18 December 2023

Extended Producer Responsibility (EPR) for Used Oils

The Ministry of Environment, Forest, and Climate Change issued the Hazardous and Other Waste (Management and Transboundary Movement) Second Amendment Rules, 2023 (‘Amendment’) on 18th September 2023.
The Amendment, which will come into effect from 1st April 2024, introduces a new chapter in the Hazardous and Other Waste (Management and Transboundary Movement) Rules, 2016 (‘Rules’) for the implementation of ‘Extended Producers Responsibility’ (‘EPR’) for used oil.

The Amendment applies to producers, importers, bulk generators, collection agents and recyclers of used oil (individually ‘Relevant Entity’ and collectively, ‘Relevant Entities’).
(a) ‘Producer’ refers to persons/ entities who:

(i) Manufacture and offer to sell base oil/ lubrication oil domestically under their own brand;
(ii) offer to sell lubrication oil domestically under their own brand name, using base oil manufactured by third parties; or
(iii) offer to sell imported base oil/ lubrication oil domestically.

(b) ‘Importers’ or ‘Used Oil Importers’ refers to persons/ entities who are engaged in importing used oil.

(c) ‘Bulk generators’ refers to entities which generate more than 100 (one hundred) metric tonnes of used oil per annum.

(d) ‘Collection agents’ refers to persons/ entities who collect the used oil and supply it to Recyclers; and

(e) ‘Recyclers’ of used oil refers to persons/ entities who are engaged in the process of recycling used oil.

Key compliances:
Some of the key compliances under the Amendment are discussed below.

(a) Registration

All Relevant Entities (except Bulk Generators) of used oil must register themselves on a portal to be created by the Central Pollution Control Board (‘CPCB’). If a Relevant Entity (other than a bulk generator) falls under more than 1 (one) category (for instance, if it is a Producer and an Importer) it must register under each separate category.

(b) EPR

EPR refers to the responsibility of producers of certain products under the Rules to ensure that their products are being recycled, in accordance with and up to the targets specified in Rules (‘EPR Targets’).

Under the Rules, EPR Targets were already applicable to and prescribed for producers of waste tyres. The Amendment introduces EPR Targets for Producers and Importers.

Producers and Importers are required to meet their EPR Targets through the production of re-refined base oil/ lubrication oil or through energy recovery, or the purchase of EPR Certificates (defined and discussed in the next paragraph) from registered Recyclers.

For Producers, yearly EPR Targets are prescribed in the form of a percentage of the base oil/ lubrication oil sold or imported during the previous year, which needs to be recycled in the current year.

The prescribed percentage of used oil that needs to be recycled increases each year. For example, for the year 2024-2025, Producers have to meet an EPR Target of 5% (five per cent) of the base oil/ lubrication oil imported or sold during the year 2022-2023. By 2029-2030, the EPR Target for Producers will be 40% (forty per cent) of the base oil/ lubrication oil imported or sold during the year 2027-2028.

For Importers, the EPR Target in any given year is 100% (one hundred per cent) of the used oil imported during the previous year.

While Producers and Importers are permitted to fulfil their EPR targets by utilising the services of third parties, the ultimate responsibility to meet EPR targets lies solely with the Producer.

(c) Statutory filings

Producers, Importers, Collection Agents, and Recyclers are required to file returns with the CPCB, in the prescribed form (which will be provided on the portal to be created by the CPCB) (‘CPCB Returns’). While Producers and Importers must file CPCB Returns annually, Collection Agents and Recyclers are required to file CPCB Returns annually as well as quarterly.

