On Mandatory Recycling, Moralizing, and Rent-Seeking

How interesting the many views are on recycling presented in this conversation.  Even though some of the ideas contrast starkly to my own, I admit that this opportunity to further flesh out recycling and its role in our society has invited me to step back and look at it through these different lenses.  The lenses don’t fit very well, and some of them seem blurry, but a new perspective is always welcome, however uncomfortable.

Since both Michael Munger and Steven E. Landsburg explore the pros and cons of mandatory recycling laws, I think it best to clarify or define what they actually mean (at least in my opinion).  When I hear “mandatory recycling laws,” I envision this: a consumer being told that it’s against state law to throw that corrugated cardboard box into the trash, and that they must put it in the recycling collection.  Will they be arrested and detained if they throw it in the trash? No. Will anyone even notice that they are not following the law?  Likely not, as these kinds of laws DO lend themselves to the suasion that Michael Munger expounded on in his first essay.  The kind of laws that I’ve been talking about, mainly producer-driven or EPR laws, are different, in that they are not telling consumers at home what they can or can’t do with their stuff. They put the responsibility on producers.  I read the suasion arguments with interest, and will enjoy using that set of “lenses” in my future thinking on influencing consumer behavior.

Steven E. Landsburg questions how mandatory recycling would even work, stating:

More cryptically, Munger suggests that we could make Amazon “responsible for the disposal of packaging,” though I’m unclear on exactly how that would work. Does it mean that they’re required to send someone around to my house to collect the styrofoam? If I receive packages from eight different retailers, do they send eight trash collectors? Or do they coordinate their efforts in some way I can’t quite imagine? I don’t quite get it, though I certainly agree that it’s worth thinking about.

Allow me to shed light on how this conundrum would actually work in reality I’ll use packaging and printed paper here to keep it simple, and yes, these programs are already happening all across the globe.

The producers of packaging would have the choice of being solely responsible for their packaging (like Steven used in the Amazon example, although I doubt they would prefer to drive to Steven’s house to pick up the discarded boxes) or the usual choice is that they join forces in what is referred to as a PRO, a Producer Responsibility Organization.  Sometimes these producers refer to themselves as “stewards.”  This non-profit organization would coordinate the recycling of their members’ discards, and would contract with groups such as Waste Management all the way to small, local haulers and recyclers to collect the materials that are worthy of being recycled.  The PROs are generally very small, often with just a handful of administrative staff that coordinate the work of (in the case of packaging) many thousands of members who are working in this system.  This kind of program for packaging and printed paper is rolling out as we speak in British Columbia.[1] It’s really quite simple, and it creates a structure where the cost of recycling (valuable) materials such as packaging and paper are internalized into the cost of those products.  My organization is working to put a uniquely American plan in to action.[2]

Munger states:

We waste more energy, and cause more pollution, by trying to recycle than we would if we abandoned these programs and let market forces pull what is valuable from the waste stream.

Come on, just let everyone throw everything, all of the ridiculous volumes of paper, metal, and cardboard, into landfills and incinerators?  Isn’t Munger’s suggestion the same kind of idea as with paper mills of old:  just let them dump the toxic chemicals into the river?   If it’s worth anything, someone will create a market for it… just let the taxpayers clean it up afterward, when the remediation costs become a responsibility for the state (like landfills). 

Munger also talks about rent-seeking behavior by haulers and manufacturers that use recycled feedstock. He’s right that companies often want someone else to pay for the stuff they would like to get back for remanufacturing. Recyclable materials are already cheaper than virgin in some cases, and some companies are also concerned about the volatility of commodity markets.[3] In our work talking with trade associations about this, one executive stated “Well of course we want the material. We just don’t want to pay for it.”

Munger’s initial argument that manufacturers or brands would “encourage the use of effective market incentives” is spot on. EPR envisions brands being the payer for services, and in an effort to lower costs they serve as an effective counterweight against rent-seeking behavior by their suppliers and haulers that accept recycled material. Local governments that primarily enter into contracts with for-profit haulers to assist with solid waste management do not have the scale necessary or market knowledge needed to be that counterweight.

In the most polite way, I believe that Munger’s assertion that most recyclables are going in the landfill is mistaken. Yes, in some markets, glass recycling is problematic, but it is improving with technology. We talk with glass recyclers often, and they are always looking for new sources, not just for construction projects. Unlike the gluts of materials collected 20 years ago, today no one is going to spend money collecting stuff that doesn’t have a market. The market might not always pay as much as one would like, and the end use (like mixed glass cullet in some regions) may not be the highest and best use in all cases.

Regarding “voluntary” vs. “mandatory”: Yes, high-volume paper sources like retailers are in high demand so the private market can usually work in the commercial sector without assistance. But when it comes to residential recycling, collecting a diverse set of materials in high volumes improves the economics. Consumers don’t want to drive around dropping small amounts of material at manufacturing plants. Haulers and cities aggregate this material for economies of scale. Since the revenue offered for this material goes up and down, a diverse set of materials hedges your bets. It’s a bit like investing in a mutual fund for the long term instead of shopping around for specific stocks every day. Making the opportunity to recycle regularly maintains consistency; retailers might lose money on weekdays and make a lot on weekends, but they stay open every day because otherwise customers stop coming.

Regarding the mandatory nature of recycling, ask yourself this. Would you make garbage pickup mandatory? Voluntary participation may sound great, but sooner or later illegal dumping and burning of waste causes enough externalities that others have to take action to address them. The question then becomes, “What is the most economically efficient way to internalize the externalities?” This question applies to recycling as well. Our producer driven approach would gain the economic efficiency while also accomplishing the environmental objective.

I agree with Munger that using moral suasion doesn’t always work or reflect economic reality. We have found that different messages work for different people. Someone might recycle their metal cans because they want to avoid excessive new mining of aluminum, and another might not care a hoot about that tree hugging nonsense, but know that there are local companies that would use that material to make new products, hopefully bringing down the cost of products in the future.  Unfortunately, that last scenario doesn’t happen often, because most people don’t hear from the private sector, “We need your stuff.” That is not the core competency of manufacturers, so government is the entity doing most of the education, even to the extreme example of telling people to put their recyclables through the dishwasher, a most ridiculous suggestion. A producer-driven system creates a stronger economic signal between the consumer and manufacturer by binding consumer brands and their suppliers together.

I’d like to hear more from this group about their level of comfort with keeping the status quo—taxpayer financing, not consumer purchase cost structures—or in Munger’s essay, just throwing it all away and someone will get the good stuff somehow.  I’m certain that America should not be subsidizing landfills and incinerators with taxpayer money.  EPR is a tool to change that paradigm, and internalize the externalities of all this “stuff.”  I lob the ball back to my colleagues. Just make sure to recycle the ball’s packaging before you write your next response.