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Symposium 2014

Proposal - Adventures in Waste and Recycling – Creating Value

The Challenge

Trying to put a value on the global waste market is difficult, but looking at one country can help to give a sense of scale: in India alone, waste is a two billion US dollars industry. The percentage ...

Trying to put a value on the global waste market is difficult, but looking at one country can help to give a sense of scale: in India alone, waste is a two billion US dollars industry. The percentage of waste recycled varies wildly from country to country and from region to region. The ability to recycle waste depends at the very least on political will, municipal financial ability, societal awareness, and the established infrastructure to support those efforts.

TIME FOR A PARADIGM SHIFT

It is time for a fundamental shift in how nations address waste. Environmental concerns and the concept of Extended Producer Responsibility (EPR) are less than perfectly effective at driving solutions to the waste problem: they ignore fundamental truths about what the real problems are and how the world works.

Approaching waste management as an environmental problem is like treating symptoms instead of the disease. The more fundamental problem is that waste represents resource consumption that the world can increasingly ill afford. Resources are coming under increasing pressure, commodity prices are rising, and we have to face up to the fact that our planet is finite. We cannot continue to extract and consume resources and then discard them as waste. Clearly, if we stop creating waste and recycle it instead, we solve the environmental problem along the way.

EPR attempts to compel producers to pay attention to the post-consumer life of their products. Whilst we agree that producers must play a part in recycling, chiefly in their design standards and choice of materials, it is a mistake to lay the full responsibility ¬– or even the lion’s share of the responsibility – for implementing recycling solutions on them. Producers are not necessarily best qualified to recycle product: the skills, logistics and systems needed to collect and recycle or reclaim are different from those required to manufacture and distribute. Moreover, it becomes hopelessly impractical to divide and allocate waste streams according to the producers responsible for the components of the waste. This is self-evident for some classes of waste, such as packaging, which is effectively fungible. For others, such as eWaste, it may be possible to identify the responsible producer, but to manage multiple independent recovery systems would be inefficient and very costly.

Producers are, in general, profit-driven organisations, making products the market wants at the lowest cost they can. A simple application of EPR requires producers to incur costs to facilitate recycling of their products, but leaves it to the producers to determine those costs. Producers with a social conscience will do more than others, but the unfortunate fact is that consumers by and large are not willing to pay higher prices show environmental concern. Inevitably this leads to imbalances and a distortion of the competitive landscape, and encourages misrepresentation. Some producers for example will espouse environmental concerns for marketing gains, when in practice they have shifted their environmental problems off-shore, manufacturing in countries with lax environmental regulations that are comfortably out of sight of their customers.

So we have a chasm to bridge: on the one hand, we are asserting that the world cannot afford to continue turning resources into waste; on the other hand, that it is difficult to get producers to spend money on recycling.

CREATING VALUE

The solution lies in simple economics: if recycling were profitable, everyone would do it. But recycling is profitable at a macro level. For a country, waste represents a significant burden: the costs of environmental remediation, waste collection, landfill provision and operation, and dealing with health impacts, all fall on the State. If waste is recovered and recycled back into new raw materials, creating value in place of the costs associated with waste, the State is gaining on both fronts.

The problem with existing waste management approaches is that the net benefit that could be realised is forfeited through fragmentation, competitive issues and the lack of mechanisms to support efficient and effective recycling. We need a way to coordinate financial, logistical and process resources to make recycling not only desirable, but profitable.

The way to achieve this is to realise that the cost of dealing with any product once it reaches end of life, is in fact a cost of manufacturing. It is a cost that in the past has almost universally been an externality for the producer. A notable exception is nuclear waste: no-one would permit a nuclear power station to operate and leave the problem of dealing with its waste (spent fuel) as an externality to be dealt with by the State or local government. However, where the consequences of end-of-life material being discarded do not pose such an obvious, immediate and dramatic threat to the community, that is exactly what happens.

Letting manufacturers treat end-of-life product disposal as an externality leaves them free to choose the cheapest and most convenient materials for their products and packaging without regard to the total life cycle cost of the goods they put into the market. And, as entities charged with making profits and answering to shareholders, that is what they mostly do.

