Policies targeted directly at recycling

Recycling is not an economic activity which should be supported by government policy measures in and for itself. However, environmental externalities associated with solid waste generation and management can be considered public bads. Moreover, solid waste is an area in which it is notoriously difficult to apply "first-best" environmental policies to reduce these bads (Eichner and Pethig 2001, Calcott and Walls, 2000). This is due in part to the "mixed" nature of much of the solid waste stream. A wide variety of substances with very different potential environmental impacts are aggregated. This is commonly the case for municipal solid waste. For industrial waste, waste separation may be less costly since it is often (but not always) more homogeneous, but there is still considerable heterogeneity in many cases. Distinguishing between all types of waste in terms of their different externalities would impose exorbitant administrative (private and public) costs.

It is for this reason that much of environmental policy in the area of solid waste is designed to disaggregate heterogeneous waste streams, and "pull out" those elements which have particularly high values, whether positive (recyclables) or negative (hazardous). It is, of course, with the former case which we are primarily interested in this study. Since recyclable waste is "embedded" in the waste stream (and within individual products in the waste stream) public authorities seek to provide the right short-run (separation) and long-run (product design) incentives to separate out those elements which can be recovered cost effectively. However, it is also important to note that many recyclable materials are themselves potential sources of significant environmental damages (e.g. used lead-acid batteries or used lubricating oil), and there are, therefore, both negative and positive incentives to recover such waste (OECD, 2004).

As noted above, targeted recycling policies can be distinguished between those that seek to increase supply for recyclables and those that seek to increase demand. Table 5.1 provides a partial list of measures, including the precise nature of the incentive provided and some of the potential strengths and weaknesses of the different measures.

A number of empirical studies have been undertaken in order to determine which of these instruments is likely to be most environmentally effective and economically efficient. (For a survey related to municipal solid waste see Kinnaman and Fullerton, 1999.) The choice will, of course, depend upon the specific material to be recycled. There are, however, some general principles which emerge from the literature:

Table 5.1. An overview of targeted recycling policies

Instrument

Incentive

Comments

Supply-side

Ban on landfill or incineration of recyclables

Deposit-refund schemes for goods with recyclable content

Public collection schemes for recyclables

Subsidies for material recovery, facilities

Product take-back targeted on goods with recyclable content

Mandated sorting of recyclables Demand-side

Recycled content standards Tradable credits for recycled content

Public procurement preferences for goods made from recycled materials

Eco-labels related to recycled material content

Support for research and development for use of recyclable materials

By preventing disposal, encourages increased supply of recyclables.

By increasing the opportunity cost of disposal (legal or illegal), encourages recovery of recyclables.

By reducing the opportunity cost of collection, increases supply of recyclables.

By increasing the capacity and decreasing the cost of recycling, increases supply and reduces costs of recyclable materials. By increasing the opportunity cost of designing products which cannot be recycled, increases the supply of recyclable material. By facilitating downstream waste separation, decreases the financial cost of recycling.61

By requiring the use of recyclable materials in products, increases demand.

By encouraging the use of recyclable materials in products, increases demand.

By encouraging procurement officers to purchase goods made from recyclable materials, increases demand.

By encouraging consumers to purchase products using recyclable materials, increases demand. By increasing potential uses for recyclable materials may increase demand.

Depending upon conditions in recycling markets, may divert some waste into illegal disposal. It may also reduce recovery-for-energy for some types of waste. Deals effectively with wastes for which illegal disposal is an option and provides strong upstream incentives for redesign. May have high administration costs for some types of waste.

Effectiveness depends upon whether sorting at source is required and upon programme design (sorting, frequency, location, etc.).

Imposes significant information requirements for public authorities. May have negative effects on waste prevention since it reduces overall material input costs.

May impose high administrative costs. Unlikely to be economically efficient unless targets are disaggregated by product and material.

Significant benefits for downstream processing. May reduce aggregate collection rates due to increased opportunity costs (time and effort) for waste generators.

Likely to be environmentally effective, but economically inefficient unless standards are highly differentiated by material, sector and location. Similar to recycled content standards, but introduces flexibility to allow for cost equalisation, and thus economic efficiency.

Only targets a part of the market - may result in unintended negative effects on private markets. May encourage product innovation.

Allows consumers to express preferences for environment through purchasing decisions. Effectiveness depends upon consumer preferences. Likely to lead to product innovation, but may have unintended negative consequences on waste prevention.

To the extent possible, efforts to encourage recycling should not come at the expense of reducing waste generation at source (increasing waste prevention). For instance, subsidies for material recovery facilities, recycling collection schemes and recycled product development will encourage substitution of inputs toward recyclables, but will also (if not supported by other measures) increase overall demand for material inputs.62 While the negative scale effects are unlikely to be as important as the positive substitution

  1. Although non-financial costs for the household (i.e. sorting time, storage space, etc.) are likely to rise.
  2. This is perhaps the clearest example of the cost of targeting environmental policy on a proxy for environmental damages, rather than on the damages directly. In such cases there is always potential for "slips between the cup and the lip", particularly in the long run. In this example, the output effect (reduced material costs) will undermine the substitution effect (improved material choice). This can never happen if the policy objective is targeted directly.

effects, they should be borne in mind - particularly if the environmental benefits of recycling relative to other waste management options are marginal.

Instruments with a single point of incidence (advance disposal fees, subsidies for collection or processing, etc.) are unlikely to be able to provide incentives throughout the entire design-production-consumption-disposal chain due to missing markets for some product characteristics at some stages. In such cases incentives for recycling (and designing for recycling) are not transmitted all the way along the product cycle (e.g. used electrical appliances). Two-part instruments (such as tax-subsidy and deposit-refund schemes), or the joint application of two separate instruments are preferable.

If there is potential illegal disposal of recyclable wastes, it is important to provide incentives for their recovery. For those materials for which the costs of concealment are low (e.g. used lead-acid batteries) positive incentives (e.g. deposit-refund) are likely to be more effective since the costs of enforcing negative incentives (e.g. fines) may be particularly high.

If policies are introduced on both the supply-side (i.e. collection schemes) and the demand-side (i.e. public procurement) or at different points within the supply and demand chain, it is important to co-ordinate their introduction closely in order to ensure that price volatility is not exacerbated. Arguably some of the wide swings in used newsprint prices in the early years of the market arose out of such a lack of co-ordination.

However, the key point to bear in mind is that while support for recycling through public policy measures can be justified as a second-best policy, the ultimate objective should never be to encourage recycling for its own sake. If there are better ways to target the public bad, then these should be applied. Unfortunately, this is not always possible, an issue to which we turn in the next section.

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