Final report, May 2004
Prepared for the Minister for the Environment and Heritage
Arrangements for the recycling, reuse and disposal of used lubricating oils were mandated under the Product Stewardship (Oil) Act 2000 (the PSO Act) and have been operational since January 2001. Section 36 of the Act requires an independent review, to be undertaken within four years after the Act's commencement, of the:
- operation of the Act;
- relevant provision of customs and excise legislation; and
- extent to which the objectives of the Act have been achieved.
Rationale for the regulation of used oil
Notwithstanding the independent waste minimisation arrangements of the States and Territories, and the coordinated efforts of Australian jurisdictions under the National Waste Minimisation and Recycling Strategy, significant quantities of lubricating oil remain unconsumed, unrecycled, or are not accounted for in appropriate disposal arrangements.
There are two standard tests of regulatory appropriateness that are commonly used by the Commonwealth, 2 both of which are met with respect to the problems posed by used oil:
- the market for lubricating oil embodies at least two market failures:
- negative externalities (i.e. spillovers) — oil that is not recycled or disposed of appropriately is considered problematic because it may contain hazardous materials (i.e. toxic and carcinogenic) and hence is harmful to the environment and human health (i.e. not just the generator of the used oil);
- severe information asymmetries - these are manifest in a number of different ways: producers of oil may not have a full understanding of consumers' willingness to use recycled oil (or a blend of virgin and recycled oil); and consumers of oil may not have a full understanding of the full range of potential costs associated with the improper disposal of used oil, the potential value of their used oil, and/or the location of sites and or organisations who can assist with the collection of used oil;
- self-regulation is inappropriate because:
- the problem is high risk or of high impact/significance - the problem of used oil is seen as a significant problem for human and environmental health;
- the government requires the certainty provided by legal sanctions - the high capital cost associated with recycling operations means that government support (i.e. a positive sanction) needs to be guaranteed, which is best done through legislation;
- universal application is required - the universal problem of used oil is best addressed through a universal solution;
- there is a systematic compliance problem with a history of intractable disputes and repeated or flagrant breaches of fair trading principles - that there is so
- much unaccounted-for oil demonstrates that there is a systematic compliance problem; and
- existing industry bodies lack adequate coverage, are inadequately resourced or do not have a strong regulatory commitment
- the fragmented and diverse group of stakeholders in the used oil industry makes effective industry self-regulation unfeasible.
Thus, it is appropriate for the Commonwealth to legislate to regulate the recycling, reuse and disposal of used oil.