[GRRN] How to Evaluate the Economics of Curbside Recycling Programs

RecycleWorlds (anderson@msn.fullfeed.com)
Fri, 2 Jul 1999 09:22:53 -0500

I didn't realize that my response to Rick and Janet that touched on how
the costs of curbside recycling programs are evaluated would spark such
continuing interest.

For those concerned about the raft of studies/articles purporting to
show that recycling is not economic (Reason Foundation, APC, Wall Street
Journal, NY Times Magazine), be aware that none of these evaluations used
the longstanding, bedrock principles that economists would use to make the
comparison with trash-only service. Proper economic precepts would tend to
provide a far better picture of recycling than these prior misguided

The National Recycling Coalition Policy Workgroup that I've been
chairng put together a talking paper the describes why the past exercises
are invalid and points the way to a proper analysis. Here is an excerpt
from the report which the Workgroup provided to the NRC Board. If anyone
would like to know more about these incremental principles please feel free
to give me a call.



Purpose. Many studies that have been done attempting to evaluate the costs
of recycling (as one of many strategies for managing solid waste) come at
the issue from very different directions. Unfortunately, there has not yet
been a consensus over how to ask the question about recycling economics,
much less on how to answer it.

Some have attempted to ask how much recycling costs, without recognizing
the need to count its economic savings, acknowledge its environmental
benefits, correct for hidden subsidies or weigh all that against how much
is diverted. Others have used misleading measuring rods that produce
erroneous conclusions. Some examples are "cost-per-ton", historic data
bases or average costs that focus on collateral issues, outdated
information or incomplete analysis.

The purpose of this issue paper is to put forward a recommended process to
assess recycling's effectiveness as one of other possible strategies for
managing solid waste that can be agreed to, and be used by, both trained
economists and solid waste managers. This means ) after accounting for
costs that are not shown on the books of account, as well as a full
accounting of those that are )
How much net cost (or savings) does recycling add to (or subtract from)
traditional solid waste management to realize the net benefits of reduced
resources consumption and disposal facility.
An "incremental cost analysis" does this best because it identifies a wider
range of savings as well as costs, measures them using accepted economic
tools, and evaluates the resulting net costs as a function of how much
diversion is achieved.

At the same time, it must be recognized that recycling's ultimate role
does not rest solely upon whether it adds to or subtracts from the cost of
handling solid waste without diversion. People desire many services, such
as police, libraries or music, that do not "pay" for themselves. But, the
true statement of recycling's costs or savings is one factor, among others,
that many people consider to varying degrees when they make that choice.

How are Incremental Costs Different from Other Measures? "Accounting," or
"book," costs, are an important building block in evaluating costs.
However, by itself, book costs can neglect to recognize savings captured
for the firm by an alternative, such as recycling, when alternative costs,
such as tipping fees at the landfill, are avoided. They also say nothing
about costs and benefits off the books, but borne or paid for by society.
Nor do they bear upon effectiveness, such as how much diversion is
achieved for those costs that are reflected on the books.

Another typical approach is "costs per ton" of each alternative. This
does attempt to address the failure of simple book costs to recognize
efficiency factors. However, when calculated from the books of each
alternative strategy in isolation, costs per ton reveal nothing about how
much overall expense changes when a second system is overlaid onto another.
Thus, the net cost per ton for collecting recyclables in the recycle system
may be less than the cost per ton of collecting trash in the solid waste
system. Nonetheless, the cost of collecting solid waste and recyclables
without separation on the trash trucks may be lower than the total cost of
collecting solid waste only in trash trucks and collecting recyclables with
a second fleet.

Yet another approach is to examine historical data of programs which
include recycling. This approach ignores the "learning curve" that exists
in any new endeavor in which it takes time for efficiency techniques to
evolve and for infrastructures that improve efficiency to grow. Thus,
programs that began in the infancy of that learning curve tend to be
weighted heavily in the historical data bases and are not representative of
the costs that would face a program being implemented today after several
years of intensive fine-tuning of the systems and development of the

Finally, neither of these other approaches is intended to look at wider
impacts that do not appear on books of account, although these factors do,
in fact, affect the decision on whether recycling should be pursued.
Examples include economic factors such as the demand that recycling
diversion has on reducing the rate of growth in disposal fees by reducing
demand. Examples also include environmental factors such as avoidance of
contaminated water supplies in the future.

What is Full Incremental Cost Analysis? This is a technique for
evaluating the overall impacts of selecting one strategy for managing solid
waste over alternative strategies (e.g. recycling or incineration in
addition to landfilling) or for deciding whether to attach a single
additional strategy onto a base case (e.g. just recycling in addition to
landfilling). Incremental pricing cost analysis involves four procedures
involving a forward looking time horizon, integrating the different
systems, aggregating all costs of each strategy and calculating the
difference, and dividing by the tons diverted to measure effectiveness.
Peter Anderson
RecycleWorlds Consulting
4513 Vernon Blvd. Ste. 15
Madison, WI 53705-4964
Phone:(608) 231-1100/Fax: (608) 233-0011