With an incoming Biden administration promising a return to environmental priorities for the U.S. government, one burgeoning question is whether it will adopt the push for a “circular economy” that has been discussed among congressional Democrats and America’s European counterparts. The notion of a circular economy is a simple one, seeking to minimize the need for industries that are extractive of the environment and wherever possible recycle, reuse or reduce materials. The idea, though, is predicated on a popular albeit mistaken notion that recycling always yields useful or valuable materials. A push for more recycling is likely in the future, but it could come at a significant cost if recyclers are forced to recycle materials that have little to no value. Before expanding policies like mandatory recycling (already present in 22 states), it may be worth examining how to better improve recycling facilities to ensure they remain profitable and capable of investing in their own improvements, and thus minimize costs to taxpayers.

It’s tough business making treasure out of trash

The truth is, not everything makes economic sense to recycle. Metals like steel or aluminum are almost always worth recycling as they do not lose their properties with processing, and the same lump of metal can be melted down over and over again, forever. The fact that steel and aluminum have the same utility whether it comes from a recycled can or is forged from virgin minerals means that it is in constant demand, with aluminum being approximately $1,317 per ton. Similarly, the pulp from recycled cardboard is still usable, and is usually worth recycling (currently $55 per ton).

But what about a material like glass? Recycled glass is broken down into a sand-like substance called “cullet,” which competes with—go figure—sand. It costs between $70 and $90 per ton to recycle glass, but the cullet sells for only about $10 per ton. Mixed plastics as well have little value when recycled, as the processed output is less desirable than new plastics (in 2018 mixed plastics recycled in Florida sold for 0 to -3 cents per pound). Yet the emerging public demand is continually to recycle more, especially for a “circular economy,” and California has already become the first state in the nation to mandate minimum recycled content for plastic containers.

Recycling is a tough business, though, despite public policy pushing it onwards. The latest surveys from the Northeast Recycling Council found that while the blended value per ton of recycled material is $38, the processing cost per ton is $96. Not only that, but processing costs are rising faster than the value of recycled materials. To top it off, the value of recyclable material is notoriously volatile, with the price of recycled cardboard falling 85 percent after China ended its importation of used paper in 2017. And that isn’t even the first time prices collapsed as the 2008 recession drove cardboard prices from $105 per ton to $25, and for other materials such as tin the price collapse was even more pronounced, going from $327 per ton to $5 in less than a year.

The reason recyclers are able to stay in business despite the hazards is a combination of factors, one of which is that high value items like aluminum provide reliable income for recyclers, making up about a third of a typical materials recovery facility’s (MRF) revenue, despite being only about two percent of its volume. Another reason is that when MRFs contract with municipalities, they frequently charge a processing fee, helping to insulate them from the risk of the materials not yielding much value in resale.

Keep recycling great to minimize costs to taxpayers

So, what happens if there is a push for more recycling or a circular economy, regardless of the competitive merits of the processed materials? The MRFs will make less money on revenue and will increase the fees they charge to cover the processing. New York City spent an estimated $340 million in 2019 to recycle rather than landfill municipal waste. Simply, the costs will fall upon taxpayers. But it is important to keep in mind that the conventional objective of economic optimization is not readily applied to recycling, or indeed waste management writ large.

Taxpayers already pay a high price for waste management services, recycling included, because they value a clean environment. These services are subsidized by taxpayers by necessity, because getting people to properly dispose of or recycle refuse is competing with the alternative of illegal dumping or burning of waste, something that has a marginal cost of about zero and is almost impossible to police. But this does not mean that policymakers should dispense of economic discipline either, since resources are scarce and budgets finite.

If there is a push to recycle even relatively worthless materials, then the gap between processing costs and output value will widen. In such a scenario, governments should think about how their policies can best incentivize recyclers to maximize revenues and minimize costs. One study found that a typical MRF in a state without a bottle return law overlooks about $297,500 worth of used beverage containers per year. In general, advanced automation for MRFs has only started being adopted within the past five years. There are probably ways to improve facilities that are not being adopted, such as eddy currents or robot sorting.

Conventionally in economics sub-optimal performance occurs due to a lack of competition but given that much of what is recycled is not profitable and the high volatility of the industry, only investors willing to absorb a high level of risk are likely to enter the market. Municipalities should, though, ensure that their awarded contracts are competitive and discipline MRFs to reduce costs and maximize profits. What public funding is present, though, should not ignore that it may be more efficient to focus on mitigating risk for investment or new market entry rather than direct funding, as it may yield more private sector investment and reduce the overall levels of municipal spending on recycling.

Conclusion

The “circular economy” is not an optimal state of economics, but it does symbolize an intent to live harmoniously with nature without having to compromise on living standards. Before pursuing such a goal, though, it would behoove policy makers to examine the state of the recycling industry closely and pursue policies that instead of just incentivizing consumers to recycle, also incentivize profit maximization, capital investment and innovation.

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