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THE COSTS AND ECONOMICS OF RECYCLING & DIVERSION

Michael R. TimpaneVice President

Cost of Recycling WebinarMay 14, 2015

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Providing

solutions in

sustainability,

resource

management

and waste

recovery for

clients and

their supply

chains

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-Recycling Value Chain- Concepts in the Cost of Recycling

Basic Look at Cost Terms in in Recycling Program Costs In Recycling

Processing Costs

Macro Economic Look at Different Recycling Questions

TODAY’S AGENDA

01 02 03 04

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• Voter Demand

• Environmental Mitigation

• Landfill cost

• Zero Waste/Diversion

mandates

• Customer Demand/competitive advantage

• Avoid Regulatory risk

• NGO pressure• Sustainability

Concerns• Protect 1 way

packaging

• Response to Environmental Concerns

• Price

• Thrifty/Conservation

• Product Feature

Markets/Manufacturers

Brands

Retailers

Consumers

Municipalities

MRF

Re-processors

Haulers

Converters

• Material cost savings• Reliable Supply & Quality• Customer Specification

RecyclingValue Chain

DemandMotivations

• Material cost savings• Supply & Quality• Customer Specifications

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• Service Providers

• Revenue from both inbound and

outbound customers

• Pay for Play

• Less powerful position

Markets/Manufacturers

Municipalities

MRF

Re-processors

Haulers

RecyclingValue Chain

DemandMotivations

Recycling should be free

advantage of inelastic demand

Take more materials

More and tougher quality specs

Minimize my riskMarket risk is on

you

Long-term contract terms with dynamic material streams

No long term contracts

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“Valuing” Recycling Today

“(the) local curbside collection program is only the beginning of a recycling loop. At present, the cost of collecting and processing recyclable materials far outweighs their value as a commodity that can be sold back to industry.

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“Valuing” Recycling Today?

“(the) local curbside collection program is only the beginning of a recycling loop. At present, the cost of collecting and processing recyclable materials far outweighs their value as a commodity that can be sold back to industry. Unless consumers buy recycled products, the markets for the material they put out at the curb” will not grow.

HBR- 1993

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Average*** Single Stream Collection vs. Garbage Costs

Garbage CollectionRoute Truck Cost $850 ($100 for 8.5 Hrs)Route Truck Yield 10 Tons Can be up to 13 TonsCost Per Ton $85

Single StreamCollectionRoute Truck Cost $850 ($100 for 8.5 Hrs)Route Ratio 1.25

25% More RoutesTotal Route Cost $1,063Route Truck Yield 9 Tons Can be up to 11 tonsCost Per Ton $118

Pass-by’s

can also

be minimize

d through

proper

periodiciti

y

9

+

Truck Capital Cost for Capturing Single Stream

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Cart Capital Cost for Capturing Single Stream

$40-60 per Cart for 96 gallon

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CONCEPTS IN RECYCLING REVENUE (TS)

Blended Value, Average Value, Average Commodity Value, Average Market

Value

$76.44- 4 year

slide

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CONCEPTS IN RECYCLING REVENUE (TS)

Blended Value, Average Value, Average Commodity Value, Average Market

Value

1994

1995

1998

2001

2006

2007

2008

2009

2010

2012

2013

2014

2015

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$ per Ton

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RESID

UE

CONCEPTS IN RECYCLING COST

Tons Received Tons Sold

Work, transformation, heat, unusable materials, contamination

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4,800 TPM- 70% Participation Single Stream

$/Tons Processed 100,000 Households

Reported Range ($45-65T) 70% of 100% 80% of 100% 90% of 100% 95% of 100%

$55.00 70% 80% 90% 95%

Tons Sold $78.57 $68.75 $61.11 $57.89

4800 $353,571 $309,375 $275,000 $260,526

Yield 3,360 3,840 4,320 4,560

Cost for Capturing Recyclables

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Cost for Capturing Recyclables

20,250 TPM Mixed Waste Processing$/Tons Processed 100,000 Households

Reported Range ($35-60T)

