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Stephens Valuation & Consultancy Pty Ltd


Roderick Stephens BSc (Hons) MC AAPI (CPV) 

The Evolution of Recycling Facilities




This paper provides an insight into the recycling industry for Commercial and Demolition Waste (C&D) in the wider Sydney regional area of NSW. It considers the historical context of the recognition of externalities in our society, and how these issues should be dealt with. Clearly traditional market forces, would perhaps be too slow to react to the need to increase recycling, and so Government intervention is required to set the framework in which the industry needs to successfully operate. The question is whether they have got it right, or are there lessons to be learned. The Victorian Government have recently increased Landfill Levies in Victoria, and may well follow the evolutionary process that took place in NSW, but have the benefit to identify the pitfalls and to perhaps apply a more sustainable model that ensures the future of the recycling industry. This would invariably involve future increases to the levy.



For those die hard and few remaining fans of the free market economy, then it is hoped that they have learned their lessons from the Global Financial Crisis, as they salvage what is left of their Super, and hopefully now come to the conclusion, that controlled economies (much like China) where Government intervention controls many aspects of the wider economy, is perhaps the way forward. Neither model is perfect, but together they can be. The big question being is to where the ideal balance lies. Come back Marks and Lennon, all is forgiven.


This very same evolutionary economic process is happening right beneath our noses, and involving the waste management and recycling industry. Society produces waste, which has to be disposed of, with the favourite and cheapest method being landfill, and this has taken place since Stone Age man, or even in Australia the aboriginals middens are the earliest examples of unregulated landfills.


Then came the advent of pollution in the 70s which following the rise of the Greens and other Environmental activists (who also put their rubbish in landfills the same as the rest of us, and drive cars), made Governments recognize what were termed externalities which involves issues such as pollution, such as congestion, Acid Rain, CO2 emissions, Green House Gases including CFCs (ChloroFluoroCarbons) and depletion of the Ozone layer and a range of other things we had never even heard of, let alone priced along with a commodity. These issues came about when Brown Coal Power Stations in the former East Germany and Poland were causing Acid Rain over the Black Forest in the former West Germany and killing trees. Similarly all the Coal fired Power Stations emissions in the UK, were being carried over to Scandinavia by the prevailing winds and causing Acid Rain there as well.


So Governments around the world, and particularly in Europe have been busy grappling with these new issues, and introducing legislation and interventionist policies to try to capture the externalities into the prices we pay for goods and services. In other words it is a great scare campaign to capture additional taxes from the masses. Unfortunately one of the most obvious starting points for highlighting many of the wider issues involved landfills, because they were potentially polluting the environment, and it was also something that society had to have, and so easy to tax and pass the costs onto the population. Also landfills were probably the only issue that politicians had a vague knowledge of.


Externalities in the Waste Management and Recycling Industry

We all hear how bad landfills are, and how they produce CO2 emissions and landfill gas and pollute our rivers, but the reality is somewhat different. Many landfills now have to have liners inserted to prevent any leachates escaping the site, but also the landfill gas is often captured, and used to generate electricity, without causing pollution or contamination. Solid waste landfills dont produce landfill gas, and so have very little environmental impact. However the NSW Government was the first State Government to apply significant interventionist policies for the waste management industry, with the objective of minimising the damage to the environment by landfills, by introducing significantly high landfill levies. The theory being that if a tax or levy were imposed on waste deposited at landfills, then this would encourage more recycling to take place, for the benefit of society. This was on the basis that there was a secondary market for the recyclables, which for certain waste materials such as metals, glass, paper, cardboard, concrete, soils, rock, rubble etc there was and still is. The greatest volume of potential recyclable materials within the market involved what is termed as C & D wastes (construction and demolition) which once screened and crushed, can be re used for a number of applications and re sold. So the tax or landfill levy, not only produces an income for the State Government, it also creates investment and jobs within the recycling industry. At the same time it also minimises the requirement for primary aggregates, as recycled materials are cheaper than primary aggregates, and can quite happily co exist in the market place. Some but not many quarry operators, have become actively involved within the recycling industry, as they have had the foresight to recognize the need to provide choices and the wider range of products to their clients. Other quarry operators have stood on the sidelines, and watched their market share being eroded, as they repeat to themselves I told you it would never take off.


