Re-Cy-Cling?

In Australia, a lot of “recycled” material is actually ending up in landfills.  The reason is fairly simple:  it costs more to recycle many goods than simply to manufacture new goods.  The amount of resources used to recycle paper, for example, ends up being greater than the necessary resources simply to make the products with non-recycled paper, which is part of why you don’t see many free markets in paper recycling.  On the other hand, gold gets melted down and recycled because it is worthwhile to.  The cost of gold is high enough and extracting gold from other metals is a relatively inexpensive and efficient process, meaning that there is a functioning market for gold scrap.

Meanwhile, this example shows you once more what economics 101 has to say about supply and demand.  In this case, we have three markets for goods:  the “retail” market, the “recycling” market, and the “recycler-retailer” market.  In the retail market, individuals demand and purchase from retailers products made with a certain material—glass in this instance.  After consuming the products, they have the glass left over as waste.  They then go on the recycling market, where they act as suppliers and recycling firms act as the demand.  The recycling firms purchase consumer waste and transform it into some amount of a saleable good, and they take this onto the recycler-retailer market, acting as suppliers.  Retailers purchase the recycled goods, meaning that they are the ones who demand the product.  This is a very basic chain of recycling, and it misses the fact that manufacturers/retailers can also purchase new goods rather than only recycled ones.

To make analysis simple, you can take the price of new glass as given.  Then, to solve the general equilibrium problem and make sure that all of the individual markets will match supply and demand, the price of recycled glass must (if all other things are equal) be the same as the price of new glass*.

On the other side of things, you have the costs of recycling glass.  Without getting too much into the details here, you can come to a fairly simple logical point:  a firm will only engage in recycling glass to the extent that its costs remain lower than recycled glass’s value to manufacturers.  What we generally observe is that, in most markets, it costs more to recycle a product than to produce a new product, and thus there is a limited amount of recycling.  The big exceptions generally involve metals, as the costs of recycling are relatively lower and the output relatively higher than with plastics, paper, or glass.

Seeing the results, government officials and environmentalists decide that people “should” recycle for some reason or another.  Many of them don’t understand what market actors are implicitly telling us (that it is not worthwhile to recycle this particular good); many also fall prey to “fixed quantity” fallacies and think that the quantity of goods is fixed and that we will run out of priceable goods.  Julian Simon focused much of his career on answering these two beliefs, and if you want to read a good criticism of them, check out his Ultimate Resource 2.  Anyhow, these individuals usually subsidize garbage collection and force individuals to recycle certain goods that they would not otherwise recycle.  The end result of this is that the supply of glass to recycle is greater than the demand, and that is what we call a surplus.

My favorite part of this article comes near the end:  “[F]or 18 months his council had stockpiled glass in a pit.”  Well, it’s a good thing they didn’t put it in a landfill!

* – All other things may not be equal.  Recycled glass has slightly different properties than new glass, and in Germany for example, recycled glass may only be used for making brown glass, and not green or clear.  On the other hand, there may be some kind of symbolism bonus for people who purchase recycled goods.