1 Recyclable Resources: Minerals, Paper, Glass & More Man is creative. But he has not been able to use his powers to increase & multiply the endowments, as yet. He has only destroyed.
2 Once used energy resources dissipate into heat energy – cannot be recycled Other resources: retain their physical & chemical properties during use – can be recycled/reusedHow much recycling is efficient?Will market mechanism decide it?How is efficient allocation different over time between recyclable & non-recyclable resources?What impact does product durability has on allocation of virgin & recyclable materials?
3 Let’s find how efficient market’s work for depletable & recyclable resources & then use this as benchmark. Assume: finite resources.Efficient allocation of recyclable resources: initially reliance on virgin resources as they are cheaper – later ↑ingly difficult to extract – then to lower grade – then importTechnological progress - ∴ lower grade ore ≠ ↑cost - difficult to extract ∴ price risesSame time: cost of disposing product - migration to urban areas
4 Slowly, land scarce - burial of waste ↑ expensive –concerns over evn effects on water supplies & eco effects on value of surrounding land - buried waste acceptable↑ Cost of virgin material & ↑ in waste disposal recycling attractive – its also an alternative to bothVirgin ore - products costly - ∴ demand for recycled goods – “composition of demand effect” – additional incentive to return used productPurity of recycled goods plays key role
5 Recycling Will ↑ as virgin ore & disposable costs ↑ Costs many: mainly transport + processing - significant – labour cost – collecting, sorting & processing scrap is labour intensive –Scrap as input – has evn consequences – compliance with rules adds to costDesign products to facilitate recycling - ‘stamp’Recycling is adding more to resource – depend on it longer than on non-recyclable -
6 If recycling rate is 100%, resource flow is infinite If 100 units of resource are in a product with one year of useful life. After one year 90% of resource is recovered & reused – next year 90% of that i.e. 81 units can be recovered & reusedIf stock is A & recovery rate is α total amount used would be = A+Aα + Aα2 + Aα3 ….. This is = A/ (1- α)For non-recyclable resources α = 0Efficient economy strikes balance between consumption of depletable & recycled material
7 The Strategic Material problem US: oil imports that of strategic importance – a few suppliers – true social cost > market pricePolicy: tariff on imports & use proceeds for stockpileVulnerability of nation (importing) depends on (1) severity of shortfall (2) its ability to cope with shortfall (by substituting or suffering) Larger disruptions (> 35%) can have serious impactTilton: 1985: examined substitution effects of rapid rise of tin prices during 1970s
8 Waste disposal & pollution damage Treatment of waste by producers & consumers – biases in market balance between recycling & use of virgin ores – disposal cost is a key in determining efficient amount of recyclingFailure to bear full cost of disposal shows bias towards virgin material & away from recyclingMethod of financing disposal of potentially recyclable waste affects the level of recycling
9 Disposal cost & efficiency: cost of recycling > price of recycled material sold. Loss?Must understand relationship of marginal disposal cost to efficient level of recycling.Example: cost of recycling $20 p t , sold for $10 per ton – inefficient?Town is avoiding cost of disposal = $20 p t . ∴ benefits = $20 for avoiding disposal+$10 resale = $30 p t & cost $20 ∴ efficient recycling venture
10 Recyclable Waste Old scrap & New scrap Old scrap: recovered from consumers -transport cost very imp - market works efficiently - doesn’t count marginal social cost of disposing ∴ market away from recycling old scrap & towards the use of virgin materialsNew scrap: generated during production – requires no transport cost - under control of producer - design a product for scrap - minimum processing - guarantee of homogeneity - works efficiently
11 No direct relation between size of trash & fee MC to homeowners of throwing one more unit of trash is negligible, but to society it is not.$/unitMCR$/unitMCsMCpQp Qs0%100%% recycled disposal100%0%
12 Disposal Cost & Scrap Market How will market respond if all are to bear the true marginal disposal cost?Effect on supply of materials to be recycled – consumers paid for discarded products – material to recycling centres – ∴ supply ↑ - economies of scale - ↓ AC of processing + more recycled materialsC ↑ due to price fall & Use of virgin ore ↓∴ Correct inclusion of disposal cost would tend to ↑ amount of recycling & extend life of depletable- recyclable resources
13 Subsidies on Raw Materials Are troubling source of inefficiencies – they take bias away from recycled inputs - raw materials are artificially cheap & can inefficiently undermine the market for recycled inputsPublic land’s prices are low as compared to market – people don’t receive true value for mining services provided by public lands – subsidy is lowering the cost of extracting the raw materials
14 Corrective Public Policies Such inappropriate pricing creates improper incentives misallocation ?Volume pricingRefund systemDeposit refundDisposal & recycling charges at the time of saleTax for using virgin material
15 Pollution DamageIf environmental costs are added to virgin material – Price rise – leftward shift of supply curve - ∴ use more of recycled materialDisposal cost: external environmental costs – odours, pests, contamination of water…Govt. regulates landfills for public safety – locating the facility is difficultImpose host feesSometimes package is bigger than the product
16 Tax Treatment of Minerals Some minerals get subsidySeverance taxDurability of the productThree ways of obsolescence:FunctionalFashionDurabilityMarket mechanism automatically creates pressures for recycling & reuse in right direction – ↑ disposal cost & ↑ scarcity ↑ demand for recycling