Waste Market Efficiency:An Economic Analysis of the Recycling

Manufacturing Market for Recycled Plastics Numbered 3 through 7

Alex MichaelSustainable Princeton

Derian/CBLI InternAugust 4, 2015

Table of Contents

I. Executive Summary ………………………………………………………………………. 3

II. Introduction ………………………………………………………………………………… 4

III. State of the Waste Stream .………………………………………………………………. 4

A. American Waste Trends ……………………………………………………………… 7

IV. American Recycling Models and Recovery Innovations ……………………………… 8

A. The Recycling Industry ……………………………………………………………….. 8

B. Collection ………………………………………………………………………………. 9

C. The Materials Recovery Facility (MRF) …………………………………………… 10

V. Recycling of Three through Seven Plastics …………………………………………… 10

A. What Do Plastics Turn into? ……………………………………………………….. 12

B. Virgin Resin Production Outlook …………………………………………………… 13

VI. The Economics of Recycling …………………………………………………………… 14

VII. Disposal Options for Plastic Resins ………………………………………………….. 18

VIII. Creating a Market for Three through Seven Plastics ………………………………. 20

IX. Conclusion ……………………………………………………………………………….. 23

X. References ……………………………………………………………………………….. 24

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I. Executive Summary

In the world of sustainability in waste, most organizations are focused on three facets of waste: reduction, reuse and recycling. Unfortunately, the third item on this list has become somewhat unstable and hard to define with many claiming that recycling plastics with the numbers three through seven is becoming to expensive to support itself. Many organizations involved in sustainability are faced with the question, “is there a market for recyclable plastics marked three through seven?” The answer to this question has been speculated on but it has not been studied in any comprehensive manner. In the report we identify an economic surplus for the plastics. If in a cost-benefit analysis recycling a larger percentage of the 30.5 million tons per year of plastic waste being produced, there are several possible interventions that could be undertaken:• Reduction of market inefficiencies in the plastic markets• Working to increasing the supply of plastics• Working to increase the demand through monetary incentives• Providing capital, financing options and subsidies for retrofits to new or existing

Materials Recovery Facilities (MRF).These options are the simplest ways that the government could initially help the recycling manufacturing industry for three through seven plastics get off the ground. It is necessary to identify the size of the intervention necessary to help the recycling manufacturing industry thrive. Once that analysis has been performed we must determine the opportunity cost of that tax money.

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II. Introduction

One of the biggest questions in the sustainability movement is how to handle recycling. In most regions of the United State plastics numbered 3, 4, 5, 6 and 7 are currently being landfilled in many regions. Should sustainability organizations like Sustainable Princeton make an effort to promote recycling of plastics numbered three to seven? Should these organizations support single stream recycling programs which have increased collection rates but have caused problems with recycling contamination? Is it more environmentally friendly to landfill hard-to-recycle plastics? The answer to these questions depends on number of factors including current regional manufacturing markets for recycled materials and population density. There is a lot of discussion regarding the recycling of plastics numbered three through seven but the scholarly conversation has been very limited and not driven by comprehensive data collection. The purpose of this report is to look at existing research on recycling manufacturing markets to determine whether the three through seven plastics should be recycled now or if there is future potential for their recycling either through increased recycling manufacturing technology or or through regulatory intervention that would allow innovation in the industry to take place inorganically.

III. State of the Waste Stream

In order to examine whether there’s a market for recycled plastics numbered three to seven, we must first step back and examine the recycling industry and its place in the waste stream. Recycling is not a means to an end, it simply serves as a way for society to extend the life of the materials that it is consuming. Waste is a necessary fact of the human condition, so our ideas about sustainability regarding waste should be based on the idea that waste should not be wasteful and that, as a society, we should minimize our negative impact on the environment to improve our quality of life and that of future generations. The graphs below from the EPA’s comprehensive report entitled “Advancing Sustainable Materials Management 2013 Fact Sheet” provides us with an

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excellent overview of the American Municipal Solid Waste (MSW) stream (Advancing, 2015).

