Producers also need a choice in the marketplace

Oregon recycling enthusiasts seem to have forgotten that most of the products consumed in the state are not bought at the local farmer’s markets. Preoccupied by a fear of poorly recycled goods, Oregon’s legislature passed an Extended Producer Responsibility (EPR) law in 2021, controlling commerce of businesses several degrees apart. Unfortunately, other states are following Oregon’s poor example, including Washington.

Imagine you are a farmer in Idaho raising potatoes for direct-to-market sales. As the grower-packer, you must purchase plastic bags for your potatoes. The potatoes are bagged, boxed, and then loaded onto trucks belonging to a national grocery store distributor. The distributor’s stores are nationwide, including Oregon. As the packer, you have no control over your product moving across state lines.

But you are still subject to the fee schedule set out by the EPR guidelines. The distributor avoids the fee, only passing on the information back to the original packager to inform them of their cost in 3-5 months’ time, often after the accounting period has passed. A two-level distribution is a conservative estimate considering many consumers purchase goods three to four degrees of separation away from the packager.

EPRs have evolved in the United States in the last twenty years, and most Americans are familiar with the earlier versions. Electronic recycling laws, where the manufacturer is responsible for the recycling cost, were the original EPR laws adopted in the U.S., starting with Maine in 2004. The EPR adoption spread with landfill bans, paint, and batteries. The principle was that the manufacturer of the product was responsible at its creation for the end-of-life recycling of the product.

But this principle is difficult to apply when the creation of the good is indeterminate. Was the potato created by the farmer, the packer, the wholesaler? If the potato was turned into French fries, who is responsible for the packaging fees now?

The most recent EPR adoptions apply a much broader brush to the definition of packaged goods and bring more subjectivity into the equation for suppliers. Oregon led the extensive EPR adopters of California, Colorado, and Maine. Oregon’s Plastic Pollution and Recycling Modernization Act (Senate Bill 582) in 2021 set out EPR guidelines.

Oregon included the adoption of a state-approved third-party entity called a Producer Responsibility Organization (PRO), responsible for the collection of fees and arbitration in case of disputes. The whole regime unconstitutionally regulates out-of-state businesses.

These unclear fees violate the dormant Commerce Clause, and the PRO third-party facilitated arbitration processes violate a producer’s right to a fair trial under the Due Process Clause.

Brian Wild, Chief Government Relations Officer at the National Association of Wholesaler-Distributors (NAW), said, “These laws leave distributors with three terrible options. They can absorb fees they can’t afford on their already slim 3–5% margins, they can pass costs on to customers, or they can just stop selling into EPR states. Every one of those options raises costs for Americans.”

NAW is continuing its legal challenge of this scheme with an appeal to the Ninth Circuit Court stating,

“The court’s ruling does not change the facts established at trial or NAW’s position that these laws are unconstitutional... NAW’s Legal Policy Center challenged the law because it gives a private, self-interested organization extraordinary fee-setting authority without meaningful oversight or an effective avenue for businesses to challenge its decisions.”

Court cases against Colorado’s and California’s EPR laws are also proceeding, and the Oregon appeal now awaits the decision of the Ninth Circuit to hear the case.

Market choice is not only the domain of the consumer, but also the producer/supplier. A consumer has the right to choose their products (something that EPR laws preempt out of disdain for consumer choices), and a producer should have the choice to accept fees associated with market transactions. In the case of EPR laws, suppliers unwittingly subject themselves to fees and regulations because, at some point in the supply chain, a distributor sold their goods into Oregon without direct consent.

The recycling cost of a package in a long supply chain should not be assessed to out-of-state and unsuspecting suppliers. Instead, Oregon and other EPR states like Washington should rely on consumers to choose their version of economical and environmentally-friendly goods. Producers will then be able to choose to supply them with goods meeting the market demand.