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October 7th, 2015:

Hong Kong government launches HK$1b recycling fund, but industry figures have doubts about its effectiveness

Ernest Kao

But industry figures have doubts about the effectiveness of the scheme

Applications have opened for the government’s HK$1 billion recycling fund, with the first batch of grants set to be handed out to successful applicants in March.

Environment Secretary Wong Kam-sing said the fund, announced in last year’s policy address and approved by the legislature in July, would help increase the quantity and quality of recyclables in the market and reduce pressure on the city’s overflowing landfills.

“The purpose of the fund is to support the healthy and sustainable development of the recycling industry and market,” Wong said at the launch yesterday.

The deadline for applications for the first batch is November 30.

The fund comprises two programmes – a matching fund for individual enterprises to upgrade and expand their waste recycling operations in which a HK$1of funding is provided for every HK$1 invested, and another targeted at non-profit and trade support organisations to “enhance the overall capability and productivity of the local recycling industry”.

The former offers grants equivalent to 50 per cent of approved expenditure for a two-year period for up to three projects with cumulative funding of HK$5 million. The latter offers 100 per cent grants with a cap set at HK$15 million.

Under the enterprise support programme, small and medium-sized recycling businesses can also apply for subsidies for smaller scale projects such as manpower training and occupational safety. These grants, requiring “less paperwork”, will be capped at HK$150,000 for a one-year project.

Scrap plastic recycler Lee Wai-man said he would apply for both programmes, but the biggest problem was not a lack of machinery but rising rents, a lack of land and a shrinking labour market.

“Sure you can give us a few million dollars to buy some fancy new machinery but in a few years our rents will soar,” he said. “My youngest employee is 47 years old and will probably quit in a few years. Who am I going to train with this money?”

Jacky Lau Yiu-shing, director of the Recycled Materials and Reproduction Business General Association, had earlier said that falling prices of plastic as a result of an economic slowdown and declining oil prices had caused frontline recyclers to stop collecting the material.

“We may have the machinery and processing capability, but we don’t have the stock,” he said.

Jimmy Kwok Chun-wah, who chairs the newly set up advisory committee to manage the fund, said it would be difficult to provide subsidies from the fund to prop up the prices of recyclables in the market. “There’s no way the fund can offer this right now as the prices of recyclables in the market will always be fluctuating,” he said.

Volkswagen: The scandal explained

What is Volkswagen accused of?

It’s been dubbed the “diesel dupe”. The Environmental Protection Agency (EPA) found that many VW cars being sold in America had devices in diesel engines that could detect when they were being tested, changing the performance accordingly to improve results. The German car giant has since admitted cheating emissions tests in the US.

VW has had a major push to sell diesel cars in the US, backed by a huge marketing campaign trumpeting its cars’ low emissions. The EPA’s findings cover 482,000 cars in the US only, including the VW-manufactured Audi A3, and the VW brands Jetta, Beetle, Golf and Passat. But VW has admitted that about 11 million cars worldwide, including eight million in Europe, are fitted with the so-called “defeat device”.

The device sounds like a sophisticated piece of kit.

Full details of how it worked are sketchy, although the EPA has said that the engines had computer software that could sense test scenarios by monitoring speed, engine operation, air pressure and even the position of the steering wheel.

When the cars were operating under controlled laboratory conditions – which typically involve putting them on a stationary test rig – the device appears to have put the vehicle into a sort of safety mode in which the engine ran below normal power and performance. Once on the road, the engines switched out of this test mode.

The result? The engines emitted nitrogen oxide pollutants up to 40 times above what is allowed in the US.

What has been VW’s response?

“We’ve totally screwed up,” said VW America boss Michael Horn, while the group’s chief executive at the time, Martin Winterkorn, said his company had “broken the trust of our customers and the public”. Mr Winterkorn has now left the company as a direct result of the scandal and has been replaced by Matthias Mueller, the former boss of Porsche.

