1. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Environmental Economics and Management: Theory, Policy, and Applications 6e by Scott J. Callan and Janet M. Thomas Slides created by Janet M. Thomas 1

2. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Managing Municipal Solid Waste (MSW) Chapter 18

3. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Problem of MSW MSW is nonhazardous waste posing no direct threat to humans or ecology Still there are risks Excess generation Improper management, which can lead to…  bacterial contamination: unsanitary conditions  toxic contamination: hazardous wastes mixed in  air pollution: incineration or decomposition gases 3

4. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. MSW Trends MSW generation is growing, both total and per capita Dependence on landfills continues In 2010, over 54% of MSW was landfilled in the U.S. Composition of MSW largest proportion by product: containers & packaging largest proportion by materials: paper & paperboard Major industrialized nations are largest generators Recycling rates vary across nations In 2009, Germany had the highest recycling rate in the EU at 48%; Sweden and Belgium are next at 36% each U.S. overall recycling rate in 2009 was 33.8% 4

5. Trend Data U.S. Annual MSW Generation 5 Sources: U.S. EPA, Office of Resource Conservation and Recovery (November 2011), Table 1; Council of Economic Advisers (February 2011). © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

6. Proportion of Products in MSW in 2010 6 Source:U.S. EPA, Office of Resource Conservation and Recovery (November 2011) Table 1, Table 12.

7. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. U.S. MSW Recovery Rates (2010) 7 Source: U.S. EPA, Office of Resource Conservation and Recovery (November 2010), Table 13, Table 21.

8. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Recycling Plastics Plastic wastes have grown over time 390,000 tons in 1960; 31 million tons in 2010 Largest proportion of plastic wastes is containers and packaging Recovery rate is 7.6 percent (2010), which is low compared to other materials Recycling process for plastics is complex  Must be sorted by resin content, and some plastic wastes are not readily identified 8

9. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. International Ranking by Per Capita Generation 9 Source: European Commission, Eurostat (2011). Note: Waste data are from 2008

10. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Policy under RCRA (Subtitle D) Federal responsibilities To give financial and technical assistance to states, encourage resource conservation, set minimum criteria for land disposal, incineration facilities, etc. States’ responsibilities To develop waste management plans  Many follow EPA’s integrated waste management system, which promotes using a combination of programs aimed at source reduction, recycling, combustion, and land disposal – in that order To use regulatory powers to comply with RCRA  e.g., recycling laws, grant programs 10

11. EPA’s Integrated Waste Management System Land Disposal Source Reduction Recycling Combustion © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Source: U.S. EPA, Office of Solid Waste. “Integrated Waste Management.” March 20, 2012.

12. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. MSW Services Markets Using Economics

13. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Modeling the MSW Market Supply (S), or MPC, represents the production decisions of firms providing MSW services Demand (D), or MPB, represents the purchasing decisions of MSW generators 13

14. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Two Sources of Resource Misallocation Flat fee pricing of MSW services does not reflect rising MPC associated with increases in production levels. Production of MSW services is associated with negative externalities, which means that private market equilibria, where MPB = MPC do not yield an efficient solution 14

15. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Flat Fee Pricing System Communities typically charge the same fixed fee regardless of amount of MSW generated Fee typically hidden in property taxes Demanders pay a zero Marginal Price as if MPC were 0 Ignores positive and rising MPC of MSW services Result: No incentive to reduce wastes Too many resources allocated to MSW services 15

16. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Flat Fee Pricing System 16 $ Q of MSW Services S = MPC (implied by flat fee) Q0Q0 0 Result is overallocation of resources, since Q 0 > Q c where Q c would be based on a positively sloped MPC D = MPB S = MPC (actual rising MPC) QCQC

17. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Negative Externality Production externality causes resource misallocation even if the fee reflects rising MPC External costs (MEC) are due to air pollution from incineration, groundwater contamination, etc. Result: Overallocation of resources to MSW services 17

18. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Negative Externality Price Q of MSW Services D = MPB = MSB S =MPC MSC = MPC + MEC PCPC PEPE 0 QEQE QCQC overallocation, since Q c > Q E

19. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Market-Based Solutions Waste-end Charges Retail Disposal Charges Deposit-Refund Systems

20. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Back-end or Waste-end Charge Imposed on waste at time of disposal Efficiency is achieved if the fee, P E, equals to MSC at Q E Known as unit pricing, or pay-as-you-throw (PAYT), programsunit pricing, or pay-as-you-throw (PAYT), programs Can be implemented as flat rate or variable rate pricing Real-world usage Used in over 7,000 communities in the U.S.  Some use bag-and-tag systems Empirical evidence  $0.50 per container led to  reduction of 3,650 tons/year for a community of 100,000 people (Jenkins 1993) 20

21. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Unit Pricing Implemented as a Waste-end Charge Price Q of MSW Services D = MPB = MSB S = MPC MSC = MPC + MEC Fee = P E 0 QEQE

22. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Front-end or Retail Disposal Charge Imposed on the product at point of sale Should encourage prevention through source reduction Used domestically and internationally e.g., U.S. states use for tires, fertilizers; Belgium, Denmark, Portugal use for batteries; Norway, Sweden use for pesticides Aimed at a consumption externality Efficiency is achieved if front-end charge equals ‒ (MEB) at Q E Effective price of product (P R ) includes fee 22

23. Retail Disposal Charge A Front-End Charge Price Q of batteries MSB MSC = MPC PRPR 0 QEQE D = MPB QCQC MSC + charge Charge Effective price, including the charge © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

24. Deposit/Refund System (review from Chapter 5) Up-front fee imposed on a product at point of sale (like retail disposal charge) Fee equals MEC of improper disposal, or the negative MEB of consumption Fee is returned if consumer takes proper action to avoid environmental damages Real world examples  For beverage containers: Australia, Canada, Denmark, Finland, Iceland, Italy, the Netherlands, Norway, Sweden, Turkey, United States  For auto bodies: Denmark, Finland, Norway, Sweden 24

25. Selected Deposit-Refund Programs in U.S. STATEPRODUCTAMOUNT OF DEPOSIT ArizonaBatteries$15.00 maximum ArkansasBatteries$10.00 CaliforniaBeverage$0.05 for < 24 oz. $0.10 for > 24 oz. ColoradoBatteries$10.00 minimum ConnecticutBatteries$5.00 Beverage$0.05 HawaiiBeverage$0.05 IdahoBatteries$10.00 IowaBeverage$0.05 MaineBatteries$10.00 Beverage$0.05 – $0.15 MassachusettsBeverage$0.05 MichiganBeverage$0.10 MinnesotaBatteries$10.00 minimum New YorkBeverage$0.05 Batteries$5.00 OregonBeverage$0.02 – $0.05 VermontBeverage$0.05 - $0.15 WashingtonBatteries$5.00 minimum 25 Sources: Container Recycling Institute (2011, 2009); Battery Council International (August 14, 2011); U.S. EPA, Office of Policy, Economics, and Innovation (January 2001), Table 5.1, p. 59; pp. 57-66. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

26. Deposit-Refund Model $ Improper Waste Disposal (%) MPB IW = MSB IW MPC IW MSC IW 0 QEQE Q IW MPC IW + Deposit b a Deposit=MEC at Q E 100 Proper Waste Disposal (%) 0100 Deposit converts % of overall waste disposal, measured by (Q IW - Q e ), from improper to proper methods © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.