~sou~ce$1
ELSEVIER
Resources, Conservationand Recycling13 (1995) 183-213
conservation
and recycling
The benefits and costs of alternative solid waste
management policies *
Haynes C. Goddard
Department of Economics, University of Cincinnati, Cincinnati, OH 45221-0371, USA
Departamento Acad#mico de Economfa, Instituto Tecnoltgico Auttnomo de M~xico, Mexico City, Mexico
Accepted 1 June 1994
Abstract
In the last few years controlling the size and composition of the solid waste flow has moved
substantially up the public policy agenda in many countries. With this has come the question of what
are the appropriate types of public interventionsin the economy to control this flow. The most dramatic
of the interventionshave involved adoption of high recycling targets for specific fractions of the waste
stream and special measures to deal with packaging waste, especially in a number of European
countries. Questions are being raised about whether the targets and inventions are warranted on the
basis of economic analysis, especially about the costs and benefits of the objectives and the instruments
to achieve them. This paper reviews the published and some unpublished literature through the spring
of 1993 and generally finds that the conceptual and empirical basis on which to predicate efficient
and effective solid waste management policy is still rather incomplete. The only principled basis for
public interventionsthus far established in the economics literature is that for user fees at the household
level. The paper analyzes the role of waste managementfees or user charges in rationalizinginvestment
in waste management technology and finds that, while there is wide agreement that the prices are not
right in this environmentalarea, there is little focus on the role that such fees can play in motivation
source reduction at the consumer or household level. A number of recommendations are made for
using economic instruments for efficient solid waste management.
Keywords: Solid waste management;Recycling;Landfill;Benefitcost analysis;Cost effectiveness
1. Introduction
1.1. The current situation
Languishing for years at the bottom of the national environmental agenda, municipal
(nonhazardous) solid waste management has now moved rapidly up that agenda for prin* This article was originallyprepared under the sponsorshipof the AmericanCouncil for Capital Formation
Centerfor PolicyResearch, Washington,I)(2,in theirmonograph,Balancing Economic Growth and Environmental
Goals, May 1994, and is reprintedhere with their permission.
Elsevier ScienceB.V.
SSD10921 - 3449 ( 94 ) 00021 -2
184
Haynes C. Goddard / Resources, Conservation and Recycling 13 (1995) 183-213
cipally two reasons. First, existing and future landfill capacities appear to be shrinking
dramatically. Second, the greatly increased flow of recycled materials from ubiquitous and
costly community recycling programs initiated over the past several years has swamped
secondary materials markets. Most states have now passed legislation that requires recycling,
with 13 states mandating rates of 50% or more. (Rhode Island has the highest target, with
70%.) The great expense of trying to reach these recycling targets is leading to calls for a
reexamination of the relative advantages of landfilling and to suggestions that recycling is
being greatly overexpanded [ 1,2]. Nonetheless, those committed to the solid waste management hierarchy (source reduction, recycling, incineration and landfill, in that order)
have convinced numerous state governments that mandated reuse and recycled content
requirements (e.g., as in newsprint) represent the way to end the secondary materials glut
and to eliminate the low and sometimes negative prices in the secondary materials markets
for municipal recyclables. Legislation has been introduced in the US Congress to make the
mandates national in scope [3]. Governmental policy in the United Kingdom also supports
a very similar hierarchy but one that also encourages source reduction or waste minimization
[4].
Much has been written on the impending solid waste management 'crisis'. This problem
is driven in large part by the declining number of operating landfills as much tighter
operational requirements are imposed on landfill operators. These requirements will become
even tighter with the application of the new Subtitle D regulations of the current Resource
Conservation and Recovery Act (RCRA) in October of 1993. One set of estimates indicates
that the number of landfills has declined nearly 50% since 1988, to about 5800 in 1991, and
that another thousand landfills (or 20%) more will close because of the Subtitle D restrictions [ 5 ]. Others predict that virtually all present landfill capacity will be filled by the early
part of the next decade.
Tipping fees at landfills now average $20/ton nationally (a figure that masks great
regional variation), with the highest in the mid-Atlantic states ($53/ton) - the region with
the highest population density in the nation [5]. Fees of $150 a ton are not uncommon in
those communities. Along with rising landfill costs, the past and current 'panaceas' of
incineration and recycling are also confronted by high costs and/or poor markets, respectively, with the result that in many areas of the nation recycling costs twice as much as
landfilling and therefore has to be subsidized. One prediction holds that waste management
costs will rise at a rate of 7% annually to the year 1997, reaching $47 billion [6]. It is
common to hear of communities that recycle at a cost substantially in excess of landfill cost,
as in the recently reported case of Prince William County in Maryland that is recycling
plastic containers at $250 a ton while the landfill costs only $55 [7].
A similar situation exists for many communities that made expensive commitments to
very capital-intensive waste-to-energy facilities in the 1970s and 1980s; there are more than
$10 billion in incinerator bonds outstanding and many of these incinerators are forced to
operate below capacity for a lack of waste [ 8 ]. La Crosse, Wisconsin has to run its new
incinerator at less than one half capacity and Broward Country, Florida is forced to scour
.South Florida for waste to supply two incinerators that cost $500 million. Many of these
facilities are overcapitalized and are forced to charge tipping fees substantially in excess of
alternative landfill rates, a situation possible only because of flow-control ordinances that
require local trash to be sent to the incinerators. For example, if incinerator ash is declared
Haynes C. Goddard/Resources, Conservation and Recycling 13 (1995) 183-213
185
Table 1
Projections of materials generated in the municipal waste stream: 1990and 2000 (millions of tons)
Paper/paperboard
Glass
Metals
Plastics
Rubber/leather
Textiles
Wood
Other
Total
1990
2000
73
13
16
16
5
6
12
3
145
85
14
17
25
7
7
16
4
173
Source: US EnvironmentalProtectionAgency, 1992.
by the courts to be a hazardous waste due to the presence of heavy metals, it could add $3.5
billion to the operating costs of the incinerators now operating. Clean Air Act regulation of
incinerator emissions is adding greatly to incineration costs, and legal challenges to the flow
control laws - if successful - could cause the flow of waste to dry up, leaving communities
without incinerator tipping fees and unable to pay bond service.
A recent survey by the Reason Foundation finds 4500 to 5500 recycling programs
operating throughout the country, with more than forty states having established recycling
mandates and/or waste diversion goals [9]. Predicted trends show continued rising waste
flows (see Table 1 ). Other reports indicate recycling rates are up, landfilling is down, and
incineration is rising in the aggregate (see Table 2) [5]. While trends for various constituents of the waste stream (prominently packaging) are frequently estimated, surprisingly
there is virtually no published analysis of the determinants of the trends. Such causal analysis
is fundamental to developing rational public policy for solid waste management.
One trend noticeably absent in the extensive list of literature examined for this report is
that of household source reduction. Source reduction refers to the extent to which households
are changing their waste generation habits by simply not generating w a s t e - thereby avoiding
the expense of recycling, incineration, and landfilling. More importantly, there is virtually
no information on what the source reduction potential in the household sector is, although
Table 2
Solid waste trends
Recyclingprograms
Yard waste facilities
Landfills
Incinerators
Landfilling rate (%)
Recyclingrate (%)
Incinerationrate (%)
Materials recovery facilities
Source: [5].
1988
1992
3912
651
5812
136
76
14
8
5404
2981
5386
169
72
17
11
191
186
Haynes C. Goddard / Resources, Conservation and Recycling 13 (1995) 183-213
a few authors have collected anecdotal evidence [ 10-13]. This represents a major omission
in the knowledge base that urgently needs to be corrected in order to develop a cost-effective
national solid waste management policy. Equally important, we have no information on
what it would cost to achieve higher levels of source reduction at the household level. This
is no small deficiency, for as explained later, there are very good theoretical reasons to
believe that significant levels of source reduction can be had at a cost lower than that of all
the other solid waste management alternatives. These gaps are symptomatic of the current
solid waste management problem, reflecting a lack of broad understanding of the nature of
solid waste management on the part of public officials and the public.
In sum, the trends in solid waste management are: rising waste generation, rising and
increasingly expensive recycling, increased governmental mandates, more costly landfilling
and incineration, increased subsidization of recycling, rising resistance to landfill siting,
and continued weak markets for separated materials. One might conclude that there do not
seem to be any good options for stemming the rising tide of waste and its management
costs. Such a conclusion is unduly pessimistic, as a policy exists that can identify and
promote cost-effectivebalancing of source reduction, recycling, incineration, and landfiUing
and not entail direct and costly governmental intervention in production decisions. This
policy is denoted variously as user charges, variable rates, unit based pricing, pay-as-youthrow, and bag-and-tag pricing policies for charging the household sector for solid waste
management services. In fact, this solution to the solid waste management problem is already
being applied in many cities around the nation that have implemented variable rates. This
is a trend that should be encouraged much more than the EPA currently does because the
practice represents an efficient national solution to the solid waste management problem.
1.2. Focus and motivation
Two neglected analytical issues fundamental to the identification of lasting solutions to
the solid waste management problem are:
1.
The characteristics of the nation's institutional and decision making structures that
have led to the emergence of a pressing solid waste management problem (in other
words, why were the choices that brought us to today's difficulties made?); and
2.
Identification of cost-effective and environmentally beneficial economic policies to
resolve the problem.
