives would be helpful, as many are not aware of this change.

5.

Options

This section presents a number of options and sub-options. In developing these options the Panel considered the concerns of the arbitrator on fairness, and input and feedback of stakeholders. The

following four key questions were put forward by the municipalities for the Panel’s consideration in option development.

1. Should CNA/OCNA stay in the Blue Box?

2. If so, how should the amount of the CNA/OCNA obligation be calculated? 3. If so, how should the CNA/OCNA obligation be paid to municipalities?

4. If municipalities are required to continue accepting in-kind from CNA/OCNA, what rules should apply to this in-kind?

5.1 Option 1: Status Quo

The first option is to maintain the current in-kind policy for Blue Box funding. Newspapers would continue to provide their contribution to the stewards’ municipal payment obligation as in-kind lineage only. The rationale for the status quo option is that:

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1) it would be consistent with the Minister’s approval of the 2005 amendment to the Blue Box Plan;

2) there have been numerous attempts to eliminate or reduce the in-kind in the past with no success.

3) newspaper publishers are not willing to make cash payments or enter into discussions on the matter;

4) there has not been a willingness by the government to change the in-kind program since the last amendment (November 2005) and this appears to remain the case; and

5) the in-kind program was developed from discussions between the newspaper publishers and the government during the development and early implementation of the Waste Diversion Act. The government is currently developing new legislation to replace the WDA. This, if introduced and passed, may address the newspapers issue.

Therefore, recommending any change to the current in-kind policy could create more challenges in the short term that would not be worth the time and effort. Figure 7 provides pros and cons of this option.

Figure 7: Option 1, Status Quo Pros and Cons

Pros Cons

CNA/OCNA newsprint stewards would continue to pay fees for direct program operations as in-kind contributions. They also pay cash for program administration costs (SO and WDO). No stakeholder consensus on a solution for the in-kind policy, so status quo may appear justified.

No regulatory change required.

Municipalities may not be able to spend all of their in-kind advertising lineage.

Municipalities that choose not to make use of all allocated in-kind lineage, or are unable to make use of their full allocation of in-kind lineage, are foregoing compensation from CNA/OCNA stewards, by an aggregated $3M in 2014.

Municipalities may continue to receive in-kind calculated at higher rates (CARD) than their negotiated rates.

Status Quo does not solve the policy issue, or the unfair impact on municipalities and other stewards.

Maintains the current unfairness between classes of stewards: some pay in cash, others pay in-kind.

5.2 Option 2: All Cash

The second option is to remove the in-kind policy entirely and direct newspapers to pay 100% cash fees, as the other stewards presently do. As already mentioned in the background, some other provinces have passed or are considering recycling regulations that do not include special arrangements for newspapers. Although newspapers have refused to join an approved program in BC and remain non-compliant. A transition period of a few years might temper the impacts of a change to 100% cash funding.

In any of the options involving cash payments (full or partial) there is a concern regarding non-payment of cash fees by some newspapers. In the event of non-compliance, enforcement actions would be essential, as well as management of financial risks for SO and municipalities.

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The pros and cons of Option #2, All Cash, are presented in Figure 8.

Figure 8: Option 2, All Cash Payment Pros and Cons

Pros Cons

Municipalities would receive increased cash funding, of approximately $7M per year.

Other BB stewards would consider this fair.

Newspapers strongly object to a change from 100% in-kind to any cash funding.

The newspaper industry contends that this may cause financial sustainability challenges for some newspapers, in particular smaller newspapers.

Newspapers have suggested in the past that they may pull out of the Blue Box and submit an Industry Stewardship Plan (ISP) to WDO; with potential negative impacts to the BB Program, i.e., possible public confusion, and the BBP would cost more for remaining stewards.

If newspapers operated their own collection system for newspapers, Reg. 101/94 would still require municipalities to collect newsprint; collection would still occur and municipal costs would still be incurred for any CNA/OCNA newspapers collected unless the Regulation was changed, municipalities removed newspapers from the BB system and residents did not put newspapers in the BB.

Newspapers may choose to not make cash payments, and there could be negative financial impacts on SO and municipalities. If there is non-compliance, enforcement actions by MOECC would be required.

The Minister’s approval of an amendment to the Blue Box Plan would be required.

5.3 Option 3: Split Newspaper Obligation between In-Kind and Cash

A third option consists of developing a cap for the portion of the steward fees that newspapers could pay as in-kind lineage. The remaining obligation would be paid in cash. There are different methods of defining the split and associated value.

The rationale for this option is that, although no consensus can be reached between the municipalities and the newspapers, a cap on the in-kind is a middle ground; newspapers would retain the ability to pay a portion of steward fees as in-kind advertising, and municipalities would receive more cash funding when compared to in-kind lineage only. Further, the original Plan contained a $1.3 million cap on the in-kind advertising, so a cap would not be a new concept in Ontario.