40% of 40%

50% of 40% 60% of 40% 65% of

40%

$47.50 16% 20% 24% 26%

Tons Sold $296.88 $237.50 $197.92 $182.69

20,250 $961,875 $961,875 $961,875 $961,875

Yield 3,240 4,050 4,860 5,265

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Residue

Non-

recyclables

Unavailable

recyclables

Contaminants and

hazardous materials

CONCEPTS IN RECYCLING COST

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CONCEPTS IN RECYCLING COST

2007 2012 2014-20155%

7%

9%

11%

13%

15%

17%

8%

13%

16%

Average Residue at Single Stream MRFs

Sources: 2007 Comparative Study on Public vs. Private MRFs, 2012 GAA study on Wisconsin-Area MRFs, ISRI Moore Presentation April 2015

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CONCEPTS IN RECYCLING COST

Year

Percent

Residue

Total ImpactComparative $/T (Current

LF $/T)

Avg. MRF/Yr.

2007 8%$82,320,00

0$3.92

$131,292

2012 13%$133,770,0

00$6.37

$213,349

2014-2015

16%$164,640,0

00$7.84

$262,584

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SENSITIVITY TO RECOVERY: SYSTEM COST – SS & MWP

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ECONOMIC DEFINITIONS

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-8%

-6%

-4%

-2%

0%

2%

4%

6%

Evolving Packaging Stream – 2012 vs. 1990 Baseline

Increasing prevalenceDeclining prevalence

Ch

an

ge

from

19

90

-2

01

2

Flexible packaging is now displacing both traditional packaging as well as rigid plastics.

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

RRS, 2014

Recycling Rate Relative to Packaging Stream 2

01

2 R

ecy

clin

g R

ate

Most not collected thru curbside

Core Commodities

Increasing prevalenceDeclining prevalence

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• Enerkem• Abengoa• Fulcrum • Fiberight • Navitus• ZWE &

Anaerobic Digestion• Approved

projects Hawaii to Maine

THE PROMISE: TAPPING THE ENERGY POTENTIAL OF THE ORGANIC FRACTION

Issues are scale and throughput

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HISTORICAL ECONOMIC RISKS- Ceiling of Recovery

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Mixed Waste Processing Facilities (MWP)- Economics depends on the Purpose of its Deployment

Primary Means of Recycling (Savings

on collection costs)

• Savings on collection costs

• Household maximization of utility

• Recovery rate

Preparation of Fuels and energy

feedstocks

• Historical RDF • Compacted Fuel

Pellets• Gasification,

sacharrization, production of fuels and natural gas

MRF of Last Resort

• Residual MRF• Multiple options

deployed prior• High tip fee, high

diversion goals

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ONE BIN VS. SINGLE STREAM: Case: Primary Means of Recycling vs. Single Stream• Ranges, not real numbers• Assumptions must be local• Best operating practices• No green waste• Costs applied to recycling tons only• Costs include capital

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One Bin vs. Two Bin $ Revenue Yield3 yr. Average $100 T through Nov 2014

One Bin (Recycling Portion)$/Inbound Ton $60 T 60% * $100

Two Bin (Single Stream)

$/Inbound Ton $85 T 85% *$100

Yield Difference ($25) T

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One Bin vs. Two Bin DisposalOne Bin (Recycling Portion)

T&D Residuals ($45T x 40%)

$18.50/Ton $/T Disposed $33-65 Range

Two Bin (Single Stream Recycling portion)T&D Residuals ($45T x 15%)

$6.75/Ton $T Disposed $33-65 Range

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One Bin vs. Two Bin Processing- $/T ReceivedOne Bin (Recycling Portion)

Tons Recovered

$/Inbound Ton $45 Ton $T Received $40-60 Range

$/Recovered Ton

$75 Ton Cost per ton recovered at 60%

Two Bin (Recycling portion)Tons Recovered

$/Recovered Ton $62 Ton $T Received $50-60 Range

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Category $/T Single Stream

Rev. from Commodities

$74

Disposal ($6.75)

Collection Cost

($118)

Processing Cost

($55)

NET PROGRAM COST $100

Single Stream- Net Costs

At 65% $107 for One Bin

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Considerations Single Stream

