Economics of trash

The typical student in an undergraduate environmental economics course is a shade green, or thinks they should be. They are horrified that I don't recycle (I don't personally, but someone else in my extended household does it for me, but I don't tell the students that). I ask them, what is the price of salt? They don't know. Then I ask them, how much do you pay the town/city/county to take your trash and dump it somewhere else?. They don't know the answer to that one either. I try then to argue that landfill space is cheap and we should worry as much about our trash (and recycling) as we do our purchases of salt (which we don't worry about at all -- have you ever tried to negotiate a lower salt price?).

I never had any decent, easy to obtain, evidence to back up these assertions ... until now. Here is a great article from the NYTimes looking at the economics of trash. We've come a long way since the 1980s trash barges that didn't have any place to dock.

The economics is simple. The cost of dump space has decreased for two reasons: supply has increased due to technological improvement and the cost per unit is lower due to economies of scale.

First, economies of scale. If you have forgotten your micro, this is when production on a large scale is cheaper for each unit of output than production on a small scale. Economies of scale explain why we have big factories for cars. Here is how the NYTimes puts it:

A 10,000-ton-a-year dump would cost $83 a ton to operate, estimates Solid Waste Digest, while a 300,000-ton-a-year site's cost would be $14 a ton. Dumps taking a million or more tons a year have even lower per-ton costs.

The NYTimes argues that the move to larger dumps was due to government policy:

Environmental regulations, which many feared would cause a disposal shortage, actually helped encourage the glut. The Resource Conservation and Recovery Act, passed in 1976 but put into effect over more than a decade, requires that liners be used to protect groundwater and that systems to extract water and methane be installed. The cost of all that forced thousands of small dumps to close and encouraged huge new landfills that could pile trash hundreds of feet deep to maximize the return on investment.

I'm not so sure. It seems that the natural order of things would be for high-cost urban dumps to close anyway and bigger regional dumps to open anyway. Economists tend to think that government never has any ideas, even accidental ideas, that lead to improvements in unregulated market outcomes.

The secon reason for the glut of dump space is technological advance. Technological advance increases supply by allowing firms to produce more at lower unit costs. Here is how the NYTimes puts it:

Waste companies and municipalities have fit much bigger dumps than originally permitted onto existing acreage, piling trash deeper and steeper, and vastly expanding permitted capacity. They are burying trash more tightly, so that each ton takes up less space, increasingly using giant 59-ton compacting machines guided by global positioning systems that show the operator when he has rolled over a section of the dump enough times. They cover trash at the end of the day, to keep it from blowing away, with tarps or foam or lawn clippings instead of the thick layers of soil that formerly ate up dump capacity.

Some operators are blowing water and air into landfills to hasten rotting and thus the shrinkage of buried garbage piles, creating more capacity.

Each practice is fairly prosaic, and many operators have yet to adopt the improved methods, but taken together the waste industry is in the early stages of the kind of increase in efficiency more typically seen in technologies like computer chips and turbines that generate electricity.

A well-run dump, tightly packed and using minimal dirt as cover, can hold 30 percent or so more trash than a poorly run site, said Thomas M. Yanoschak, a senior project manager at Camp Dresser & McKee, an engineering firm that advises waste sites. "Operators are much better now," he said.

And the effect of economies of scale and technology on the trash market:

... the oversupply is a damper on prices. The nation's average gate rate, the price dumps post publicly, has lagged inflation, rising just 21 percent from 1992, when the original disposal glut first became widely known, to last year, climbing to $35 a ton from $29, according to Solid Waste Digest.

If the price has lagged inflation, then the increase mentioned in the article is a nominal increase. The real price has fallen even as demand, trash, has increased (which puts upward pressure on prices). If the price is $35 in 2005 dollars the real price in 1992 dollars, the price you'd compare to $29 after adjusting for inflation, is about $25.

The article is well-researched with lots of neat numbers. My advice? Go ahead and save it to your hard drive before the NYTimes wants $3 for the archived article.

Comments

[Anonymous]

If you use the NYTimes RSS feed generator at

http://nytimes.blogspace.com/genlink

you can keep the link alive indefinitely.

