What does the rise of cheap energy mean for the waste industry?

By Ernie Richardson, CEO, Eastwood Langley

All energy costs have declined dramatically over the last 12 months. This is a ‘good thing’, right? Not necessarily. This drop in energy cost has already had very specific effects in the area of waste and recycling, which if sustained could bring about radical change with regards to our management of waste.

Cheaper energy is generating profound changes, and the law of unintended consequences is beginning to make itself felt. One unintended and somewhat surprising consequence is in waste processing and recycling. Just in the UK, the last two years have seen the closure of two major waste paper recycling facilities and closure of a number of facilities that process and re-use waste plastic bottles; all of these closures driven directly or indirectly by cheaper oil.

There is now general acceptance of waste as a resource (to be recycled) rather than a burden for which we seek the lowest possible cost of disposal – historically the ‘bury or burn’ option. But translating that acceptance into a robust economic model for waste has proved elusive. The universally accepted gold standard for recycling is that recycled material should be available at the same price (or lower) than virgin material; e.g. wood pulp vs recycled paper, recovered plastic vs virgin plastic. Some recycling processes (principally glass or metals) can meet this test, but many do not.

This simple economic test for recycled material can be very demanding as is the case now.

 

Plastic Recycling – The technology to capture and separate out the constituent streams of waste plastic has developed tremendously over the last 5 to 10 years. Fully operational plants can now process plastic waste into raw material for recycled plastic bottles for food grade applications (e.g. milk) competitively with virgin plastic material. However the collapse of the oil price has led to an equivalent drop in the price of virgin material which has made these plants uneconomic and in the UK two such plants have closed recently.

Waste paper – All of us dutifully collect our newspapers, magazines and other paper waste for regular collection and transfer off to plants for processing and re-introduction into the supply chain for paper, along with virgin wood pulp from trees. However the recent drop in the oil price has affected countries like Russia so significantly that in order to sustain the inflow of foreign currency they have flooded the market with cheap virgin wood pulp. This development has made recycled paper substantially un-economic and as a result two of the UK’s biggest waste paper recycling plants have closed down.

 

And where is all the waste plastic and paper which was previously recycled going?

It has now either being sent to landfill (albeit the UK is now running out of holes in the ground) or to waste-to-energy plants in the UK or to export. There is an even bigger development which could be at work here.

If cheap energy really is here to stay, then what does it mean for our general approach to waste?

In areas such as solar and wind there have been major government subsidies which have created a space where economic solutions can be created. The situation today is that much of the capital costs for establishing major alternative energy projects (solar, wind, waste to energy etc.) has already been spent and is genuinely a ‘sunk cost’. Had we applied a full economic gold standard test at the beginning of these projects they would probably have been killed at birth. Now that the economic test is just operational cost, solar, wind and most other alternative energy sources become economic. Ironically it is the subsidised investment in these projects which exacerbates the cheap energy issue. Green and alternative energy sources are creating an unexpected problem with waste!

No-one is making the case for sustaining uneconomic plants. But in the case of the recycled plastic milk bottles mentioned above, the cost of making the entire supply chain fully economic is less than one tenth of one pence. A fraction of a penny on the cost of a plastic milk bottle makes recycled material competitive. Whilst this appears to be astonishingly small, even a charge as small as this makes a difference in a tremendously competitive market, and despite Government attempts at ‘persuasion’, supermarket chains are reluctant to accept this additional cost.

So, two cheers for cheap energy, but it leaves two major challenges:-

1.      Should waste projects be required to meet the gold standard full economic test?

2.       Alternatively, should we make the same arguments for waste recycling infrastructure as have been successfully made for alternative energy? If so, can we develop a simple, universal measure like carbon credits in order to encapsulate the social benefit that waste recycling delivers?

Failure to address this issue now could set us back many years, and in the meantime the historic default position with waste (bury it or burn it) will no doubt re-assert itself.