Related issues are the extent and quality of current knowledge and its suitability for use
in formulating national public policy, and the lessons that can be learned from foreign
experience. (The original objective of this study had been to make an empirical statement
about the relative benefits and costs of the current push to recycle significant percentages
of the waste stream, but the quality of the data and analyses currently available make it
impossible to do so at this juncture.) This situation is in part a reflection of the low priority
that the EPA has placed on the municipal solid waste management problem for the last 10
years and of its single-minded focus on technological approaches, neglecting cost-effectiveness issues.
A thorough benefit-cost analysis of the problem remains an important task, as such
information is always useful. Nonetheless, the major inadequacy in the knowledge base for
this topic is not the lack of data and empirical information, although that is an important
Haynes C. Goddard/ Resources, Conservationand Recycling 13 (1995) 183-213
187
problem. Rather, the major problem is the lack of adequate conceptual understanding of the
fundamentally economic nature of the solid waste management problem. In particular, for
all that has been written an understanding of how waste generation decisions fit into the
general framework of the nation's market and price system seems incomplete and widely
unappreciated. This knowledge void is clearly reflected in the activist legislation in the
United States and Europe that has been proposed or adopted to control the packaging
component of the waste stream.
It is true that even with the best conceptual understanding of problems, policy missteps
or 'surprises' occur due to lack of good information. However, in the case of solid waste
management it is clear that the great expense and financial risk that has been incurred in
incineration, and now recycling, is due largely to improperly framed or conceptualized
problems rather than the lack of good data. This is not a matter of 'hindsight has 20-20
vision'. Rather, it is always true that one needs a correct model of a problem in order to
know what data to gather and analyze. Without appropriate economic analyses of the
problem, waste management authorities and engineering consultants continue to produce
incorrect diagnoses and plans for solving the solid waste management problem. Unfortunately, the necessary skills are not found in the typical engineering firm, on which local
governments rely for diagnoses and recommendations.
There are important limitations to using empirical benefit-cost analysis to determine
optimal material throughput in the economy and the relative emphasis placed on the various
waste management options. This is due to the complexity of the issue, complexity that may
outstrip our ability to model precisely the relevant scope of production and consumer
choices. Valid empirical benefit-cost analysis always provides important information for
decision making, but for highly complex economic problems involving many market interdependencies it is more a general guide than a precise map to the proper decisions.
Furthermore, unless we have a clear view of the causes of the past solid waste management
policy mistakes that have brought the nation to the current 'crisis', real solutions will
continue to elude us. Indeed, there is every reason to conclude from a reading of the current
debate and the many proffered policy recommendations that the mistakes committed with
incineration are being made again in the recycling area. The inevitable effect will be that
more of the nation's scarce resources will be misspent, damaging the economy's ability to
grow and create employment. It should be clear from the current recycling and incineration
difficulties that past policy has made solid waste management more expensive than it need
be. If solid waste management policy formation continues in the same fashion, given the
current difficult economic times of declining real incomes and the fiscal pressure on all
levels of government, there is a substantial risk that the public will eventually conclude
environmental protection has simply become too expensive. The result will be a level of
environmental quality lower than the nation would like and lower than the nation would
otherwise choose given its resources.
All of this means that a careful qualitative analysis of the solid waste management problem
becomes relatively more important to decision makers. A careful weighing of the unquantifiable, or difficult to quantify, gives us a breadth of understanding that can be submerged
in detailed empirical benefit-cost analyses. Further, the complexity of the problem at issue
here greatly raises the importance of using decentralized decision making processes, such
as prices and markets, rather than centralized command-and-control regulations to make
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Haynes C. Goddard / Resources, Conservation and Recycling 13 (1995) 183-213
solid waste management choices. Expressed differently, there is much utility in employing
the conceptual tools of benefit-cost analysis to evaluate alternative institutional arrangements for solid waste management. This exercise will prove more valuable in the end than
specific numerical evaluations of particular policy (recycling) targets, simply because the
numerical evaluations are necessarily only snapshots reflecting current and near term economic conditions, whereas the choice of efficient institutional arrangements allows economic actors to make the appropriate waste management decisions on a continual basis,
without centralized interference. More fundamentally, without a clear conceptual understanding, all the empirical benefit-cost analysis will have a misplaced focus and will be of
little value, a situation evident in the few existing studies.
2. Why a solid waste management crisis?
2.1. Economics and solid waste management
Examination of the current literature confirms observations derived from many years of
experience in the solid waste field, namely that the principal source of the current solid
waste management problem lies in the kind of thinking that has typically characterized
policy formation in the area. A recognition of this is as important, if not more so, as specific
recommendations- for if we do not change how we conceptualize solid waste management
we shall be condemned to repeat past mistakes.
To answer the question posed in the heading, 'Why a solid waste management crisis?'. I
think it evident that our solid waste management institutions have failed us - in a phrase,
government has mismanaged the area. We use the phrase 'mismanaged' nonpejoratively,
to suggest that all levels of government have failed to issue a proper diagnosis of the nature
of the solid waste management problem (although that is changing in some communities).
Solid waste management nearly everywhere has traditionally been viewed as a technical
(engineering) problem, requiring a technical solution, and handed over to the civil engineering community to resolve. More accurately, the problem is usually left for the engineering community to define and so it is no surprise to find that the problem has nearly
always been defined as a technical one.
Except for an important externality in landfilling (groundwater contamination) that is
properly handled with regulations, the solid waste management problem is derivative of the
failure to recognize the essential economic nature of the problem. 'Economics' refers not
only to costs, but to markets, the price system, and, especially, consumer and producer
behavior. We refer in particular to the manner in which solid waste management services
everywhere have been provided to the household sector-unpriced. Importantly for our
recommendations (stated later) that situation is beginning to change, but the change has
been too slow to avoid the current crisis.
What is the economic nature of solid waste? Solid wastes are consumption and production
residuals. Production and consumption are driven primarily by economic variables, particularly prices and incomes, although population size and concentration are also important
factors. When economists say that a problem is economic in nature, they mean specifically
that it is characterized by scarcity and governed by choice. It follows then that solid waste
Haynes C. Goddard/Resources, Conservationand Recycling 13 (1995) 183-213
189
management is an important economic problem. Furthermore, when we indicate that waste
management solutions ought to be economic, we mean cost effective in all relevant dimensions - that all costs, including lost consumer welfare, have to be balanced at the margins
for a solution to be cost effective. 2 Importantly, in our economic system achievement of a
cost-effective balance will require a very careful use of the market and price system to
achieve waste management objectives. These objectives can be attained cost-effectively
only by instituting rules of the game that allow maximum flexibility (substitution possibilities, to the economist) in consumption and production decisions, subject to the constraint
that all of the costs be paid. This point is widely ignored in discussions on how to promote
recycling.
Although the public's perception of solid waste management has been often characterized
as 'out of sight, out of mind', a little reflection reveals that there is no economic activity
that does not generate solid waste, and from the municipal viewpoint no consumption
activity that does not generate residuals. This then means that in the entire economy all
production and consumption decisions are inextricably involved in solid waste management
policy. The implication of this observation is that partial solutions are likely to fail or,
worse, carry a potential for making matters worse. Yet in review of the literature undertaken
here, it is surprising how little understanding of these points there seems to be, with a few
important exceptions. This observation has important implications for choosing national
and state policies to foment improved solid waste management practices.
2.2. Short circuiting the price mechanism
The standard economic argument of 'externalities' is employed to explain why there are
pollution problems. Externalities are unintended nonmarket interdependencies caused by
failure to price scarce resources, such as clean air and water, to those who wish to use them
for waste disposal purposes. Regulations designed to eliminate the externalities in solid
waste management - principally, groundwater contamination - are driving the reductions
in landfill capacity. Also, the perception of externality, particularly health risk, is a constant
factor in the opposition to all types of solid waste facility siting (the 'not in my backyard'
( N I M B Y ) problem). The common factor across all environmental media in explaining
pollution is that pollution problems exist because we fail to price the use of the environment
as a disposal facility to those who wish to use it for that purpose.
Central to identifying a lasting solution to solid waste management is the recognition of
a very important difference between air and water pollution problems on one hand and solid
waste on the other. Well antedating air and water pollution controls, society made provision
for virtually all solid waste to be collected and deposited somewhere, and has done so for
decades. This means that the residuals flow has been captured or contained nearly wholly.
In contrast, we have some distance to travel before the same can be said for air and water
2 The standardeconomiccharacterizationof the resource allocationproblemis that we wish to allocateresources
to maximize the net benefits of resource use. This is formally equivalent to minimizing opportunity costs in all
the relevantdimensions, wherelostconsumer's surplus is specificallyone of the opportunitycosts. Thisformulation
then is the same as cost effectiveness but by another name, which includes costs from both sides of the market.
As the term 'cost effectiveness' is much more widely understood outside of the economicsprofession than is net
benefits, we adopt the cost effectivenessframeworkin this report.
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Haynes C. Goddard/Resources, Conservationand Recycling 13 (1995) 183-213
emissions. This capture of the solid waste stream has effectively controlled a major externality, that of indiscriminate dumping and littering, the analogue to uncontrolled air and
water emissions. All of which means that property rights to solid waste flows have long
been assigned, are enforced and exchanged (but generally not sold in the case of household
wastes), and markets exist and function for virtually all commercial solid waste and a
significant portion of household waste. Because solid wastes, in contrast to air and water
emissions, tend to stay put and can be moved around the environment only with difficulty
and expense, it is clear that the externality problem in solid waste is less important (although
not unimportant) as the proximate source of today's solid waste management problems.
