Oregon’s new recycling program faces lawsuit

Oregon just launched a new program that aims to hold businesses accountable for the packaging waste they create. The Plastic Pollution and Recycling Modernization Act charges businesses that produce or distribute paper, packaging and food serviceware based on the weight and sustainability of their materials.

The act applies to companies that generate $5 million or more in revenue. The goal is to fund recycling services in small communities through the fees that businesses pay into the program. But the National Association of Wholesaler-Distributors says the act is illegal and unfairly impacts its members.

Karen Harned is the organization’s director of litigation and legal policy. She joins us with more details about the NAW’s lawsuit against the state.

Note: The following transcript was transcribed digitally and validated for accuracy, readability and formatting by an OPB volunteer.

Dave Miller: From the Gert Boyle Studio at OPB, this is Think Out Loud. I’m Dave Miller. Oregon just launched a new program that aims to hold businesses accountable for packaging waste. The Plastic Pollution and Recycling Modernization Act charges businesses that produce or distribute paper, packaging and food serviceware based on the weight and sustainability of their materials. Money that’s paid into the program will fund recycling services. But the National Association of Wholesaler-Distributors is suing the state, saying the law is illegal and unfairly impacting its members.

Karen Harned is the organization’s director of litigation and legal policy. She joins us now. It’s great to have you on Think Out Loud.

Karen Harned: Thanks so much for having me, Dave.

Miller: Can you give us a sense for the kinds of companies that make up your trade association?

Harned: We are wholesaler distributors, which no one knew about until COVID. And then we became the stars of the show because we are the ones that are really responsible for sourcing products from all sorts of manufacturers, combining them, getting them to the stores in the way that they want them, which ultimately get to all of our houses.

Miller: What do you mean by combining them in ways that stores want?

Harned: So if you are, for example, a distributor or a wholesaler distributor for a food service company, you would get paper plates from one vendor, you would get forks from another, you would get pat napkins from another, different things like that. And then your clients are gonna pick what they want, right? And then you bundle what you’ve gotten from the different vendors that you work with and get the clients – that restaurant – the things that they need for their business.

Miller: Can you explain the basics of how Oregon’s new law works?

Harned: So under the law, anyone that’s called a “producer” is responsible for figuring out how much of the recyclable products they are using that are going into Oregon that year or are likely to go in that year, how much they weigh. It varies based on what kind of product you have as to how they measure it. But then you figure all that out, which is complicated, and then you pay a fee that’s based on that.

But importantly, the fee that’s based on that is established by a third-party group that is not part of Oregon’s government. It’s called the Circular Action Alliance. The methodology that they use for assessing the fees is secret. They say that they are claiming confidentiality for that. So my members have no idea of what their ultimate invoice will be until they get it.

Miller: Have they gotten those invoices yet?

Harned: Correct. They are starting to get those, the logic effect at the end of last month, July. We had asked for a delay and the state declined to give us that because of confusion in our industry. Honestly, I shouldn’t say we haven’t gotten a lot of feedback, but those that have been willing to share, we’ve heard of at least almost $100,000 in fees that they’re going to have to pay. And for all we know, we’re going to have members that are going to be paying more than that, because again, none of us really know how the fees are being assessed.

Miller: So, for example, a company that said, “Hey, we got this fee from this corporate sponsored nonprofit” – and we can hear more about the makeup and the idea behind that in a second – if they’ve already gotten these letters saying you owe $100,000, there’s no information about how that fee was arrived at?

Harned: Well, not really. And the reason I say not really, is they do have these bands in their materials, ranges of what you might expect to pay for certain packaging of products that are coming into the state. But they really have wide swings. So it’s nothing that you could really bank on, for lack of a better word. Our members are being surprised. Another member reported that the percent of the costs that they would have to pay in fees going into Oregon is close to 11%. Well, that exceeds by far the amount that they would be making for the product going into the state themselves. So they’re losing money to go into Oregon at this point.

Miller: When are distributors or wholesalers, the companies that you represent that make up your trade association, when are they considered “producers” who are subject to Oregon’s new fee and new law?

Harned: That’s one of our biggest complaints, because when you think of a producer, you think of the manufacturer that can control the product packaging that is used, right? But under Oregon’s law, my members are converted into producers the second they do what I mentioned at the top of the interview, which is they are sourcing from different vendors and then they combine those to make a tailored bundle, if you will, of product for either the restaurant or the office supply store – you name it. Then they become the producer. Then they now are the ones that have to do all of the work. And again, they’re the ones that have the least control over what kind of packaging, how much is used in the first place.

Miller: I should note that we did reach out to the Department of Environmental Quality, and they said – which is pretty standard for state agencies – that they don’t comment on pending litigation. So one of your arguments is essentially, we didn’t produce this, we’re just a middleman?

Harned: Yes, exactly, that we are the ones that are just getting it from point A to point B, but that’s not really our legal argument. I mean, our legal argument is, first of all, we think that this is highly illegal for them to be using a third-party group like the Circular Action Alliance to be assessing these fees, much less doing it in secret. Also, forcing our members to contract with them, being subject to binding arbitration.

