For decades, environmentalists and state and local leaders have disagreed over how to manage the ever-increasing amount of garbage thrown out every year, and how to get us to recycle. One method that enlists the power of economic incentives has been grabbing the attention of both sides. Why? Because it works.

The system is called by many names-among the most common are "pay as you throw" (PAYT), "variable rates" (VR), and volume-based rates. Instead of paying a fixed bill for unlimited collection, these systems require households to pay more if they put out more garbage-usually measured either by the can or by the bag. Paying proportional to actual use (the same way we pay for electricity, water, groceries, etc.) provides households with a market-based incentive to reduce disposal and increase recycling. While adoption of a PAYT/VR program does not, in itself, constitute privatization, it gives municipal residents better signals for what their service actually costs, and may give public systems and private systems rewards for efficiency.

According to recent research by Skumatz Economic Research Associates (SERA), there are currently more than 5,200 communities across North America, and more than 200 towns in Michigan with PAYT/VR programs. The SERA study shows that this market-based incentive doesn't require additional trucks on neighborhood streets, and reduces the trash tonnage placed in landfills or other disposal sites by 17 percent. It increases recycling by 50 percent in many communities, and encourages other diversion and waste prevention behaviors. In short, it may be the cheapest, most efficient way to manage waste.

How do PAYT/VR Programs Work?

PAYT/VR programs can be categorized into five major types:

  • Variable can or subscribed can: Households estimate the amount of garbage they will regularly generate, and sign up to receive a specific number of containers (or size of container) that will hold this amount. The more containers they use, the higher their regular disposal bill.

  • Bag programs: Households purchase bags with special logos (city or hauler logo, depending on the collection arrangement). The price of the bag includes some or all of the cost of collection and disposal of the amount of waste in the bag. Some programs have a customer charge or base fee in addition to bag fees to cover fixed costs. For convenience, bags usually are sold at convenience and grocery stores as well as at city-owned facilities.

  • Sticker or tag programs: Households purchase special tags or stickers to put on their bags of garbage. The sticker price includes some or all of the cost of collection and disposal of the amount of waste in the bag. As with bag programs, some tag or sticker programs charge the customer a base fee in addition to sticker fees to cover fixed costs. Tags and stickers are usually sold at convenience and grocery stores as well as at city-owned facilities.

  • Hybrid programs: Households pay a fixed bill or tax bill that entitles them to a first can or bag of garbage (size limits are usually around 30 gallons). After that, they pay only for waste disposal beyond a specified "base" volume, charged on a per-bag or per-sticker basis. This system is a hybrid of existing garbage programs and the new incentive-based approach, and minimizes billing and collection and equipment changes.

  • Weight-based: Under this program (dubbed "Garbage by the Pound" by SERA), customer garbage cans are weighed on the back of retrofitted collection trucks, and the household is charged by the pound for the amount of waste it throws out. This system is fairer in that it charges customers even more precisely-and most important, they only pay for the service they use. It is also more convenient, allowing communities to use large cans, while still offering residents an incentive to recycle.

  • Other systems: Some communities have drop-off variations of these programs, where customers pay by the bag or by weight at transfer stations, using fees, bags, stickers or pre-paid punch cards. In addition, some haulers offer PAYT/VR as one option, or customers may choose unlimited collection for a fixed fee.

PAYT/VR programs began to appear in Michigan in the mid-70s, and experienced dramatic growth in the 1990s. The majority of programs in the state are bag-based or hybrid-type, and some rural communities have instituted drop-off bag programs. Can-based programs are less common in Michigan than nationally. The SERA study found PAYT/VR programs in Michigan communities with populations as small as 200 and in communities with over 100,000. Nationally, the most common reasons for adopting PAYT/VR include: rising landfill/disposal costs; adoption of diversion goals (increasing recycling to 50 percent, for instance); reports of successful programs elsewhere; and legislative mandates. Even without mandates, the SERA study shows that Michigan communities have adopted PAYT/VR programs more frequently than communities in other states-with significant gains in recycling and reduced disposal.

