Recycling Industry - Cost-benefit Analysis

Cost-benefit Analysis

There is some debate over whether recycling is economically efficient. Municipalities often see fiscal benefits from implementing recycling programs, largely due to the reduced landfill costs. A study conducted by the Technical University of Denmark according to the Economist found that in 83 percent of cases, recycling is the most efficient method to dispose of household waste. However, a 2004 assessment by the Danish Environmental Assessment Institute concluded that incineration was the most effective method for disposing of drink containers, even aluminium ones.

Fiscal efficiency is separate from economic efficiency. Economic analysis of recycling includes what economists call externalities, which are unpriced costs and benefits that accrue to individuals outside of private transactions. Examples include: decreased air pollution and greenhouse gases from incineration, reduced hazardous waste leaching from landfills, reduced energy consumption, and reduced waste and resource consumption, which leads to a reduction in environmentally damaging mining and timber activity. About 4000 minerals are known, of these only a few hundred minerals in the world are relatively common. At current rates, current known reserves of phosphorus will be depleted in the next 50 to 100 years. Without mechanisms such as taxes or subsidies to internalize externalities, businesses will ignore them despite the costs imposed on society. To make such non-fiscal benefits economically relevant, advocates have pushed for legislative action to increase the demand for recycled materials. The United States Environmental Protection Agency (EPA) has concluded in favor of recycling, saying that recycling efforts reduced the country's carbon emissions by a net 49 million metric tonnes in 2005. In the United Kingdom, the Waste and Resources Action Programme stated that Great Britain's recycling efforts reduce CO₂ emissions by 10–15 million tonnes a year. Recycling is more efficient in densely populated areas, as there are economies of scale involved.

Certain requirements must be met for recycling to be economically feasible and environmentally effective. These include an adequate source of recyclates, a system to extract those recyclates from the waste stream, a nearby factory capable of reprocessing the recyclates, and a potential demand for the recycled products. These last two requirements are often overlooked—without both an industrial market for production using the collected materials and a consumer market for the manufactured goods, recycling is incomplete and in fact only "collection".

Many economists favor a moderate level of government intervention to provide recycling services. Economists of this mindset probably view product disposal as an externality of production and subsequently argue government is most capable of alleviating such a dilemma. However, those of the laissez faire approach to municipal recycling see product disposal as a service that consumers value. A free-market approach is more likely to suit the preferences of consumers since profit-seeking businesses have greater incentive to produce a quality product or service than does government. Moreover, economists almost always advise against government intrusion in any market with little or no externalities.