The Socially Optimal Recycling Rate
Thomas C. Kinnaman
1st International EIMPack Congress
Lisbon
29-30 November 2012
Recycling Policy
USA • Resource Conservations and Recovery Act (1976)
• Encourage individual states to set goals
34% • California (75% by 2020); Texas (40% reduce and recycle)
EU27 • The Packaging Directive (1994, 2004, 2005)
• First 15%, then 55% to 80% material recycled by 2009
39%
Japan • The Law for the Promotion of Sorted Collection and
Recycling of Containers and Packaging (1997)
20% • Increase the recycling rate from 11% to 24%
Household Recycling
Municipal Costs
Costs
Social Costs
External Disposal External Recycling
Costs Benefits
By Increasing the Recycling Rate
Social costs rise as households and
municipalities must prepare and
collect recyclable materials
Social costs fall as private
and external benefits of
recycling rise and private and
external costs of waste
disposal fall
Household Recycling
Municipal Costs
Costs
Social Costs
External Disposal External Recycling
Costs Benefits
Recyclables Collection
Waste Collection Costs
and Processing Costs
Municipal
Costs
Private Disposal Costs Less Revenue from Sale
(Landfill or Incineration) of Recyclable Materials
Municipal Data Source: Japan
Five-year panel (2005-2009)
Represent 84 largest municipalities
Includes many necessary variables
Broad Comparisons
12
10
8
Tokyo
6
London
4 New York
Lisbon
2
0
Waste Density (1,000 Minimum Wage Petrol
(Kg/day) Persons/Km) (€/Hour) (€/Liter)
Municipal Data
Variable N Mean Standard Dev. Min Max
Recycling Rate (%) 420 19.31 7.59 3.90 48.53
Municipal Costs 420 €65.7 M €68.2 M €713,822 €448.2 M
Total Waste (Tons) 420 268,872 274,027 27,710 1,926,718
Household Recycling
Municipal Costs
Costs
Social Costs
External Disposal External Recycling
Costs Benefits
Household Recycling Costs
€/Unit
Marginal Cost
Quantity
Recycled
Household Recycling Costs
€/Unit
Marginal Cost
Curb
Fee
Quantity
Recycled
Household Recycling Costs
€/Unit
Marginal Cost
.105 euro per kg
1.34 Kg/person/week
Household Recycling Costs
Household recycling costs average €2.13 million per
municipality per year (€3.5 per person per year)
In relative terms, these costs to households amount
to about 3% of municipal costs
Due to rising marginal costs of recycling, household costs
may become more important as recycling rates rise
Municipal Costs Costs to Households
Social Costs
External Disposal External Recycling
Costs Benefits
External Costs of Waste Disposal
Davies and Doble (2004): €3.85 per ton (climate change
emissions and waste transportation externalities)
Defra (2004): €3.40 per ton (nuisance effect to neighboring
properties)
Porter (2002): €11.60 for landfills; €15.45 for incinerators
Dijkgraaf (2008): €30 per ton for incineration
External Cost of Disposal
Based on this literature, assume €8/ton for
landfill disposal and €30/ton for incineration
External disposal costs average €8.2 million
per municipality per year
In relative terms, external disposal costs amount
to about 12.5% of municipal waste costs
Costs to Recycling
Municipal Costs
Households
Social Costs
External Disposal External Recycling
Costs Benefits
A switch from virgin to recycled inputs
reduces:
Emissions of Emissions of
Climate Change Acidifying
Gasses Compounds
Emissions of Damage to Releases of
Nitrifying the Natural Toxic
Compounds Environment Substances
External Benefits of Recycling
Cleary (2009) compares the results of twenty peer-
reviewed papers that use Life-Cycle Assessment
For use in this study, these benefits need to be
monetized for the recycling of each material
Craighill and Powell (1996) accomplish this task
Craighill and Powell (1996)
Aluminum: Glass: Paper:
