Broken Recycling Markets – Part II Commodity Prices

Industrial recyclers of household products such as paper, plastics, metal and glass are having a terrible, horrible, no good, very bad year.

Typically they get paid by cities to haul and process recyclable waste. But they also earn money from selling valuable commodities they extract from this household waste to industrial users. These commodity markets are in a slump.

A China policy change announced in 2017 – called the “National Sword” – banned a number of types of recyclables from importation. Mixed, and otherwise difficult-to-recycle paper, plastics and metals which US recyclers previously shipped across the Pacific Ocean nearly ceased, by 2019 dropping to about 1% of their previous volume. Without an easy market to sell to, parts of the US commodity markets have been in price free-fall, a period of re-adjustment, or just broken.

The effect of this slump for secondary commodity market is both financial and environmental. 

Although much of the reporting on the China ban has focused on plastics, the biggest effect financially for the nation’s second largest recycler Republic Services has been on paper products, according to Peter Keller, Vice President of Recycling Markets for Republic.

Paper makes up 75% by volume of what Republic receives from household bins and traditionally sells to wholesalers.  Partly because of China’s changes and other factors, this market has tanked in the past two years.

republic_services

Recycled cardboard used to sell for $200 per ton but now goes for $30 per ton. In addition, households now recycle small cardboard boxes from Amazon, which many recyclers are ill equipped to process, compared to the flow of larger cardboard from retail stores just ten years ago. They recover less, and get paid less, for cardboard than in the past.

“Mixed paper,” a catch-all product that used to sell for $110 per ton in 2017 now costs negative $5 per ton. In other words, a recycler like Republic has to pay a wholesaler to take the tons off mixed paper they process off their hands. What used to be a source of profit is now a source of loss.

Interestingly, a third paper product used to be newsprint. With the national decline of the newspaper business, demand for newsprint has dried up. Your soon-to-be recycled newspaper – perhaps the paper you’re reading from now – now goes into the “mixed paper” stream, with limited-to-negative monetary value today.

I puzzled for a while over how to make a grim metaphor combining the challenges facing the newspaper industry, something about training your new puppy as the best secondary use of my newspaper columns, and overlaying that with the declining value of newsprint as a commodity. I couldn’t manage to make it funny though, so let’s move on.

Secondary metal continues to be a solid B+ student of an otherwise failing recycling class. Bundles of clean soup cans that contain steel command secondary prices like $120 per ton, down from $150 per ton a few years ago. Bundles of clean soda cans that contain aluminum command secondary prices like $1,050 per ton, down from $1,400 per ton in 2017. At these still-relatively high prices, even though soup and beverage cans do not make up the majority of your recycling bin, they can be a significant driver of the overall profitability of a recycling program.

puppy_training

Finally, there’s glass. For a long time now, glass has been the class trouble-maker of the four materials in a recycling bin. While glass is somewhat infinitely recyclable, producing new glass from scratch (well, sand) is generally cheaper than using recycled glass materials. 

From a commodity-markets perspective, it is puzzling then that the City of Houston reintroduced curbside glass recycling after a three-year hiatus, to some fanfare, in the beginning of 2019.

Glass that comes through a traditional curbside bin has a negative value of $10 per ton, according to Keller. 

Secondary glass is only financially viable as a recycled commodity when sorted carefully by color and somehow cheaply transported to a nearby glass manufacturer, if one exists. According to Keller, if the glass could be cleaned, color-sorted, and delivered to a manufacturer, it could fetch as much as $100/ton.  But getting to that result costs too much money. 

When glass comes in mixed from a household bin, by contrast, it’s not saleable for a profit, it costs a lot to move because of its weight, and it often contaminates other recycled materials. Think paper products with tiny glass shards. Now how much would you pay? So it’s a loss maker.

Sarah Mason, the Division Manager for Recycling at Houston’s Solid Waste Management Department, defended Houston’s decision to reintroduce glass to me, saying the City’s new recycling partner has custom-built its facility to handle glass more efficiently, hopefully reducing the contamination problem.

