Christopher Helman , FORBES STAFF
This story appears in the October 4, 2016 issue of Forbes.
New York City has paid $1,200 a ton to collect 16,000 tons of kitchen scraps since 2014
“Being green costs money,” laments Waste Management CEO David Steiner. If you’re ready to raise taxes, “we can help.” (Photo by Darren Carroll, for Forbes.)
“On many days it just looks like a load of garbage,” says David Steiner, CEO of Waste Management WM -0.03%, referencing the company’s recycling processing plant in Houston. It is a loud, stinky, dusty, 40,000-square-foot Rube Goldberg machine that handles 300 tons a day. Material flies from one conveyor belt to another. Magnets pull off steel cans. Screens skim up cardboard and paper. Optical sensors trigger air puffers that pop bottles into the right chutes.
Not all of it gets recycled; about 15% of the stuff citizens put in their recycling bins should have gone in the garbage can. Workers wearing bandannas against the dust stand along the conveyor belt handpicking items. “People mean well,” Steiner says.
But there’s an “unintended consequence” of giving people bigger recycling bins and more opportunities to recycle–soon they want to recycle everything. Plastic shopping bags are a common culprit, old garden hoses, too; they wrap around machinery and gum up the works. “It shuts down the plant. Makes it harder to recycle things of real value,” Steiner says.
This matters now because the economics of recycling have turned upside down. Recycling used to be the great example of doing well by doing good. It was green–and it was profitable. In 2014, back when China was still hungry for our lightly used paper, aluminum and steel, you could get $100 or more for the average ton of residential recycling. That was plenty to cover $80 a ton in processing costs and leave a nice margin for Waste Management’s shareholders.
But that changed. Slower growth in China cut demand. The oil glut has made fresh plastics cheaper than the recycled stuff. Beijing even erected a so-called “Green Fence,” which enacted standards on imports of Americans’ recycling. Now you’d be lucky if your mixed ton of recycled material gets $80–the same as the cost of processing it.
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The new paradigm for Waste Management’s municipal customers: “When prices are high we’ll pay you to recycle. When prices are low we have to charge you,” Steiner says. During the commodity boom’s heyday Waste Management generated aftertax cash flow of about $150 million a year on recycling operations and was investing $100 million a year in recycling. Since 2013, however, the company’s revenues from recycling have fallen 20% to $1.2 billion last year (out of $13 billion in total sales, the majority from traditional trash collection).
Paper drives the economics of recycling, because “we just get so much of it,” says Steiner. (Photo by Darren Carroll, for Forbes.)
To stop the bleeding Steiner slashed money losing green initiatives, sold a high-tech incinerator business for $2 billion and mothballed 22 of 126 recycling plants. In the past 18 months the company has renegotiated contracts with 150 municipalities. “Now we make $40 million to $50 million and reinvest nothing,” Steiner says. Investors are optimistic; Waste Management shares are up 28% in the past year.
In Houston, for example, the company was losing $1 million a year. During contract renegotiations early this year, the city considered doing away with recycling altogether rather than pay for the privilege. Houston finally agreed to a contract that pays Waste Management $3 million a year for recycling but ends glass pickup. (It would have cost more than $100 a ton to crush that glass into a dirty mass, and it has few buyers.) Landfill costs are just $27 a ton, and buried glass bottles don’t leach any toxic chemicals. Recycling glass would have cost Houston an extra $1 million a year.
Without glass it’s easier for Waste Management to focus on the high-value stuff. Last year the EPA did a study looking at the “embedded energy” of various materials and how much energy is saved by recycling them. The clear leader is aluminum. Because the metal requires so much electricity to make yet so little to reprocess into new cans, every ton of aluminum cans contains energy equivalent to 26 barrels of oil. That energy value is evident in the $1,200 price for a ton of scrap aluminum. Other stuff worth recycling includes copper wire, with the energy of 14 barrels of oil per ton, while mixed plastics have 7, personal computers 5, steel cans 4 and newspapers 3. A ton of glass, by comparison, has just a half-barrel’s worth of energy, which is about what it takes to drive it to the landfill.
Even in ubergreen California, scrap glass has a “negative value” of $6 per ton. According to the Container Recycling Institute, California has seen 800 recycling centers– about a third of its total–close since 2013. Of course some eco-zealous cities don’t care about such market signals. In a pilot program New York City has paid $1,200 a ton to collect 16,000 tons of kitchen scraps since 2014 . “If you want to have a high diversion rate and you’re ready to raise taxes, we can help,” Steiner says. “We can turn your bottles back into oil. We can burn it to make energy. Or we can put it into a landfill. There’s a green spectrum. And a cost spectrum. The most green is the most expensive.”
Steiner isn’t worried about marginally more solid waste headed for landfills instead of being recycled. Waste Management invests $400 million a year in its 249 landfills, which are much cleaner than those of a generation ago and are engineered to capture the methane gas generated by rotting garbage. The company makes enough landfill gas to power 470,000 homes. He envisions a day when it could make economic sense to reprocess landfills to “mine” more metal and plastic out of them. “There is value in everything we bury,” he says. “Could come a day when we want to dig it up and cart it off. If we ever get $200 oil and China growing at 7%, it might be worth it.”
Senior Editor Chris Helman is based in Houston, Texas. Contact him on Twitter @chrishelman.
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