Recyclable Resources: Minerals, Paper, Glass & More

1. Recyclable Resources: Minerals, Paper, Glass & More Man is creative. But he has not been able to use his powers to increase & multiply the endowments, as yet. He has only destroyed.

2. Once used energy resources dissipate into heat energy – cannot be recycled • Other resources: retain their physical & chemical properties during use – can be recycled/reused • How much recycling is efficient? • Will market mechanism decide it? • How is efficient allocation different over time between recyclable & non-recyclable resources? • What impact does product durability has on allocation of virgin & recyclable materials?

3. Let’s find how efficient market’s work for depletable & recyclable resources & then use this as benchmark. Assume: finite resources. • Efficient allocation of recyclable resources: initially reliance on virgin resources as they are cheaper – later ↑ingly difficult to extract – then to lower grade – then import • Technological progress - ∴ lower grade ore ≠ ↑cost - difficult to extract ∴ price rises • Same time: cost of disposing product - migration to urban areas

4. Slowly, land scarce - burial of waste ↑ expensive –concerns over evn effects on water supplies & eco effects on value of surrounding land - buried waste acceptable • ↑ Cost of virgin material & ↑ in waste disposal  recycling attractive – its also an alternative to both • Virgin ore - products costly - ∴ demand for recycled goods – “composition of demand effect” – additional incentive to return used product • Purity of recycled goods plays key role

5. Recycling • Will ↑ as virgin ore & disposable costs ↑ • Costs many: mainly transport + processing - significant – labour cost – collecting, sorting & processing scrap is labour intensive – • Scrap as input – has evn consequences – compliance with rules adds to cost • Design products to facilitate recycling - ‘stamp’ • Recycling is adding more to resource – depend on it longer than on non-recyclable -

6. If recycling rate is 100%, resource flow is infinite • If 100 units of resource are in a product with one year of useful life. After one year 90% of resource is recovered & reused – next year 90% of that i.e. 81 units can be recovered & reused • If stock is A & recovery rate is α total amount used would be = A+Aα + Aα2 + Aα3 ….. This is = A/ (1- α) • For non-recyclable resources α = 0 • Efficient economy strikes balance between consumption of depletable & recycled material

7. The Strategic Material problem • US: oil imports that of strategic importance – a few suppliers – true social cost > market price • Policy: tariff on imports & use proceeds for stockpile • Vulnerability of nation (importing) depends on (1) severity of shortfall (2) its ability to cope with shortfall (by substituting or suffering) Larger disruptions (> 35%) can have serious impact • Tilton: 1985: examined substitution effects of rapid rise of tin prices during 1970s

8. Waste disposal & pollution damage • Treatment of waste by producers & consumers – biases in market balance between recycling & use of virgin ores – disposal cost is a key in determining efficient amount of recycling • Failure to bear full cost of disposal shows bias towards virgin material & away from recycling • Method of financing disposal of potentially recyclable waste affects the level of recycling

9. Disposal cost & efficiency: • cost of recycling > price of recycled materialsold. Loss? • Must understand relationship of marginal disposal cost to efficient level of recycling. • Example: cost of recycling $20 p t , sold for $10 per ton – inefficient? • Town is avoiding cost of disposal = $20 p t . ∴ benefits = $20 for avoiding disposal+$10 resale = $30 p t & cost $20 ∴ efficient recycling venture

10. Recyclable Waste • Old scrap & New scrap • Old scrap: recovered from consumers -transport cost very imp - market works efficiently - doesn’t count marginal social cost of disposing ∴ market away from recycling old scrap & towards the use of virgin materials • New scrap:generated during production – requires no transport cost - under control of producer - design a product for scrap - minimum processing - guarantee of homogeneity - works efficiently

11. No direct relation between size of trash & fee • MC to homeowners of throwing one more unit of trash is negligible, but to society it is not. $/unit MCR $/unit MCs MCp Qp Qs 0% 100% % recycled disposal 100% 0%

12. Disposal Cost & Scrap Market • How will market respond if all are to bear the true marginal disposal cost? • Effect on supply of materials to be recycled – consumers paid for discarded products – material to recycling centres – ∴ supply ↑ - economies of scale - ↓ AC of processing + more recycled materials • C ↑ due to price fall & Use of virgin ore ↓ • ∴ Correct inclusion of disposal cost would tend to ↑ amount of recycling & extend life of depletable- recyclable resources

13. Subsidies on Raw Materials • Are troubling source of inefficiencies – they take bias away from recycled inputs - raw materials are artificially cheap & can inefficiently undermine the market for recycled inputs • Public land’s prices are low as compared to market – people don’t receive true value for mining services provided by public lands – subsidy is lowering the cost of extracting the raw materials

14. Corrective Public Policies • Such inappropriate pricing creates improper incentives  misallocation ? • Volume pricing • Refund system • Deposit refund • Disposal & recycling charges at the time of sale • Tax for using virgin material

15. Pollution Damage • If environmental costs are added to virgin material – Price rise – leftward shift of supply curve - ∴ use more of recycled material • Disposal cost: external environmental costs – odours, pests, contamination of water… • Govt. regulates landfills for public safety – locating the facility is difficult • Impose host fees • Sometimes package is bigger than the product

16. Tax Treatment of Minerals • Some minerals get subsidy • Severance tax • Durability of the product • Three ways of obsolescence: • Functional • Fashion • Durability • Market mechanism automatically creates pressures for recycling & reuse in right direction – ↑ disposal cost & ↑ scarcity  ↑ demand for recycling