Chapter XI: Managing the Michigan Solid Waste Stream: Markets or Mandates?

General Summary and Conclusions

Absent specific statewide directives modeled on the four-part EPA/OTA waste management hierarchy, we will never be able to handle the growing stream of municipal solid waste generated by Michigan households. That seems to be the assumption which underlies many of the demands for one piece of state legislation or the other aimed at mandating specific elements of waste management.

As a state, Michigan does not have a solid waste crisis. Some counties in the state do, while others do not. The common denominator found in those counties which do have a problem is that they tend to be largely urban, and they have not expedited the process which allows landfills and/or waste-to-energy incinerators to be built. State law allows them to do as they please provided they do it in a way which takes account of environmental safety and due regard for legal and democratic process. State law allows counties to enter into reciprocal agreements to dispose of solid waste. Some counties have done this while others have not.

Solid waste is a local problem, not a state problem. There is already legislation in place which allows counties to act. The consequences of failure to act should rightly fall upon those cities and counties which have chosen not to act. Those counties which have permitted sound waste disposal systems to evolve should not be subjected to rigid statewide mandates which are deemed necessary because of problems deriving from the failure of a few counties to make provision for their own wastes.

State law currently allows counties to impose per-ton taxes on all waste dumped within their boundaries. That's a step in the right direction. Legislation aimed at imposing a modest state tax on waste disposal has been proposed to fund various elements of a statewide waste management program. As of the end of 1989, Michigan had an estimated annual waste disposal budget of $10 million. [172] One source of these funds was a $1 charge per-vehicle tire imposed at the point where tireswere sold. Unlike many other states, Michigan did not have a statewide per ton fee levied on waste dumped in landfills or incinerators.

State solid waste budgets can include administrative expenses, waste facility inspection, remedial actions, licensing and permitting, litter collection, and educational programs. What funds collected from imposition of a statewide tax on waste disposal should not be used for is grants to local communities and private industries.

We have argued that markets are not only capable of managing solid waste without government mandates, they are capable of doing it in ways which are both environmentally sound – when clear environmental guidelines are laid out – and economically efficient. We have based this argument on the observation that solid waste is now, and will continue to be, a product of market forces.

Markets give rise to those products which meet the wants of consumers and, consequently, markets give rise to the MSW which flows from the consumption of these products. The idea that government-mandated source reduction programs can dictate the quantity and structure of materials used in producing products more efficiently than markets is to assume that government officials have the information needed to produce quality products at the lowest costs and private entrepreneurs do not. The events in Eastern Europe and the Soviet Union during 1989 and 1990 should tell us that government officials – no matter how well intentioned – have neither the information nor the capacity to direct the ways in which goods should be produced.

Both the EPA and the OTA warned that programs mandating source reduction could create more economic harm than good. Michigan legislators would do well to heed those warnings.

With respect to programs mandating recycling, we have argued that markets can and will remove from the municipal solid waste stream those materials which have value in other uses. In communities with high population densities and nearness to secondary materials brokering systems, more source separation and processing activities will occur than will occur in those communities which do not enjoy these locational advantages.

In those communities where recycling programs make less economic sense, there will be less recycling.

In all communities, those materials which, at a given moment in time, do not have value in other uses will not be removed from MSW. They will be disposed of in ways which are both technologically feasible and economically efficient. In some communities that may be a modern sanitary landfill. In other communities it may be an incinerator. Market forces will determine what has to happen.

We have contended that contrary to what both EPA and OTA seem to argue, the four distinct categories which form their waste management hierarchy – Source Reduction, Recycling, Incineration, Landfilling – are competitive rather than complimentary.

During some periods and in some regions of the state, the recycling component of the hierarchy will be activated when the value of those materials which may be demanded in one or more secondary materials markets fetch a price which exceeds the cost of collection, processing, and shipping. When this happens, and only when this happens, firms which specialize in selling secondary materials will attempt to obtain such materials from MSW.