That is, nearly all of the waste is managed, although not always well. It is true that federal
and citizen reaction to improper landfill operation is leading to a much higher cost of landfill
operation, and these costs represent a measure of today's problem. Yet if solid waste
management services were properly priced, as will be argued in this report, then these real
and perceived externality and cost problems would be greatly reduced in importance.
There are two ways to view how the provision of solid waste management services to the
household sector has been treated by government, neither of which relies on the oft-cited
externality argument. First, government has treated landfill capacity as a common property
resource with virtually completely open access; there have been and still largely are no
prices associated with current collection and disposal 3, and certainly none to reflect the
depletion costs of future landfill closures. It is a widely understood proposition that common
property resources will be overused and damaged [ 14]. The solution to the overutilization
of common property resources is termed 'closure', that is, a method to allocate and ration
scarce landfill capacity in the case of solid waste management. Common property resource
problems result from incompletely defined property rights, which in the case of solid waste
management could be avoided by selling access to the landfill by the pound and cubic yard
to all waste generators. Tipping fees meet this requirement only if passed on to the household
in the form of a price, but most tipping fees are not charged back to the waste generators
because of tax financing of the services.
A second way to view the situation is that the solid waste management problem is the
perfectly predictable result of governmentally imposed price ceilings (a price tag of $0) on
scarce resources. That result is excess demand and resource or supply shortages, with the
peculiarity here that government has attempted to always satisfy the excess demand by
siting more facilities, which is excessively costly and unsustainable in the long run - hence
the current crisis.
The implication of each view is that local government has short circuited the price system,
and that is the basic source of the solid waste management problem. It has always been
within the capability of local governments to price solid waste services properly (Tacoma,
Washington has done so for more than 60 years) but they have chosen - erroneously, most
economists t h i n k - not to. In the case of air and water emissions, especially air, we are still
struggling to find ways to price emissions effectively and efficiently. It is important to note
then that the major source of the solid waste problem is government failure, not market
3 It is important not to confuse the tax-basedfinance of disposal facilities with prices. Taxes are not prices
becausepricesare alwaysunit based. Only in the case of privatehaulers who chargehouseholdsfor their services
and who have to pay landfill tippingfees are legitimatepricescharged, althoughthey may be flatrate ratherthan
marginalcharges.
Haynes C. Goddard/Resources, Conservationand Recycling 13 (1995) 183-213
191
failure. Both interpretations imply that the flow of materials through the economy is higher
than it would be if proper prices were being applied to the waste management sector of the
economy. Furthermore, they imply that solid waste management planning is undertaken
with the wrong set of prices, leading to excessive investment in recycling and incineration.
Available information does not permit us to calculate this excessive investment at the present
time.
While the regulatory strictures of RCRA have indeed accelerated a reduction in available
landfill capacity, this has not occurred without ample advance notice. Yet the past and
impending reduction in capacity and increased cost have almost never been effectively
transmitted to the waste generators - the result of a short circuit. Crises by definition are
unanticipated, but do not occur in the private market system where property rights are well
defined, enforced, and exchanged through the use of prices - unless it be by natural disaster,
or by governmentally imposed price controls or regulations that inhibit adjustments to
changing economic conditions. It is well understood that in the typical market the response
to anticipated resource scarcity is a slowly rising price reflecting future scarcity of the
resource, which in turn indicates to producers and consumers the need to switch to substitutes, before a crisis presents itself. This situation is so commonplace that it is never
newsworthy, and so there is little public awareness of it. However, in the case of solid waste
management and the attendant set of problems, prices for landfilling have been rising rapidly
precisely because there has been no mechanism in place to telegraph that scarcity to the
waste generating public in advance. Government bears the responsibility for this problem,
but is easily capable of correcting it, as numerous communities already have.
As a rule, public enterprises tend to ignore price and cost signals, a situation that universally results in excessive costs and shortages. Just as 'put or pay' contracts for incineration
have greatly increased the financial exposure of some communities [ 8 ], we are relentlessly
moving in the same direction with the current push toward recycling mandates and the
requisite capital investments to fulfill them. It is an easy prediction that many communities
that establish materials recovery facilities (MRFs) will find it necessary to maintain a flow
of waste and recyclables to keep them operating and solvent, though it may prove true that
source reduction will be a cheaper alternative for an important part of the waste stream. 4
The very literature examined for this report that is critical of the emphasis on incineration
ironically will lead to commission of the same mistakes in recycling unless we change
course [ 15 ]. With much of the investment in recycling infrastructure appearing uneconomic
in numerous communities because of the substantially higher cost of recycling compared
to landfilling, there are many proposals for solving the problem with more governmental
control: continued subsidization of recycling and recycling mandates to ensure 'markets'
for the flow of separated materials - in short, compounding one wasteful practice with
another. This is 'put or pay' in another guise, or perhaps more aptly, 'put and pay - twice'.
2.3. Sustainable development and solid waste management
Sustainable development is usually defined as that growth that allows maximum current
economic welfare without reducing the welfare of future generations. Although sustaina4 Already it has been reported in the press that a photocopier manufacturer has developed a 'reverse copying'
machine that cleans photocopied paper up to ten times, thereby avoiding the need to purchase more expensive
recycled content paper. A widespread use of such technology would have an important impact on the supply of
paper to repulping facilities, rendering them uneconomic.
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Haynes C. Goddard / Resources, Conservation and Recycling 13 (1995) 183-213
bility is often defined in physical terms such as sustained harvests, landfill capacity is a
nonrenewable resource, except perhaps in geologic time. For nonrenewable resources sustainability can be defined meaningfully only as an optimal or correct rate of depletion of
the resource. For landfilling, an argument can be made that because landfill scarcity and
landfill externalities have not been properly priced to users the rate of depletion has been
unsustainably high. Because all material removed from the earth has to be returned to it
eventually, this argument would imply that our present growth path in terms of materials
utilization and waste deposition is not sustainable.
Current landfill difficulties could be interpreted as evidence of the unsustainability of
current practices. In particular, the facilities siting problem is a reaction to lax landfill
management practices in part, and also in part to an excessive rate of landfill depletion
requiting identification of more and larger sites that in turn creates conflict with a growing
and suburbanizing population. With the various federal and state landfill regulations
designed to correct the externality problem and with an eventual recognition of the relatively
low risks that well-run landfills present, we should expect an eventual decline in the
'NIMBY' problem and a greater use of landfiUing. It may, however, take time to restore
community confidence in waste management authorities.
Central to the sustainability argument for such nonrenewable resources as landfills, it
should be noted that all of these regulations will raise the cost of landfilling, just as air
pollution control regulations are raising the cost of incineration. This is what internalization
of external costs means. Therefore, compared to other waste management options, landfilling
may be becoming relatively more expensive; this is an empirical question to be investigated.
Cost effectiveness would dictate a relative shift of the waste stream to other control options,
even though there are great quantities of 'vacant' land in the nation. On the issue of land
availability it has been pointed out that if the total of the estimated 120 million tons of waste
generated in 1989 were placed in one location, piled to a depth of 300 feet, the annual
national space requirement would be a cube only two-thirds of a mile on each side [2]. A
thousand years of trash would require less than a thirty square mile area. The implication is
that landfill should remain a viable and perhaps preferred option for a long time. All of
which raises the question: how do we determine what is the correct combination of disposal
options?
Even if the short circuit to the price system mentioned earlier were to be closed, could
be we sure that the correct and smaller flow of waste would be generated? There are two
reasons to suggest that perhaps not. One point made in the literature is there are many
negative air and water impacts due to materials production that lie upstream of the consumption decision, and these would need to be corrected for all of the externalities associated
with materials use to be internalized [ 16]. Such pollution control will always tend to reduce
the materials flow through the economy as it makes materials intensive consumption more
costly relative to less materials intensive consumption. The argument is correct, but here
we shall simply indicate that there is a widespread sense that those problems should be
addressed directly at the stage of production where they occur, and not be an object of solid
waste management policy. We shall assume here that this bias toward downstream (consumer) waste generation is being eliminated through the application of upstream air and
water pollution controls.
Haynes C. Goddard / Resources, Conservation and Recycling 13 (1995) 183-213
193
The other argument is that in decentralized market systems there is a natural bias toward
present, rather than future, consumption and production resulting from an excessively high
discount rate that individuals seem to apply toward the future benefits of resource use. Much
literature and many economists recognize that intertemporal resource use decisions are
subject to market failure, or at least imperfect markets [ 17,18]. Even with correction of the
short circuit, it still may well be true that material throughput and the resultant solid waste
may still be excessive, as evaluated in terms of social preferences expressed through our
political mechanisms. The evidence shows that there is no discernible trend toward reduced
waste intensity of GNP, a fact that reinforces that argument [ 19]. I think these arguments
are essentially correct, but that conclusion does not necessarily translate into a preference
for a particular method, such as recycling, for decreasing the waste flow. We do not have
any empirical evidence suggesting what percentage of waste flows can be attributed to the
problem of excessive discount rates for materials use and disposal. Eliminating the short
circuit will move us in the direction of reduced materials flows and that should be the first
step toward cost-effective solid waste management and reduced material flows.