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Figure 5. Total MSW Generation (by material), 2013

254 Million Tons (before recycling)

Other 3.3%

Food 14.6%

Yard trimmings 13.5%

Wood 6.2%

Rubber, leather & textiles 9%

Plastics12.8%

Metals 9.1%

Glass 4.5%

Paper 27%

0

2

4

6

8

10

0

50

100

150

200

250

300

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Per c

apit

a ge

nera

tion

(lbs/

pers

on/d

ay)

Tota

l MSW

gen

erat

ion

(mill

ion

tons

)

Total MSW generation Per capita generation

2013

250.6 254.1

88.1104.4

121.1 127.8

151.6

166.3

208.3217.3

243.5253.7

2.682.96

3.25 3.253.66

3.83

4.57 4.52 4.74 4.694.44 4.40

Figure 1. MSW Generation Rates, 1960 to 2013

Figure 4. Management of MSW in the United States, 2013

Recovery34.3%

Discarded52.8%

Combustion withEnergy Recovery12.9%

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Figure 6. Total MSW Recovery (by material), 201387 Million Tons

Other 5.6%

Food 2.1%Wood 2.8%

Plastics 3.5%

Glass 3.6%

Metals 9.0%

Yard trimmings 23.6%

Paper & paperboard 49.8%

Figure 7. Total MSW Discards (by material), 2013167 Million Tons (after recycling and composting)

Other4.4%

Rubber, leather & textiles 11.6%

Food 21.1%

Wood8%

Plastics 17.7%

Glass5%

Metals 9.1%

Yardtrimmings

8.1%

Paper &paperboard

15.1%

Figure 2. MSW Recycling Rates, 1960 to 2013

0%

10%

20%

30%

40%

50%

0

10

20

30

40

50

60

70

80

90

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Perc

ent o

f gen

erat

ion

recy

cled

Tota

l MSW

rec

yclin

g (m

illio

n to

ns)

2013

Total MSW recycling Percent recycling

6.5 8.0 9.314.5

16.7

33.2

55.8

69.5

79.8

85.287.2

6.4% 6.2% 6.6% 7.3%

9.6% 10.1%16.0%

25.7%

28.5%

31.4%

34.0%

34.3%

5.6

Figures: Advancing, 2015, p. 2-7

Table: Advancing, 2015, p. 7

American Waste TrendsAdvancing (2015) reports that from 1960 to 2013, total municipal waste

production in the US has increased from 88.1 million tons to 254.1 million tons. This marks an almost 188% increase over the 1960 figure. In 1960, the average person generated 2.68 pounds per day of waste but in 2013, the average person generated 4.40 pounds of waste per day. This marks a 64% increase in per-capita waste generation over the 1960 figure. However, per capita waste production peaked in the year 2000 at 4.74 pounds per person per day. These numbers look hopeful because although total waste production has increased by 4.4% since 2000, waste production per person has actually decreased since then, which may either indicate a plateau or even a backwards bend in the amount of total waste being produced. It is possible that, as time goes on, efforts towards sustainability and waste reduction may begin to reverse the trend of increasing American consumption and waste but it is currently too early to determine whether that is the case. In the face of increasing waste production over the 1960 totals, fortunately, recovery of this waste through recycling has increased drastically. The percentage of the waste stream being diverted has increased from 6.4% to 34.3%. The total amount of recycling being diverted from the municipal waste

Total MSW Generation(254 million tons)

Total MSW Recovery (87 million tons)

Total MSW Discards (167 million tons)

Paper and Paperboard

27.0% 49.8% 15.1%

Food 14.6% 2.1% 21.1%

Yard Trimmings 13.5% 23.6% 8.1%

Plastics 12.8% 3.5% 17.7%

Metals 9.1% 9.0% 9.1%

Rubber, leather and textiles

9.0% n/a 11.6%

Wood 6.2% 2.8% 8.0%

Glass 4.5% 3.6% 5.0%

Other 3.3% 5.6% 4.4%

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stream per year has increased from 5.6 million tons to 87.2 million tons (Advancing, 2015).