And then there’s plastics, which have garnered 95% of the headlines but which constitute about 7% of Republic’s revenue stream. 

Even after the China policy change, three types of plastic still have a viable wholesale commodity market, and these markets track the plastic number you’ll find marked on your household plastics. In brief, numbers 1, 2, and 5 still command decent prices as long as they can be separated and processed cleanly.  Plastic #1 – your basic single-use water bottle, can be sold for $250 per ton now, down from about $325 a few years ago. Plastic #5 – consisting of heavier plastics – has stayed steady at $150 per ton, while plastic #2 made up of milk jugs and detergent bottles is actually up slightly in some markets.

Other plastic numbers are virtually un-saleable at any price as a secondary commodity following China’s policy change, and will go to a landfill.

All of these prices should be understood as varying geographically as well as varying by purity. A recycling processor that can produce a homogenous ton of product will command high prices, while a mixed or contaminated product will sell for less, if it will sell at all.

Everyone I’ve spoken to in recent weeks expresses the hope that as technology and markets change, some of the broken parts of the recycling market can improve and heal. New and better sorting technology at the recycling processing plant can turn previous trash into viable secondary commodities, although it may take a combination of capital investments, time, and improved engineering to get there.

A version of this post ran in the San Antonio Express News and Houston Chronicle.

Please see related posts

Recycling Commodity Market Slump Part I – The China Ban

Recycling Commodity Market Slump Part III – The Price of Commodities (upcoming)

Recycling Commodity Market Part IV – What is a Household to do? (upcoming)

Organic Recycling in my city – My new obsession

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Broken Recycling Markets – Part I

bottles

For the past year my kids cluck disapprovingly whenever they see me drinking through a plastic straw and ask, “why do you hate turtles so much?” The connection, for those of you who don’t speak teen girl, is they are signaling to me their concern for unnecessary plastic waste, especially as it shows up dumped in our waterways and oceans, presumably hurting Tommy the Turtle (a fictional character I made up just now.)

Since plastic straws represent just 0.03% of American plastic waste that ends up in the ocean, according to a brief by Rachel Meidl of Rice University’s Baker institute for Public Policy, my kids’ concern is focused on the wrong thing. Because, you know, kids. 

On the other hand, there is a global financial and environment crisis going on in recyclables. In this column and a few to follow, I will describe what – beyond the plastic straw and Tommy the Turtle – we should know about that global crisis and its linkages to the complex financial markets of recycling. 

We tend to think of recycling as interesting to households who want to reduce carbon emissions and protest over-logging of the rainforest.

But another important way – maybe the more sophisticated way – of understanding recycling is to see it fundamentally as a commodities market. Professionals in the recycling industry operate their businesses in a sophisticated financial market for generating four physical commodities, which happen to be second-hand paper, metal, plastic and glass.

The old Chicago Mercantile Exchange

To the extent we think about commodities markets, we might conjure an image of aggressive guys in trading pits in the Chicago Mercantile Exchange shouting and signaling to each other as pork belly futures crash or soybeans soar, or maybe as quantitative traders at their computers bid up the price of West Texas Intermediate Crude following a drone attack on Saudi refineries. 

I’m less interested in a cartoon Tommy the Turtle than I am in the financial linkages between sophisticated commodities markets and the big municipal bin I set out on my curb once a week. 

The metal straw probably isn’t saving the planet. sksksksksksksksk

In speaking with experts in the past few weeks, I wanted to learn about how at the global and national level these commodity markets have evolved in recent years, and also at my household level what I’ve been missing when it comes to my bin. And also about the municipal contracts and programs that link my curbside bin to government revenue and then further link to global markets. In this column and a few to come, I’ll pass on what I’ve learned.

But first, the global market for recyclable commodities got a massive shock at the end of 2017, with the situation still evolving in September 2019.

China announced a new program called “National Sword” in 2017 in which it would not import 24 types of waste, including many mixed paper and plastic products, starting in March 2018. A further list of 16 more items, including many metals, will be banned from import by the end of 2019. This ban meant that a huge proportion of the recyclable commodity producers in the US and Europe suddenly lost their primary buyer. 

recyclable_bottles
Mountains of Plastic

The China bans allow for the importation of “clean” plastics and metals, but ceased the importation of what people in the industry call contaminated commodities, or mixed materials. 