Detailed analysis in the study showed towns that adopt PAYT/VR programs can expect:

  • Disposal decreases of 16 percent to 17 percent

  • Increases in the recycling rate that reach 5 percent to 6 percent of the amount of disposal-which usually comes to about a 50 percent increase in the current level of recycling;

  • Increases in yard waste diversion amounting to about 4 percent to 5 percent of disposal over current yard waste diversion levels;

  • A reduction of about 6 percent of waste, due to less packaging, buying in bulk, grass recycling (leaving it on the lawn), and other behaviors that keep materials out of the waste stream.

Based on these figures, a town that generates 100,000 tons of residential refuse annually could expect to see an annual reduction of 16,000 tons. Recycling tonnage would increase by about 5,500 tons as people moved waste, such as empty milk jugs, from their garbage bags to recycling programs. About 6,000 tons would be avoided through waste prevention.

Experience shows that people produce less waste in order to lower their garbage bills when PAYT/VR programs are in place. For instance, shoppers may bring canvas bags to grocery stores instead of getting new bags they will need to throw away. They may also look for products with less packaging in order to prevent unnecessary waste and disposal charges.

The biggest concern over these programs, according to SERA research - that they create an incentive for the less scrupulous to dump their garbage illegally - is reported as a problem in less than one-quarter of communities. According to SERA research, PAYT/VR communities report that illegal dumping problems usually last less than 4 months and are easily solved through a variety of enforcement strategies. In fact, SERA examined the composition of illegally dumped materials and found that the vast majority of illegal dumping usually involve non-residential sources and are not in response to PAYT/VR programs.

Michigan Case Studies

The PAYT/VR programs operating in two Michigan communities are summarized below, and are chosen to show that the programs work in both urban and rural environments. Such programs are very common in suburban areas in the state.

Lansing: With a population of over 119,000, Lansing was one of the first communities in the state to implement a PAYT/VR program, which it did in 1975. The program uses multiple private haulers operating competitively. Both bag and variable-can options are available to residents. Weekly recycling in 15-gallon bins was implemented in 1991, adding to the drop-off service that was implemented several years previously. The curbside program collects newspaper, aluminum and bi-metal cans, three types of glass, and No. 1 and No. 2 plastic bottles. The weekly curbside yard waste program was established in 1991. Through these programs, the city has achieved a 15 percent recycling rate and 30 percent yard waste diversion rate, for a total diversion rate of 45 percent.

Emmet County: In Emmet County refuse collection has never been a government-run function. Several years ago, the county did, however, begin requiring citizens to pay for refuse collection based on volume. Lisa Seltzer, public works director for the county for 13 years, reports that when the program was implemented, garbage volume initially dropped and recycling increased. Unfortunately, it is impossible to measure the degree of change because Emmet County has had huge increases in its population, and thus, in total volume of refuse. One county employee told Michigan Privatization Report that he pays less today for garbage pick-up at his home than he did 20 years ago. In other words, even excluding the effects of inflation, it costs him less to have his refuse picked up today than it did in 1982.

"Pay as you throw" and "variable rate" programs are great ways to increase recycling, divert yard waste from trash pickup, and generally reduce the amount of garbage left on the curb. They also help reduce the cost of collecting and disposing of garbage. Communities should at least examine these systems to see if they make sense. The localities that adopt them should re-examine their programs every few years as conditions, priorities and options change.

The right economic incentives offer a powerful tool for reducing waste that flows into America's landfills. It is clear from empirical and anecdotal evidence that PAYT/VR systems have reduced waste, and in many cases cut the cost of collection and disposal (the SERA study found that two-thirds of PAYT/VR communities had no increase in costs or fees). Officials in cities, counties and villages would be wise to consider this cutting-edge waste management technique for their own communities.

Lisa Skumatz, Ph.D, is an economist and principal of Skumatz Economic Research Associates, a research and consulting firm based in Colorado. She can be contacted at 303-494-1178 or by email at skumatz@serainc.com. SERA's website is www.serainc.com.