“A Study of the EPR based Deposit Refund System
for Recycling Batteries in Delhi and NCR”
(Research Grant No. SANDEE/June 2009/001)
PROGRESS REPORT 1
15th October 2009
Reporting Period: From 01 July 2009 to 15th October 2009
Starting Date of the Project: 01 July 2009
Principal Investigator:
Dr. Yamini Gupt
Dept. of Business Economics
University of Delhi South Campus
Benito Juarez Marg
New Delhi 110021, India
Email: ygupt@yahoo.com, yamini.gupt@gmail.com
i) Background
a) Summary of Research Proposal (100 words)
The market for lead-acid batteries in India provides an economic incentive for recycling
through a deposit refund system. Consumers return used batteries for a price to retailers
who then sell the used batteries to recyclers offering the highest price. The recycling
(primarily extraction of lead) is undertaken by the organized sector with clean technology
(registered) and the unorganized sector with crude methods that cause pollution and
health hazards. The government has laid down certain rules (BMHR,2001) that require
manufacturers to be involved in this system and retailers to sell only to registered
recyclers. The goal of this study is to understand the strengths and weaknesses of the system
in order to ensure better recycling of lead-acid batteries.
b) Key Research Questions (60 words)
The key research questions are to: i) assess the costs and benefits associated with the depositrefund scheme at each stage of the recycling process in the organized or formal sector;
ii) elicit information about the perception/concerns of the formal sector related to the
informal sector.
c) Description of Study Area (100 words)
The study area is the capital of India, Delhi and its surrounding areas included in the
national capital region.
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ii) Progress and Research Issues
a. i) Identify the issues raised at the previous R and T.
Issue 1.
Focus on the costs and benefits (wherever possible) associated with the deposit refund
scheme (DRS) at each stage of the recycling process.
Progress:
As a first step, interviews and preliminary questionnaires were used to get this
information from different players in the market in the formal sector.
The preliminary interviews were conducted with officials of the biggest organized sector
battery manufacturer Exide and several battery retailers including company authorized
retailers and others. Exide and Bosch have a deposit refund system, while other smaller
organized sector manufacturers like Amaron do not have a regular system in place.
Response from Exide: Exide sends dedicated vehicles to its authorized dealers under its
Fixed Journey Cycle Plan. Each authorized dealer is touched thrice a week to sell new
batteries and collect used batteries. The company buys back its own batteries, those
manufactured by other organized manufacturers and unorganized manufacturers. These
batteries are then sent to its depots, from where they are sent to branch offices and finally
to Pune and Chennai where Exide has its own recycling facilities.
There are significant costs associated with this process (the information on costs will be
available from the corporate office in Kolkata. That will require more time.). The
benefits of the DRS are not very clear as the company has only recently bought two
recycling units (lead smelting units). These two smelters together meet 28% of
company’s total lead and lead alloy requirements. According to BMHR, 2001, Exide is
supposed to buy back 90% of the total batteries they sell. At present, they are getting
back only 60% of batteries sold. The main reason is that the informal sector pays more
for used batteries. At times very large retailers prefer to sell to the informal sector to
avoid paying taxes. When they sell to the manufacturer, they have to provide receipts
and other paper work.
Response from retailers: A customer who comes to buy a new car battery (worth Rs.
3000) gets about Rs. 400 as a discount when he returns his used battery. This used
battery is mostly sold to scrap dealers (kabariwallas) for about Rs. 420-430 (some said
Rs. 415-420). The organized manufacturers pay less and are willing to collect only when
at least 15-20 batteries are available. This leads to a storage cost (that they couldn’t
quantify). Scrap dealers pay more than the companies (Bosch pays Rs. 375 and scrap
dealers pay about Rs. 420 for the same battery), so the retailers prefer to sell to whoever
comes first for collection.
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Issue 2.
To find out how the formal sector perceives competition from the informal sector and the
problems it faces because of the informal sector.
Progress:
Response from Exide: The market share of the unorganized sector in the battery
recycling market is about 50-52%. There are around 10 authorized lead smelters in this
region, and numerous people collect battery scrap from retailers. The unorganized sector
can afford to pay more for used batteries because the local bhattiwala (recycler) does not
refine the lead. He just reuses it (78% purity) for new batteries. The only cost involved is
of burning the lead. If market price of lead is Rs.100/kg, he is providing 78% lead at Rs.
80/kg. Exide batteries are in great demand in the informal sector because the negative
plates of the batteries never fail. Therefore, these are used in new local batteries.
Response from retailers: The number of players in the unorganized sector is much larger
than the organized sector. There is a significant difference in the price of a battery made
in the unorganized sector as compared to the organized sector (a car battery costs Rs.
2200 and Rs. 3200 respectively). The difference is more significant in the case of bus
and truck batteries. Local manufacturers do not buy back used batteries, so they are
mostly sold to scrap dealers who sell to smelters for about Rs. 450. A very large number
of scrap dealers visit the retailers so the competition ensures a good price for the
batteries.
ii) Are there major theoretical or empirical deviations from the original plan discussed in
the last R and T?