These trends are looking promising for the field of recycling. For example, metals comprise the same proportion of the recycling stream that they do of the waste stream. Paper and paperboard are being reclaimed exceptionally well and yard trimmings are being composted at excellent rates. The area that needs the most improvement is food waste. Food waste is being produced at the second highest rate behind paper products and is barely being recovered at all. Sustainability organizations, in addition to focusing on life cycle extension, should focus on MSW source reduction(reducing the amount of material used) and reduction of food waste in the form of behavioral changes and composting. Behavioral changes in food waste would decrease the cost of food for everyone and composting would save valuable landfill space in high population density areas.

IV. American Recycling Models and Recovery Innovations

Recycling is one of the hottest topics in the waste community right now. There are several potential recycling models. In order to understand how to alter the recycling industry, we must first understand the nature of that industry.

The Recycling IndustryBefore we develop a model about how best to address plastics numbered three

through seven, we must understand the recycling industry and how it operates. Unfortunately, the market for recycling is a complicated one, so a diagram may prove useful. Recycling is primarily a private, market-driven industry which can broken down into four separate sectors, only the first three of which we are concerned with in this paper because often consumer goods already have a well-established markets.

Collection Sorting (MRF) Recycling Mfg. Consumer goods

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The collection of post-consumer waste sent out for recycling is mandated by various region-specific laws and ordinances, the government ensures that this waste is collected. Since the collection was historically supported by the government and taxpayers, the collection and sorting industries have had the opportunity to flourish with valuable recyclable goods like aluminum and paper.

CollectionIn addition to providing one bin for landfill waste disposal, there are several

options for recycling collection that I have identified:• One bin for paper recycling and one bin for recycling metal, glass and plastics

labeled 1 and 2• One bin for all recyclables (a.k.a single-stream recycling)• One bin for paper recycling and one bin for everything else

There has been a move in the United States towards single stream recycling. The benefits of this system are numerous: recycling collectors can use single-compartment collection vehicles reducing inefficiency in fuel usage, more recyclable material is being collected (Diehl, 2013). The most prominent problem with single stream recycling is the contamination that results from it. The most commonly cited contaminants are contamination of paper products with glass. When glass and paper are placed in the bin, the glass can break into small pieces and get caught in the fibers of the paper, so many municipalities have chosen not to adopt the single-stream recycling system or have reverted to multiple collection bins. The second contamination problem is of the plastic recycling. Three contamination problems can occur during the collection and sorting of plastic recycling: plastic bags can get caught in the machinery and cause damage, low-quality plastics can contaminate higher quality plastics or additives from some plastics can contaminate other plastics and make for less pure or unsafe resins and more expensive sorting procedures (Bellamente, 2011; Single, 2002 & Organisation, 2006). The answer to the question of which model is most effective may depend on whether threes through sevens are accepted by the haulers. Although the amount recycled is lower, the third model could increase the value of recyclables and

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may reduce waste by the recycling industry but potentially increase that of consumers, but studying the tradeoff is beyond the scope of this paper.

The Materials Recovery Facility (MRF)What is a Materials Recovery Facility (MRF)? An MRF (colloquially pronounced

murf) is the facility where recycling is sorted. This is important to our model because this is where recycling is sorted into the different resin-types before being sold to a recycling manufacturer. The MRF is an incredibly complex factory system which combines technological sorting technologies with manual sorting. A 2000 paper published by published by Columbia University Master’s Degree candidate Alexander J. Dubanowitz details a proposed MRF that would feature some of the latest technology at the time,

“The detection system will use infrared spectrum transmission from a combination of four wavelengths to distinguish among unpigmented plastics. Pigmented plastics can also be separated using special cameras in conjunction with the infrared sensors. The color sorting system uses cross checking between the resin sensor and the color sensor” (p. 23).