2.4. Incomplete diagnoses of the solid waste management problem
Solid waste management has always been treated as a command-and-control problem
rather than a malfunction of the market system, with end-of-the-pipe technology (recycling,
incineration, and landfill), to be financed with tax and subsidy arrangements. However, tax
and subsidy schemes are guaranteed to be inordinately expensive because they eliminate
incentives to economize on scarce resources (e.g., landfills and resources used in recycling)
and because they give rise to what economists call 'rent seeking' behavior [20]. In the case
of solid waste management this appears as an unending stream of vendors with costly and
often unproven technologies (recycling being one) for solving the solid waste management
problem in exchange for a subsidy. 5
In the literature examined there is widespread agreement that production and consumption
decisions for material use do not take account of the downstream costs of waste management,
which is a failure of local government, not of the market system. Even the noneconomic
literature on the solid waste problem now seems unanimous in recognizing that 'not getting
the prices right' is the source of the problem [ 15,21]. What is curious in this literature and
in the policy positions taken by many participants in the debate is that 'getting the prices
right' is not motivating the policy recommendations, which heavily favor recycling mandates and subsidies. Either 'getting the prices right' tends to be discarded as infeasible, or
casual statements are made that user fees should be charged but then the issue of whether
this is sufficient or not to solve the problem is not addressed explicitly. Thus the prescriptions
that emphasize recycling do not logically follow from the diagnoses, which is surprising
given the now generally positive current experiences with user fees for collection and
disposal in over 1000 communities around the country [22,23]. Also, there seems to be
little understanding in this literature of the differences between market failure and governA case in point is Minnesota's infelicitous experience with scrap tire recycling a few years ago. This project
was designed to process most of Minnesota's scrap tires using a patented technology (TireCycle) and involving
substantial capital expenditure from the state. The project foundered after beginning operation for the lack of
markets for its products,
194
Haynes C. Goddard/Resources, Conservation and Recycling 13 (1995) 183-213
ment failure, a distinction most important to crafting globally cost-effective policies for
sohd waste management.
Consequently, it is difficult to identify the knowledge base on which the fervor for
recycling and recycling mandates is predicated. One careful and competent observer has
concluded that notwithstanding the very aggressive moves to regulate recycling in Europe,
there exist no models and no analyses to identify what the correct level of recycling should
be [24]. I observe that the same is true for the United States - a situation that should be
cause for concern, as the potential for inflicting high and unnecessary cost on the economy
is great.
Brisson (p. 190) comments that the fervor for recycling mandates for the packaging
component of the waste stream in Europe derives from the fact that packaging is an easy
target and that it is the political 'actionability' of the packaging component of the waste
stream that has led some countries to enact very strict controls on packaging. I would add
two other factors: (1) distrust of consumers and their ability to make socially rational and
beneficial choices in a market setting, and (2) disbelief that getting the prices right in
conjunction with good information given to the consumer will solve the problem. Both
positions are based on ignorance about how the market and price system works, or can be
made to work, to allocate resources properly. Economists call this problem 'economic
illiteracy' and it has bedeviled environmental policy formation for a long time. It is still
quite strong in the case of solid waste and can be said to be an important determinant of the
penchant to pursue command-and-control strategies.
2.5. Source reduction and recycling
As mentioned earlier, there are two solid waste management crises: (1) reduction in
landfill capacity with associated increased tipping fees, and (2) the high cost of recycling.
What is curious in the debate over how to resolve the problem is that source reduction
(household choices to reduce waste generation) is seldom mentioned. Virtually all of the
attention is given to 'waste reduction' or pollution prevention, which recycling and other
mandates are supposed to advance. While some observers use the terms source reduction,
waste reduction, and pollution prevention interchangeably, pollution prevention and waste
reduction is used here to refer to changes in the waste content of goods made at the
manufacturing stage. Seemingly, there is little recognition that because of the interdependence of markets source reduction will lead to waste reduction and that local solid waste
policy can have an important impact on upstream waste reduction. Perhaps it is believed
that we know little of the potential for source reduction - it is largely true that what is
known has to been inferred from regression equations. But it is difficult to escape the
conclusion that because source reduction is not amenable to command-and-control
approaches upstream interventions are preferred by many.
It is often asserted that those who make the decisions should pay, which means mannfacturers, as if in a market economy the manufacturer's decisions had nothing to do with
consumer decisions, or that local solid waste managers cannot influence upstream decisions.
This is a failure to recognize the interdependence of markets and that elimination of the
short circuit would allow markets to transmit the cost of solid waste management upstream
to the manufacturing sector of the economy. Of the small amount of literature available that
Haynes C. Goddard /Resources, Conservation and Recycling 13 (1995) 183-213
195
is concerned with source reduction and waste minimization, there is little discussion of the
criteria to use to choose among the various options and the relationship of unit pricing to
source reduction [25,4,26]. Others who have a clear view of the problem unfortunately
seem to have had little impact on the direction of the debate as of yet [ 10-12,3].
3. Proposed policies and unresolved issues
The current professional economic literature treating the solid waste management issue
is focused on basically three issues: ( 1 ) the applicability and viability of user charges in
solid waste management, (2) analysis of which are the best tools to alter the percentage of
packaging in the waste stream, and (3) the benefits and costs of using those instruments to
foster waste reduction and recycling [ 24,27-32,22,16,23 ]. Our empirical knowledge is very
suggestive on the first of these, sketchy on the second, and virtually nonexistent on the third.
There is also advocacy literature on both sides of the various solid waste management
options, recycling being the current focus of attention, that relies on limited or no economic
analysis [ 15,16,1 ].
Except for a few economists writing in the area, in none of the literature is anyone
concerned with the larger issue: how solid waste management choices should best be made.
The questions are: ( 1 ) how to allocate available and future landfill capacity in terms of both
economic and environmental efficiency; (2) how much source reduction, waste reduction,
recycling, incineration and landfilling ought there to be; (3) what are the proper decision
rules; (4) who should decide; and (5) what is the role of the price and market system in
making these choices. In fact, apparently the last work dealing with such global questions
was published in 1975 [33].
The current focus of attention for which numerous laws have been contemplated or
adopted in the United States, Canada and several European countries is reducing packaging.
Given the very important waste reducing effects of modem packaging in food preservation
and protection 6 and the complexity of modem market and consumer economies one would
expect that such legislation would be introduced only after careful study. Such has not been
the case anywhere, including in the United States, as the packaging and other recycling
targets are wholly arbitrary. What is surprising about the trend is that virtually none of these
legislative efforts have any rational basis in thorough analyses of the relevant benefits and
costs. Surely in such a situation there is much potential for damage to the economy, which
will reduce - not raise - collective economic welfare.
3.1. Costs o f recycling programs
Certainly an important datum for decision making is the cost of recycling programs
relative to other waste management options. Nonetheless, because many communities have
made commitments to recycling programs before knowing the full costs and are very reticent
to make public the resulting high costs, there is little good analysis on the issue. One attempt
6 Brisson (p. 190) cites a World Health Organizationstudy which estimatesthat 30-50% of food in the third
world spoilsbeforereaching the consumer, and only 2-3% in the industrialized countries.
196
Haynes C. Goddard/ Resources, Conservation and Recycling 13 (1995) 183-213
to come to grips with the true costs is by Scarlett [ 9], who reports that the Reason Foundation
conducted a careful survey of more than 30 community recycling programs and only seven
had well documented and detailed actual (not contractual) cost information. She reports
that the net costs (net of sales revenues) of these programs ranged from $98 to $138 per
ton of waste recycled. These are the figures to be compared with landfill costs, the avoided
cost most often mentioned. These costs are quite high, all of which greatly exceed the
national average landfill cost of $20/ton and even that of the highest cost Mid-Atlantic
region of $53/ton. Scarlett cautions that the sample is small and clearly shows much
variability, a point of considerable importance in devising national policy.
3.2. Programs proposed to increase recycling
Declining landfill capacity and increased resistance to the siting of incinerators has caused
much attention to be focused on what to many seems the only remaining management
option: recycling. Poor markets for the greatly increased supply of separated materials from
community recycling programs and the resultant high net cost of recycling have led to
efforts to institute various mandates to force a change in the operation of materials markets.
It is important to note that these represent fundamentally a command-and-control approach
to the problem [ 34]. Some proposals contain provisions to allow trading of recycling credits
to provide flexibility, a provision that can, under the right conditions, reduce the total cost
of the mandate. In the environmental economics literature, residuals trading is termed a
quantity-based approach to pollution control and is currently being carried out in the United
States for controlling sulfur emissions.
Evidently the US group most focused on the issue of mandates is the Recycling Advisory
Committee [21 ]. The policy options for increasing the demand for recyclables that have
received the most attention is listed below with a brief description of how they would
operate. The RAC divides the policies into 'tier one' and 'tier two' options; the tier one
options are reviewed here. The tier two options of advanced disposal fees, tradable recycling
credits, container deposit systems, packaging bans, landfill bans, and user fees are all
considered by the RAC as limited in scope, but may be considered supportive of tier one
options.
Product specific minimum content standards. A requirement that manufacturers utilize
minimum amounts of specific recovered materials in products and packages within a
set time horizon. Materials commonly mentioned are aluminum, steel, glass, plastic,
and paper used in packaging.