“My most urgent task is to win back trust for the Volkswagen Group – by leaving no stone unturned,” Mr Mueller said on taking up his new post.

VW has also launched an internal inquiry.

With VW recalling almost 500,000 cars in the US alone, it has set aside €6.5bn (£4.7bn) to cover costs. The carmaker has said it will begin recalling cars in January.

But that’s unlikely to be the end of the financial impact. The EPA has the power to fine a company up to $37,500 for each vehicle that breaches standards – a maximum fine of about $18bn.

Legal action from consumers and shareholders may follow, and there is speculation that the US Justice Department will launch a criminal probe. Then, or course, there is the cost of fixing all the cars.

How widespread are VW’s problems?

What started in the US has spread to a growing number of countries. The UK, Italy, France, South Korea, Canada and, of course, Germany, are opening investigations. Throughout the world, politicians, regulators and environmental groups are questioning the legitimacy of VW’s emissions testing. France’s finance minister Michel Sapin said a “Europe-wide” probe was needed in order to “reassure” the public.

At this time, only cars in the US named by the EPA are being recalled, so owners elsewhere need take no action. However, with about 11 million VW diesel cars potentially affected – 2.8 million cars in Germany itself – further costly recalls and refits are likely. Half of the company’s sales in Europe – VW’s biggest market – are for diesel cars. No wonder the carmaker’s shares are down 30% since the scandal broke – with other carmakers also seeing big falls in their stock prices.

Will more heads roll?

It’s still unclear who knew what and when, although VW must have had a chain of management command that approved fitting cheating devices to its engines, so further departures are likely.

Christian Klingler, a management board member and head of sales and marketing is leaving the company, although VW said this was part of long-term planned structural changes and was not related to recent events.

In 2014, in the US, regulators raised concerns about VW emissions levels, but these were dismissed by the company as “technical issues” and “unexpected” real-world conditions. If executives and managers wilfully misled officials (or their own VW superiors) it’s difficult to see them surviving.

Are other carmakers implicated?

That’s for the various regulatory and government inquiries to determine. California’s Air Resources Board is now looking into other manufacturers’ testing results. Ford, BMW and Renault-Nissan have said they did not use “defeat devices”, while other firms have either not commented or simply stated that they comply with the law.

The UK trade body for the car industry, the SMMT, said: “The EU operates a fundamentally different system to the US – with all European tests performed in strict conditions as required by EU law and witnessed by a government-appointed independent approval agency.”

But it added: “The industry acknowledges that the current test method is outdated and is seeking agreement from the European Commission for a new emissions test that embraces new testing technologies and is more representative of on-road conditions.”

That sounds like EU testing rules need tightening, too.

Environmental campaigners have long argued that emissions rules are being flouted. “Diesel cars in Europe operate with worse technology on average than the US,” said Jos Dings, from the pressure group Transport & Environment. “Our latest report demonstrated that almost 90% of diesel vehicles didn’t meet emission limits when they drive on the road. We are talking millions of vehicles.”

Car analysts at the financial research firm Bernstein agree that European standards are not as strict as those in the US. However, the analysts said in a report that there was, therefore, “less need to cheat”. So, if other European carmakers’ results are suspect, Bernstein says the “consequences are likely to be a change in the test cycle rather than legal action and fines”.

It’s all another blow for the diesel market.

Certainly is. Over the past decade and more, carmakers have poured a fortune into the production of diesel vehicles – with the support of many governments – believing that they are better for the environment. Latest scientific evidence suggests that’s not the case, and there are even moves to limit diesel cars in some cities.

Diesel sales were already slowing, so the VW scandal came at a bad time. “The revelations are likely to lead to a sharp fall in demand for diesel engine cars,” said Richard Gane, automotive expert at consultants Vendigital.

“In the US, the diesel car market currently represents around 1% of all new car sales and this is unlikely to increase in the short to medium term.

“However, in Europe the impact could be much more significant, leading to a large tranche of the market switching to petrol engine cars virtually overnight.”