As we can see, even in 2000, the automatic determination and sorting of recyclable materials is heavily dependent on ongoing research and development. Two patents dated 2008 and 2011 (US 7341156 B2 & US 7893378 B2) for recycling sorting technology detail plastic sorting systems which optimized sorting performance using infrared and X-ray technologies to determine plastic types (Bohlig, 2008 & Kenny, 2011). This research and development is dependent almost completely on the profitability of doing so.

V. Recycling of Three through Seven Plastics

In order to examine the recycling manufacturing industry, we must examine some facts about the plastic recyclables being produced. The total weight in plastic generated in America was 32.52 million tons and only 3.0 million tons of that was recovered. This

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means that only 9.2% of the waste plastic that was discarded was recovered in the form of recycling.

Graph Data: Advancing, 2015, p. 8

The small percentage of plastic that was recovered resulted in a 3.6 million metric tons of carbon dioxide equivalent (MMTCO2E) which adds up to 760 thousand cars being taken off the road (Advancing, 2015). In 2001, the recycling manufacturing industry for plastics employed approximately 178,700 people and brought in a gross revenue of about $46 million making it the third largest sector of recycling manufacturing behind that of paper product mills and steel mills (Beck, 2001). While this information is outdated, plastic recycling is still forms a major portion in the recycling manufacturing industry. According to the EPA’s WARM analysis published in 2009, the total amount of plastic in the Municipal Solid Waste stream was 30.05 million short tons which is less than the 2013 figure, but what is valuable about this analysis for our purposes is the chemical composition analysis on the MSW that was performed in that report. According to the analysis 9.09 million short tons of plastic waste generated was in the form of PET or HDPE plastic in 2009 (PLASTICS, n.d.). These plastics have a recycling manufacturing market that can clear at the quantity being provided, or at close enough prices to avoid firm shutdown in the long-term. This does however mean that in that same year, 69.8% of the MSW was in the form of plastics numbered three to seven, this

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amounts to almost 21 million short tons of plastic waste numbered three through seven. That’s is a lot of waste going to the landfill per year.

What Do Plastics Turn into?Before we delve into the economics of recycling it is useful look at each plastic

resin, its chemical name and what it turns into after it is collected and sorted.

Table: Organisation, 2006 & Guide, n.d.

Chemical Name Pre-Recycling Post-Recycling

♳ Polyethylene Terephthalate(PET)

Bottles, film, food packaging, synthetic insulation.

Food and beverage containers as well as different strands of fibers, as seen woven into clothing and carpets

♴ High Density Polyethylene(HDPE)

Containers, toys, housewares, industrial wrapping and film, gas pipes.

Packaging, decking, housing fixtures like paneling, flooring and tiles, crates like recycling bins, or sturdier structures like fencing or dog and bird houses.

♵ Polyvinyl Chloride (PVC)

Window frames, pipes, flooring, wallpaper, bottles, cling film, toys, guttering, cable insulation, credit cards, medical products.

Recycled PVC can be used in similar applications as virgin PVC, but the cost of recycling can be high. Used in pipes, construction materials, , housing pieces such as tiles, siding and flooring, loose-leaf binders, packaging and traffic cones.

♶ Low Density Polyethylene (LDPE)

Film, bags, toys, coatings, containers, pipes, cable insulation.

Shipping envelopes, plastic lumber and housing fixtures like tiles and flooring, trash cans and trash bags.

♷ Polypropylene (PP) Film, battery cases, microwave containers, crates, car parts, electrical components.

Many applications including battery cases, lights and many types of cables.

♸ Polystyrene (PS) Electrical appliances, thermal insulation, tape cassettes, cups, plates.