Material specific utilization requirements. As applied to manufacturers, consumer
product companies, and importers this would be a requirement to recover and use a
predefined percentage of specific materials from nondurable goods and packaging
that would otherwise be disposed of. Materials commonly mentioned are paper and
paper products, and glass, aluminum, steel, and plastic packaging.
Manufacturer's responsibility. This option makes manufacturers of products destined
for disposal directly responsible for collection, recycling, and disposal, and associated
costs. Manufacturers could alternatively run a parallel waste management system,
contract for a parallel waste management system or directly fund existing municipal
programs. This is essentially the German system.
Haynes C. Goddard/ Resources, Conservationand Recycling 13 (1995) 183-213
197
Virgin materials tax. A tax levied on those virgin materials used in the fabrication of
products and/or packaging. It could be either an extraction tax or a tax on the virgin
content of products.
Shared responsibility. This is a program developed for the Province of Ontario,
Canada in which producers establish an independent organization for funding the
construction and operation a network of MRF's and cover the incremental costs of
collecting recyclables.
National secondary materials utilization trust fund. This proposal would create a fund
financed by mandatory contributions from all firms selling consumer products in the
United States. There would be a levy on all raw materials used in packaging. A rebate
would be paid those firms that increase their use of secondary materials in their
products.
The motivation behind these proposals is to alter the flow of materials through the
consumer sector of the economy by increasing recycling and reducing landfilling. The basic
focus is to force material substitution in production and alter packaging design and material
configurations. Most of the proposals are focused principally, but not entirely, on packaging.
The RAC materials do evidence efforts to identify the advantages and disadvantages of
the options, but there is no supporting economic analysis of the costs or benefits of the
options. Such information does not yet exist, although the Congressional Budget Office has
conducted some analysis of the effects of proposed congressional legislation [27-30]. The
use of mandates is purely one of command-and-control to force material substitutions and
to provide markets for the large current flow of separated materials. The general focus is
termed 'market development'.
All of the proposals are 'tax and subsidy' schemes. All such programs are destined to be
excessively costly, as is occurring in Germany [35]. It is clear from the literature examined
that there is little knowledge what the correct amount of recycling is relative to the other
waste management options, especially with respect to source reduction, although [36]
argues that realistic levels of recycling, excluding yard waste, are on the order of 15%.
Given that situation, it is an easy conclusion that implementation of these mandates will
simply compound one already evident and costly policy error with another. 7 First we incur
excessive costs ($150 a ton, or more in some cases) with overexpanded local recycling
programs and then seek to neutralize that error with mandates that themselves will prove to
be very costly. The presence of the subsidies will lead to great inattention to controlling
costs and a flurry of rent seeking; the result will be dramatically higher costs. Further, this
literature fails completely to deal with the question of where in the extraction, conversion,
manufacture, and disposal cycle is the most efficient point to intervene, if any governmental
intervention beyond getting the prices right at the consumer level is warranted.
3.3. Hierarchy or options?
There is an ongoing debate over whether or not the solid waste management hierarchy
(waste reduction, recycling, incineration, and landfilling, in that order) is the proper guide
7Thisis not to say that the economicallyefficientlevelof recycling,as yet unknown,will not require a positive
level of subsidy. We will hypothesizethat an optimalcross subsidy (Ramseyprices) at the wastegeneratorlevel
will be the efficientmechanismto stimulatethe rightmount of recyclingconsistentwitha sustainabledevelopment
path for materialsuse. Seattledoesthis in effectwithits userchargesystem,as probablydo mostofthe communities
that recycleand chargewastegeneratorsdirectlyfor solid wastemanagementservices,See also [22].
198
Haynes C. Goddard / Resources, Conservation and Recycling ! 3 (1995) 183-213
to national solid waste policy [37]. The discussion is over whether the various control
options should be viewed as a hierarchy, always to be undertaken in that order, or should
be viewed as a 'menu of options', the ranking to be determined empirically as a function of
local conditions.
Schall [ 16] makes a concerted effort to show that a 50% recycling rate in the New York
City and New Jersey area is economically and environmentally justified. His is the most
serious effort to-date to produce a benefit-cost analysis of the hierarchy. His study, which
draws on studies conducted by the Tellus Institute, seeks to determine whether the net
benefits of a 50% level of recycling are positive or not. The analysis is systemic in that it
seeks to measure the upstream environmental impacts avoided through increased source
reduction and recycling. Unfortunately, the analysis is subject to a serious analytical problem, namely a shortcoming in the pollutant valuation methodology employed for estimating
the benefits of foregone upstream air and water impacts generated by downstream source
reduction and recycling. 8 Briefly, this methodology uses observed incremental pollution
control costs as a measure of the benefits of additional source reduction and recycling under
the argument that if the authorities have decided to incur those costs, the benefits must be
worth at least that.
This reasoning would encounter substantial skepticism in the environmental economics
profession, for at least two reasons. First, until recently, the Clean Air Act actually explicitly
prohibited the use of benefit measures in the determination of the level of air pollution
control, calling into doubt the economic efficiency of the choices actually made. Secondly,
air and water controls have been implemented under command-and-control programs, the
costs of which have been estimated to be several times higher than the cost effective level
of control [ 38 ]. These facts mean that, at best, there is no clear relationship between costs
and benefits in observed control programs, and, at worst, for whatever the level of control
chosen and benefits thereby gained, the costs are always higher that what they would be
under a cost effective control program. As a consequence, using costs as a proxy for benefits
will lead to a substantial overestimate of the upstream environmental benefits obtained from
increased source reduction and recycling. The only situation in which an observed marginal
cost can be used as a measure of benefits is when the optimal level of control is chosen,
information which is not currently available. We conclude that, despite Schall' s substantial
effort, the question remains open empirically, although source reduction is likely to occupy
first position in whatever ranking of options chosen, a point consistent with part of Schall's
argument.
This debate is made difficult without the aid of a clearly enunciated economic framework
for the solid waste problem. With the aid of a few simple analytical diagrams, we show that
any set of options can be ordered by their economic opportunity costs, and once ordered,
can be termed a hierarchy, and so both sides are partially correct. The real question concerns
what is the correct ordering, an issue about which empirical knowledge is very limited.
8 The work of Schall [ 16] has not been published in the professionaleconomicsliterature, and therefore it has
not been subjectto peer review so that a professionaldeterminationcan be madeof the validityof the methodologies
and the conclusions.Nonethelessit has becomethe focus of public debate that is premature. This reflects a general
problem that I have observedfor the solid waste area, as virtually all of those analyses conductedfor government
(at all levels) are performedby contractors,whosereports are customarilynot peer reviewed by external experts,
make very little use of relevant professional literature, and are usually incompletelydocumented. I was not able
to examine the backgroundstudies on which Schall's workingpaper is based.
Haynes C. Goddard/Resources, Conservation and Recycling 13 (1995) 183-213
199
l~If ,inll ¢oli
FI I
0
. . . . .
R*
LF"
krn~mt of
waste controlled
Fig. 1. Incremental costs of options.
3.4. A conceptualframework for choosing among the options
Fig. 1 represents the ordering of solid waste management options implied by the view
that the EPA hierarchy (excluding source reduction ) is appropriate for postconsumer waste.
The horizontal axis shows the amount of waste controlled or treated with the options; the
curves are ordered by the expected marginal costs (MC) for recycling (R), incineration
(I) and landfilling (LF). We abstract from the fact that the curves are interdependent in
that, for example, paper that is recycled may reduce the efficiency of waste-to-energy plants,
raising average and incremental costs, and both may reduce the attainment of scale economies in landfill. The implicit argument in the hierarchy is that for all private and social
costs, recycling is initially less expensive than incineration and incineration less than landfilling and therefore management options should be undertaken in that order. This is what
in part drives the great interest in recycling. However, it is clear that the specification of a
particular hierarchy must be an empirical determination and will vary regionally depending
on the relative costs of the options.
The current debate over the proper role of recycling is depicted in Fig. 2, and can be seen
as an argument over the position of the recycling cost curve. It may be much higher (curve
R') than initially thought (curve R) as is now being suggested by critics of the rush to
recycle. This would mean that the proper or socially efficient level of recycling is much
less, for example, at R'* (e.g., 15%) instead of R* (e.g., 50%), suggesting that the high
mandates set by some states will raise the cost of materials production unnecessarily. In
terms of all upstream and downstream nonexternality costs that would be associated with
the various recycling mandates, it is not known where this curve lies relative to the others.
Rational solid waste management policy that relies on command-and-control instruments
200
Haynes
C.
Goddard l Resources, Conservation and Recycling ! 3 (1995) 183-213
cannot be developed without knowledge of this relationship, as well as of the other options.
However, the experience in Germany is beginning to suggest that the costs may be quite
high.
Both diagrams are incomplete however, because they do not include source reduction,
the consumer's decision to generate fewer residuals. The cost of source reduction can be
measured by the loss in consumer economic welfare occasioned by not being able to generate
waste 'free', that is, at a zero price, as would occur when 'pay-as-you-throw' policies are
adopted. The cost of source reduction is represented as SR in Fig. 3. Note that this curve
necessarily passes through the origin.