So we have claims for non-delegation doctrine under Oregon’s Constitution because of this outsourcing to the third-party group. And then [the] U.S. Constitution violations when it comes to interstate commerce, because it really is penalizing anybody that’s coming into Oregon, even if you … And most of our members have a nationwide footprint. They may not be in all 50 states, but they’re definitely in more than one and the cost of just going into Oregon now is disproportionately high for them.

Miller: I should say this, this Circular Action Alliance, it is a Washington D.C.-based nonprofit that was formed by 20 multinational corporations three years ago – enormous retailers like Amazon, Walmart, Target, and then food and consumer product companies like Coca-Cola, Procter & Gamble, Kraft, Heinz, a bunch of other companies that are responsible for so much of the stuff in our lives. And Oregon is not alone though, in turning to this corporate created nonprofit to manage their, what’s called an extended producer responsibility program. Why is it that states are turning to this nonprofit?

Harned: Well, I’m assuming it’s because this is very complicated and they just decided to have this organization do all of the hard work. The problem with that is this: Now, even though Oregon is actually technically under their law, we could have more than one, right? We could have more than one Circular Action Alliance, but because it is so cumbersome and expensive to create these producer responsibility organizations that are writing all the rules, setting all the fees in secret, we’re unlikely to see competition there. So we’re at their mercy, for lack of a better word.

Miller: Obviously, the lawsuit is against the state of Oregon and state agencies, but it is notable to me that the companies that formed this nonprofit, they are manufacturers and consumer products companies and retailers. They are not, like your companies, distributors or wholesalers. Do you see this, on some level, as a fight between manufacturers and distributors?

Harned: Well, I think that … Look, we all want to have a clean environment. We all are for promoting recycling. My members are all in on that. But to your point, I can’t say what the motivations are other than I know some of how much our members are going to have to pay in these fees and it may just be that we’re the ones left holding the bag. We do not think that’s appropriate. Eighty-one percent of our members have less than 20 employees. We are not big businesses and cannot afford and do not have the personnel to even sort out these rules. I mean, again, we still have real fundamental questions, [like] what exemptions apply? And we’re already in implementation. These questions have just not been properly answered for us.

Miller: I am curious about one of those exemptions. You said a lot of these are small companies. The law does exempt producers who earn less than $5 million in gross revenue. Do you have a sense for what percentage of your own members would be under that threshold?

Harned: Well, just based on the feedback we’re getting, most of them are captured by this. And I know $5 million sounds like a lot, but that’s gross. And we operate on really razor thin margins. It’s costly to be a wholesaler distributor, quite frankly. You have to have space, right? You have to have huge warehouses. You have to have trucks. I mean, our overhead is significant.

Miller: You mentioned that you still have questions about exemptions, for example. The timing here, this is not new. I mean, the final rollout in implementation is new. But lawmakers in Oregon passed the bill to create this back in 2021, and then Oregon DEQ’s rulemaking started not long after that, and it’s been going on for a number of years. Did your organization or your members weigh in during rulemaking?

Harned: We did not. Honestly, the reason why is because we did not think we were producers. We don’t think of ourselves as producers because we’re the ones that are just sourcing the materials and getting it to the end user. And so it’s just … I’ve represented small businesses pretty much my entire career and I can tell you that they’ve got a lot going on. They go into business with a dollar and a dream. And all of these rules, it’s like they learn about them when it happens. And sadly, I think that is a lot of what has occurred in this instance.

Miller: Is it your sense then, that some of the producers were at the table and wrote these rules in a way that would pass some of the fees onto the companies that you represent?

Harned: I would have no reason to believe that’s not true.

Miller: No reason to believe that’s not true. OK.

Harned: Yeah, sorry. I have a strong feeling that’s accurate. Yes.

Miller: OK, I want to go back to something you said earlier. But before we’re done, you said that the companies in your trade group do support the overall goal here of reducing waste and packaging, a more sustainable country. Is there a method that your members would support that would achieve the same aims but that you wouldn’t find to go against the law?

Harned: I think, broadly, absolutely. This was a big discussion we had with our members. Again, we have a lot of members that have leaned into trying to do their part on recycling and environmental stewardship. We just think that, look, we shouldn’t be the only ones carrying the burden. This should be fairly distributed across industries. The process needs to be transparent. It needs to be legal. The Oregon law is not meeting any of these tests.

Miller: Oregon, though, is not the only state working on a program like this. California, Colorado, Maine and Maryland are all working on similar policies. Are you paying attention to those and are legal challenges in those states in the works?

Harned: Well, we absolutely are paying attention to those. Yes, we are absolutely paying attention to those. I can’t speak to litigation yet. All I can say is this is very much top of mind for our members. We are going to do whatever we can to ably represent them and try to make sure that these laws are not putting them out of business.

Miller: Karen Harned, thanks very much.

Harned: Thank you.

Miller: That’s Karen Harned. She is the director of litigation and legal policy at the National Association of Wholesaler-Distributors.

“Think Out Loud®” broadcasts live at noon every day and rebroadcasts at 8 p.m.

If you’d like to comment on any of the topics in this show or suggest a topic of your own, please get in touch with us on Facebook, send an email to thinkoutloud@opb.org, or you can leave a voicemail for us at 503-293-1983.