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ECONOMICS OF RECYCLING.

Negative critique of recycling from economic standpoint. Supply & demand, costs, examples.

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THE ECONOMICS OF RECYCLING
This paper will address the economic aspects of recycling. Specifically, this paper will show that, from an economic standpoint, recycling products is not the best solution to waste management problems. Also, the discussion which follows will address the economic issues of supply and demand and show how they relate to recent recycling efforts in America.
Many Americans are under the impression that one of the best ways to control waste is to recycle products. Consumers have been encouraged to recycle everything from newspapers to glass to aluminum cans. However, recent studies have shown that, from an economic standpoint, recycling is not a panacea to all the evils presented by waste management issues.
Thus, many businesses and communities in America are now

37-39). (1992, March). And, by 1994, many companies began to admit that theopportunity costs of purchasing recycling services are becoming too highand that they are therefore reconsidering decisions about purchasingrecycling services. some companies involved in recycling say the market for recyclable materials still is underdeveloped and fickle. 14).Finally, nearly all recycling experts have heard at least one story whichrecounts how even "source-separated materials" had to be taken to a locallandfill for lack of a buyer (Barkenbus, 1992, p. Then,in June of 1989, the bottom fell out of the recycling market. it didn'tmake sense economically" (Triplett, 1994, p. As will be seen below, economic decisions require making a choice.The choice is whether to pursue one action or the other. 24-26. However, that expert also noted that recently, many corporationshave had to pay to have their refuse recycled, and "[tlhe 'pay' part makes[the expert] unhappy especially when [that expert] said it would be cheaperto just landfill trash [because] landfill space is not too scarce, tooexpensive, or too difficult to develop" [Emphasis added] (Nordstrom, 1994,p. For instance, Bill Jenkins, vice president ofproperty management at the Cullen Center in Houston, Texas, stated that heknows of companies "that are having to pay . Economics meets sociology as recycledpaper matures. . office recycling is usually not aprofit-making venture: "Indeed, it is often a wash. 24). People must not only be able to afford the product,they must also desire to buy the product. Triplett, T. 15). Support for recycled products only arises because it provides ameans of diverting materials from disposal" (Barkenbus, 1992, p. Only aluminum can consistently be recycled profitably, waste handlers and regulators agree. However,recent studies have shown that, from an economic standpoint, recycling isnot a panacea to all the evils presented by waste management issues. TechnologyReview, p. Thisconcept is not so easily understood as the other concepts. Thus, a company whichdecides to take part in the recycling industry makes a choice to foregotaking part in some other business venture. [w]e've added equipment and personnelto deal with the increased volume of recycled material. 29). The increased costs of purchasing recycling servicesare affecting the recycling industry, although no conclusive evidence showshow the law of diminishing returns is affecting the industry. In fact, bythe late 198 s, prices for recycled products were cut dramatically. . As one recent ecologist noted, "[t]hedifficulty comes in marketing the material recycled from a trash streambecause of contamination" (Benedett, 1994, p. Other times we pay $15 a ton to recycle it" (Nordstrom, 1994, p. Economics. 247). As will be seen, supply and demand is important in therecycling business because it determines the willingness of businesses toengage in any number of recycling efforts. The concept of supply and demand is oft-quoted in various contexts and is often misunderstood. Another one of the main arguments which leading economists made againstplans to increase recycling efforts in America was therefore that "largescale recycling could be seen as leaving taxpayers and users of solid wastedisposal services paying a larger bill" (Griffen, 1992, p. 24). (1994, February). Initially, the companyrealized a significant economic benefit from the program. 14). Eventually,however, the benefits dwindled. Ironically, consumers still seem to desire to purchaserecycling services. (1992, November). But, as one article noted, although "diverting the tonsof wastepaper that end up in landfills each years (36 million tons in 1992by industry estimates) makes a lot of sense ecologically . Nordstrom, M. Oneof the basic tenets of economics is that the price of a product will tendtoward the product's equilibrium level. 2.