In contrast to the cases in Figs. 1 and 2, we know something a priori about the position
of the source reduction cost curve relative to the other curves. In all communities that do
not employ user charges for solid waste management, we know that the demand curve for
waste services either intersects or approaches the horizontal axis because local government
sets a price ceiling at zero. Therefore there exists a range over which a charge for waste
management services will create a cost to the consumer and to the community necessarily
less than the cost of any of the other options, and in particular will dominate recycling over
a range yet unknown. This conclusion is demonstrated in Fig. 4.
In Fig. 4 the horizontal axis measures the quantity demanded for solid waste management
services (in terms of waste generated). The curve labeled MC (marginal cost) represents
the least cost method of controlling the waste, either recycling, incineration, or landfill for
all possible levels of waste generation. What we know a priori is that for reductions in
waste generation from level Qo to Q1 occasioned by charging the household for waste
management services, the economic welfare cost to the consumer will be less than the cost
of any other option. This is true because at quantities demanded between Qo and Q~, the
Marginal¢o*t
:R'
,'
• ,. •
,'
/
/
/R
/
/
/t
/ / J
i l
LF/
/
/
jJ'
R
R'*
R°
LF*
Fig. 2. What are recycling costs?
Amount of
waste controlled
201
Haynes C. Goddard/Resources, Conservation and Recycling 13 (1995) 183-213
LF
LF
I
SR •
R°
LF*
Amount o~
wastecontrolled
Fig. 3. Costs of source reduction.
value of the service as judged by the waste generator (what he or she is willing to pay) is
less than the cost of providing it, a result of the fact that the 'prices are not right' for the
waste management services. The cost of a source reduction policy that relied on charging
Pdee
D
Marginal
t:oal ~,
%
,a,
PI
01
(~
Qo
Fig. 4. Measuring the cost of source reduction.
s o ~~ , . ~
management
202
Haynes C. Goddard/ Resources, Conservationand Recycling 13 (1995) 183-213
Costs
/
R'
/ ',
/
,,
0
R '°
R°
Amountol
waste,controli~l
Fig. 5. Cost uncertaintyfor recyclingtargets.
waste generators a price of P1 would be measured as the shaded area in Fig. 4, which
translates into the height of the SR (source reduction) curve in Fig. 3. We will discuss
below what we know about this empirically. This analysis is an application of what economists call opportunity cost analysis, of which avoided cost is one form. Such techniques
are now widely used in the electricity industry where conservation is routinely considered
a method by which to 'produce' more electricity [23]. The approach is called 'demandside management' and the concept has wide applicability in solid waste management.
3.5. Role o f uncertainty in choosing policy instruments
There is substantial uncertainty surrounding the social costs of alternative recycling
targets and the proposed mechanisms to achieve them. The problem of uncertainty becomes
important once it is recognized that command-and-control policies place heavy informational burdens on regulators making efficient regulatory decision making difficult [ 39].
Due to the complexity of the solid waste management problem and the fact that the entire
economy is involved in these choices, which makes the needed regulatory analyses also
complex, the debate over the correct level of recycling is not likely to be resolved soon.
However, in the past decade there have been important advances in our understanding how
uncertainty over the costs of regulation and private sector responses to it should affect our
choice of policy instruments for pollution control. These concepts have not yet been applied
to solid waste management. The general point is fairly straightforward, however, and it is
illustrated in Fig. 5.9
9 The usual analysis of uncertainty involves a comparison of the incremental benefits as well as incremental
of recycling. However, because our framework is one of global cost effectiveness, and the benefits of
recycling are the avoided costs of an alternative, the complete analysis would simply compare the uncertainties
surrounding the costs of the alternatives. The costs of landfill and incineration are fairly well understood, so the
real comparisonis between the uncertainties of source reduction and recycling.
costs
Haynes C. Goddard/Resources, Conservation and Recycling 13 (1995) 183-213
203
Fig. 5 represents the case of uncertainty surrounding the costs of recycling targets and
mandates, defined to include all of the upstream rigidities and inefficiencies that accompany
command-and-control mandates. That is, the curves labeled R and R' in the figure measure
not only postconsumer separation and collection costs, but also all of the upstream costs
incurred to meet content standards, packaging redesign and configuration, and administration. The problem, a very real one as the German experience (discussed later) shows, is
the costs of these programs might be much higher than the decision makers anticipate. In
that case, the expected cost as measured by the curve RR turns out to be underestimated as
experience begins to reveal that the real cost relationship is higher at RR'. Given the very
wide extent to which the various command-and-control recycling targets impact the economy, the possibility that RR' lies much above RR is appreciable. The problem is that decision
makers do not know in advance what the true costs are.
Recycling targets, a quantity-based regulation, have been proposed by the EPA and
various state governments and may be subject to the higher costs depicted by the curve RR'.
For example, a target recycling rate at R' * would have expected or anticipated costs of P,
but would have actual costs of P' as revealed by experience after policy implementation.
Thus the target could be reached, but at a high cost. Had a price-based incentive, such as
pricing the least expensive control alternative to the waste generators, been employed
instead, these higher costs would be avoided as those recycling levels that would incur costs
exceeding the cost of the alternative (e.g., landfill) would not be undertaken. The rate of
recycling would be lower, at R' * instead, which if all costs have been properly accounted
for is the cost-effective level of recycling (leaving aside the sustainable development
argument).
Which policy should be chosen? A precise answer depends on the expected value of
making a policy mistake (the economic costs) relative to the alternative control mechanisms, but a case can be made that the economic risks associated with overly ambitious
recycling targets may indeed outweigh those occasioned by insufficient recycling, a conclusion drawn from the fact that there are less expensive options to handle the waste stream:
source reduction, incineration, and landfill. This is particularly true given the downward
trend in real incomes and the economic difficulties that face the nation. It is a matter to be
studied. A variation on this theme not shown here is regional variability in waste management costs, which argues in favor of decentralized and flexible policy instruments (such as
user charges) and against centralized and inflexible instruments (such as national, or even
state, recycling targets). Relying on centralized and single regulations for the entire country
results in excessive costs very much similar to those shown in Fig. 5.
Summarizing, how do these concepts relate to the choice of recycling mandates? Estimation of the relevant cost curves would show how much of each option should be applied
in managing the waste stream. Except for the issue of sustainable development, it would
tell us how much recycling there ought to be, a determination that must be made before any
choices of particular command-and-control policies are made. Based on the current paucity
of empirical evidence, it would seem that these mandates are premature. Furthermore, there
is a very serious question whether empirical benefit-cost analysis will be adequate to identify
the correct amount of recycling within the command-and-control framework.
204
Haynes C. Goddard / Resources, Conservation and Recycling 13 (1995) 183-213
4. Other countries'
experience
Several European countries have moved dramatically in the direction of mandating high
recycling percentages with laws requiring manufacturers' responsibility for managing those
components of the waste stream that can be attributed to their products. Packaging in
particular has been singled out for special attention. Germany's policies in this regard have
received the most attention, and although the laws are being phased in, information is
becoming available about the effects and the cost of the program. Germany is the largest
country to implement a command-and-control approach to material reuse, and provides the
best example for the United States. The most comprehensive examination to-date of the
European experience is found in [ 24]. Other literature on Germany's experiences is mostly
descriptive, not analytical [40,41].
Germany's packaging ordinance is a command-and-control policy that requires packaging to be reduced in terms of weight and volume and for containers to be refillable as much
as is technically and economically feasible or to be reprocessed if refilling is not feasible.
There are three basic parts to the ordinance: (1) in December 1991, manufacturers, distributors, and retailers were required to take back all shipping packaging; (2) in April 1992
this requirement was extended to secondary packaging (that packaging designed to reduce
theft or to permit advertising ); and (3) in January 1993, primary packaging (that required
for consumer transport and product protection) was included. Deposits were also introduced
on all beverage, detergent, and paint containers. To introduce some flexibility for handling
primary packaging, packaging and product manufacturers could fund a dual waste collection
system for that portion of primary packaging that would otherwise be subject to deposits;
that system has already been established.
Brisson observes that there were no benefit-cost analyses conducted to support the ordinance, that no attempt was made to determine what the cost-effective level of recycling is
for Germany, and that existing legislation prevents landfill operators from charging waste
generators for the external costs and depletion costs associated with landfills. Thus, by law
the costs of landfilling cannot be transmitted to the waste generators. Furthermore, there
seems to be no effort to promote source reduction.
The dual collection system is financed by manufacturers with revenues obtained from
licensing a 'green dot' to be placed on all products of participating manufacturers. The
expectation is that a general fee or tax will be passed forward to the consumers, but no
analysis of the fee incidence has yet been conducted. Brisson notes that the green dot system
is not an internalizing charge because little distinction is made among products with high
versus low environmental impacts; reprocessing guarantees have recently been extended
beyond specific products to include the production of entire industries (such as glass, steel,
and aluminum) further upstream in the materials flow. No provision was made to ensure a
rough balance between the greatly increased supplies of separated materials handled under
this system and the capacity to process them, so that much material has been exported,
causing disruptions in other European countries' secondary materials markets.
What are the effects of such a program? Though the financial flows are confined to the
private sector, this program at its core is a 'tax and subsidy' program. The easily predictable
result is that the German program will become very expensive, simply because it eliminates
any market discipline to control costs. The originally estimated annual cost of DM 2 billion
Haynes C. Goddard/ Resources, Conservationand Recycling 13 (1995) 183-213
205
(approximately US $1.2 billion) has already been revised upward to DM 3 billion, a 50%
increase. Brisson calculates that the revised per metric ton (tonne) cost will be about US
$266/tonne. Average collection and landfill costs range from US $59 to $89/tonne ( [24],
p. 208), so that the new command-and-control system is costing three to four-and-one-half
times as much, and the programs are not yet fully implemented.