Under these conditions, the volume of waste in one or more regions of the state – waste which would otherwise have gone to a landfill or a waste-to-energy incinerator – will decrease. With less waste moving to landfills and/or incinerators, the tipping revenues earned by operators of these facilities will decline faster than their costs, since a significant share of their costs are overhead fixed costs. With lower revenues, operators will either be forced to reduce their tipping fees – as New York City did at its landfill – or accept lower operating profits.

The market process will be starting to send signals through all elements of the solid waste management system.

At the same time materials are moving through the recycling network in one region, identical materials in another region of the state may continue to move to landfills and/or incinerators. It all depends on the cost of collecting and processing relative to the price which can be obtained for these materials. Such costs may simply be a function of population density and location relative to markets. Consequently, at the point where MSW is presented for collection, the decision to move some part of it to secondary materials markets and the rest to landfills and/or incinerators, or to move all of it to landfills and/or incinerators, will be a pure economic decision. That decision will vary from one region of the state to another.

In a word, markets will recycle what can be recycled, and landfill or incinerate what cannot be recycled. Note also, the word "recycle" means turning one thing into another thing. It does not mean simply source separating and not sending something to a landfill. Failure to appreciate the true meaning of the word and forcing all communities to "recycle" on the basis of the popular, but incorrect, use of the word could well result in some communities paying far more to dispose of their waste than the market would signal them to pay.

Markets tend to maximize results and minimize costs. They do that in the manufacture of hair combs and they do that in the disposal of hair combs. When it makes economic sense, markets will recycle hair combs into filling for ski jackets. When it doesn't make economic sense to turn hair combs in to filling for jackets, markets will turn hair combs in to perpetual plastic buried in a landfill or into energy-generating heat in an incinerator.

Is there any government employee anywhere who can know when and how to make that decision better than markets? With all due respect for public servants, I think not.

Beyond the point in space where waste is presented for collection, the decision to incur the costs required to build a landfill or waste-to-energy incinerator is also a pure economic decision. The same is true for building and processing a collection, processing, and shipping system for recyclable material. All parts of the system can be driven by economic signals. All parts of the system ought to be left alone to be driven by economic signals.

Once costs have been incurred to develop all the elements of a waste management system, all elements of the system become competitive with one another. Waste recycled cannot be simultaneously landfilled or incinerated. Landfill operators would lose "customers." Waste assigned to a landfill cannot be simultaneously recycled or incinerated to produce energy. Operators of recycling systems and incinerators would lose "customers." Waste assigned to waste-to-energy incinerators cannot be simultaneously recycled or landfilled. Landfill and recycling system operators would lose "customers."

Left to market forces, a set of equilibrium prices would emerge to direct waste to its most efficient point of disposal. Some materials will be pulled into secondary materials markets in one region or in all regions of a state. Some will move to landfills. Some will move to incinerators.

In some regions of a state, relatively more material will move into secondary materials markets than may be the case in other regions of the same state. In some regions of a state, no matter what the relative price of secondary materials, the majority of MSW will be landfilled. In some regions, at the same set of relative secondary materials prices, the majority of waste will be burned to create energy. The point is that market forces will be constantly sending all the signals needed to know what is best for waste in that place at that moment and what is not.

Private firms – waste haulers, landfill owner/operators, secondary materials brokers and recycling-center operators, and waste-to-energy plant owners/operators – have a decided self-interest in reading these signals. Indeed, economic sense would dictate that some private operators be invested across more than one component of the waste management "hierarchy." In that way they can serve as a conduit for moving market signals right to the front door of families who have waste to put out.

When governments operate waste collection systems, landfills, incinerators, and recycling centers, something other than market signals will come into play. Political turf will come into play and political turf is always going to be defended whatever the market signals.