----------------------- 12 Theprogram was a publicity operation as much as it was a bottom-line device(Rickey, 1991, p. CQ Researcher, pp. Oneworker engaged in a certain task can produce a certain amount; thus, twoworkers engaged in that same task can produce a greater amount. The atmosphere of environmental concern has notdissipated, and people will purchase more recycling services if the cost ofsuch services becomes more affordable. The paper cited recentillustrations which proved that many American corporations lost money as aresult of their recycling efforts, and, thus, from an economic standpoint,recycling is simply not the best alternative. Making decisions about whether to recycle productsrequires that other avenues of action be foregone. (1994). . THE ECONOMICS OF RECYCLING This paper will address the economic aspects of recycling.Specifically, this paper will show that, from an economic standpoint,recycling products is not the best solution to waste management problems.Also, the discussion which follows will address the economic issues ofsupply and demand and show how they relate to recent recycling efforts inAmerica. Not only would waste be recycled into rawmaterial for new products, but recycling would also boost the economy as awhole. The cost ofrecycling was exceeding the gross profits being collected. And so, by the early199 s, most economists agreed that recycling products was far moreexpensive than putting them in a landfill and, thus, that landfills werethe best solution to the garbage crisis in America (Griffen, 1992, p. They are usually-traced on a graph as two lines originating from opposite directions andmoving toward each other. Many Americans are under the impression that one of the best ways tocontrol waste is to recycle products. Many experts agree that Americans would spend a lot less moneyif they simply discarded products in landfills, as opposed to recyclingthem. The demand forrecycling services has not increased because the price for such services isstill too high. At some point, the addition ofmore workers will often begin reducing the amount produced. 2). Slavin, S. . . .initiated a recycling program in the Exxon Building . 13. By the 199 s, many recycling industry insiders agreed that thedeclining market for recycled products had become a problem: Recycling may be good for the soul, but it isn't proving very fattening to the pocketbook . Newspapers will have bits of plastic in them, andaluminum cans will have miscellaneous items like cigarette butts inside ofthem. Others agree with this viewpoint; after all, while companies want torecycle for ecological purposes, companies are still concerned with makingmoney and many companies simply will not ignore economic realities foridealistic principles. In the case ofthe recycling industry, the basic choice that must be made is whether toengage in recycling. Irwin. (1994, March). The crux of the problem is few domestic markets for recycled items.And the uses that have been developed are coming along so slowly that someexperts now believe that existing markets will not survive. Communities used to get roughly $2 per ton for their old newspapers; today, many are happy to have them hauled away at no charge. Indeed, JudyJohnson, the recycling spokesperson for Smithtown, Long Island, statedthat, by 1989, Smithtown city officials "found that it would have cost[them] to have [the town's recycled] newspaper hauled away . Garbage crisis. Supply is typically defined as "the schedule of quantities of a goodor service that people will sell at different prices" (Slavin, 1994, p.54). Many ecologists disagreed with the idea of developing morelandfills because they believed that, from an ecological viewpoint, it wasbetter to divert trash before it arrived at a landfill by sending it to arecycling plant. 24). Benedett, J. Also, reselling any recycled product which is even slightlycontaminated is difficult. 14-16. Another problems which was not immediately apparent to Americanecologists who initiated many of the recycling programs was the problemwhich was created when the operating costs for recycling products rose.One recycler commented, "Our problem is to accommodate our customers, yetwork with a lower profit margin . L. And now theproduct is worth less than it was six months ago" (Rickey, 1991, p. In the spring of 199 , Exxon initiated arecycling program for paper in the Exxon Building. As Pattonnoted, "[w]e need much more product development for using recycledmaterials or people have to realize it's not economic and quit pretending"(Nordstrom, 1994, p. Mid American Waste Systems spokesman Mike Patton said recycling markets are very volatile. Consumers have been encouraged torecycle everything from newspapers to glass to aluminum cans. Moreover, between 199 and 1991, "theprice of recyclable paper has dropped 3 percent, due in part to thenational and worldwide recession. If a product's price is higherthan its equilibrium level, the price will fall, while, if the price islower than the product's equilibrium level, the price will rise (Slavin,1994, pp. Also the problem of declining markets forrecycled goods is caused, in part, by the public. 