Upstream command-and-control interventions require substantial monitoring and
enforcement to achieve stated goals and to avoid 'free riders', functions that can become
quite expensive. Already it has been reported that many manufacturers in Germany are
affixing the green dot to their products but not paying the fee - a classic case of 'free tiding'
that can be avoided only with close monitoring and enforcement. This has caused a crisis
and is threatening to undermine the entire system.
If Germany's experience is to serve as a model to others, it should be a model of how not
to establish solid waste management policy. It carries a substantial possibility to become an
additional drag on the already depressed German economy.
5. Do we k n o w enough to choose mandates?
Our answer to the question posed is negative: there is not an adequate knowledge base.
Germany's experience would seem to support such a conclusion. To choose a target we
need to know what the efficient level of recycling is, a piece of information not available,
and probably cannot be made available through benefit-cost analysis with the needed
precision for an economy as large and complex as that of the United States. Much of the
debate on this issue in the United States is being driven by studies that have not been subject
to peer review, reports that should not be employed in policy making until they are. The
literature on these questions that has been subjected to peer review is skeptical, if not critical,
of the mandates [24,32].
5.1. Limitations to benefit-cost analysis
It has been indicated that there is little in the way of thorough benefit-cost analysis
available to suggest what recycling targets ought to be and that more such information, peer
reviewed, is needed. It has also been indicated that there are important provisos applicable
whenever benefit-cost analyses are undertaken for complex problems. Benefit-cost analysis
is best suited for what economists call 'partial equilibrium' analysis - that is, measurement
of benefits and costs in a single market, or at most in a very few related markets. When
prices and quantities in one market are closely interdependent with several markets, and/
or the number of substitution possibilities in both production and consumption are large,
then the benefit-cost analyses become more difficult and frequently less reliable because of
the complexity and data problems associated with estimating the interrelated supply and
demand relationships. This situation characterizes the application of mandates to the solid
waste management problem. 'General equilibrium' analysis is required, but the level of
detail of such analyses necessarily will be reduced due to the often high level of aggregation
of the models. This loss in precision or specificity means that gross, or 'macro', benefitcost analysis will be too crude for identifying in advance and for the medium term the
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correct material and economic substitutions at the individual material and product levels.
The implication is that even though command-and-control approaches for upstream waste
management policy may be supported with empirical benefit-cost analyses, these analyses
are likely to always suffer from a knowledge base inadequate to the task.
The German experience may well be providing an object lesson in that where there are
many material and design tradeoffs that can be made, there is an enormous administrative
and informational task of assembling, choosing correctly, and, most importantly, closely
monitoring policies that will solve the packaging problem and not unnecessarily damage
the economy, a task that apparently was not even attempted. Some would say that it really
is an impossible planning problem.
One example of the many tradeoffs in materials choices that will bedevil any attempt to
use command-and-control instruments to choose the appropriate waste content of the materials flow can be found in aseptic or multilayered packaging (e.g., drink boxes). This
packaging configuration is criticized because it is not recyclable. Nonetheless, its contents
do not require energy for refrigeration, shelf life is long and spoilage low, and it is safer
than glass. Such complex questions of choice or substitution constitute precisely the point
on which all centralized economies falter and fail - the necessary amount of calculation for
rational and efficient resource choices cannot be effectively centralized. Furthermore, given
the constant and unpredictable changes and advances in technology, the correct recycling
targets are really moving targets. The implication of this is that while empirical benefit-cost
analysis will always help to enlighten the consequences of choices, the sheer complexity of
the solid waste management problem will make it an inadequate foundation on which to
base policy.
The point was made earlier that solid waste management policy involves all material
flows through the entire economy. From the upstream perspective of making 'better' packaging choices, for example, we are not dealing with just a few isolated markets in which
failures to allocate resources efficiently need to be corrected. Critical to the attainment of
cost effectiveness is flexibility in decision making. Given the great complexity and geographic variability that characterize the nation's economy, this flexibility suggests that a
decentralized decision making arrangement that relies on economic incentives and markets
for solid waste management carries the greatest potential for achieving that cost effectiveness
[42]. What becomes of primary importance then is that we establish institutions that
automatically consider the various tradeoffs and substitutions on a routine and continual
basis, which brings us back to 'getting the prices right'.
6. Solid waste problems: what are the appropriate legislative responses?
Our analysis has pointed to two types of economic failure that have led to the municipal
(nonhazardous) solid waste management problem: (1) a governmental failure to price
collection and disposal services properly to waste generators, and (2) perhaps excessively
high discount rates favoring present over future consumption, a market failure. We do not
have information on the magnitude of the market failure due to the discount rate problem,
but evidence is growing on the magnitude of the excessive waste flow due to failure to price
correctly.
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207
The direction of current policy recommendations is overwhelmingly toward increased
recycling mandates. While these are designed to create a demand for the increased flow of
separated materials, there is no demonstration that these policies are preferred over simply
getting the prices right.
This is our recommendation: emphasis at all levels of government should be placed on
setting collection and disposal prices correctly, so source reduction will be chosen by waste
generators as their first priority in solid waste management.
The various mandates discussed are at best premature and, more likely, inappropriate and
damaging of the economy, as the German experience is proving.
6.1. Getting the prices right
What might be the requirements for an efficient and effective solid waste management
policy? We mention here flexibility, the polluter pays principle, source reduction, and lack
of politicization.
First, policy needs to be flexible to allow variation with local conditions, This implies a
decentralized policy instrument, fulfilled by user-based pricing but not by centralized mandates. 'Pay-as-you-throw' or variable rates policies would be close to the perfect policy
instrument in this regard.
Second, the polluter pays principle is widely accepted as a standard of fairness, because
the entity that chooses to pollute pays the waste disposal cost. To the economist, this is
efficiency, the essence of cost internalization. Yet in solid waste management there is much
discussion (or confusion) over whom it is who decides to pollute. Is it the consumer who
brings home waste or is it the product and package designer who pays little or no attention
to the waste implications of design? Is it the manufacturer who wants a package to withstand
high speeds on a filling line to keep the consumer cost down? Is it the retailer who wants a
package that permits self-service to keep consumer cost low? Is it the consumer who wants
low product prices and wants to minimize time spent in food preparation and household
waste management? Of course it is all of these, and the fundamental policy problem for
waste management is rooted in two questions: who is in the best position to choose, and
does it matter where the internalization is applied in the material flow through the economy?
In this society, it is axiomatic that the informed consumer is in the best position to make
personal consumption choices; this is the economic analogue of political liberty. There is
no reasoned argument or evidence to show why consumer choice should be forsaken in
solid waste management. If bad solid waste management choices are arguably being made,
then a proper first hypothesis is that these inappropriate choices are derivative from a choice
context in which the consumer has insufficient information and/or the prices he or she faces
do not reflect all of the costs. Both of these views are true, and result in an excessive flow
of waste.
Important to understanding why there is a solid waste management problem is that the
choice context in which waste generation decisions are made by consumers is not understood
by solid waste management authorities or the consulting engineering community. As a
result, the determinants of waste flows are incorrectly modeled, leading to excessive investment in end-of-the-pipe technologies such as recycling, incineration, and landfilling. The
priority should be placed on getting the prices right, and on getting the appropriate infor-
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marion to the consumer about how to make better choices, which will lead to better and
more reliable information on waste flows and composition and will elicit the appropriate
source reduction behavior from households. Then the authorities will be in a much better
position to make cost-effective choices. If variable rate systems were adopted nationally,
then local waste managers would indeed be able to influence upstream material choices.
Additionally, as the German experience is amply showing, from the standpoint of cost
effectiveness, it matters a great deal where in the materials flow corrective measures are
applied. All the experience both here and abroad suggests that downstream approaches
should be preferred, for the fundamental but often ignored reason that upstream interventions
will nearly always founder economically. This occurs because regulators cannot obtain the
appropriate information on costs, benefits, and choices (substitution possibilities) faced by
producers in a dynamic and changing economy. Therefore, regulators cannot make the
proper economic choices, It is not by chance that in both the German experience and
discussions in the United States the entire focus is on whether targets are met or deposit and
tax schemes 'work', and little or nothing is said about the impact on the economy. That task
is large and expensive.
Lastly, when price setting is open to public discussion and negotiation, those prices are
inevitably politicized and the potential for resource misallocation is greatly increased. The
damaging effect of rental control laws in New York City on the housing stock there is one
of the most blatant examples of this. Of the many thousands of prices in the private economy,
very few ever rise to the level of politicization, precisely because most markets work
reasonably well in allocating the relevant resources. The point is a simple one: if the proper
rules of market exchange are established and enforced, the markets will work well and
economic problems will solve themselves. Solid waste management has become a problem
precisely because the matter is politicized and this has occurred because local government
has removed the allocation decisions from the market economy.
6.2. Recommendationsfor federal policy
Beginning in 1981 the EPA, under the Reagan administration, adopted the position that
solid waste management was a local problem and there was little or no scope for federal
involvement. Many have considered that position inappropriate and a major source of the
current solid waste management difficulties. However, even though virtually all production
is local, many federal laws apply to it, especially derivative from the interstate commerce
clause of the Constitution. Solid waste has been held to be a product of interstate commerce
by many courts, and although most of that waste does not move among the states, even
landfills are federally regulated.