For example, in the face of citizen and editorial objections to the stinking Oakland County compost pile, and in the face of financial inability to operate the compost operation in ways which accelerate decay and reduce odors, one of the members of that county's solid waste committee wrote a letter to The Detroit News defending the operation. [173]

In much the same vein, having invested hundreds of millions of dollars in its huge but low-tech incinerator, which burns at less than 2,000 degrees, what has been the city's response to state and federal environmental officials' efforts to close the plant? Stonewalling!

Turf is turf and markets are markets. Better to let market signals move waste rather than allow political turf to arrest the efficient movement of solid waste.

But surely, some would argue, only large Subtitle D landfills will ever make economic sense and the cost is too high. Therefore only government can afford to build them. Our analysis has already shown that modern landfills on a fairly large scale can be built and profitably operated at tipping fees less than $35 per ton. Moreover, when privately owned and operated, landfills pay property taxes as well as excise taxes to local communities and, if necessary, to the state. That's as it should be.

Moreover, the tipping fees charged by a private operator will fully reflect the value of all the scarce resources absorbed in building and operating the landfill. Those costs will be reflected in the prices charged to households and businesses for collecting waste. That's also as it should be. That market signal tells households that they need to manage the amount of waste they create. Isn't that what good waste management is supposed to do?

Very well, incinerators have to be very large and that's going to require government money. Not necessarily so! If the only combuster one can imagine is the one Detroit has, then they will be expensive – probably the most expensive form of solid waste disposal. However, as the engineers at Michigan's Morbark Industries are showing us, incinerators do not have to be large and expensive. Indeed, for many – if not most – of the state's rural counties, the Morbark gasifier may be the most cost-efficient way to get rid of waste.

In some regions of the state, only large landfills would make economic sense. In some regions, incinerators may have to be large. In other regions of the state small landfills and small incinerators will do the job in ways which are both environmentally and economically sound. In some regions of the state, recycling operations will be large and sophisticated while in others they will be little more than church and Boy Scout collection drives for tin cans and newspapers. In all cases, markets will signal what makes sense and what does not.

Some would argue that the only way a recycling program will work is if it is mandated by government. Beyond that, many of the same people would argue, government ought to operate the center. At worst, they might concede, government may contract with a private firm to operate the program and guarantee the private firm some given rate of return on their investment, regardless of whether or not the program actually saves the community money over the long run.

Again, we argue, not so! Source separation and true recycling will occur only when markets become strong enough to attract secondary materials from MSW. When that happens, private firms will emerge to collect and move materials. Indeed, when that occurs, private firms may be willing to canvas households for some materials and pay them for it. Short of that, the economic logic of markets will move some materials into secondary materials markets some of the time, some all of the time, and some none of the time.

Operating in response to market forces, landfills will be a continuing option for some materials some of the time, some part of the time, and some none of the time. The same is true for incinerators – especially for the small, inexpensive, and highly burn-efficient Morbark-type gasifier.

If Michigan state government, no matter how well intentioned. takes it upon itself to solve the solid waste management problem by legislation aimed at dictating specific and rigid patterns of waste management in all regions of the state at all times, private entrepreneurs could be discouraged from developing innovative ways of handling waste which hold promise of doing the job better and cheaper. Entrepreneurs will not risk creating new systems if the politicization of waste management has written old systems in stone.

If experience has taught us anything, it has taught us that the politicization of anything which is naturally part of a continuing market process reduces the power of the market to move quickly to solve problems. Having a government "plan" is to politicize something and, therefore, something not part of the "plan" may never be allowed to emerge.

Markets can and will handle municipal solid waste in environmentally sound and economically efficient ways if allowed to do so without the uncertainty of political intervention.

This author would encourage all Michigan officials to make an open public announcement of our state's intention to let markets manage solid waste without state mandates and within environmental guidelines established on the basis of the best scientific evidence. Doing this holds the promise of allowing market forces to get the job done quickly and efficiently at the same time that real environmental science is applied in what ought to be a scientific, rather than emotional setting.

This study has been dedicated to encouraging that end.