Thursday, May 31, 2012

Running to stand still: Why the current municipal recycling system can’t deliver the goods

By Scott Mouw, North Carolina Recycling Program Director, scott.mouw(at)ncenr.gov

In only two decades, recycling in the U.S. has fundamentally transitioned from a response to a waste disposal crisis to a race to fulfill an insatiable global appetite for commodities. A few hallmarks of this transition included massive shifts in domestic recycled paper capacity (over $10 billion in investment in the 1990s), the development of an entire plastics reclamation industry almost from scratch, and the rise of China’s voracious consumption of secondary materials. Pressure on the virgin material base and escalating energy costs will keep feeding this preference for recycled commodities.

You don’t need Economics 101 to understand that expanding demand should drive an increase in supply. Price signals should mobilize more production – just as American farmers are now planting more corn acreage as bushel prices reach higher levels. In a classic capitalistic system, when demand rises, economic law dictates that suppliers will respond.

So why does this basic tenet appear not to work in the U.S. recycling system? A review of material prices since the 1990s indicates that price signals are clearly being sent. Why can’t our current municipal recycling programs keep up with rising demand? And why have material recovery rates essentially stagnated?

One fundamental cause could be a lack of an economically rational supply base. The backbone of that supply has been thousands of community recycling programs, originally set in motion by the disposal crisis. In seeking to reduce dependence on landfills, local programs were designed to achieve a “public good” on par with schools, police protection, and libraries. Now, these programs – constrained by economic and political pressures on tax revenues that provide the system’s real and operating capital – seem ill-suited to the new paradigm of recycling as a commodity supply imperative.

To put it another way, if you were going to design a responsive commodity supply system, why would you rely on decision-makers who appear unmotivated by prices, have competing internal investments and are essentially unrewarded by the marketplace? And why would you set up a system in which the cost of production – in this case, collection of discarded materials – is not remotely covered by system income, even in the best material value scenarios?

Part of the appeal of extended producer responsibility (EPR) is that it could harness the business acumen of corporate capitalism to improve the commodity supply situation, shifting decision-making from conflicted government agencies to more economically rational actors. It would also inject capital that in turn would improve the overall performance of the system – i.e., collect more materials.

So, beyond a moral argument that producers take responsibility for their stuff, is there also a business case to be made for EPR? Could such a business case overcome the basic nature of U.S. capitalism in which corporations pursue self-interest first, despite potential long-term rewards of working together? And could the business case successfully address a situation in which straight return-on-investment calculations may not be applicable?

Many consumer product and commodity companies already recognize that action is necessary. Many have set specific goals around recycling, recyclability and post-consumer content utilization. Some are investing, albeit in small ways, in the collection and processing system. Can the scale of this commitment expand? And can it take on a more formal, collaborative framework that amplifies the individual efforts?

The writing is on the wall for the future of commodities and the companies that use them. The current recyclable supply system is agonizingly unresponsive to demand and nothing will change that anytime soon. However, concerted industry actions - including shifts in supply decision-making and capitalization - could bring huge benefits to the U.S. recycling system and to the economy as a whole. Nothing less is at stake than the competitiveness of our nation’s manufacturers in a material and energy insecure world.

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