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This option would be similar to Quebec’s regulation5 (Bill 88) under Quebec’s Environment Quality Act, which established a cap on the amount of advertising to be provided by newspapers in lieu of cash. Bill 88 specifies, for 2013, that the total newspaper obligation for the cost of the Quebec recycling system could not exceed $6.46 million6, of which a maximum of $3.42 million, or 53%, could be provided as goods and services (advertising). For 2015, the total obligation for newspapers increased to $6.95 million, of which a maximum of $3.5 million, or 50%, can be provided as advertising.

Such a policy on an advertising cap could be replicated in Ontario; however, due to differences in

legislation, dictating in advance the fees for stewards of any material is not possible in Ontario. To illustrate, Section 53.31.5 of Quebec’s Environment Quality Act permits the government to:

Set the maximum amount of the annual compensation payable; and

Limit the amount of the annual compensation payable to a percentage it sets.

Ontario’s Waste Diversion Act (WDA) does not allow such flexibility. Section 30.3.1 states that:

The total amount of fees paid by stewards...should not exceed the sum of the following amounts: i. The costs of developing, implementing and operating the program...

In Ontario, steward fees must be based on the actual costs of recycling each obligated material, i.e., no cross-subsidization. If the total obligation of one material was limited, other materials would have to bear the extra costs. This cross-subsidization, forcing a steward of one material to pay the cost of another material, would be a violation of the WDA.

For the in-kind portion, the municipalities could use the in-kind advertising to meet all municipal advertising needs with no restrictions.

There are different approaches to applying an in-kind cap and cash option. Below are five sub-options that cover the range of approaches. Each sub-option would require an amendment to the Blue Box Program Plan. The first is a percentage of the total CNA/OCNA obligation. The remaining approaches are variations on a hard cap.

a) A 50% cap on the total in-kind contribution. CNA/OCNA newsprint stewards would be obligated to pay approximately $3.5 million in in-kind advertising (2015), and the remainder of their fees in cash. This option would represent a hybrid approach between Quebec and Ontario: the in-kind cap would represent 50% of the total CNA/OCNA newsprint obligation to municipalities (Quebec approach) and the remainder of their obligation to municipalities paid in cash. The original BBPP included an in-kind cap of $1.3 million, until it was removed by the 2005 amendment. This sub-option would reinstate an in-kind cap with the remainder paid in cash. b) This sub-option would use the original BBPP program’s $1.3 million cap and its relative

percentage of the total steward obligation. In that year, the total Stewards’ obligation was $58,774,000, thus the $1.3 million in-kind cap represented 2.2% of the total obligation. If this

5B.C. has also passed regulations prescribing all stewards to pay fees for the costs to recycle material. As well there are other provinces developing PPP legislation at this time.

6 This cost for the recycling of newsprint translates into approximately $0.80 per capita in Quebec, compared to the $0.45 per capita that is paid in Ontario for 2012 (referenced from StatsCan populations). Both rates are based on the total cost, and not whether payment is by cash or advertising.

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same percentage were applied to the 2015 stewards’ total obligation ($114M), the in-kind contribution would be approximately $2.5 million, with the remainder of the CNA/OCNA newspaper obligation to municipalities paid in cash ($4.5 million).

c) This sub-option would be to take the $1.3 million cap originally set in the BBPP, and increase it based on the Consumer Price Index (CPI) to 2016 and beyond. This would result in a 2015 in-kind cap of approximately $1.6 million, with the remainder of the obligation paid in cash ($5.4 million).

d) This sub-option would use an in-kind cap of $1.8 million. This was the amount of the in-kind advertising for 2005 when the Minister amended the BBPP to eliminate the cap. The remaining $5.2 million would be cash.

Figure 9 provides pros and cons of the in-kind cap and cash option.

Figure 9: Option 3, In-Kind and Cash Pros and Cons

Pros Cons

Municipalities would receive increased cash funding.

A cap on in-kind might be considered a balancing of interests between the two parties’ positions.

Other BB stewards would consider this fairer than the existing in-kind situation.

Newspapers would object to a change from 100% in-kind to any amount of cash funding.

The newspaper industry contends this may cause financial sustainability challenges for some smaller newspapers, and some may cease paper editions.

Newspapers may choose to not make the cash payments, with potential negative financial impact on SO and municipalities, i.e., SO may not be able to make its full financial obligation to municipalities.

Newspapers could pull out of the Blue Box and submit an Industry Stewardship Plan (ISP) to WDO; with potential negative impacts to the BB Program, i.e., possible public confusion, and the BBP would cost more for remaining stewards.

The Minister’s approval of an amendment to the Blue Box Plan would be required.

5.4 Option 4: Credit rather than Lineage

This option proposes that the CNA/OCNA obligation payment be changed from advertising lineage to a credit in dollar value of advertising. This would eliminate the restrictions associated with the lineage usage, including timing, content, rates, media type, etc. Municipalities could use the advertising credit as they see fit. It could be used to purchase any services or products of the CNA/OCNA newspapers, e.g., print, online and any other services.

A potential sub-option would be to reserve a reasonable portion of the in-kind, i.e., $1.3 million (the amount of in-kind provided for in the original BBPP) for use on advertising related to waste diversion /management. It would reduce the unfairness to municipalities of the current system, but with less

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adverse impact on newspapers, particularly small newspapers, than the full amount used as a credit. It could be implemented in phases.