Food handling products, like plates, cups and silverware, electrical applications such as light fixtures,Polystyrene insulation

♹ Other Various items Various Items

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Virgin Resin Production OutlookIt is important to ask whether the amount of plastic being produced will likely

increase or decrease. A virgin plastic is a plastic that is produced and manufactured from petroleum rather than recycled plastics. If the amount of virgin plastics being produced were decreasing then, with time and conservation efforts, the amount of plastic in MSW would decrease with limited intervention. There are several key industries in the manufacture of virgin plastics and resins products, the first of these is the plastic and resin manufacturing industry. According to IBISWorld this industry is expected to gross about 109.9 billion dollars in 2015, the industry grew at a rate of 2.5% per year between 2010 and 2015 and is expected to grow at an annualized rate of 1.1% per year between the year 2015 and the year 2020. This industry is projected to see a revenue of 117.7 billion dollars per year by the year 2021 (Witter, 2015). The following are the industries that IBISWorld identifies as primary industrial consumers of virgin plastic resins marked three through seven and their respective market outlooks:

• Plastic Pipe and Parts Manufacturing: this plastic pipe industry primarily uses PVC or plastics marked with the number three. This industry grosses about 17.9 billion dollars per year and is expected to see an annualized growth rate of about 2.2% per year through the year 2020 (Yucel, 2015).

• Plastic Film, Sheet and Bag Manufacturing - This industry is primarily fed by plastics marked number four and five. The industry grosses 44.6 billion dollars per year and is project to grow an annualized rate of 3.4% through 2020 (Blau, 2015).

• Polystyrene Foam Manufacturing - This industry is largely built around food containers and uses entirely plastic marked number 6. The industry grosses 9.4 billion dollars per year and has a projected annualized growth rate of -1.6% through the year 2020 (Petrillo, 2014).

• Laminated Plastics Manufacturing - These plastics are primarily used in automobile applications and other durable machinery so recycling is not as big of an issue for them. This industry grosses 3.7 billion and has a projected growth rate of 2.7% through the year 2019 (Morea, 2014).

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• Urethane Foam Manufacturing - This industry is concerned with foam cushioning in furniture and automobile applications. This material has traditionally been landfilled and there is very little literature available on whether this material can be recycled. This industry grosses 9.5 billion per year and has a projected annualized growth of 2.6% through the year 2020 (McKitterick, 2015).

What we can gather from these performance projections is that with the major exception of polystyrene, products and packaging made from resins marked three through seven will continue to be produced at a steadily increasing rate. Any action taken should accelerate the expansion of the recycling manufacturing industry in combination with a general trend of an increasing percentage of plastic being recycled in an attempt to outpace the increase in plastic waste production.

VI. The Economics of Recycling

The recycling industry is broken into four different sectors, each of which interacts with the other through market forces. Each sector in the recycling industry supplies the next. The collection industry supplies the sorting industry supplies the recycling manufacturing and the reuse/remanufacturing industries. The following graph and accompanying table from R.W. Beck (2001) on the United States recycling manufacturing industry, while it is fairly outdated, illustrates the market share of each sector within the recycling industry in a fairly comprehensive manner:

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0"20"40"60"80"

100"120"140"160"180"200"

Collec-on" Processing" Recycling"Mfg."

Reuse"

(in$biilon

s$of$d

ollars)$

Payroll$and$Receipts$by$Industry$Sector$

Annual"Payroll"

Es-mated"Receipts"

Graph Reproduced from R.W. Beck (2001)

Table 2 Source: R.W. Beck, 2001

As we can see, the recycling manufacturing industry is the largest and most profitable use of recycled materials, this is the largest sector in the whole of the recycling industry and it sees the vast majority of the receipts in the recycling process. The recycling collectors are paid to collect the recycled materials and then sell that material to the recycling processors who then clean and sort the recycled material into different products. Recycling processors clean and sell supplies of recycled paper, aluminum, steel, glass and plastics to recycling manufacturing firms and reuse firms who then repurpose the recycled material.

These symbiotic relationships form several markets, in the case of the market for plastic resins, the one we are concerned with is that in which the processors (in conjunction with collectors in some cases) are the suppliers of recycled materials and the recycling manufacturing and reuse industries demand the recycled material. The recycling manufacturing industry in this case determines the amount of recycling demanded.

