The purpose of this letter is to provide information and guidance regarding upcoming changes to Tire Stewardship Fees that may impact your business.

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1 300 The East Mall, Suite 100, Toronto, ON M9B 6B7 Dear Tire Retailer, Ontario Tire Stewardship (OTS) is an Industry Funding Organization (IFO) incorporated under Ontario s Waste Diversion Act in 2009, to implement and operate the Used Tires Program. Through the Used Tires Program, and consumer and industry education programs, Ontario Tire Stewardship is empowering Ontarians to change the relationship they have with their tires. Ontario Tire Stewardship has helped recycle the more than 10 million used tires that are generated annually in the province, preventing scrap tires from ending up in landfills or being dumped illegally, and instead recycled into dozens of innovative products. The purpose of this letter is to provide information and guidance regarding upcoming changes to Tire Stewardship Fees that may impact your business. On February 9 th, 2012, the Ontario Minister of the Environment directed Waste Diversion Ontario (WDO) to work with Ontario Tire Stewardship (OTS) to revise the current funding model for the province s Used Tires Program. A new cost-recovery model was adopted based on annually developed budgets and tire supply estimates and resulting in Tire Stewardship Fees (TSFs) being levied on the supply of new tires in Ontario. In the new cost-recovery model, revised TSF rates will be levied on a per tire basis, with the prior year s actual program costs and tire supply being used to determine the TSF rates for the subsequent year. As a result of these changes, effective April 1, 2013, Passenger and Light Truck Tire Stewardship Fees will decrease from $5.84 per tire to $5.69 per tire. Off-Road Tire Stewardship Fees will increase by varying amounts over the Fees. For more information on the cost-recovery model, you can download the 2012 Consultation Report from the OTS website here or contact OTS at info@rethinktires.ca. As part of the implementation of the cost-recovery model, OTS is also revising the Tire Categories used for the purposes of classifying the new tires supplied into the market, and the determination of which TSF rates apply. While definitions for On-Road tires will be unchanged, OTS is moving to a tire weight-based classification system for Off-Road Tires (non-dot Regulated tires and/or tires not meeting the definition of passenger, light truck or medium truck tires). The revised Tire Category and Fee table can be found here. The revised Categories and Fees will be effective April 1 st, 2013 for Stewards. While OTS understands that the increases to Off-Road tire fees are unwelcome, OTS s analysis of the disposal fees that were charged to Users of Off-Road Tires prior to the

2 program launch in 2009 show that the new Tire Stewardship Fees are comparable or lower. As a result, the program delivers a net cost reduction to Off-Road Tire Users. Tire Retailers New fees will apply to Stewards effective April 1, Stewards are responsible for managing their inventories and distribution networks to determine the appropriate phase-in of the new fee rates for their customers. While OTS has no control over the adoption rate of the new Fees by non-stewards, we encourage Retailers to work with Stewards to implement the fee changes promptly to avoid customer confusion and to ensure consistency. Additional background information on these changes is also available in the attached Appendix. For Tire Retailers wishing to receive more information about the program, budgeting process, Tire Stewardship Fees or program operation, the Steward/ Stakeholder consultation report is available on the OTS website at To register your interest in receiving more information, or if you have questions about the Used Tires Program, how to get your used tires picked up for no charge, or for help cleaning up a tire pile, contact OTS at info@rethinktires.ca or call OTS has also created digital POS brochures (one related to Passenger and Light Truck Tires and the other to Off-Road Tires), talking points, and FAQs to help your organization communicate these changes. These can be downloaded here. We look forward to continuing our work with you to divert Ontario s scrap tires from improper disposal so that they can be recycled into valuable green products in Ontario. Regards, Andrew Horsman Executive Director Ontario Tire Stewardship 2

3 APPENDIX Background Since the launch of the Ontario Used Tires Program in September 2009, Ontario Tire Stewardship (OTS) has been delivering a comprehensive solution for Ontario s Passenger and Light Truck (P/LT), Medium Truck (MT) and Off-the-Road (OTR) used tires. Through the Program, OTS helps give new life to old tires in ways that benefit the province economically, socially and environmentally, by providing no-charge pick-up of used tires to registered collection sites, and ensuring the responsible management of old tires. OTS also invests in Ontario s tire recycling infrastructure to develop processing and recycled product manufacturing capacity to turn 100% of Ontario s scrap tires into valuable green products for the recreational, athletic, agricultural and building industries, standing by its commitment to make the Ontario Used Tires Program the most progressive and successful initiative of its kind in North America. However, there have been challenges, particularly in the used Off-Road Tire diversion program. Since program inception in September 2009, the supply of new Off-Road Tires into Ontario has significantly lagged behind the volumes forecasted in the program planning process. As a result, the Tire Stewardship Fee (TSF) revenue collected by OTS on the supply of new tires has significantly lagged forecast, leading to a deficit in the Off-Road Tire category. While OTS was becoming aware of this issue in mid-2010, the Board took a prudent approach and determined that additional investigation was needed to determine whether the supply variance was a result of the broader economic conditions at the time, missing Stewards who should be registered in the program but were not, or an issue with OTS s supply data, gathered during plan development. As a result, OTS did not make any dramatic adjustments to the budget forecast for the Off-Road Tire Used Tires Program for the 2011 program year. In early 2012, OTS completed its investigation and identified a number of issues that it believes contributed to the supply variance: Ontario is a significant logistics control point, with many Off-Road Tire coming into the province only to be shipped out to destinations elsewhere in Canada and the USA; The economic slowdown depressed demand for Off-Road Tires as the construction, resource extraction and logistics sectors all bore a portion of the impact. While OTS has seen demand in these sectors increase in recent years as economic conditions have improved, the increases are not sufficient to cover the supply variance; 3

