"True cost" pricing: practices, options and implications for municipalities

An IndEco article

By: David Heeney, Murray Trott

Abstract

Widespread belief that waste disposal is undervalued and is therefore undermining 3R efforts is not supported by a review of disposal costs and tipping fees. Existing and replacement landfills are still quite inexpensive, and though some tipping fees will need to rise, others will not if the full cost of waste management services is to be recovered from waste generators. Reduction, reuse and recycling need to be promoted for their contributions to resource management, not waste management.

Introduction

The previous Minister of the Environment announced an intention to divert major quantities of waste from disposal to productive uses: 25 per cent by 1992, 50 per cent by 2000. This plan has been endorsed by the current government, and measures to bring this about have been announced. A key component of this plan is "full-cost pricing" (Environment Ontario, 1990). Studies were initiated to determine:
  • existing and replacement costs of waste management services (including external social costs)
  • actual and potential sources of revenue for paying these costs
  • the relationship between disposal costs and recycling costs
  • what these things mean for municipalities.

Methods

Landfills, incinerators and recycling facilities operating in Ontario were surveyed about their costs and pricing. A computerized model of landfill replacement costs was developed, and an extensive literature review was undertaken of landfill costs and revenue generating mechanisms. In addition, interviews were conducted with operators of programs using innovative ways of raising revenues for waste management services.

Results and discussion

A casual reading of daily newspapers makes clear that waste management, and in particular landfilling, is high on the political agenda of many municipalities, and is recognized as a leading environmental problem. Concurrently, there is widespread public support for expanded recycling programs which are seen--at least in part--as a solution to the landfill problem. Some environmental groups, and others, have argued that waste management would be less problematic if all of the environmental and social costs were included within the accounting framework; the 3Rs are cheaper when all factors are taken into consideration.

Costs

The unit cost incurred by most municipalities is quite low. The costs of landfilling at Ontario waste management facilities is rarely is excess of 50 $/t (VHB & MacLaren 1990a). Previous studies that have examined the external social costs of landfill have focused primarily on the effect of landfills on property values, and have found that the incremental cost per tonne is not very significant; even at their highest near large urban areas, they are about 5 per cent of cost. In most areas, they will be less than one per cent of total costs (VHB & MacLaren 1990b).

New landfills typically incorporate extensive mitigation measures, leachate management systems, and compensation programs for nearby residents. Even incorporating these systems, typical costs for all but the tiniest of facilities is less than 50 $/t (VHB & MacLaren 1990b).

Revenues

Three main sources of revenue supply the funds for these costs: property taxes, provincial grants and tipping fees. Most of the cost of waste management comes from general revenues. Tipping fees, where they exist, apply to private and out-of-jurisdiction disposers. Tipping fees vary widely, with many landfills still reporting they have no tipping fees, and landfills near major urban centres in southern Ontario approaching 100 $/t. A significant portion of landfills indicate that specific costs are not even considered in setting tipping fees--30 per cent of large landfills, and 90 per cent of small landfills (VHB & MacLaren 1990a).

Some U.S. jurisdictions have implemented user pay systems, in which generators are charged on the basis of the quantity of waste generated. Where implemented, these systems have proven quite popular, though the public in Ontario has generally reacted negatively to proposals to implement such systems, in part out of a belief that such fees represent "double taxation" and are regressive. US studies indicate that in practice these systems tend to be less regressive than property taxes, and in theory they are revenue neutral. Although great claims are made about the effectiveness of such systems, it is difficult to determine their effectiveness separately from other initiatives to promote the 3Rs, or the extent to which their effectiveness will persist; waste management is still quite inexpensive.

Implications for recycling

The introduction over the last few years of the "Blue Box" system has significantly changed the view of the public and governments towards recycling. "Blue box" collection will increasingly be seen as a service that people will expect. However, given that most markets for secondary materials are only beginning to emerge, and that the blue box system is labour intensive, and focused on a relatively small portion of the total waste stream, municipalities are concerned about the costs of collection and management of recyclables. Even with start-up grants, the costs of collection and processing of recyclables is considerably higher than collection and disposal of mixed refuse, a situation that is made worse by the announcement of major soft drink companies that they are considering switching aluminum cans, which supply close to half of all blue box revenues, to steel.

How can society justify recycling programs that cost more per tonne to process than waste going for disposal, particularly if replacement landfill costs are really quite modest, most disposal impacts are internalized, and external social costs are minimal? To answer this question, at least from an environmental perspective, one must step back and look at the sources of environmental impact. Although so much of the attention of those concerned about the environment is on waste disposal, it is largely before materials become waste that they result in environmental impacts (Young 1991). The primary rationale for the 3Rs must become what is probably obvious to the citizen using the blue box: to reduce material throughput, and to avoid the waste of material resources, not to conserve landfill capacity. Efforts focused only at reducing landfill demand may even be counterproductive (VHB 1990).

Implications for municipalities

If the basic thesis of this paper is correct: that landfill disposal is still relatively inexpensive, even if difficult to find and get approved, and that the real environmental problem associated with materials going to landfill is not the landfill itself, but rather the environmental effects created before the materials get to the landfill, then the effect of "full-cost" accounting on their operations should be minimal, amounting to little more than some relatively minor changes in the calculations that go into determining their tipping fees. Municipalities will continue to have an important role to play in delivering 3R services, and can make a strong case that there should be continuing financial support from higher levels of government and industry to deliver these services.

However, the implications for the province are more significant: first, it suggests that the policy levers should be pulled higher up the production cycle, so that the full value of resources, and the environmental costs of their extraction, processing and use are better recognized. Second, the emphasis has to shift from a "waste management" one (which is traditionally a municipal concern) to a "resource management" one (which is traditionally a provincial or federal concern).

References

Ontario Environment. 1990. Towards a sustainable waste management system --discussion paper. Toronto: Queen's Printer for Ontario.

VHB Research & Consulting Inc. and MacLaren Engineers Ltd. 1991a. Costs of waste management and user pay mechanisms. Prepared for Ontario Ministry of the Environment, Toronto.

VHB Research & Consulting Inc. and MacLaren Engineers Ltd. 1991b. Full cost accounting methods for landfill. Prepared for Ontario Waste Reduction Advisory Committee, Hamilton.

VHB Research & Consulting Inc. 1990. Environmental life cycle analysis of packaging options. Prepared for Environment Canada as part of the National Packaging Protocol.

Young, J.E. 1991. Discarding the throwaway society. Worldwatch paper 101. Worldwatch Institute, Washington D.C.