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ACKNOWLEDGMENTS

I am grateful to Robert Want, Mark Sharefkin, Fred Wells, Allen Kneese, Blair Bower, Tom Quimby, Theo Page, Dave Gushee, Julius Allen and George Leibowitz, for their helpful and voluminous comments. Naturally, not all of the commentators concurred with the author (or each other) on every point—the views expressed are those of the author.

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ECONOMICS OF RECYCLING

INTRODUCTION

Modern economies are suffering from the twin problems of too much waste and too few raw materials. Increased recycling promises to be a partial solution to both problems. As it becomes public policy to increase recycling several questions become important: How best to encourage recycling? How much recycling is enough? And the seemingly innocent question, "What is recycling?”.

Recycling is a problem of wheels within wheels, or more precisely, loops within loops. As such the concept is slippery and requires some care in definition lest an incentive designed to improve one part of the economy surprises us by creating a misallocation in another part. The first section of this paper is preliminary in nature, setting forward the definitions and definitional problems likely to be encountered in policy making. In order to know the effects of alternative policy incentives, one must first estimate the degree of competition or substitutability between primary and secondary materials. This question is taken up next. Recycling should not be considered an end in itself, but some pattern of greater recycling is presumably desirable because it leads to “better” paths of material flow through the economy. In order to evaluate policy alternatives which encourage recycling in different ways it is necessary to have criteria. Without criteria there is simply no way to answer even the most basic question—how much recycling is enough? Two criteria are discussed: the price system and conservation.

The above provides a conceptual structure by which the later sections can be related and evaluated. These sections are: present impediments to recycling, existing legislation to promote recycling, and policy options.

DEFINITIONS

Early federal attempts to encourage recycling demonstrated that good working definitions of recycling are indeed elusive. In February, 1971, the Administration announced that the General Services Administration (GSA) would revise its specifications for paper purchases to require more recycled content. In its original definition, GSA included all paper mill waste as well as other residues in the whole process of papermaking. This definition posed no problem for the wood pulp paper companies, which routinely used wood chips, sawdust, and in-mill paper scrap, called mill broke, as raw materials. Paper companies could easily meet the new higher specifications by simply relabeling what was previously called virgin paper, “recycled fiber.” The paper companies did not need to change current resource flows to meet the anticipated GSA specifications.

But the situation was less satisfactory for the paper stock dealers, who bought and sold industrial scrap and post-consumer scrap. They

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wanted the demand for the scrap they handled to increase. Under the GSA definition, paper stock dealers did not experience an increase in demand since the paper companies could, by and large, meet the new specifications by relabeling some of their raw materials and not by purchasing from the paper stock dealers. And neither was the definition helpful to municipalities, which wanted scrap paper to be diverted from its path to the city dumps into the hands of paper stock dealers.

To remedy the situation, GSA changed its definition to include only "solid wastes not normally utilized.” In order for this definition to become operational, every material associated with paper making and use would have to be specified as to whether or not it was “normally utilized." In an attempt to resolve the vagueness of the definition, GSA ruled that paper fiber waste generated up to the point where paper sheet is first cut is not included in the definition but that paper fiber waste generated after the first cutting is included. The trade association for the paper stock dealers (NASMI) responded that this definition was still too broad to encourage the market in waste paper. The GSA specifications, under this definition of recycled fiber, could still be met by internal scrap.

Finally, GSA settled upon a two part definition. The first part included scrap generated by final users of the finished product, and the second part included scrap generated in the production of paper. Postconsumer scrap, as the first part was called, included waste from consumers and commercial use--old newspapers and used IBM punch cards, for example. By requiring minimum percentages of postconsumer scrap in new production, GSA can and does encourage the scrap paper market and divert scrap that would otherwise flow into the principal solid waste stream. In order to encourage the scrap paper market, GSA found it necessary to differentiate between paths of waste flow. It took GSA a year to develop a workable definition which turned out to be considerably more complicated than what it originally thought sufficient. Workable definitions, ones which lead to the intended results, are made more difficult by the fact that materials can flow through many alternative paths.

To define more clearly recycling and its role in the entire economy, the following diagram is useful:

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