One Bin

Higher Tonnages, Higher Quality XSecondary Processing required for Organics- net cost

X

Mixed Paper may not be available or marketable

X

More upside/less downside from Commodities

X

ECONOMICS: SINGLE STREAM COMPARES FAVORABLY WITH ONE BIN

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Mixed Waste as Diversion StrategyMICRO-ECONOMIC FRAMEWORK

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An Investor’s View of Recycling Cost/Benefits

“As demand for recycling grows, a waste company must demonstrate economic profits throughout a commodity cycle before it can claim recycling as a true moat-building competitive advantage.”

Economic Moat

Creation

Switching Costs

Intangible Assets

Cost Advantage

Efficient Scale

Network Effect

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Investor’s View of Recycling Cost/Benefits to an Integrated Waste Company“Growth in recycling has not enhanced industry-wide

profitability”

“Moat” -access and control landfill of the disposal asset diminished- No competitive advantage - Loss of pricing power, lack of pricing discipline- Recycling actually increases the cost of overall system execution

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Investor’s View of Current Recycling

• Number of MRFs were down 3% in 2014- mid-640 range to ~620

• Pipeline of Greenfield conventional MRF “lowest in years”

• Expectation is more closures this year with consolidation and unprofitability (up to 10%)

• No new large providers or consolidators on

• Recyclable volume reported by public companies is down in the first quarter

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Externalities: Recycling Value Chain - Critical Link in the Circular Economy

• U.S. one-way consumption not sustainable - >4#/day

• Modeled on nature. When materials are recycled, energy consumption lowers, productivity optimizes, and stability accrues

• Keep products, components and materials at their highest utility at all times.

• Putting monetary value and costs for execution difficult. Today they are absorbed as social costs.

Lyle, McDonough, Braungart, et.al – ‘Cradle to Cradle, Industrial Ecology, Biomimicry, Blue Economy, Natural Capitalism…”

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CircularEconomyIn Theory

“Sustainable Consumption”

“Sustainable Production”

c

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Managing Externalities: Policy-Maker’s View of Cost/Value of Recycling“”Avg. ton of material diverted to recycling …from region solid

wastes has an estimated environmental value of $220T.“- Metro Portland, 2009.”• Properly engineered

residential recycling programs costs(collection, disposal and administration) = net cost to C+LF

• True value of recycling has tangible benefits to the environment today

• Other models have pointed out recently (advanced LCA’s) that there may be some corrections to some of the premises used.

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A Policy-Maker’s View of Cost/Value of Recycling

.”

c

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A Policy-Maker’s View of Cost/Value of Recycling

.”

Recycling Program Net Costs Today

Externalities or Social Cost Mitigation

• Stabilizing consumption• Lowering pollution costs• Saving natural resources• GHG savings• Future Generation gains from

robust system

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Tons Processe

d

PROCESSING DIVERSION CURVE 2009 COUNCIL OF U.S. MAYORS

Requires add’l secondary processing

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1. Multiple “stacking” of collection/ processing technologies, i.e. – MWPF unders to

Anaerobic Digester

– Solid waste composting with pre-MRF

– Food waste separation and processing

2. High regulatory costs including mandatory separation, heavy outreach, and local enforcement

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LIMITS TO RECOVERY (RECYCLABLES): PROCESSING DIVERSION CURVE

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LIMITS TO RECOVERY

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Altamonte Springs

Thurston, WA

Montgomery Co, MD Average

Paper 29% 17% 26% 24%

Film 7% 6% 8% 7%

Plastic 9% 7% 7% 8%

Metal 3% 5% 4% 4%

Glass 3% 4% 3% 3%Recyclables 51% 39% 47% 46%

Food 7% 24% 21% 17%

Wood 3% 2% 3% 2%

Other Organics 8% 6% 2% 5%Organics 17% 32% 26% 25%

Other 29% 24% 25% 26%

Special Wastes 3% 5% 3% 4%Non-Recyclables 32% 29% 27% 29%

LIMITS TO RECOVERY THREE US CITIES