None
iii) Are there any new policy developments related to your study?
None
iv) What are the key research dilemmas you are currently facing.

The preliminary interviews have not revealed the costs and benefits (in numbers)
of the deposit-refund system as was envisioned in the 18th R and T. Exide has
the largest network in place for the deposit-refund system, so I may be able to get
information on costs. Similarly for Bosch. But I’m not sure if the information on
benefits accruing to these companies will be available. The retailers are not able
to quantify the costs associated with the buy back process as it is part of the
business of selling batteries. I need help in dealing with this issue.

I also need to discuss revising the objectives and research questions of the study
(if necessary) with my advisor.
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iii) Progress Report 1.
a. Literature Review
Deposit refund systems (DRS) take different forms. Bohm (1981) has identified different
types of deposit refund systems as:
i. consumer deposit arrangements which are generated by the market
ii. consumer deposit arrangements elicited by government action
iii. arrangements under which deposits are paid by producers rather than consumers.
iv. arrangements between consumers and producers where a refund is provided even
without taking a deposit. E.g., exchange offers in the white goods (consumer durables)
sector that have a profit or consumer retention motive. He finds that DRS tend to
stimulate “return” rather than “free disposal,” but may not reduce waste generation. He
also talks about these systems taking care of externalities like litter by stimulating freelance collectors who reduce the volume of litter.
A deposit refund system operated by a producer directly or indirectly is a part of
extended producer responsibility. Extended producer responsibility (EPR) is an
environmental protection strategy that makes the manufacturer of the product responsible
for the entire life-cycle of the product, especially for take-back recycling and final
disposal (Lindqvist 2000). EPR was started in Europe with a two-fold objective: to
reduce the financial burden of municipalities in waste management; and to provide
incentives to producers to use more secondary materials and undertake more design
changes to reduce waste (OECD, 2001)
Khetriwal et al. (2007) introduce the idea of extended producer responsibility in the end-of-life
management of electronic and electrical equipment (EEE). The study examines Switzerland’s
experience in using EPR to manage its e-waste by focusing on five major issues confronting
policy makers in this regards: i. challenges in getting an EPR based system started; ii. securing
financing for the system; iii. organizing a logistics network for the take-back of e-waste; iv.
ensuring compliance of various stakeholders; and v. reducing the threat of monopolistic
practices. The paper also highlights various approaches of EPR adopted by different countries
including economic instruments like deposit-refund schemes, advance recycling fees and fees
on disposal.
Calcott and Walls (2000) use a theoretical model of consumer and producer decision making to
answer an important question on whether ‘design for environment’ (DFE) should be
encouraged using policy instruments targeting “upstream” producers or whether “downstream”
instruments send sufficient signals back upstream. The authors find that a downstream
instrument like disposal fees provides incentives for efficient DFE only when there is a fully
functioning recycling market. That is only when recyclers pay households a price for their
recyclable items based on the degree of recyclability of the product. In the absence of fully
functioning recycling markets, upstream instruments are necessary.
Fullerton and Wu (1998) develop a simple general equilibrium model to compare different
policy options that can affect material flow in waste like: disposal-content fees, subsidies for
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recyclable designs, deposit refund systems and manufacturers “take-back” requirements.
Different policies target different stages of the life cycle of a product. They find that if all
prices for all products and all forms of disposal reflected social costs, the market would send
the correct signals about how to consume and dispose waste. In a later paper, Fullerton and
Wolverton (2000) use a general equilibrium model to suggest two important generalizations of
the deposit-refund idea. In the first they derive the optimal combination of a tax on a purchased
commodity and subsidy to a clean activity like emission abatement, or disposal in a sanitary
landfill. This “two-part” instrument works like a Pigovian tax on dirty activities like emissions
and dumping. In the second generalization, they consider the case where the government has to
use distorting taxes on labor and capital incomes. They derive the second-best-revenue-raising
deposit-refund system to find out whether the deposit should be raised or the refund reduced to
meet the revenue requirement.
Mrozek (2000) develops a model of the application of a deposit refund system to a single
market and explores the factors determining the extent of efficiency loss and distributional
consequences of a revenue-neutral deposit refund system. He finds that this type of deposit
refund system requires smaller than efficient deposits and larger than efficient refunds. As a
result, the regulated good is over consumed, increasing the welfare of both producers and
consumers. Taxpayers tend to suffer, because tax revenues disappear while externality costs
change only by a small amount. The potential welfare gain is found to vary with price
elasticity of demand, compliance costs, degree of correlation between WTP and compliance
costs and the magnitude of externalities. His results also suggest that revenue neutrality works
better for a deposit refund system that diverts waste from landfills to recycling.
Kulshreshtha and Sarangi (2001) analyze the consequences of monopoly power in markets
where firms use deposit refund systems to promote the return and reuse of product packages.
They show that a monopoly firm can use a deposit refund offer to price discriminate among
consumers whose preferences over recycling differ. The authors find that under-recycling can
arise not only because of the divergence between private and social incentives to recycle but
also because of the possibility of price discrimination.
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