Because of the way the market is structured, the collection and sorting industries are well equipped to collect and sort the entire quantity of the waste that is provided to them by consumers. The problem arises when, in the case of plastics, the cost to provide a relatively clean and valuable supply of plastic resins is high due to technical barriers. The graph below is an attempt to demonstrate the market mechanisms resulting from the surplus condition of the recycling market.

INDUSTRY SECTOR

Total:

Data Type Recycling Collection

Recycling Processing

Recycling Manufacturing

Reuse & Remanufacturing

Industry Total

Establishments 9,247 12,051 8,047 26,716 56,061

Employment 32,010 160,865 759,746 169,183 1,121,804

Annual Payroll 956,875 3,826,360 29,181,749 2,747,498 36,712,482

Estimated Receipts

1,974,516 41,753,902 178,390,423 14,182,531 236,301,371

Estimated Throughput

191,082 191, 082 157,545 N/A N/A

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Image Source: Surplus, n.d.

In this highly simplified economic supply and demand diagram demonstrating the market for recycled plastic resins, the suppliers of recycled plastic resins are the recycling collectors and sorters and the firms demanding the resins are the recycling manufacturing and reuse industries. The line marked surplus demarcates the price to sell all of the goods collected. As we can see, the price at which the full quantity(Q3) of recycled material is sold is high(P1) because more material would be collected and sorted than is demanded by the market because the quantity of recycling supplied by the collectors to the sorters is very close to fixed due to:

• Consumers’ provision of recycling• Legal requirement in the state of New Jersey to recycle• Increases in quantities of plastic recycled as a result of single-stream recycling

In this case a more accurate diagram to demonstrate the market in the short run would feature a more horizontal supply curve because of the fact that the fixed costs of sorting three through seven plastics are right now extremely high.

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The graph above features this more elastic short run supply curve. Here most firms are priced out of the market, but a very small fraction can provide this recycled material to a very small number of recycling manufacturers. The reason for the horizontal (elastic) nature of the supply curve is because once the expensive sorting infrastructure is in place it is easy to supply to recycling manufacturers. This problem is not encountered in the paper and metal recycling industries because the recyclate is fairly valuable and the fixed infrastructure is relatively less expensive and the markets can clear(all material produced can be sold) that the quantity supplied does not exceed the quantity demanded by the recycling manufacturing and reuse industries. Because all recycling must be collected, the upstream market for recycling collection is not provided in a free market setting because consumers supply of recyclable material is extremely inelastic in the short run (consumers produce a similar amount of recycling no matter the collection cost in the short run). However, the market for recycled plastics supplied by haulers and sorting firms to recycling manufacturers is relatively free, but is strongly affected by the upstream market in the face of insufficient demand for the plastics. So what we have established here is what municipal waste workers and those in the recycling industry already know: in theory, there is not sufficient demand for recyclable plastics numbered three through seven. This leaves three simple options for the disposal of plastics numbered three through seven: collectors can simply not collect plastics numbered three to seven, they can collect them and simply landfill the plastics, or they can collect them and sell them below the cost of production.

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Price&

Quan+ty&

Supply&

Demand&

Surplus&

VII. Disposal Options for Plastic Resins

Since, in the previous section, we were able to establish that in theory there was not sufficient demanded for recycled resins, the focus of this report then turns into high-level ways in which the recycling manufacturing and reuse industries can accommodate the current level of recycled material input. The ultimate goal is to increase the amount of plastic that the recycling manufacturing industry markets are capable of processing. Let’s first examine the alternatives to collection and full use by recycling manufacturers and reuse firms.

