We are all aware that the UK’s recycling industry is going through a challenging time. At the front end, slashed local authority budgets are leaving them less able to engage effectively with householders or maintain collection service levels. This is leading to increasing levels of recyclate contamination, putting upward pressure on processing costs at both MRFs and reprocessors.
Meanwhile, falling commodity prices at the back end are enabling manufacturers to be more demanding with regard to their inputs. This means that prices are down and at the same time quality demands are going up. The mismatch between these two ends of the recycling supply chain is squeezing everyone in between.
The past decade saw us riding high on the biggest commodity boom in history, fuelled by rapid Chinese growth, and we propelled ourselves up the European recycling league table. But the market has shifted and structural issues are now being exposed. We can no longer rely on high material prices to subsidise service provision thereby doing recycling on the cheap.
This fundamental market shift has shown how exposed operators are to volatile material prices. In the highly competitive environment of the waste service industry, where margins are bid away to very low levels, it doesn’t take much of a fall in prices to erode that safety net and put contracts at risk. To tackle this issue we need greater stability so that contractors have the certainty over their revenues to reinvest in new services and infrastructure as we strive to meet our 2020 household recycling targets.
Commodities
But who is best placed to bear the risk of volatile commodity prices? If local authorities accepted more risk then it would enable service provision to be costed properly with material sales revenues shared between the partners. The authority would benefit in the longer run from having lower risk premia built in to its contracts and also from the development of a more sustainable market for collection service providers. But such an approach could be difficult to introduce in the near-term while local authority budgets are under severe pressure and we are in a period of lower material prices translating into higher upfront costs.
What other options do we have? If individuals can’t be asked to pay the full cost of recycling services as council tax payers, then perhaps they could pay as consumers. Producer responsibility and the associated polluter pays principle are enshrined in the European legislative framework but have to date been applied less rigorously here than in other EU Member States. For packaging, which makes up around 20% of the domestic waste stream, the PRN system has been highly successful at delivering compliance with recycling targets at least cost to obligated businesses. Perhaps now is the time though for us to reconsider whether that is the right approach or whether these businesses should be asked to contribute more towards the overall costs of recycling.
Funding
We are facing a growing funding gap for municipal waste services. There is an increasing divergence between what we’ve historically paid – and therefore what authorities have budgeted for – and what we could have to pay going forward. The medium term question for the sector is how do we address this gap?
Part of the solution will have to be not just paying for the existing funding gap, but shrinking it first. This can only be achieved through greater efficiency in the delivery of local authority waste services. More partnership working between authorities to realise economies of scale would go some way towards this. Perhaps the new government might like to think about ways in which authorities could be more strongly incentivised to rationalise their waste service delivery. This would have to be in the form of greater devolution. (Whatever happened to the localisation agenda?) And, dare I say it, could we even think about enabling partnerships which meet efficiency criteria to introduce new devolved measures such as Pay As You Throw or the separation of household waste charges from council tax?
Whatever we do, this is going to have to be high on the new government’s environmental agenda. Otherwise we are going to walk straight into EU infraction proceedings as the tension between the need to increase recycling levels to meet targets and lower funding finally gives way.
To help the new government, ESA is pulling together stakeholders from across the supply chain to identify the root causes of our current problems. Together, at a roundtable event ESA is hosting in Westminster on April 28, we hope to find solutions which the next administration can carry forward and create a vibrant and sustainable UK recycling industry for the future.
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