Minimum Recycled Content Needed to Balance Supply and Demand (Commentary)

Pandemic, along with a host of other pandemic-related words, accounted for most selections for 2020’s word of the year. Which is no surprise given how it’s upended every part of our lives --- work life, social life, family life. For essential workers, the show must go on --- so, our workers collected and managed materials throughout the lockdown, shutdown and shelter-in-place. But the massive shift from urban to less dense areas, from office to telework, has also meant changes in waste and recycling.

On a positive note, the pandemic drove a surge in fiber prices. After holding steady for nearly a year at negative $2/ton, the price actually started to drop during the first quarter of 2020. However, once the pandemic hit, mixed paper prices experienced a dramatic jump not just into positive territory but almost immediately into double digits! The current price hasn’t been seen since the beginning of National Sword.

And, now there’s light at the end of the tunnel with the multiple vaccines receiving approvals. Does this mean that we will be back to normal soon? Only time will tell. But how will normal be different? Many companies are considering making telework part of the new normal. The fiscal effects of COVID are expected to last several years. State and local governments' budgets have experienced revenue declines from income taxes, tolls, sales taxes and corporate taxes. And their expenses are up with more people out of work seeking for unemployment benefits and other assistance. Consequently, state governments may give more consideration to policies and programs that could alleviate some of these stressors.

In addition, the Environmental Protection Agency announced a national recycling goal on America Recycles Day of 50 by 30; that is to achieve 50% recycling rate by 2030. That’s an ambitious goal to achieve in 10 years!

What is our current recycling rate?

Before looking forward, let’s look at how we are doing. In November, EPA also released their annual Advancing Sustainable Materials Management (SMM) fact sheet and data tables for 2018. The report shows a decline in the recycling and composting rate in 2018 from 35% to only 32.1%. Given that 2018 was the first year that National Sword went into place, perhaps a decline is to be expected.

However, the numbers do not actually support a decline. First, EPA shows that the increase was due to increased municipal solid waste (MSW) generation rather than decreased recycling. Generation increased by 8% in 2018. This number includes all MSW generated regardless of whether it was recycled, composted, combusted or landfilled. This is an unprecedented (another word of the year) increase. Historically, the per capita generation of MSW peaked in 2000 at 4.74 #/pp/day, declined to 4.45 #/pp/day in 2010 and then only increased modestly through 2017 to 4.53 #/pp/day. But from 2017 to 2018, generation increased dramatically from 4.53 #/pp/day to 4.90 #/pp/day!

While this is a significant increase, it is not truly a year over year increase in waste generation. The primary reason for it is that EPA changed its methodology for measuring food waste. This new methodology was applied only to 2018 and resulted in a 55 percent increase in food waste generation. Without this modification, MSW would have actually decreased in per capital generation.

What happened to all that extra waste food that was considered under this new methodology? Almost 80 percent of it was managed in ways not previously discussed under the SMM document. They include: food donations, use as animal feed, anaerobic digestion, land application and managed through wastewater.

As stated, the SMM shows that recycling and composting rate declined from 35 percent in 2017 to only 32.1 percent in 2018. Yet, the largest factor in the declining recycling rate was the growth in the denominator --- all that food that was found from the new methodology. Given that most of that material is diverted from landfills and waste to energy, the total percentage diverted actually increased under the new report --- 38.2 percent diversion compared to the 35.0 percent diversion shown in 2017. However, diversion is not presented. Not only that, but EPA also shows that when only considering products and not organics, the recycling rate increased 2018 to 36.4 percent over 2017’s 35.5 percent and overall tonnage recycled increased to 69 million tons from 67 million tons.

But even though the tonnage recycled is higher than what EPA reported in 2017, recycling rates have been flat for the last decade. Given that, how can we achieve 50%? Especially given that for the past few years recycling has been struggling.

Minimum content legislation

Recycling has been stressed due primarily to insufficient demand, low prices, and inexpensive virgin alternatives. Numerous policy and legislative solutions are being considered to address the challenges. Establishing robust recycling markets is fundamental to making recycling resilient. This is the core issue to making recycling viable while increasing recycling rates. The best way to promote recycling markets is for manufacturers to incorporate recycled materials into their products and packaging.

Up until now, recycling goals and mandates have been primarily focused on supply – without considering whether the end markets would be able to support that increase. In addition, many brands are focused on getting their packaging accepted as recyclable rather than utilizing increased recycled content.

This emphasis on supply means that recycling programs continue to generate materials regardless of market conditions. However, when demand falls and supply does not, prices plummet! And with mandated recycling, there is no bottom. We saw that with negative pricing for mixed paper that lasted more than a year.

With non-recyclables, when demand decreases, supply also decreases. This means that prices have a brake to avoid falling too far. For example, earlier this year West Texas Intermediate Crude experienced a perfect storm of weak demand due to the pandemic, unconstrained production and depletion of storage capacity. This resulted in a negative price for the first time in history on April 20, 2020 of negative $37.63/barrel. This precipitous fall led policy wonks to immediately discuss potential solutions including financial incentives to reduce production and temporary storage using the U.S. Strategic Petroleum Reserve. Ultimately, oil producing nations agreed to cut output by nearly 10 million barrels a day, thus reducing supply. This negative price lasted a single day.

However, with an ambitious goal of 50% by 2030, cutting supply is not the answer. In fact, to achieve 50 percent, we need to increase the supply. Therefore, we need to balance mandatory recycling requirements (supply) with mandatory content requirements (demand).

No matter how many recyclables are collected and sorted, the final requirement is a buyer. Without end markets, material will not be recycled. Establishing minimum content legislation by requiring packaging to have post-consumer recycled content would ensure that buyer will be there. This will spur demand for more material, ensuring that collected materials will utilized.

Historically, the sale of recyclables offset program costs associated with collection and processing. Mandating packaging to have post-consumer recycled content will stabilize prices enabling programs to again offset collection and processing costs from their sales revenues. This ensures a consistent outlet for materials and provides flexibility that anticipates rather than reacts to packaging changes.

When confronted with higher prices, price-sensitive consumers will switch to lower-cost alternatives. Similarly, manufacturers that utilize recycled content will switch to virgin raw materials if prices drop. This means that in order to be sold, recyclable materials must also drop in price leading to increased volatility in prices. By establishing minimum recycled content requirements, the link between raw materials prices and recyclables can be decoupled, reducing volatility in recyclable pricing.

Already, many manufacturers have made voluntary commitments to include minimum post-consumer content into their packaging. However, not every brand has made these commitments. Further, because these commitments are voluntary, the companies must weigh competing interests which could lead them to delay or put off their commitments should other priorities arise. Mandated minimum recycled content levels the playing field and establishes a baseline for all products that are not dependent on voluntary commitments.

The recycling industry needs minimum recycled content to balance supply and demand and to achieve 50 by 30. As we head into 2021, let’s take our moonshot (yes, another of those words) to meet this goal, creating the pull we need for our limited resources.