The NYT has its own RSS links now, too, but I have a hard time accessing them even on My Yahoo. The articles I prefer don't show up on the feeds.

[allen claxton]

I pay $14 a month for one can of garbage, picked up at curbside. To get an additional can picked up, I need to buy a sticker that costs $1.50. To take a load to the dump, it costs my $40. (Just to get my bona fides in place.)

I think that the problem with the story the NY Times is telling is that it doesn't factor in that, generally speaking, people don't want to live near dumps. People don't like to think of their community as the place that the trash comes. For instance, I recently lived in Michigan, and was surprised to find that trash is one of the big political concerns, because large dump operators are, or, were, I guess, importing trash from Ontario. In the world of economics, that's a great thing: for whatever reason, Michigan dumps are cheaper than Ontario dumps; Ontario gets their trash disposed of for less money, and Michigan gets jobs. But Michiganians hate it. They hate taking other people's trash.

Dumps are just about the quintessential LULU--a locally unwanted land use. And that's something that I don't really think is counted in the NY Times article. Where are these huge regional landfills? How did they get built? Were there protesters, NIMBYs, who said "Not here, not anywhere?" (That is, BANANA: Build absolutely nothing anywhere near anyone.)

My understanding of the recent history of landfills is that bargaining--that is, the give and take of traditional economics--doesn't work. People are operating in a different sphere. What does seem to work--and Alberta is the usual example--is to go through a process whereby you reduce the negative externalities of the landfill, while also making a regional commitment to recycle and reduce waste production. When you've gone through that, rather than force a landfill on a community, you find that a community will accept and welcome the place.

[Will Delavan]

In a relatively concentrated, vertically-integrated industry, faced with a variety of legal and institutional structures at the state level, and negotiating with small not-very-powerful local governments traditional economics does a fair job of describing the waste services market. Although the issue presents many unanswered questions.
The market gets more interesting (and complicated) along with the LULU, NIMBY and BANANA issues when you look at the Northeast in particular where in some States the States run their own landfills, in some States landfills are regulated like utilities, in some new landfills are not permitted, and in others private firms apply for permits.
What is also interesting, and difficult to determine, is what exactly is the tipping fee at a landfill? especially when firms are vertically integrated and often change roles; i.e.haulers haul to each others landfills and their is some degree of friendly competitive cooperation or cooperative competition. The bottom line is that prices are different than the industry reported average price. How do you represent the 'real' price? What is the connection between the tipping fee and the price household's pay for waste disposal?
A Recent article in Land Economics ("Host Community Compensation and Municipal
Solid Waste Landfills." Jenkins et al. 80(4)November 2004 pps.514-528) describe the bargaining aspects for host community fees well, although individual States have peculiarities that are dependent upon the regulatory atmosphere. Whether or not a community accepts and welcomes a landfill depends not only on reducing the negative externalities of the landfill or regional commitments to recycle and reduce waste production (private landfills don't appear to be interested in less waste) but also on the effects of landfills on property values.
While the property value literature is rich, and fairly consistent in that there is typically a negative relationship between proximity to a landfill and property values,it doesn't seem to be rich enough to sway legal opinion which doesn't have a strong grasp of probability and statistics. The notion of ceteris paribus confounds lawyers on both sides.
Changes in property values should reflect externalities from landfill operations if markets are well behaved. Real estate markets would, if disciplined, be in a perpetual time-out. Well-behaved they are not.
Assume that they were. How would we extract the relationship between with and without property values?
Getting at all the variables that affect property values and actually finding market prices (not poor proxies like assessed or appraised values)is challenging.
Property value changes and losses in appreciation of property values over time are important to people as housing investment often represents the biggest investment a family makes.
So the point is, the costs to a community of having a landfill are not simply the complete reduction of the externalities but something else. Being compensated for the existence of a landfill in one's community doesn't capture everything and is difficult to do in practice. The question is how does a community decide what that something else is? How do we deal with property values? How do we deal with the landfill after it is full?

[Murray]

Article about Anti-Recycling Myths can be found at Environmental Defense at
http://www.environmentaldefense.org/article.cfm?ContentID=558&Page=17