The Canadian end-of-life vehicle (ELV) recycling sector is currently sailing into shifting winds and changing currents that will redefine the industry for years to come. Market forces and public policies that affect automakers upstream of ELV recycling businesses and that affect downstream used parts and recycled materials markets will have a profound effect on ELV recyclers.
One only has to consider the breadth of government policy efforts to address man-made climate change to appreciate the significant change that is on the way. North American jurisdictions have adopted carbon taxes, phased out coal-fired power generation, introduced emissions trading mechanisms and implemented zero-emission, ultra-low emission and electric vehicle mandates and incentives, vehicle retirement/scrappage incentives, electric vehicle charging station subsidies, low carbon and renewable fuel standards and incentives for public transit and car sharing.
Complementing this broad effort to reduce transportation related greenhouse gases are “circular economy” policies such as producer responsibility laws that make producers of automotive components such as tires, lubricants, batteries and antifreeze responsible for end-of- life collection and recycling. Such laws are ubiquitous across Canada.
In addition, end-of-life vehicle (ELV) recycling standards are now emerging across Canadian jurisdictions (most recently Ontario as discussed below). These standards will require ELV recyclers to minimize discharges of pollutants to the environment, including air conditioning refrigerants, mercury switches, lubricants and asbestos brake pads (which continue to be imported into Canada.)
The overall objective of these circular economy policies is to drive resource efficiency and reduce greenhouse gases by driving refurbishment of parts for reuse or the recovery of material for recycling back to manufacturing. The potential greenhouse gas mitigation opportunities are significant – the parts and materials in a typical passenger vehicle embody 28 tonnes of greenhouse gases as generated through their manufacture from raw materials.
Concurrently, the market is exerting tremendous forces on ELV recyclers and metal processors – the glut of Asian steel that has flooded global markets is depressing both virgin and scrap steel prices. These low commodity revenues squeeze ELV recycler profitability and the ability to reinvest. Exacerbating the situation are low oil prices, which mean attendant low commodity values for recyclable materials such as plastics are another contributor to low steel prices.
What does this all mean?
For the foreseeable future the internal combustion engine will remain the mainstay of automotive drivetrains. However, the use of lighter alternative structural materials (such as aluminum, plastics and carbon fibre) will become prevalent in the quest for greater fuel economy. Other than aluminum, alternative materials may pose both a potential recycling challenge and revenue challenge to ELV recyclers (especially in the face of low commodity prices).
Clearly, with so many climate-change-focused policies bearing down, there is going to be an evolution of the automobile that is going to mean an increased market share for hybrid-electric and fully-electric drivetrains. Some components of vehicles are going to decrease in value while others such as batteries and inverter systems may remain highly valuable for re-use or remanufacturing at the vehicle’s end of life.
Increasing sophistication of incoming ELVs and potential demand by original equipment manufacturers (OEMs) for return of components for remanufacturing may mean new commercial partnerships and increased technical communication between OEMs and ELV recyclers. It will also mean that ELV recyclers may become part of the OEM vehicle reverse supply chain – a reality that will require a whole new level of operational and technological sophistication.
This technological evolution of vehicles in concert with government regulation mandating reduced environmental discharges from ELV recycling operations is already driving change in the Ontario ELV recycling sector.
As an example, with Ontario having promulgated permit-by-rule ELV recycling standards under the Environmental Activity and Sector Registry (EASR) in Ontario in March 2016, the unregulated practice of dismantling of vehicles without proper management of hazardous and subject wastes will soon be eliminated. ELV recyclers operating at low environmental performance will have to decide to either invest to meet the regulated performance standards or exit the business. While it is expected that the majority of existing ELV recyclers in Ontario will be able to meet the Ontario regulatory standards, there is no question that some will exit the business causing consolidation in the ELV recycling sector.
Further driving industry consolidation is the aforementioned need for sophisticated ELV dismantling which will require additional capital investment and better economies of scale to extract the most value from ELVs at the lowest cost per ELV recycled.
While government policies to accelerate the turnover of the Canadian private vehicle fleet (i.e. publicly subsidized vehicle scrappage programs) may drive ELV recycler volumes, the fundamentals for the industry remain the same – the industry must evolve in technical sophistication and economic performance.
To manage the coming tumultuous times in the Canadian ELV recycling sector, the Automotive Recyclers of Canada will officially launch a specialized unaffiliated, not-for-profit in the late fall of 2016. The Endof- Life Vehicle Sector Council (ELVSC) will serve a number of purposes:
- Maintain uniform environmental performance standards for Canadian ELV recyclers that will serve as a baseline for jurisdictions that have not developed regulated standards;
- Facilitate the education and training of ELV recyclers with a view to assisting them in achieving regulatory compliance in Canadian jurisdictions with recycling standards (currently Prince Edward Island, Ontario and British Columbia);
- Provide a critical clearinghouse service to facilitate OEM-recycler technical information exchange;
- Collect, collate and report environmental data associated with ELV recycling in Canada; and,
- Work with industry partners, government and academia to undertake research to support innovation in ELV related resource recovery.
While Canada is just beginning to chart a course towards a low carbon economy, ELV recycling has been a long-standing Canadian recycling success story – well over 95 percent of the almost 1.6 million ELVs generated in Canada annually are recovered and 85 percent of the material in a typical ELV is recycled back into the productive economy.
For the Canadian ELV recycling sector the challenge is not to build a circular economy for vehicles from scratch, but to take the circular economy for vehicles that has been built over many decades and evolve it to meet the challenge of ensuring the parts and materials in the next generation of vehicles are recovered, reused and recycled.
Steve Fletcher is managing director of the Automotive Recyclers of Canada (ARC), and executive director of the Ontario Automotive Recyclers Association (OARA).
This article first appeared in the September, 2016 edition of Recycling Product News, Volume 24, Number 8.