• The first alternative is to simply not collect plastics numbered three to seven. This alternative is probably the most economical for collection and sorting firms given the incentives in the currently free market in the face of insufficient demand from the recycling manufacturing industry. This leads to several potential problems which economists call externalities, all of which should be addressed. The most salient problem comes from the Low Density Polyethylene (LDPE #4) plastic bags, which are very often littered and cause environmental damage especially to the ocean’s ecosystems. Although the collection of these bags costs the collector and the hauler, it has the potential to reduce the littering of these bags. The second comes from Polyvinyl Chloride (PVC #3), which when broken down during improper disposal is fairly toxic and releases harmful chlorides into the environment. (Ackerman, 1997, p. 89-90).

• The second alternative is to collect these plastics, but landfill them. This option is not economical as it costs the hauler to collect these plastics, haul them to a sorting facility and then haul them in baled form to the landfill using large amounts more energy to process these plastics only to landfill them at the end of the line. This alternative is not as negative as it appears. The option does help to mitigate some of the negative environmental externalities that arise from not collecting these materials. The first of these is that, as mentioned in the previous item, the collection may reduce harm to the environment resulting from improperly disposed PVC and plastic bags. It is also a capital investment in that

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it creates an infrastructure for the supply and distribution of threes to sevens to the recycling manufacturing and reuse industries. While these materials are still being landfilled they can easily be diverted to recycling manufacturers once the industry is sufficiently advanced or in the case of government market incentives. This option features fairly high marginal costs but low fixed costs so it is more economically viable in this case.

• Another option which is available but is not economically viable is for most or all firms to collect three to seven numbered plastics and provide them at a discounted price to the recycling manufacturing industry. This option is not being undertaken simply because it would, on balance, cause the recycling collection and sorting industries to lose a good deal money. To pursue this option, the collection and sorting firms would have to sort and market all their plastic resins. Many firms would be forced to sell significantly below the cost of their production, because they have to clear the entire quantity of collected and sorted resins to recover as much of the initial sunk cost (cost spent upgrading the machinery and sorting the plastics) as possible. Landfilling the sorted resins would simply incur significant cost to most recycling collection and sorting firms which is why this option has not been widely undertaken.

We see that the first two alternatives are conceivably economically viable and the last one is not, considering the current market conditions. Because the market can’t clear the quantity being collected and the market price for plastics in the short run is above the price at which the all plastics would be collected, many firms will opt to not sink the cost of collection and almost all will opt not to sink the cost of sorting (i.e. upgrade their machinery) without governmental intervention, simply because it is not profitable. Given the inelastic nature of both the short and long-run supply curves for recyclable plastics by consumers in the upstream market for recyclable goods, our long-term goal should be to look for ways to bring the cost of sorted plastic resins in line with the demand by recycling manufacturers at the level of supply being provided upstream. In economic terms, this can be accomplished by increasing supply by the recycling hauling and collection industry or by finding a way to increase demand or some combination of the two to clear the supply of recycling being provided by consumers in the upstream

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market. An increase in supply by the hauling and collection industry would simply mean that at every point along the supply curve, the amount supplied would be less expensive to recycling manufacturers through technology improvements or increases in the amount collected.

VIII. Creating a Market for Three through Seven Plastics

Although saying that the market will be created is a misnomer, it is clear that government intervention is necessary to stimulate this market at least initially. In this report, we have already identified two theoretical ways in which the recycling of three through seven plastics can be made economically viable. We have to foster an increase in demand for recycled materials and we have to increase the supply of the recycled plastic or simulate such an increase from the perspective the recycling manufacturing industry. The effect of this intervention will hopefully look like that appearing in the following graph:

There are three ways in which three through seven plastic or plastics in general can be recovered through recycling manufacturing. These are described in the article entitled “Improving Recycling Markets” published by the Organisation for Economic Cooperation and Development; “Most current recycling is of the open loop form.

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Price&

Quan+ty&

Supply&

Demand&

Surplus&

Supply2&

Demand2&

Curlee(1986) identified three separate classes of recycling activity for plastic” (Organisation, 2006, p. 88-89).

• Primary. This is the process by which recycled material is turned into material which can be used for the same or similar purpose. Most post industrial plastic waste is recovered by this method.

