Economics of Recycling

As noted by Lavee (2007), there is a general consensus in the literature that the direct costs of recycling exceed the costs of disposal. Work by Bohm et al. (2010), Staudt (1993) and Ready (1994) all note that reported municipal recycling costs for household waste are greater than the costs of disposal. However, there are two issues with this claim: 1) When externalities are factored into the cost of recycling (relative to the costs of disposal), there is significant evidence that suggests recycling is economically and environmentally preferable (Brisson, 1997) and 2) The costs of recycling can be reduced through policies such as unit based pricing on garbage disposal ( see works by Podolski & Siegel (1998), Jenkins (1993), Kinnaman (2006, 2008) and Allers et. al., (2009)), economic incentivization (Palatnik et. al., (2005) & Lakhan (2015d)), and policies to encourage cost containment (Lakhan (2014b), Stewardship Ontario (2011)). In several instances, reductions in the cost of recycling make it a cost competitive alternative to disposal (Miranda et al., (1994) & Harder et al., (2006))

The consideration of externalities (both economic and environmental) is critical when evaluating the merits of recycling initiatives. Most of the literature in favor of recycling cite the benefits of reducing the need to procure material from virgin sources (USEPA, 2013). This has obvious environmental benefits, in that depending on the material being recovered, recycling can reduce emissions output by a factor of 10x (USEPA (2013), Stewardship Ontario (2012)). Furthermore, recycling is seen as promoting resource stewardship and helps preserve declining resource stocks. Increased recycling also reduces the quantities of material being sent to landfills, reducing the strain on landfill capacity and the need to site new landfills (which is becoming increasingly difficult in urban areas). Highfill and McAsey (1997) even argue that the cost of recycling decreases relative to disposal over time, as landfill costs will increase as available capacity decreases.

Studies conducted by the Conference Board of Canada (2014), the National Recycling Coalition  (2001) and the USEPA (2011) also find that recycling activity contributes to job creation (recycling creates 7x more jobs when compared to disposal), gross domestic product and value added measures. Even when the jobs displaced from recycling activity are accounted for, recycling positively impacts employment levels and the economy as a whole.

Given the extensive evidence in favor of recycling, why do municipalities struggle with rising material management costs? As noted by Munger (2007), few (if any) recycling systems for household packaging waste are self sustaining (where the economic benefits of recycling activity offset the cost incurred for material management at the municipal level). Critics of recycling often claim that recycling is an inefficient activity, as it generally costs more to use recycled material relative to procuring virgin material (Munger, 2007). While this assessment of recycling fails to take into accounts its non pecuniary value , it does highlight a critical issue when evaluating the impacts of recycling – who are the winners/losers of recycling activity?  In the majority of instances, municipalities are responsible for delivering recycling services to residents – they incur the costs associated with material management. These costs may be recovered through property taxes, extended producer responsibility schemes, or some combination thereof. However, the benefits of recycling – reduced emissions, job creation etc., are generally accrued by parties external of the municipality. The jobs created by recycling generally occur “downstream” from the point of collection – at processing plants that are sometimes located in other provinces, states and even countries. The emissions savings from recycling occur at the point of virgin material displacement, once again, rarely does this occur at the municipal level (Stewardship Ontario, 2012). Essentially, municipalities bare the cost of recycling for the benefit of others – on a system wide level recycling is seen as a net social good, but individually, municipalities may not benefit. Tangent to this point, there is considerable debate as to whether the external benefits of recycling can be quantified in any credible way. Pollin & Peltier (2009) found that the methodologies used to estimate job creation, emissions savings etc. vary from study to study, and it remains unclear as to whether these numbers are accurate.

The economic viability of municipal recycling systems is a subject of contention among researchers (see Kinnaman and Fullerton, 1995; Munger, 2007; Lah, 2002). The costs, benefits and support for recycling range widely across studies. This may be attributed to the site and situation specific factors that ultimately drive the costs of recycling in any given area. Curbside vs. bring/depot systems, regulatory requirements (mandatory recycling schemes vs. voluntary initiatives) and the presence of extended producer responsibility legislation are just some of the factors that affect the costs of recycling.

In an examination of the cost recovery framework used in Portugal’s Green Dot recycling system, Da Cruz et al. (2012) found that there were economic benefits to recycling when savings due to material diverted from landfill were accounted for. Bogert and Morris (1992) derive a similar conclusion in a review of recycling costs in Washington State, where recycling was seen as being both economically and environmentally preferable to disposal. In all four sites studied, the outright costs of recycling were actually cheaper than the cost of disposing the same material in a landfill. With this in mind, it is important to note that both the costs of recycling and the costs of land filling change over time. As new technologies or packaging types become available, and as landfill capacity increases/decreases, the cost competitiveness of recycling changes.

While Highfill and McAsey (1997) argue that the cost of recycling decreases relative to disposal over time (as landfill costs will increase as available capacity decreases), this is predicated on the assumption that landfill space is finite. In a review of Ontario’s landfill infrastructure and historical pricing undertaken by the Ontario Waste Management Association (OWMA), the exact opposite is actually observed (OWMA, 2013). Due to a trade agreement with the state of Michigan that enabled Ontario to export waste to other jurisdictions, available landfill capacity in the province increased by a factor of 10. As a result, landfill tipping fees decreased by more than 90%, reducing the cost of disposal relative to recycling (OWMA, 2013).

The recyclability and cost of managing specific materials also has a significant effect on the economic viability of municipal recycling systems. The tenability of recycling systems is largely dependent on the type of packaging material recycled (Da Cruz et al., 2012). In studies by Marques et al. (2014) and Lavee (2007), it was found the recycling of packaging with low resale value (and low raw material costs), may not be economically sustainable in the long run. This problem is only exacerbated if the costs of recycling are high, particularly for materials which are also difficult to recycle (e.g. plastic laminants and composite packaging). A notable exception to this issue is metals recycling (aluminum and steel), which has consistently shown positive economic benefits relative to virgin material procurement (Pingsha, 2004).

This study does not attempt to offer any definitive guidance regarding the appropriateness of recycling as a sustainability strategy. Instead, it highlights that not all recycling activities are created equal, and that recycling the broadest range of materials is not necessarily the most efficient choice.