Even after the 2017 policy change, China remained open to highly pure or homogenous paper, plastics and metals, but not the mixed, dirty and hard to handle stuff it had previously bought from the United States and Europe.

Underlying this China ban is a first key lesson of the economics of the recycling industry: Demand, and prices, are highly driven by the purity of the commodity. 

Purity in this market means the homogenous consistency of one type of resource. If a recycler can cleanly separate any second-hand material – whether it be plastic, metal, paper, or even glass – industrial buyers will pay a premium for that commodity’s purity. 

Mixed materials by contrast, whether blended with other materials types or contaminated by non-recyclables or worse, go for the lowest prices, if they will be bought at all. By 2019 the tons of scrap plastic imported to China fell to less than 1% of 2017 levels. 

Imports of plastic waste from the US and Europe to Indonesia, Malaysia, Philippines, Thailand, and Vietnam briefly quadrupled in 2018, as plastic exporters scrambled to find alternatives to the China market. But those alternative Southeast Asian markets have proven unable to handle the volumes coming from the US and Europe. Recyclers in the US are now awash in secondary dirty plastic, with no market-based outlet for their commodity. Much of that is headed for landfills.

The price of products like cardboard and what the industry calls “mixed paper” has also plummeted. 

Recycling experts draw a straight line between the 2017 China ban and a fundamentally altered US municipal recycling market, compared to just two or three years ago. While not the only cause, the ban provided a major shock to the system. 

Some headline effects: 

US cities that used to earn a profit on their recycling programs a few years ago now lose money every month. Some cities have either cut back part of their programs already, or are considering cutting back on their programs. All cities will be forced to reckon with a greatly altered financial consequence of having a recycling program, since what used to help the bottom line now loses money.

Far more waste in the US is headed for landfills or the incinerator compared to just two years ago. 

In a subsequent column I’ll describe the specific financial effects on Texas cities like Houston and San Antonio and other cities in Texas.

Later, I’ll also describe all the things I’ve been doing wrong with my own recycling bin, and maybe you have been as well. 

When we get it wrong, we contaminate or reduce the value of the natural stream of secondary commodities our households produce. Millions are at stake for our city’s budgets, and billions for the country.

A version of this post ran in the San Antonio Express News and Houston Chronicle.

Please see related posts

Recycling Part II – Commodity Market Price Drops (forthcoming)

Recycling Part III – Municipal Contract (forthcoming)

Recycling Part IV – Household Mistakes (forthcoming)

Tommy_the_turtle

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Carbon Dividends?

Conservative_case_climate_changeEarlier this month, a blue ribbon panel of US statesmen released “The Conservative Case for Carbon Dividends,” as a way to address climate change, reduce US regulations, and to provide additional funds for working-class people.

The first interesting thing about the proposal is to note the resumes of the authors, each of whom boasts serious conservative policy bonafides.

Harvard economist Martin Feldstein, Ronald Reagan’s Chairman of the Council of Economic Advisors, joined with Harvard economist Gregory Mankiw, who held the same post under George W. Bush. Hank Paulson, Treasury Secretary under W, joined with Secretaries of State James Baker (under W) and George Shultz (under Reagan). To round out the conservative business credentials, Thomas Stephenson a partner at Sequoia Capital and Rob Walton, the former Chairman of Walmart, respectively, also authored the proposal.

The proposal is bold, conservative, and has a little something for everyone.

First, something for you climate-change people.

If you’re concerned about the melting ice cap, rising sea levels, and irreversible damage worldwide, the proposal would tax carbon-emitting industries at a starting rate of $40 per ton at the point of production – such as a refinery, a coal mine, or a port. The obvious economic incentive here would be to reduce the production of carbon emissions. In addition, taxes on carbon would ratchet upward over time.

