2020 Tories call for tiny council tax rebates

The '2020' group of Conservatives has published a report examining resource efficiency issues and looking at ways waste policy might be amended to improve the quality of recyclates which might then be used as manufacturing inputs.

Most of the report is fairly underwhelming but there is an interesting proposal that Local Authorities should be allowed to offer residents council tax rebates to reward them for reducing contamination in the recyclate they put out.

This policy would be well targeted, as the best way to improve quality of material along the supply chain is to reduce the contaminants/non-target materials entering the recyclate stream in the first place. Unfortunately I am not convinced that this policy would work in practice, not least due to the inherent low value of recyclates collected from households.

There are around 23 million households in England, which put out around 10.5 million tonnes of material for recycling and composting. These materials could probably generate revenues in the region of £700m at current prices, which equates to around £30/household. Not much scope for cutting bills which are £100 per month on average in England. I doubt a 2.5% cut would have much of an influence on behaviour at all.

MRF CoP - do we need it?

My previous post suggested that economic theory doesn't necessarily support the case for a mandatory MRF code of practice (CoP). While I believe that this is the case, and would maintain that - contrary to Defra's stated belief - current market signals do work (just not necessarily in domestic reprocessors' favour), I might still support the introduction of a CoP in practical terms.

My reason being that we have an obligation to meet European legislative requirements, in that we must demonstrate that a co-mingled approach to recycling can meet Waste Framework Directive objectives. In this context, the introduction of a mandatory code may be a necessary evil.

Is the CoP really necessary to guarantee high quality recycling? I don't think so, but I do think it may be necessary to placate a noisy domestic reprocessing sector, and also to offset the objections of an equally vocal wider set of campaigners for "real recycling".

I also think that the end result will be to push costs from (both domestic and overseas) reprocessors on to waste producers (local authorities and householders). Where these costs were previously borne by overseas reprocessors, the net effect will be negative for the UK economy.

Whether the implementation of a mandatory CoP will be sufficient to offset other macro-economic issues affecting the domestic reprocessing sector remains doubtful to me.

Recycling markets as a model of asymmetric information and quality uncertainty

George Akerlof wrote a famous economics paper on the "market for lemons", which took the used car market as an example of where asymmetric information coupled with quality uncertainty leads to market failure and the need for government intervention.

In the paper, used car customers are only willing to pay for average quality, which results in high quality vehicles being unable to attract a sufficiently good price to enter the market. The end result is a race to the bottom in terms of quality with the market ultimately delivering a 'no-trade equilibrium'. The way to avoid this is of course through government regulation that helps to ensure customers of the quality of the vehicle they are purchasing.

This is exactly the rationale behind Defra's proposals to introduce a mandatory MRF code of practice. The recycling industry is an apparently perfect example of where there is asymmetric information between different parts of the supply chain and there is quality uncertainty at point of purchase (beyond crude visual inspection). Good performing MRFs are unable to differentiate themselves from poor ones, and reprocessors are incentivised to pay a price that perversely only attracts lower quality material.

Defra's case for intervention seems compelling. But is that actually the case in the real world?

No prizes for guessing that my personal view is that there isn't in fact a strong case of market failure in recycling markets. Instead I think we are in a game theory world of repeated games and repeated bargaining. In this reality MRFs have a strong incentive to meet customers' quality specifications in order to secure repeat business. This results over time in a market equilibrium where quality is differentiated according to price and there is no need for government intervention. I wonder whether Prof Akerlof would agree.

Resource Association calls for increased costs to waste producers

I see the Resource Association has published a report looking at the costs to its Members of cleaning up contamination in recyclate under a range of different scenarios. To me this doesn't really tell us anything Earth shattering. Removing contamination incurs costs. The question is who should bear these costs and who is in the best position to do so.

I don't think their analysis supports the conclusion that pushing these costs from their Members to waste producers (which is in effect what they are suggesting) would lead to increased net benefits to the UK economy. On the contrary, the additional costs (in terms of both time and money) faced by waste producers means that other productive parts of the economy are less able to invest and create jobs (or alternatively it means that householders are less able to invest in leisure activities). This effect may be larger or smaller than the gross investment of Resource Association Members, meaning the net impact could be positive or negative.

Unfortunately this is the sort of ambiguous message which doesn't sit well with policy makers. Also, given that the impacts on waste producers are likely to be diffused across the wider economy, whilst the impacts on Resource Association Members are more concentrated, policy makers are more likely to be persuaded by the louder arguments put forward in reports like these.

On the go recycling: is it such a good idea?

Via @Recycle4Wales, I see that grants are being offered in Wales to increase recycling on the go facilities. Sounds reasonable enough in theory but is it actually a good idea in practice?

My understanding from local authority recycling officers is that they are nervous of recycling on the go activities/facilities as these tend to contain much higher levels of contaminants than household collections. If these two recyclate streams are then mixed together it can have a detrimental impact to the overall recycling performance of the authority.

In this way, we may once again have a policy which on the face of it looks quite attractive and sensible but which may in reality be counterproductive.