PRODUCER PAYS

We have said that it is impractical to compel producers to deal explicitly with their own products once they reach end of life, which broadly speaking it is. Instead, producers should be required to pay a waste management fee in proportion to the quantity and nature of the materials used in their products and packaging. The fee would be based on the average cost of collecting and recycling the ultimate waste resulting from their products. Charging a fee in this way achieves two goals: it provides financial incentives for producers both to minimise the quantity of waste, and to design their products for ease of recycling.

The fees collected from producers are paid to an independent non-profit organisation, which applies them to fund the collection, sorting and aggregation of waste to feed into the recycling industry.

Legislation is required to ensure that all producers pay, thus removing competitive distortions, and to give the administrative organisation the power to ensure supply of material to recyclers. Waste will be our future source of raw materials, and like other raw materials, it requires regulation to make investment attractive. Efficient recycling plant will often require significant capital investment that in turn requires some guarantees of supply. The administrator of the waste stream must have control of the resource and be able to allocate it much as mining licences are allocated. This adds an obvious extension to the ‘urban mining’ concept.

The impact on the recycling industry is immense: the cost of collection and primary sorting is covered by the waste management fees, and the managing organisation ensures a reliable supply of raw materials at a stable price, which could be negative (i.e. a gate fee) if the particular waste stream requires it. Perhaps of greatest interest to the recycling industry is that the activities of the administrative organisation are entirely non-competitive to existing recyclers, serving only to improve their profitability and open new business opportunities for them.

POSITIONING THE CARROT

When you want the donkey to move in a particular direction, you have to be sure to hang the carrot in the right place. It is a truism that people, businesses and society will tend to take the action that fulfils their directly-perceived short-term interest. Environmentalists will exhort us to be more environmentally aware for the sake of the ultimate benefit of the human race, but for many, short-term hedonism trumps altruistic behaviour that involves any effort or sacrifice, and for a great many more it is hard to be concerned about humanity’s long-term future when you have no food for yourself or your family.

In the more advanced and wealthy societies public behaviour can be influenced to a degree towards ‘doing the right thing’: sorting one’s waste, throwing rubbish into appropriately-marked bins, not needlessly cross-contaminating waste. Yet even in the most disciplined, conscientised societies you will find paper in the metals and glass bins, or sweet wrappers in the battery or CFL disposal bins. People behave this way through unwillingness to expend extra effort. Businesses likewise will tend to act in a way avoids extra expense, or leads to greater profit.

Coercing good behaviour, whether individual or corporate, through legislation and enforcement is an exercise in futility. (We exclude rare special cases like Singapore where public discipline is at such a high level that law enforcement has the time and resources to police misdemeanours such as littering.) A well-designed waste stream management plan will engineer matters to provide incentives to people and businesses to ‘do the right thing’. There must be positive incentives, generally financial, to reward behaviour that either reduces waste or promotes recycling.

MULTIPLE BOTTOM LINES

Two important features of a legislated, centrally-administered waste management stream with legislated support are firstly, it operates at zero cost to government; and secondly, its implementation can be directed towards goals broader than mere economic efficiency. In South Africa, for example, the waste tyre management plan addresses government’s socio-economic objectives of job creation and small business creation, specifically for the formerly disadvantaged Black segment of the population. A key feature of the plan in this regard is that it injects money into the system at the bottom, rather than the more common approach of dealing with large companies and expecting a trickle-down: experience tells us that the attrition rate of funds in a trickle-down process is high. The performance of the plan is measured not so much in monetary terms as in effectiveness (are the tyres being collected and properly disposed of and recycled?), job and small business creation, and overall carbon footprint impact. To be sure, it operates also under strict independent financial oversight through audit, regulatory and governance monitoring by various of the Big Four audit firms to assure government that it is not spending unwisely, but the financial performance is subjugated to the government’s socio-economic objectives.

In different territories the primary objectives may differ: for example, in some countries power generation may be a higher priority than job creation. It is relatively simple to tailor the specifics of a particular waste management plan around a government’s particular priorities.

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