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Recyclable Resources: Minerals, Paper, Glass & More Man is creative. But he has not been able to use his powers to increase & multiply the endowments,

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Presentation on theme: "Recyclable Resources: Minerals, Paper, Glass & More Man is creative. But he has not been able to use his powers to increase & multiply the endowments,"— Presentation transcript:

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 Once used energy resources dissipate into heat energy – cannot be recycled Other resources: retain their physical & chemical properties during use – can be recycled/reused Other resources: retain their physical & chemical properties during use – can be recycled/reused How much recycling is efficient? How much recycling is efficient? Will market mechanism decide it? Will market mechanism decide it? How is efficient allocation different over time between recyclable & non-recyclable resources? How is efficient allocation different over time between recyclable & non-recyclable resources? What impact does product durability has on allocation of virgin & recyclable materials? 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. 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 import Efficient allocation of recyclable resources: initially reliance on virgin resources as they are cheaper – later ↑ingly difficult to extract – then to lower grade – then import Technological progress - ∴ lower grade ore ≠ ↑cost - difficult to extract ∴ price rises Technological progress - ∴ lower grade ore ≠ ↑cost - difficult to extract ∴ price rises Same time: cost of disposing product - migration to urban areas Same 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 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 both ↑ Cost of virgin material & ↑ in waste disposal  recycling attractive – its also an alternative to both Virgin ore - products costly - ∴ demand for recycled goods – “composition of demand effect” – additional incentive to return used product Virgin ore - products costly - ∴ demand for recycled goods – “composition of demand effect” – additional incentive to return used product Purity of recycled goods plays key role Purity of recycled goods plays key role

5 Recycling Will ↑ as virgin ore & disposable costs ↑ Will ↑ as virgin ore & disposable costs ↑ Costs many: mainly transport + processing - significant – labour cost – collecting, sorting & processing scrap is labour intensive – 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 cost Scrap as input – has evn consequences – compliance with rules adds to cost Design products to facilitate recycling - ‘stamp’ Design products to facilitate recycling - ‘stamp’ Recycling is adding more to resource – depend on it longer than on non-recyclable - 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 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 & reused 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 & reused If stock is A & recovery rate is α total amount used would be = A+Aα + Aα 2 + Aα 3 ….. This is = A/ (1- α) If stock is A & recovery rate is α total amount used would be = A+Aα + Aα 2 + Aα 3 ….. This is = A/ (1- α) For non-recyclable resources α = 0 For non-recyclable resources α = 0 Efficient economy strikes balance between consumption of depletable & recycled material Efficient 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 price US: oil imports that of strategic importance – a few suppliers – true social cost > market price Policy: tariff on imports & use proceeds for stockpile Policy: tariff on imports & use proceeds for stockpile Vulnerability 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 impact Vulnerability 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 impact Tilton: 1985: examined substitution effects of rapid rise of tin prices during 1970s Tilton: 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 recycling 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 recycling Failure to bear full cost of disposal shows bias towards virgin material & away from recycling Failure to bear full cost of disposal shows bias towards virgin material & away from recycling Method of financing disposal of potentially recyclable waste affects the level of recycling Method 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 & New scrap Old 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 materials New scrap: New 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 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. MC to homeowners of throwing one more unit of trash is negligible, but to society it is not. % recycled disposal 0%100% 0%100% $/unit MCp MCs MC R Qp Qs

12 Disposal Cost & Scrap Market How will market respond if all are to bear the true marginal disposal cost? 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 materials 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 materials C ↑ due to price fall & Use of virgin ore ↓ C ↑ 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 ∴ 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 inputs Are troubling source of inefficiencies – they take bias away from recycled inputs - raw materials are artificially cheap & can inefficiently undermine the market for recycled inputs Public 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 Public 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 ? Such inappropriate pricing creates improper incentives  misallocation ? Volume pricing Volume pricing Refund system Refund system Deposit refund Deposit refund Disposal & recycling charges at the time of sale Disposal & recycling charges at the time of sale Tax for using virgin material Tax for using virgin material

15 Pollution Damage If environmental costs are added to virgin material – Price rise – leftward shift of supply curve - ∴ use more of recycled material If environmental costs are added to virgin material – Price rise – leftward shift of supply curve - ∴ use more of recycled material Disposal cost: external environmental costs – odours, pests, contamination of water… Disposal cost: external environmental costs – odours, pests, contamination of water… Govt. regulates landfills for public safety – locating the facility is difficult Govt. regulates landfills for public safety – locating the facility is difficult Impose host fees Impose host fees Sometimes package is bigger than the product Sometimes package is bigger than the product

16 Tax Treatment of Minerals Some minerals get subsidy Some minerals get subsidy Severance tax Severance tax Durability of the product Durability of the product Three ways of obsolescence: Three ways of obsolescence:  Functional  Fashion  Durability Market mechanism automatically creates pressures for recycling & reuse in right direction – ↑ disposal cost & ↑ scarcity  ↑ demand for recycling Market mechanism automatically creates pressures for recycling & reuse in right direction – ↑ disposal cost & ↑ scarcity  ↑ demand for recycling


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