24). Griffen, R. The reason for a decline in demand is that apotential buyer does not buy an item, even if he or she needs it, if theprice is unaffordable. This amount produced may increase withthe addition of a certain number of workers but then may decrease with theaddition of more workers beyond this point. The failure of Exxon's program, from an economicstandpoint, is not an isolated incident. The point at which they meet is calledequilibrium. . Across theBoard, pp. Also, often hidden costs are associated with recycling products fromthe trash because consumers rarely deliver uncontaminated products torecycling centers. . (1989, December). Another important point which many ecologists failed to consider isthat most companies are unwilling to ignore the economic consequencesassociated with recycling. But if it starts to cost us, then that's another ball game (Rickey, 1991, p. As thenumber of workers employed in the task increases, the amount produced alsoincreases, but not proportionately. . Moreover, numerous problems are associated with recycling materials.One of the problems is that, from an economic standpoint, recycling coststoo much. 13). The public is notdemanding recycled products because of their inherent desirability:"Consumers are not clamoring for recycled paper, plastic park benches orcarpet backing made from recycled plastics because they are superiorproducts. . The recycling industry was initially seen as a savior in theenvironmental movement. . Despite the drop in price, the monetary return for recycling has never been so great as to 'make or break' a company . Rickey, G. The common notion in these concepts is thatthe price of a product directly relates to the number of units sold. Recycling slowed by weak demand.Business First, pp. Moreover,landfill proponents believe that recyclables collection is too costly forrural areas (Griffen, 1992, p. [and that] [wlhen itbegins to cost money to recycle, you have to decide how far you can go, nomatter how conservation minded you are" (Rickey, 1991, p. Thisexplanation has led many economists to describe the law of diminishingreturns as the law of diminishing marginal output (Slavin, 1994, pp. Equilibrium is the point at which the price all buyers whoare willing to buy the product can afford to buy the product equals theprice at which all sellers who are willing to sell are able to sell. [and] [mlany say, 'we want to recycle. The dream of a vibrant recycling industry quickly began to fadefor many observers (Rickey, 1991, p. One recycling industry expert commented on how machines are used toseparate metal, aluminum, plastic, and glass products before they arerecycled. But the oversupply seem[ed] here to stay" (McDermott, 1989, p.13). We would like to make money. economy. For example, one person in charge of recyclingfor a large U.S. The point of convergence between the supply anddemand curves seem to have occurred some time ago. McDermott, J. . Similarly, by the early 199 s, many recycling experts began seriouslyconsidering the issue created by too little demand for recycled goods: "Therecycling industry's first response to the glut was to warehouse old papersand expand its already large exports, primarily to Korea, Taiwan, andMexico. . Other factors range from a glut ofrecyclable material resulting from a national upswing in collectingrecyclables to limited demand for recycled paper goods" (Rickey, 1991, p.24). . . 247). Recycling could become profitable, creating jobs on its own whilesolving a major problem facing the nation. Yet the price consumers are willingand able to pay for recycling services is levelling off, and, thus, thesupply of recycling services may continue to decline at a correspondingrate. Companies beganrealizing that little or no money was to be made from recycling mostproducts. Supply and demand are related to each other in that they both dealwith the price of a product and how this price affects the desire of boththe buyers and the sellers. Is recycling doomed? Recycling revenues minimal; Concernovershadows money. 23-25. When the price of an item falls, people are morewilling and better able to purchase the item, and hence the demand for itgoes up. Sometimes, recyclingeven costs a company money . The bestexample is that of workers who are engaged in a particular task. This paper pointed out some specific problems which have recentlybeen associated with recycling programs, e.g., increasingly high operatingcosts associated with recycling programs, and a decline in demand forrecycled products combined with a glut of supply of recycled material.Also, this paper showed how recycling products is too expensive incomparison to other alternatives such as landfills. 24). '[i]f a company is recycling to earnmoney, that's the wrong reason,'" says the general manager of one solidwaste management company that offers recycling services (Rickey, 1991, p.24). corporation stated, Customers long involved in recycling are having to accept much lower revenues than they once received. 