Chinese green fence lauded as great success: 0.1% of shipments rejected

Via Letsrecycle I see that the Chinese green fence policy has been doing a great job at keeping out all of those terrible low quality contaminated shipments of recyclate.

The article states that 3,508 tonnes of material imported into Hangzou province was seized for being overly contaminated. Out of a total of 6.54 million tonnes. That is 0.05% of total shipments: a vanishingly small amount.

Chinese Green Fence helps UK paper mills

Via MRW I see that UK paper mills are finding it easier to acquire materials with fewer contaminants than previously, as a possible result of the introduction of China's green fence policy.

This is consistent with my views of the outlook for dry recyclabes markets overall. I think we are going to witness a combination of: lower primary commodity prices; higher consumer consumption in overseas markets (thereby reducing their demand for imports); and continuing upward supply of domestic recyclate supplies (driven by regulation and landfill tax). These will combine to put downward pressure on prices for secondary resources and to shift the bargaining power along the UK supply chain in favour of domestic reprocessors.

The MRF Code of Practice should soon be with us and I believe will ultimately be lauded as a great success in helping to drive up the quality of UK recyclate. But at the same time I suspect that wider market dynamics would have led to reduced contamination and more consistent material quality in any event.

Hurrah for BIR

Finally, it has been reported that someone has come out and said something sensible about restrictions on recyclate exports, i.e. what a load of nonsense it all is.

I have repeatedly argued that export restrictions would be a bad thing, and Mr Borad of the Bureau of International Recycling has now come out in agreement. I hope that policy makers, both in Europe and here in the UK, take notice but won't be holding my breath to be honest.

Protectionism on the march across Europe

I see the Bureau of International Recycling (BIR) conference is currently taking place in Barcelona. According to this letsrecycle report the usual complaints about quality are being made. But delegates also heard  increasing references to stricter quality controls being put in place by Chinese and other Asian authorities. This is obviously a good thing and we will see to what degree this helps European reprocessors compete with overseas markets.

At the same time, @Hermanvdmeij reported that the conference heard (yet more) calls for retention of European resources within Europe. Protectionism really does seem to be on the march across the continent at the moment. Restriction of free trade is something which I have argued against before.

There is a logical inconsistency at the heart of these calls. I suspect that the same people who suggest that recyclates should be kept in Europe wouldn't be so supportive of calls for rare earths to be kept in China (or any manufactured product for that matter). Trade is mutually beneficial to both importers and exporters and its gains make us all richer.

Recent years have seen much talk of the waste industry becoming a resource industry. But if recyclate truly is being turned into a commodity then it should be traded as such: freely in open international markets. In this way we will all be made better off.

A job is better than no job

On Monday evening I was at the launch of SITA's new report examining the potential creation of social value in the waste and resources industry. I haven't yet had a chance to read the report fully so will save that for another post.

At the event Caroline Jackson, the former MEP who was Rapporteur for the revised Waste Framework Directive, raised concerns that the sort of jobs being created at the low end of the industry (i.e. work on picking lines at recycling facilities) were essentially demeaning and that the unemployed should instead be given a 'hand up' (she was of course light on detail as to how this could be achieved).

I was pleasantly surprised by the robust response from Colin Crooks of the London Community Resource Network. He essentially made the extremely valid point that a job is better than no job. He has apparently worked with people in some of the most deprived and hard to reach communities in the UK and felt that they would be crying out for any kind of work which could help them reintegrate into society.

This reminded me of the sort of argument that used to be made by Paul Krugman when he was an economist (and not just a polemicist) when he pointed out that poor working conditions in the developing world may appear abhorrent compared to Western practices, but provided the workers with an important escape route from the far harsher conditions of rural poverty. I agree.

This topic is also becoming relevant in the ongoing debate about recylcate exports. There are increasing calls, both in the UK and at European level, for restrictions to be placed on recyclate exports (supposedly to protect European resources, I suspect though that that the same people would be against China restricting trade in rare earths). At a basic level, this is nonsense as the gains from trade benefit both the importing and exporting economies. Forcing European recyclate exporters to instead find domestic destinations for their material will only serve to raise costs to waste producers across the economy. (And would lead to less recycling overall if there is insufficient EU capacity to deal with all the material.)

The proponents of restrictions sometimes use examples of lower environmental and employment standards in the developing world as an unfair source of competitive advantage for overseas manufacturers and reprocessors. This  may seem reasonable at first glance, but (as above) the imposition of Western-style employment standards would perversely have the effect of reducing employment in those poorer economies and leave workers worse off by condemning them to a life of grinding rural poverty.

As workers in developing countries become richer, they will demand better working conditions and higher welfare standards. This may prove to be too slow a process for some commentators, but better times for the poor would take even longer to arrive if artificially high standards were imposed too soon.

Yet another politician misunderstands role of exports

Via @letsrecycle I see that Mary Creagh is, like her colleague Gavin Shuker, claiming that 'exporting waste is exporting jobs'.

As I argued previously here, this view is completely back to front. Recyclers benefit from exporting waste as it enables them to gain a higher price for their material than domestic reprocessors are able to pay. By exploiting overseas markets they are able to keep costs down for waste producers (households and businesses). These waste producers, in turn, are then able to maximise their contribution to UK growth and jobs.

As ESA argued in their recent briefing on the benefits of exports to recycling markets, we currently collect far more material for recycling than domestic reprocessing capacity is able to absorb. Until that situation changes there is little point trying to claim that this material should be kept in the country.

