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Konkurrencen på markederne for genanvendelse af affald English SummaryThis report analyses the competition on the markets for recycling of paper and board, scrap cars and iron and metal from households and tyres. The report identifies barriers to competition on the relevant markets and recommends ways of improving competition. The prioritised waste fractions were selected by the Danish Environmental Protection Agency (DEPA) based on a preliminary analysis which reviewed the value chains and delineated the relevant markets for 13 waste fractions, see Box 1. Box 1 The relevant market
We have delineated three types of relevant markets within the selected fractions, 1) Collection markets, 2) Trade markets and 3) brokerage markets. On the collection markets, the waste products undergo an initial sorting and classification. On these markets, private and public waste collection companies may compete for the waste generated by waste producers. We have typically delineated separate relevant markets for the collection of waste from different sources such as households and industry. On the trade markets, private companies compete for access to the sorted waste fractions, in order to further process them. Typically we have delineated only one relevant market for trade with sorted waste, despite there being several relevant markets for trade with paper and board. The trade markets for paper and board are treated as one, as they have very similar structures. On the brokerage markets, private companies offer to mediate the sale of waste for both private and public companies. In our market delineations we distinguish between the ordinary brokerage market and the market for brokering municipally collected waste such as parts of the paper and board fraction. This is because broking of municipally collected waste in effect is shielded from competition due, in part, to strong ownership bonds between the municipalities and the broker Danfiber/Danbørs. The more and the smaller relevant markets we find, the greater is the potential for insufficient competition within a waste fraction. Similarly, the fewer companies present on a relevant market the greater the potential competition problems, as a smaller number of competitors leads to greater market shares for each company and thus maybe to increased market power. We have identified several relevant markets with dominant companies due to market shares of 40 percent or more – none of these markets are greater than Denmark and several are smaller, see Table 1. Companies with a dominating position in a market have greater possibilities for erecting barriers to competition than other companies. For this reason, there is a greater need to monitor competition in markets with dominant companies. Table 1 Summary of the identified relevant markets
Based on the delineated relevant markets, we have identified existing barriers to competition. We have opted to work with three types of barriers: 1) Natural barriers, 2) Barriers created by regulation and 3) Barriers created by companies. [174] Natural barriers are given in the sense that they can not be influenced by companies or authorities; they often stem from processing and transportation technologies. Barriers created by regulation emanate from directives, laws and other regulation that, in principle, are under political control and can be changed. Finally, barriers created by companies are erected by companies in the market as a result of strategic behaviour. These barriers impede customers from changing supplier and deter competitors from entering the market. Most of the identified barriers to competition are created by regulation while natural barriers and barriers created by companies seem to inhibit competition to a lesser extent, see Table 2. We note however, that it has not been possible, within the scope of this project, to obtain access to the kind of confidential information required to fully analyse the barriers created by companies. Table 2 Major barriers to competition in the analysed waste fractions
Source: Analyses by Copenhagen Economics Transport costs can constitute a natural barrier to collection of paper and board waste as economies of scale lead to the allocation of exclusive collection rights in different areas. Competition can however be upheld by allocating the collection rights via competitive tendering at regular intervals, as it is already done on many occasions today. The decentralised structure of the municipal registration schemes places unnecessary administrative burdens on companies collecting and receiving waste. Simpler schemes such as centralised registration or mutual recognition of registrations across municipalities may reduce such burdens. Allocation of capital costs and calculation of fees charged by (inter)municipal companies and municipalities may not adequately reflect the costs of carrying out the activities. Activities which are not exposed to competition may therefore in effect cross subsidize activities that compete with private sector companies. Such distortional practices are avoided by proper allocation of capital expenses. The (inter)municipal companies furthermore assume a double role as they on the one hand compete with private waste collection companies and on the other hand are assigned municipal tasks. This may enable (inter)municipal companies to influence the competitive playing field as they develop or support the preparation of municipal regulation. Also, (inter)municipal companies have exclusive access to market information whenever they administer filings from market participants. Finally, the (inter)municipal companies may play both an advising role as "waste consultant" and supervising roles, both of which provide a unique channel of access to the waste producers that private sector companies can not replicate. A sharper division of the operative and regulatory roles may reduce the effect of this barrier. In cases where a service provided for the (inter)municipal companies is exempted from competitive tendering procedures, the manner in which the contract is awarded may constitute a barrier to competition. In practise, we expect this barrier to play only a minor role, as most such contracts are in fact awarded using tendering procedures. The services provided by Danfiber are subject to the thresholds in the EU Services Directive. We note that no individual municipalities have sufficient volume for the value of the procurement agreements to exceed the thresholds. However, it is uncertain to what extend procurement agreements made with groups of municipalities compare to the thresholds [175], particular as Danfiber increasingly also secure revenue from procuring the handling of waste. It is therefore unclear to what extent Danfiber's services are subject to tendering procedures. Danfiber's dominating market position is partly a result of ownership ties with several of the largest (inter)municipal companies, which ensures Danfiber supply of paper and board. The (inter)municipal companies receive a share of Danfiber's profit and it therefore has a competitive advantage vis-à-vis companies with no municipal ownership. Danfibers dominance may be transferable to markets for other waste fractions and give Danbørs [176] a competitive advantage on these markets. It should be noted, that Danbørs today hold a monopoly on the procurement of sale of municipally collected metal, iron and tires, most likely for the reasons mentioned above. Fees for disposing of shredder waste constitute a major expense for companies shredding municipal iron, metal and scrap cars. It therefore effectively distorts competition when municipalities refuse to receive such waste from other regions, as shredders do not have the same access to cheap disposal of shredder waste. "H.J. Hansen's" shredder in Odense consequently has a cost advantage compared to "Roskilde Jernværk", for example, as the landfill site in Odense refuses to accept waste from "Roskilde Jernværk". Car owners with scrap cars pay car breakers to carry out the compulsory environmental treatment. The price differences between car breakers are however larger than can be attributed to differences in transportation costs. This may be a result of lacking knowledge of alternative prices among owners of scrap cars and thus implies that lacking information in effect impedes competition. Initiative geared towards increasing the activities of car owners may lead to increased competition. The reuse of tires is largely driven by a system of subsidies whereby tire collectors receive 1.200 kr. for each ton of tires they hand in to certified granulation companies. The subsidy is however conditional upon the tires being intact when transported. This greatly increases transportation costs and effectively limits the tire collector's choice to just the closest granulators. Allowing subsidies for fragmented tires will improve competition by allowing more distant granulating companies to compete. The market for tires suitable for granulation is dominated by one major actor, who has significant excess capacity of close to 50 percent of the total supply of tires for granulation. The excess capacity sends potential entrants a strong signal of severe competition over market share in case of entry. This signal is particular strong since the amount of tires suitable for granulation is relatively stable. The significance of overcapacity as a barrier can be reduced by allowing subsidies for fragmented tires, as this increases the size of the relevant market. We have identified a range of natural barriers, regulative barriers and barriers created by companies. The natural barriers can not easily be influenced. The barriers created by regulation may, however, be influenced. We have not identified particular environmental considerations which justify the identified barriers. In regards to the barriers created by companies, we expect the competition act to be sufficient to counter or minimise their effect. Footnotes[174] See also Copenhagen Economics (2004) [175] The fee from procuring sale of paper is estimated to aproximately 30 kr. per ton, implying that the thresholds are exceeded if sale of 60.000 ton of paper is procured. [176] Danfiber owns 50 percent of Danbørs.
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