14). Another economic concept which is important in the context of theanalysis contained in this paper is the law of diminishing returns. 15-17. The issue of affordabilityusually remains dormant until the desire for the product is present(Slavin, 1994, p. The new companies who werestarting up recycling operations promised that recycling would become apanacea for the U.S. However, sometime during the 198 s, many Americans began to realizethat recycling was not as profitable as had been predicted. . Second, the high profits to be made from products with a high price willattract new sellers to the market (Slavin, 1994, p. [but][p]aperprices have dropped from approximately $6 to $1 a ton since the program'sinception" (Rickey, 1991, p. Thus, many businesses and communities in America are now rethinkingthe concept of recycling. References Barkenbus, J. 81).Basically, this definition means that people do not buy very many goods ata high price but usually do buy more goods when they are offered on themarket at lower prices. There is, however, one example of a large corporation that continuedits recycling program even after learning about economic problemsassociated with its program. Ineconomic terms, "the opportunity cost of any choice is the foregone valueof the next best alternative" (Slavin, 1994, p. 15). Houston Business Journal, pp. First, individuals who arealready in the business of selling the product wish to raise their profits. Obviously, the valueforegone is considered by the chooser to be less valuable than that of thechoice made. Newsprint is a good example. Manyecologists wanted to ignore the problems created by a glut of recyclablematerial. 24). Conversely, when the price of that same item rises, the demandfor that item usually falls. 15). Many experts now agree that, at least from aneconomic standpoint, recycling is not the best solution to waste managementproblems in America. The economicconcept of supply and demand is really comprised of two separate ideaswhich are usually used together to describe a situation encompassing buyingand selling. aluminummarkets have plummeted in recent months" (Barkenbus, 1992, p. . 54). "Sometimes we get $15 a-ton to recycle it. . economy. But economists and some recycling industry experts knew that adrop in the market price for recycled goods was not a factor that Americancommunities could ignore: The case of old newspapers is instructive. Economists have shown that consumer behavior is affected byopportunity costs. This happens because there isan ideal number of people for any task and too many workers will notproduce correspondingly greater amounts. In the 199 s, prices for recycled productscontinued to fall. The things given up, or thelesser choices, are known as the opportunity cost of making the choice. 14). But, by the early 199 s, a drop in the prices of recycled paper ornewspapers was not a unique phenomenon: "Even prices [in] . 24).The problem of higher operating costs associated with many recyclingefforts has also been compounded by the fact that, in recent years, themarket for recycled products has decreased in recent years. . Naturally, as the price of a product rises, people will be willing tosell more of it. . (1991, August). (1992, August). Burr Ridge, IL: Richard D. 55-56). Environmentalists believed that a buddingrecycling industry would solve the economic problems of American industrieswho thought that the environmental regulations which had recently beenpassed would strangle the U.S. [and so][t]he town decided it was cheaper to ship the papers to a landfill"(McDermott, 1989, p. 247). So markets for recycled material has become a major issue whicheconomically minded recycling industry insiders faced and which someecologists entirely skirted. Trash: black hole or gold mine?Business First, pp. The experience of the recycling industry reflects the realities ofeconomic principles. In order to discuss the economic aspects ofrecycling, some of the critics of the current recycling trend haveemphasized an analysis of recycling from certain basic economic aspects.Specifically, the concept of supply and demand, as they apply to recyclableproducts, needs to be considered. Priceand quantity form the main measurement in economics. For example, "in the spring of 199 , Exxon . 243-249. Does recycling pay? Marketing News, p. And thelarge number of recycling service firms may be saturating a market that nowappears to be smaller than ecologists originally anticipated.Consequently, recycling firms may drop out of the market or at least reducestaff size. 81). Supply has exceeded demand even with healthy overseas markets, particularly in the 'fiber-poor' Far Eastern nations, such as Japan, Taiwan and Korea (Barkenbus, 1992, p. Demand is usually defined as "the schedule of quantities of a good orservice that people will buy at different prices" (Slavin, 1994, p. There are two reasons why. But Exxon did not jettison the programbecause it had no revenue-producing expectations in the first place.

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