€1,367/ton €145/ton €175/ton
Steel: PET, HDPE,
€184/ton and PVC: <0
External Benefits of Recycling
External benefits of recycling average €22.7
million per municipality per year
In relative terms, external recycling benefits
amount to about 35% of municipal costs
+ Household
Municipal Costs
Recycling Costs
Social Costs =
+ External - External
Disposal Costs Recycling Benefits
The Optimal Recycling Rate
Statistically regress the social cost on the recycling
rate (flexible functional form)
Control for total quantity of waste, wages, and
the number of recyclable materials collected
Use estimated coefficients to predict social cost
for every possible rate of recycling (0 to 100)
Regression Results
Variable Coefficient Standard Error Significance
Ln(RECRATE) -1. 325 0.452 1% level
[Ln(RECRATE)]^2 0.231 0.084 1% level
Ln(WASTE) -0.397 0.138 1% level
NUMB 0.009 0.005 10% level
Ln(WAGE) 0.107 0.063 10% level
CONSTANT 20.839 1.975 1% level
N = 419; R2 (within) = 0.065; R2 (between) = 0.660; R2 (overall) = 0.618
Municipal Recycling Costs (Billion Yen)
18
16
14
12
10
8 Municiple Costs
0
1
6
11
16
21
26
31
36
41
46
51
56
61
66
71
76
81
86
91
96
RECYCLING RATE
Social Recycling Costs (Billion Yen)
18
16
14
12
10
Social Costs
8 Municiple Costs
6
0
1
6
11
16
21
26
31
36
41
46
51
56
61
66
71
76
81
86
91
96
RECYCLING RATE
For the average municipality…
Increasing the recycling rate from 10% to 18%
decreases the social cost of waste management
by €5.28 per person per year
Any recycling above 18% is estimated to
increase the social cost of managing waste
The social cost of recycling 48%, the highest
recycling rate observed in the sample, increases
social costs by about €18.8 per person per year
Sensitivity Analysis
Each of the three sources of external costs/benefits
of recycling involved assumptions and uncertainty
Of interest is how sensitive the main result is to
changes in each of these three measures
First double, then halve, and then eliminate each of
the three external sources of social cost
Varying Household Recycling Costs
(Billion Yen)
20
18
16
14
12
10
0
11
16
21
26
31
36
41
46
51
56
61
66
71
76
81
86
91
96
1
Recycling Rate
Base Doubled Halved None
Varying the External Costs of Waste
Disposal (Billion Yen)
16
14
12
10
0
36
41
11
16
21
26
31
46
51
56
61
66
71
76
81
86
91
96
1
Recycling Rate
Base Doubled Halved None
Varying the External Benefits of
Recycling (Billion Yen)
20
18
16
14
12
10
81
91
11
16
21
26
31
36
41
46
51
56
61
66
71
76
86
96
1
Recycling Rate
Base Doubled Halved None
The Recycling of Specific Materials
The aggregate recycling rate may not be the
appropriate policy target
The optimal recycling rate may instead
depend on the material being recycled
Data on six materials: metal, paper, glass, PET
plastic, other plastics, and “other” materials
Social Costs (Billion Yen)
7
4 PAPER
METAL
3 GLASS
PET
2
PLASTIC
1 OTHER
Recycling Rate
Conclusions
Optimal recycling rate is estimated at 18%
Result robust to changes in assumed external costs of
waste disposal and costs to recycling households
Result sensitive to changes in assumed external
benefits of recycling
Recycling paper and metal reduces social costs
Recycling PET plastic increases social costs
Weaknesses
Source reduction not considered
External cost/benefit assumptions are linear
Not applicable to developing countries
Distributional effects not considered
Policy Implications
Reconsider goals that encourage large aggregate recycling rates
The cost of recycling the wrong amount is rather small
Focus policy on specific materials rather than on aggregate
quantities
Realize that the external benefits of recycling are the driver to
waste management policy rather than disposal costs
Thank You