Creagh is essentially calling for a form of protectionism. Economists have known for centuries that this harms consumers more than it helps producers and leads to lower living standards for all. But politicians still haven't caught on, or at least pretend not to. It is a sorry state of affairs.

Shadow Minister claims reducing profits will create jobs

Labour's Shadow Minister for the Environment, Gavin Shuker, has apparently claimed that the UK is losing out on jobs and growth because reprocessors are importing material (while at the same time collectors are exporting).

On the contrary, it seems to me that the reprocessors are getting a better deal by importing material which presumably matches their requirements better than that which comes from domestic collectors. At the same time, the collectors are getting a better deal by exporting material to overseas reprocessors who are willing to pay a higher price for theirs.

In this way, both domestic reprocessors and collectors are exploiting overseas markets and everyone's a winner. Government intervention which eliminated the most profitable opportunities for domestic organisations and instead forced these two groups to exchange directly with one another would inevitably lead to lower aggregate benefits all round.

Lower benefits means lower growth and fewer jobs. Somehow the Shadow Minister manages to reach the opposite conclusion. I disagree and think that the Government should not meddle with these open markets.

FOE demands more on resource efficiency

The EEF, Friends of the Earth, and others, have published the paper behind yesterday's call for government to do more on resource efficiency, in which they make a list of various recommendations.

Overall, this paper feels to me a bit like they are fighting the last war. We have been through the biggest commodity boom in history and the global economy is now slowing. Resource prices are falling and, as they note themselves, Asian demand for materials is weakening. Known supplies and production of commodities are at all time highs and weakening prices should help domestic manufacturers whose lack of competitiveness means they struggle to pay the same prices for recyclates as overseas competitors.

The EEF really should know better on this score as they recently surveyed their members and found that three quarters of them had either implemented or were about to implement resource efficiency measures. They call for more incentives, but yet fail to note that the resource productivity of the UK economy has increased eighteen fold in the last 30 years and its total material requirement has been in decline since 2001.

They propose to extend the scope of the government's Resource Security Action Plan as it is currently too narrowly focused on resources which are currently in demand. This though highlights one of the key problems with central planning of a complex economy. We have no idea what the resource requirements of the future will be and so cannot plan for their security. The best way we know to allocate resources in an economy is through open markets and the price mechanism. Focusing on global trade and keeping international markets open is the best thing that government could do to help ensure as diverse a supply of resources as possible, and therefore the security of those resources.

There is also the ongoing call for improved quality of UK recyclate. But the key issue for me in this debate is domestic manufacturers' lack of competitiveness, which means they are unable to match the prices paid by overseas reprocessors for material of equivalent quality. It would be nonsensical for domestic collectors to accept a lower price for their material.

If overseas demand does indeed weaken as predicted in the paper, then domestic manufacturers will be in a strong position and there is no need for intervention in the market. At the end of the day, markets are already driving up quality standards. What needs to be considered is who will pay for that quality. It will either be the reprocessor in the form of higher recyclate prices or it will be the waste producer in the form of higher gate fees at MRFs.

There are some good proposals in the paper, such as looking at improving data and re-examining the PRN//PERN distinction (so long as this is not merely a ploy to place additional burdens on exporters). But there are wrong-headed ones too, such as restricting materials from energy from waste plants, which would merely serve to kill off investment in much needed residual waste infrastructure.

Overall though, there are too many calls for government intervention. Global commodity/resource markets are the best methods we have for allocating resources and should be allowed to continue to do their job.

China's demand for higher quality

There seems to be more in the media recently about China's increasing demand for higher quality recyclate and how the UK will have to respond by improving the quality of material it collects/processes.

For me this is a classic example of the market determining its own specification. This obviates any need for government intervention in the form of 'quality standards'. As I have argued before here, the implementation of arbitrary standards in any part of the UK would be liable to drive up costs to waste producers and leave the country as a whole worse off.

There is no need for heavy handed intervention at home as the market will drive up standards by itself. This still won't address the real problem for UK-based reprocessors, namely that their cost base is higher than that of their overseas competitors.

Base London: converting London's waste inputs into valuable outputs

The afternoon saw an interesting session for me, which might have been better attended. The main messages which grabbed my personal attention were that recyclates are traded on global markets and will go to the destination where they can command the highest price, and that the export of RDF is undermining the case for investment in UK infrastructure.


Recyclate markets which currently command the highest price are in Asia. For me, this is the fundamental issue around the recyclate quality debate. It shouldn't really be framed as a 'quality' issue at all but as a 'price' issue. The simple (and possibly sad) fact is that domestic reprocessors can't afford to pay the same prices for material of equivalent quality that their overseas competitors can. This can largely be attributed to the fact that domestic reprocessors have a much higher cost base, particularly for energy. Given that it is government policy to push up future energy prices, this is an issue which won't go away for reprocessors. Their best hope (in a competition for recyclate feedstock context) is to push an increasing proportion of recyclate sorting/processing costs back onto waste producers to offset their lack of international competitiveness in other areas. This is of course basically what their demands for material of higher 'quality' are all about.

The other concern which came across in the session was that the export of RDF is undermining investment in UK infrastructure. From a UK perspective, open markets and competition are generally always a good thing. For a waste producer, the presence of an export option will help to keep residual waste management costs down in a context where the landfill tax escalator is otherwise driving costs ever upwards.