New concepts introduced by the Amendment:
The Amendment provides for issuance of ‘EPR Certificates’ by the CPCB to registered recyclers. Each EPR Certificate represents a certain quantity of used oil which has been recycled, calculated based on a formula/conversion factor to be prescribed by the CPCB (‘Recycling Value’).
EPR Certificates may be purchased by Producers/ Importers to meet their EPR Targets. Upon purchase of an EPR Certificate, the Producer/ Importer’s EPR Target will be automatically adjusted against the Recycling Value represented by the EPR Certificate. The EPR Certificate itself, once adjusted against the EPR Targets of the Producer/ Importer, will stand automatically extinguished.
However, Producers can only purchase EPR Certificates equivalent to the aggregate of the following:

(a) EPR liability of current year (‘Current Year Liability’)
(b) any leftover liability from preceding years; and
(c) 10% of the Current Year Liability

Each EPR Certificate is valid for 2 (two) years from the end of the financial year in which it was generated.
To enhance the ease of transacting in EPR Certificates, the Amendment also enables the creation of 1(one) or more trading platforms by the CPCB (or an agency accredited with the CPCB) for sale/ purchase of EPR certificates.
The Amendment also prescribes that information pertaining to any/all transactions in EPR Certificates must be submitted with the CPCB.
Consequence of non-compliance with/ violation of the Amendment:
The Amendment prescribes three types of consequences of any non-compliance:

(a) Monetary Penalties
(b) Environmental Compensation
(c) Non-Monetary Penalties

Each of these have been discussed in brief below.

Monetary penalties
The Amendment prescribes monetary penalties which shall be imposed by the Central Government if a person:

(a) Furnishes false information for obtaining EPR Certificates;
(b) Uses false EPR Certificates;
(c) Willfully violates provisions of the Amendment;
(d) Fails to cooperate during any verification and audit proceedings initiated by CPCB prescribed under the Amendment.

The prescribed monetary penalties are:

(a) INR 10,000 (ten thousand rupees) to INR 15,00,000 (fifteen lakh rupees) for any contravention of the provisions of the Amendment.
(b) INR 10,000 (ten thousand rupees) per day in case of continuing contraventions.

Environmental compensation
In addition to the monetary penalties mentioned above, the CPCB is also authorised to levy ‘environmental compensation’ in the following cases:

(a) on a Producer, if it does not meet its EPR Target or transacts in/ uses false EPR Certificates;
(b) on Recyclers, in case they issue false EPR Certificates or provide false information;
(c) on Producers, Recyclers, Collection Agents, Importers that furnish false information during the registration process/ while filing returns;
(d) on unregistered producers, recyclers, or any entity which aids/ abets violations of the Amendment; and
(e) on any entity that violates provisions of the Amendment (which includes carrying out business without obtaining registration).

Non-monetary penalties
In case a Producer, Recycler, Collection Agent, or Importer obtained registration by furnishing false information, its registration may be revoked.
Registration of Recyclers can also be revoked in case they submit false information resulting in over-generation of EPR Certificates.

LKS Comments
The concept of EPR is not new. The Rules already provide for an EPR compliance regime with respect to utilisation and management of waste tyres and the Amendment now seeks to impose obligations relating to (and extend accountability for) collection, transportation, and recycling of used oil on entities across the used-oil supply chain.
Industry stakeholders would benefit from a careful analysis of the Amendment to ensure compliance. For instance, under the Amendment if any Relevant Entity (other than a bulk generator) falls under more than one category (say, a Producer and an Importer), it must register separately under each such category. This is an example where lack of awareness or oversight could potentially act as an unnecessary impediment to operations.
There are some aspects of the Amendment which require further clarifications. Some of these have been discussed (in brief) below.
The Amendment enables the CPCB to charge registration fees and annual maintenance charges from Relevant Entities (other than bulk generators) seeking registration. The registration fees and annual maintenance charges are based on the volume of used oil generated, recycled or handled by them. However, the process for calculation of these charges has not been provided in the Amendment (nor is there any provision which provides that such charges shall be as prescribed by the relevant authorities at a later date).
Under the Amendment, certain quantitative restrictions have been prescribed on the EPR Certificates which Producers can purchase. However, it appears that no quantitative restrictions are applicable on the purchase of EPR Certificates by Importers.
Rule 27 of the Amendment specifies that Producers and Importers can utilise the services of third parties (such as providers of integrated used oil management systems, collection centres or dealers) to meet EPR Targets. The proviso to Rule 27 clarifies that regardless of using a third party to meet EPR Targets, the ultimate responsibility for compliance will rest with the Producers. However, there is no equivalent clause/proviso for Importers (which clarifies that Importers will be ultimately responsible for compliance).

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