• Secondary. This is the processing of resources down into products with less demanding characteristics such as High Density Polyethylene from bottles being recycled into plastic bags. One of the least expensive examples of this is combustion of plastics in place of petroleum in high-temperature furnace applications.

• Tertiary. This breaks the material down into its component polymers through chemical and energy intensive treatments. This is tertiary simply because of how expensive the process is (Organisation, 2006).

This article goes on to explain that often the barriers to total market efficiency are the following:

• Failures of information including that regarding recycled plastic resin quality, additives in the resin;

• Technological externalities such as inability of technology to create pure resins, inability to completely remove additives;

• Collection, transaction and search costs, the materials frequently don’t occur in the purity and consistency that would make large scale collection worthwhile; and

• Prices for plastic resins are fairly volatile (Organisation, 2006).These could all be addressed with time and technological innovation, public

education regarding the quality of recycled plastics, as well as some more creative means of increasing market efficiency. Market inefficiencies are being reduced continuously as the fledgling sharing economy connects providers of goods and services to markets for them, a leading example of this is the case of the Uber car service. However, the OECD argues that these market efficiencies warrant policy interventions. So it is important to ensure that we remain cognizant of market inefficiencies as we attempt to intervene to alter supply and demand. But knowing what we do about what the market looks like currently, there are some factors that we must

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keep in mind to most effectively alter the market to create a market for recycled material.

• Any government action taken has to be regional and cannot be nationwide since the environmental and monetary cost of hauling is a big consideration;

• Unfortunately government socialization of industries can sometimes stymy innovation. In this case innovation is critical on both sides of the market. Innovation to reduce the fixed costs to recycling suppliers would be a huge step towards decreasing the price of supplying these materials. Innovation in the recycling manufacturing industry could bolster demand significantly as well.

With the above considerations in mind, the government should make its interventions within the framework of the market primarily so that the initial stages of innovation in that industry can flourish allowing the private firms the opportunity to profit and grow with technological improvements. Governmental alterations to demand are tricky but there are three basic tools that the government has at its disposal:

• Tax breaks for recycling manufacturers• Subsidies per unit of recycled resin to recycling manufacturers and• Assistance to recycling manufacturers: this would entail financing options to

reduce the barriers to entry.There are several tools through which governments could offer assistance to the collection and sorting industries to assist in the increase of supply.

• The government could offer tax breaks to collection and sorting firms that collect and sort three through seven plastics

• Once again, the government could provide a per unit subsidy to those firms• The government could offer capital or initial financing options that would reduce

or eliminate the fixed cost of installing the expensive sorting equipment allowing firms to take advantage of the low marginal cost and profit.

• A final intervention might be for the government to sponsor warehousing and sharing-economy style internet catalogs and standardize the quality control checks of resins to increase resin purity and promote economies of scale among many small firms to reduce market inefficiency due to many firms in the market with impure or small levels of resin.

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IX. Conclusion

The answer to the question of whether or not there is a market for three through seven plastics is yes, there is a market. Unfortunately the reality of being downstream from an inelastic supply of recyclables and high fixed costs to sort three through seven plastics make selling these plastics fairly infeasible for most firms in most places. Calculating the size of the gap between current market prices and the breakeven price that recycling collection and sorting firms face when selling recycled three through seven plastics is not in the scope of this report and would be a massive project better left to a team of consultants. Unfortunately landfilling these plastics is the easy solution, they are lightweight and do not cost very much to transport to the landfill. Without taxpayer support, this industry will grow too slowly to accommodate the increasing amount of plastic being produced. However, we must be cognizant about whether or not building a manufacturing industry to support the recycling of these plastics is worthwhile in the face of massive quantities of compostable organic waste and glass contamination of paper resulting from single stream recycling. A cost-benefit analysis must be performed to determine whether altering the market for three to seven recycled plastic resin market is worth the opportunity cost of providing the necessary tax incentives and subsidies to build the recycling manufacturing industry.

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