“The idea for a tax on carbon dioxide emissions from industry has been on the back-burner for a long time among climate scientists and professionals in the oil and gas business,” says Kelly Lyons, professor of Biology at Trinity University in San Antonio, “and it’s something we could all get behind.”

climate_changeThe conservative authors argue that Obama-era regulations – a mishmash of auto-industry emissions targets, punitive regulations on coal production, financial incentives for “green energy,” and the occasional symbolic pipeline-squashing – lead to business uncertainty, higher costs, and executive branch overreach. And then it’s inevitably followed by back-lash and/or repeal, as is happening now. A carbon tax, by contrast, addresses the entire problem at once and puts a known, predictable, price on carbon reductions for the entire economy.

To gain popular buy-in, next the authors propose distributing the carbon tax revenue back to American families in the form of a dividend – rather than to fund government programs. Money, obviously, appeals to wide swathes of the left and right. The proposal estimates a family of four would receive $2,000 in the first year. As the carbon tax rate increased over time, the dividends would increase as well.

The authors note the dividends would offset higher consumer costs due to the carbon tax. Just as importantly, I’d say a dividend makes for good political optics.

The Treasury Department estimates that the bottom 70 percent of households would be net beneficiaries, financially, from carbon dividends.

Third, in what I interpret as a nod to the current direction of trade policy proposals, the authors call for a “border carbon adjustment” fee that somewhat resembles proposals for something I wrote about recently, the “destination-based cash flow tax with border adjustments.” In the carbon-dividend context, however, the point of a border adjustment fee is not necessarily nationalist trade policy, but rather to nudge other countries to also get with the program of reducing their carbon emissions.

Finally, to attract the support of a traditional conservative base, the carbon dividend would almost completely replace or phase out the EPA’s suite of regulations regarding carbon dioxide emissions. The business rationale for this plan rests on the idea that less regulation, replaced by predictable market signals, would spur investment in the private sector. The authors claim the freer market approach stands in contrast to traditional Democratic solutions of larger government and greater regulation.

Ok, so let’s be real for a moment: “carbon dividends” is a clever rebranding of “carbon tax,” which forms the core of this proposal. The tax would raise costs for energy producers such as coal and oil and gas extractors.

As part of this rebranding, the authors chose the fiscally conservative approach of redistributing funds collected going back in the form of “dividends” to taxpayers, rather than using the revenue stream to fund existing government programs.

Dr. Lyons doesn’t love the dividends approach, noting that “not everyone would agree that dividends should be sent back to consumers rather than invested in research and development on solar and wind, although I can see why giving people money back makes political sense.”

Do I think this idea will pass a unified Republican Congress and Executive branch, despite its thoughtful conservative origins? A key Trump cabinet member could be a natural ally.

Rex Tillerson, Secretary of State and formerly the CEO of Exxon, has backed the idea of a carbon tax, at least when compared to a mishmash of federal regulations on the oil and gas industry.

No doubt under a Republican president Jeb Bush, John Kasich or even Marco Rubio, these blue ribbon statesman would be guiding a conservative consensus toward a cleaner energy future. But that, right there, is probably the most interesting thought inspired by this conservative proposal.

liberty_under_waterAnother way to view this carbon tax proposal would be as a reminder – and a metaphor for – the true power of Establishment Republicans right now.

Shultz. Baker. Feldstein. Paulson. Mankiw. That’s a batting order of heavy hitters, a murderer’s row of Republican Statesmen. They made the Reagan administration what it was. They made the Bush Administrations what they were.

Which is to say, the Republican Establishment is now like a coastal city of the future, swamped and under water. The Establishment has been covered by the rising tide and heated rhetoric of an “America First” populism that disdains markets, globalization, and science.

I’d say this thoughtful conservative idea doesn’t have a snowball’s chance in Haiti of ever becoming law.

 

A version of this post ran in the San Antonio Express News and Houston Chronicle.