4 The multitude of sectors that use Off-Road Tires as defined in the Used Tires Program Plan (e.g. construction, waste management, logistics, forestry, mining, steel production, agriculture, etc.) may have resulted in OTS double counting tires supplied into the disparate sectors in its initial market supply study. On February 9th, 2012, the Ontario Minister of the Environment wrote to Waste Diversion Ontario (WDO) directing them to work with Ontario Tire Stewardship to implement a cost-recovery model and approach to manage any accumulated program debt/surplus. The potential implications of this direction, and inevitable comparisons with the direction the Minister provided in the Regulation applying to the Municipal Hazardous and Special Waste (MHSW) program, caused Stewards to express serious reservations regarding the implications of this direction on the Used Tires Program. A letter from the Minister on March 7, 2012 invited Stewards/OTS to make further submissions on alternative approaches to achieving the objectives of full cost recovery and elimination of the deficit. Following this letter, Stewards and other stakeholders have worked to formulate an industry consensus that could achieve the Minister s objectives in a way that: Respects the policy direction of the Government of Ontario; Treats all Stewards fairly and is consistent with the principles of Extended Producer Responsibility (EPR); Provides Transparency and predictability for Stewards; Affects the market in a fair manner and does not cause perverse impacts; and, Provides financial sustainability for the Ontario Used Tires Program. The plan was approved by the WDO Board and then submitted to the Ontario Ministry of the Environment, and formed the basis of Regulation 84/03, issued January With the issuing of this Regulation, and after consultation with Stewards, Tire End-Users and End-user associations, OTS will introduce new Rules and Fees for Stewards effective April 1st, 2013 that will include a number of changes from the 2011/12 Rules. These are: I. A full cost-recovery funding model that includes monthly per unit fees to Stewards for the calendar year based on their supply into the market. OTS would annually calculate Tire Stewardship Fees based on prior year actual costs and prior year actual reported supply. Stewards would remit the appropriate Tire Stewardship Fees monthly, based on units supplied into the market (as is the current practice). II. An annual reconciliation at the end of the fiscal year to address any variance between the amount paid by Stewards and the actual program costs. The reconciliation would be debited to the Steward s account, proportionately based on market share, calculated using actual supply during the period. III. OTS and Stewards acknowledge the necessity to address the accumulated Off- Road Tire program debt in a way that does not create significant adverse effects for 4

5 the Stewards. To accomplish this, the On-Road Tire program will provide a nointerest loan to the Off-Road Tire program to bridge the debt while it is being paid down over a period of 10 years. The loan will be repaid by Off-Road Tire Stewards only, through a combination of additional revenue and savings from program efficiencies. In order to ensure repayment of the Debt Stabilization loan, OTS will annually assess the need to add a Loan Repayment Adjustment to the Off-Road Tire Stewardship Fees, over and above the Tire Stewardship Fee/PTE calculated, using the cost recovery methodology (Actual Previous Year Costs Actual Previous Year Supply). IV. The elimination of the tire category silos in the Used Tire Program. This will result in a more equitable cost calculation model based entirely on cost per PTE (Passenger Tire Equivalent), meaning the Tire Stewardship Fee is entirely a function of the tire s weight, and not whether it is an On-Road or Off-Road Tire. Tires will be reported on in program categories that more closely align with operational costs incurred by the stewardship activities associated with that tire. Note: this does not imply the elimination of the tire group categories for the purposes of reporting and remitting the Tire Stewardship Fee. V. Additionally, OTS is introducing two exemptions for new tires from the obligation to report and remit: a. Tires under 7 overall diameter b. Tires where the rubber component contains more than 50% recycled rubber from Used Tires As a result of these changes, effective April 1, 2013, Passenger and Light Truck Tire Stewardship Fees will decrease from $5.84 per tire to $5.69 per tire. Off-Road Tire Stewardship Fees will increase by varying amounts over the Fees. 5