The credit would be recognized as a municipal asset that municipalities can use on the same terms as cash advertising, and for any proper municipal purpose (including water boiling notices, road closures, and planning notices).

This option would require an amendment to the BB Program Plan.

Figure 10: Option 4, Credit vs. Lineage Pros and Cons

Pros Cons

Municipalities would be able to make better, more effective use of the steward ‘payment’, i.e., reducing or eliminating the unused in-kind.

This would reduce the WDO administrative burden.

Newspapers would object to a change from 100% in-kind to a credit that would reduce revenue from other types of advertisements placed by municipalities.

The newspaper industry would contend that this may also cause financial sustainability challenges for some smaller newspapers.

This would impact newspapers’ financials, particularly ones with significant municipal government advertising revenue, as they would lose the revenue currently gained from the other advertising and services.

The Minister’s approval of an amendment to the Blue Box Plan would be required.

5.5 Option 5: Exempt Newspapers from the Blue Box Program

This option proposes to remove the CNA/OCNA and other newspapers (and resulting newsprint) from the Blue Box Program. There are considerations for this option including:

1) CNA/OCNA member newspapers are not the only stewards generating newsprint, e.g., other newspapers, retailer flyers, etc.;

2) Would all newsprint be removed from Reg. 101 to provide municipalities a choice whether to collect the material? If yes, would Reg. 101 be amended to remove only CNA/OCNA newsprint or all newsprint? Would municipalities continue to divert newsprint in order to maximize landfill life and meet constituent demands? Notwithstanding a change to Reg. 101 to remove the obligation for municipalities to collect newspaper and any decisions by municipalities to no longer collect CNA/OCNA (or all) newsprint, residents may continue to place all newsprint in the BB; and

3) If newspapers are considered a public good, are there other methods of funding the collection and recycling of newsprint, such as by the Province or municipalities?

Figure 11 below outlines the pros and cons of this option.

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Pros Cons

Elimination of the in-kind issue. The diversion rate for newsprint may decline.

Municipalities continuing to collect newsprint would pay the full cost.

If newsprint was no longer collected by municipalities with populations greater than 5,000 residents, then:

• This may incur resistance from the public, as newsprint was an original material in the BB; and

• BB system costs would likely go up for other stewards. The Minister’s approval of an amendment to the Blue Box Plan would be required.

An amendment to Reg. 101 would be required.

5.6 Option 6: Newspapers submit an Industry Stewardship Plan (ISP)

This option is based on CNA/OCNA newspapers developing and submitting an ISP to WDO based on operating a separate collection program for their newsprint. Mandatory collection of non-CNA/OCNA newsprint by municipalities (Reg. 101) would have to be reviewed as there would be significant newsprint still remaining in the municipal collection system.

The ISP process includes development of an operating plan, stakeholder consultation, a transition plan (from the current IFO), and submission for approval by WDO. The process would take a number of months (at a minimum) to develop and receive approval. Approval requires that the proposed ISP meet or exceed the current performance of collection services and diversion of newsprint under the BBPP. The current recycling rate for newsprint is very high at roughly 95%.

In developing an ISP the newspapers may consider approaching other newsprint and paper fibre stewards about joining their ISP. This would likely lower their cost and reduce confusion for their customers. Figure 12 below outlines the pros and cons of this option.

Figure 12: Option 6, Pros and Cons of a Newspaper ISP

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Newspapers would choose to operate and pay for a collection and recycling program for their newsprint.

Elimination of the in-kind issue for municipalities.

Newspapers may decline to develop and operate an ISP, while continuing to maintain they should be exempted.

This would result in two parallel collection systems with additional recycling infrastructure, costs, and environmental impacts.

If newsprint was no longer collected by municipalities with populations greater than 5,000 residents, then:

• The diversion rate for newsprint may decline.

• This may incur resistance from the public, i.e., additional trucks, collection bins, etc.

• BB system costs would likely go up for other stewards.

Could put the economics of the Blue Box program at risk.

An ISP submitted by newspapers would have to achieve similar or better performance than the BBP. This would likely require curbside collection of newspapers. Municipalities could block access to the curb by newspapers for this purpose.

The Minister’s approval of an amendment to the Blue Box Plan would be required.

An amendment to Reg. 101 would be required.

6.

Conclusions

a) Stakeholders (municipalities, non-CNA/OCNA stewards) are in agreement that the in-kind program is unfair to both municipalities and other stewards.

b) This program creates an un-level playing field among stewards and involves too many administrative challenges.

c) The in-kind program is unfair to municipalities for the following reasons;

o Municipalities do not get the full value due to use of CARD rates (see Section 4.1).

o The lineage allocated under the in-kind program is too high for efficient and effective use. Some municipalities do not believe the newspaper advertising is an effective form of media for increasing diversion.

o Allocation of the in-kind to specific newspapers is not understood by municipalities. o Allocation of space and timing of ad placement is not in municipalities’ control (or even

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