Economists have concluded, on the basis of accumulated evidence, that setting the proper
rules is necessary and often sufficient for a proper functioning of the market system. Setting
these rules has to be a collective choice or function, but the nature of local collective choices
has caused the current solid waste management problem and the federal government must
act. That is the motivation behind the push for recycling and the various command-andcontrol policies. Government can act, however, in a way that does not impose another
unfunded mandate on state and local governments or the production sector of the economy.
Government could simply set the proper rules.
Haynes C. Goddard/Resources, Conservation and Recycling 13 (1995) 183-213
209
The principal rule would be that wherever economic analysis shows that properly priced
collection and disposal will lead to net cost savings in solid waste management, user charges
must be employed to finance waste management services. This is, in effect, a condition that
when the cost of source reduction (the shaded triangle in Fig. 4) is less than the cost of the
least avoided cost option, pricing should be required. This is a rule that would be applicable
in nearly all urbanized areas of the United States. These prices would be locally determined
as a function of local preferences and cost conditions. A central element of these rules would
be that solid waste management be self-financing as a utility or enterprise fund if produced
publicly, or be operated under a contract system that requires pricing.
A major implication of such a rule is that this would constitute a national solid waste
management policy, although implemented at the local level because all production is local.
Recent experience with variable rate systems and a review of the elements central to good
enabling legislation is presented in [ 23 ]. Furthermore, measurement technology in the form
of truck-mounted computerized weighing systems has progressed to the point that pricing
can be applied to both the volume and weight dimensions of the waste stream at low cost.
'Bag and tag' systems are even less expensive.
If the main solid waste management problem is failure to get the prices right, then
Congress should authorize the EPA to promulgate appropriate regulations and provide local
communities with the necessary technical assistance to implement pricing programs. This
trend is already substantially underway in more than 1000 communities, but it needs the
kind of study and evaluation the EPA is in the best position institutionally to provide. It
does not mean that pricing is appropriate for all communities, but user charges or pay-bythe-bag systems provide the flexibility and local control needed for efficient decision making. In some communities where landfill is plentiful relative to the waste stream, zero prices
may continue to be appropriate.
What would be the effect of these rules? Evidence suggests the price elasticity of demand
for waste management services (measured as waste generation) is about 0.20, that is, for
each 10% increase in price there will be a 2% decline in waste generation; for a 100%
increase in the price there will be a 20% decline. These numbers have appeared in different
econometric studies for over 20 years, well antedating the recycling movement, suggesting
that the effect is widespread. These effects have been measured in an economic environment
in which no attempts have been made to change the nature of the waste coefficients of retail
products (no supply responses). Therefore it is reasonable to suppose that the effects would
be larger in a situation of widespread pricing because we would observe manufacturing and
product design adjustments not reflected in the elasticity of 0.20.
It is reported that pay-by-the-bag systems generate substantial net economic savings to
communities; gains are about 17% in regions where disposal costs are high, and more than
25% where the external costs are included in the charges [22]. This would amount to almost
$1.5 billion on annual revenues of $8.8 billion. Combined with curbside recycling programs,
pay-by-the-bag financing systems in high-cost areas could reduce landfill demand by as
much as 37%. Calculations have not yet been performed on how the costs of source reduction
compare with the costs of other options. Nonetheless, experience is growing rapidly; a good
recent review can be found in [ 23 ]. Skumatz reports communities that have implemented
variable rates have reported reductions of 25 to 45% in waste being sent to disposal facilities.
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Furthermore, almost all communities she surveyed indicated illegal dumping is at most only
a temporary problem or none at all.
A major advantage of variable rates for waste management is that the system is flexible.
'Life-line' rates can be offered to needy households. Specific local areas can be exempted
from the program if adverse income distributional impacts need to be avoided or if illicit
dumping is a serious threat in localized areas. Even apartment buildings can be included by
having building management sell and keep records for the use of bags and tags for building
residents. Most important from a national perspective is that rates reflect local economic
and environmental conditions, so that the costs of waste management in one area are not
applied via national policies to areas with vastly different conditions.
Would these rules lead to enough waste reduction and recycling ?
This question suggests that we know how much source reduction and recycling are
enough. Such information does not exist, and perhaps never will in a way that can adequately
guide command-and-control interventions. However, widespread use of user charges would
move us substantially in the direction of reduced waste generation and sustainable levels
of recycling, and the move would occur cost effectively. Furthermore, it would substantially
reduce, if not eliminate, the politicization that unavoidably occurs with upstream interventions and mandates. Also, as population and land values increase in the urban areas of the
country, solid waste management prices would increase, sending the proper signals to waste
generators that increased source reduction and recycling is warranted. Thus, it would provide
continual dynamic adjustments as waste management conditions change.
Can we trust the consumer (household waste generator) to make the correct decisions?
For the weight and volume dimensions of solid waste management, yes. Providing the
consumer with good information and the proper prices will make substantial progress toward
correcting the problem. Toxic materials in the household waste stream will require special
attention for which quantity-based regulations are most appropriate.
Can we expect a proper producer response? The push for upstream mandates rather than
getting the prices right at the consumer level reflects both distrust of the consumer and a
lack of recognition and understanding of the interdependence of markets. A widespread
adoption of variable rate systems will cause a national response in consumer product
markets, a response which will lead producers to incorporate in deciding packaging designs.
Local governments and citizen groups can work with local retailers to ensure that a supply
of lower waste products and waste reducing options are forthcoming in the stores, much as
the Environmental Defense Fund has worked with the fast food industry and more recently
with the paper industry. Solid waste management authorities could do the same with local
retailers. However, these actions are meaningful only if pay-by-the-bag policies are widely
adopted so negotiations take place in an environment that generates the proper price signals.
Most of the policy missteps that have characterized solid waste management are wholly, or
largely, due to the lack of appropriate price signals for guiding resource allocation for waste
management. Once in place, the proper responses from manufacturers and package designers
will be forthcoming.
7. Impacts on investment, employment, and growth
Because the solid waste problem and command-and-control interventions to deal with it
have risen quickly to the forefront of policy consideration, and because solid waste man-
Haynes C Goddard / Resources, Conservation and Recycling 13 (1995) 183-213
211
agement has been traditionally viewed as a technical problem, there is no empirical information available on the potential macroeconomic impacts of the various upstream mandates
described. We can only make some general comments about the direction of the effects.
The scope of impact of the various mandates proposed is quite wide because they touch
upon the entire solid material flow through the economy. Further, policies such as those
implemented in Germany result in a parallel waste management systems that duplicate
functions, raise costs, and reduce the attainment of scale economies in each. Probably the
largest impact will be found in the weakening of incentives to be efficient in waste management caused by the tax and subsidy nature of that system. The same can be said for all
of the other command-and-control options.
The negative effects of the policies would be derivative from the imposition of arbitrarily
chosen recycling targets and a lack of flexibility, both of which would result in high cost.
The viewpoint expressed here is not that we should manage less of the waste stream, but
rather the entire stream should be cost effectively managed.
Any policy that creates inefficiencies and is broad based will have important macroeconomic impacts. It can be likened to a general tax whose revenues are permanently removed
from the economy - economists call this cost a 'deadweight loss', meaning that production
costs are increased and consumer welfare reduced with no gain received in return. The
effect is to depress the rate of investment, growth and employment creation. In general, we
know little of these impacts. The investment and growth impacts need to be studied if
command-and-control policies are pursued.
8. Conclusions
The analysis presented here leads us to conclude that a lasting solution to the solid waste
management problem will be found only when there is a widespread recognition that the
problem is not primarily one requiring only technical or engineering approaches such as
landfill and incineration, but that fundamentally it is economic in nature. This means that
the market and price system should be employed to help identify the proper balance among
the various management alternatives of source reduction, recycling, incineration, and landfill. Because solid waste management ultimately involves all material flows through the
economy, efficient and cost-effective solutions will require the use of decentralized policy
instruments rather than centralized mandates to permit full flexibility in materials use
decisions. Further, qualitative economic analysis suggests that command-and-control
approaches will be rigid and not cost-effective, a conclusion validated by the high costs of
recycling mandates in the United States and in Germany.
We have argued that the source of the solid waste management problem in the United
States is due to the 'short circuit' to the price mechanism for choices concerning materials
use and reuse caused by local governments that provide waste management services at a
zero price. It is 'government failure' not 'market failure' that is the source of the current
problem. Further, we suggest that the various proposals for upstream recycling and materials
reuse interventions have either a weak or no foundation in economic analysis. They are
arbitrary command-and-control interventions that will make the cost of solid waste man-
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agement unnecessarily high and generate excessive business costs due to the inflexibility
and imprecision that always characterize centralized mandates.
We. find that there is a widespread lack of recognition that the costs of source reduction
will be lower than any other management option for initial levels of control, derivative of
a lack of understanding of how consumer choice and willingness to pay for solid waste
management services should fit into the overall solid waste management plan. Nonetheless,
the rapidly growing use of variable rates or user charges around the country is a trend that
should be the focus of federal legislation and regulation to promote it as soon as possible,
as this use represents a flexible national solution to the solid waste management problem.
Local conditions would dictate the levels of the rates.
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