Please see related post:

Border-adjustment Tax – An untested idea

 

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Book Review: Dark Age Ahead by Jane Jacobs

dark_age_aheadI judged this book by the arresting title Dark Age Ahead, and decided that – in my current frame of mind – I had to read it.1

Jane Jacobs wrote this is 2004, and the book has a bit of the feel of a time capsule – as her current events examples stem from 2001 to 2002. Jacobs’ strength as a thinker and writer is that she can extrapolate from events in her own life, close observations, and from the newspaper, and illuminate patterns and principles of any age. She’s not academic, and she depends on telling anecdotes. Some may see that as a weakness, although I feel it’s a strength of her work. Her ‘big ideas’ tend to be right, and written in a way that an educated, but non-expert, reader can understand.

The central thesis of this book – and I tend to agree – is that invisible but essential strands of our strong society2are fraying at the edges. Her list of essential strands are not necessarily somebody else’s, but hers seem worthy of consideration, and worry. At the beginning of 2017, when the fraying seems particularly acute, its interesting to note, again, that Jacobs published her book in 2004.

So what is unraveling?

Households

Critiques of the breakdown of the nuclear family are commonly heard from the Right, but Jacobs does not mean exactly the same thing here. A main concern, she develops in the chapter, is the extreme rise in the housing prices, beyond the rise of household incomes. Now that’s interesting, since her book predates the housing crash by four years, although it was obvious to many in the early 2000s that we were on an unsustainable path brought on by low interest rates and easy credit. Her other concern – which will not surprise Jane Jacobs fans – is with the pernicious affects the automobile has had on the development of suburbs and the undermining of public transportation infrastructure.

jane_jacobsCredentials vs. Education

The replacement of a true education in favor of a more “practical” set of market signals through degrees offered by institutes, community colleges and universities. The focus of educational institutions has become to offer a set of letters that indicate preparation for a specific job, rather than passion about learning or knowledge. We can only imagine how justified Jacobs would feel about the $25 million settlement made by the President-elect with respect to his fraudulent “University.”

Science Abandoned

Jacobs has a specific complaint here about the “engineers” who deal with traffic congestion – a particular obsession of hers – but we see plenty of evidence lately of the denigration of science and the scientific method. I can’t tell if the problem has gotten better or worse (probably it’s mixed) but we suffer when society fundamentally doubts scientific conclusions or discounts the need for a scientific approach.

Dumbed Down Taxes 

Jacobs addresses here the problem of tax collection at the Federal level, for example, when certain problems must be solved at the local level. Or vice versa. The result is decision-making with the wrong branch or level of government. In my home state we are plagued by the problem of school funding, which is taxed at the local level, legislated at the state level, but clearly failing standards at the federal level.

Self-Policing Subverted

Specific industries sometimes do best when they self-regulate, recognizing their collective interest to seek best practices and internally police or punish wrong-doers. While acknowledging that truth, Jacobs points out examples – from architecture to police departments to accounting firms – where deeply problematic practices arise from bad self-policing.

Are these the root causes of the rest?

In her introduction, Jacobs asserts but does not prove that these five negative trends listed above over time increase the chance of a major societal breakdown. And she means “Dark Age” literally. Like, post-Roman Empire type reversion-to-chaos.

She also asserts, but does not prove, that these five are not just as consequential as a more typical list of “society-destroying trends” such as racism, environmental destruction, crime, voter apathy/distrust, and the widening gulf between rich and poor, but that they are causal. Meaning, the racism, environmental destruction, stuff etc are actually symptoms of the societal unravelling, rather than the root causes.

I don’t know if she’s right. But there’s good stuff there to chew on.

 
Please see related posts

Book Review of The Death and Life of Great American Cities by Jane Jacobs

Book Review of Cities and The Wealth of Nations by Jane Jacobs

Book Review of Systems of Survival: A Dialogue On The Moral Foundations of Commerce and Politics by Jane Jacobs

Conflict of Interest And Moral Codes

 

 

 

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  1. My current frame of mind also has me reading Plutarch’s Fall of the Roman Republic and seeking out any signs that the center will hold, and that things will not fall apart.
  2. Jacobs is a Canadian who lived a significant portion of her adult life in the United States, so her “strong society” comments could be considered aimed at both countries.