Initial Impacts to the NSW Recycling Industry

Recycling operations existed in NSW well before the upgrade of Landfill Levies in 2006, but the levy, created the incentive to process marginal C & D waste materials, which would have been landfilled in the past. There was therefore a surge in demand for recycling operations, as many were operating at full capacity, due to the addition of the marginal materials being processed, and this then encouraged many other players to enter the market. However due to the often lengthy time it takes to obtain development approvals for sites, then it took several years, before additional capacity reached the market. Then in 2008 the NSW State Government decided to further increase the levies, to speed up recycling rates yet again. However this time, the additional levies, despite being much higher than previously, were less effective, firstly because the recycling rates for C & D were very close to being maximized in any case, and secondly there was additional capacity in the market to compete with the volumes, and thirdly there was later on a slowdown in economic activity, which reduced both availability of material and markets for the products. The situation was then further decimated by many other new entrants applying for development approvals following 2008, and many recently granted DAs, that may never see the light of day.


So the Sydney regional market has seen the full evolution of the interventionist policy of landfill levies, and it clearly met its objectives in the early stages, but the later failures have involved the over supply of recycling capacity, coupled with a downturn in economic activity.


Waste Hierarchy

We recognize that the waste management industry specialises in a wide variety of waste streams and deals with these in a range of ways and with many different methods and processes. For the purpose of this paper we are trying to provide the general economic setting for Commercial and Demolition waste recycling operations, as these tend to form the greatest number of operators.


Market Forces    Demand and Supply for C & D Recycling Operations

Landfills have been used by society since the stone ages. It was only since the inception of externalities that Government policies began to tighten up and provide more controls. The normal market forces applying within the industry, firstly involved the gate price of the landfill. Before any recycling could take place, then the cost of separating the recycled material from the non recycled material or waste had to be calculated, and then once separated, had to then find a market for the recycled product, which had to be cheaper than existing virgin materials operating in the same market, in essence quarry products. The problem was initially that only high value recycled materials, such as metals and crushed concrete, were suitable for recycling, and the rest of C & D wastes were mostly landfilled.


Therefore if the Government were to intervene, and artificially increase the gate price of landfills, (by pricing the externalities) then this would then make even more recycled materials available for processing, and create a secondary market for a range of recycled materials. Hence the introduction of sufficiently high Landfill Levies in NSW in 2006 to allow the recycled market to increase productivity. The policy was initially a huge success, no only because it reduced pressure on vastly declining landfill voids, but that it created a secondary market for recycled products, minimized the externalities involved within the quarrying industry, created jobs, allowed materials to be available locally, as compared to being imported into an area, and thus reducing congestion and other associated costs.

Constructed by Stephens Valuation and Consultancy Pty Ltd (2008)


So as can be seen from the above chart, landfill levies in NSW in 2006, which at the time only involved the Sydney metropolitan area, increased to $30.50 per tonne. This levy should have created sufficient incentive to increase recycling rates, but at the same time it also created an incentive to transport waste outside of Sydney to landfills, that were not covered by the levy. But also demand for existing recycling operations was very strong, and many found themselves operating at full capacity, and needed to expand their operations in order to cater for the newly established recycling market. However the planning system in NSW, identified many Recycling Operations as being of State Significance, because the crushing and screening operations created noise, dust, and high vehicle movements. As a consequence many new development applications needed Environmental Impact Statements and it virtually took 2 years or so in order for approvals to be gained. This limited the ability of new entrants to the market, and ensured that existing operators maintained their market share at least in the early stages.


In 2008 the NSW Government increased the landfill levies further, as is identified in the above chart. But this time, they added the surrounding regions of the Sydney metropolitan area to the list of regulated areas and imposed levies on those areas as well. This change of policy then prohibited wastes from being taken outside of the Sydney metropolitan area as before, and this was further strengthened by legislation which applied the landfill levy at its source, rather than at its disposal point. In essence market forces would have allowed wastes to be transported further afield from Sydney, but the interventionist policies determined that wastes should be deposited within the region, so that the NSW Government could maximize their revenue.


Then enter the Global Financial Crisis, which ground many developments to a halt, and created a surplus of recycled materials, with very little demand. Coupled with this many new sites had obtained development approvals, and recycling capacity had virtually doubled from levels in 2006, but with a much reduced market. As a result many recycling operations are now up for sale, there are additional recycling operations still in the planning system, or having obtained approvals but not yet set up, that are also likely to be put on the market, with the recycling market once again at the whim of the Government.  


The Key Reasons for Market Failure

Following the success of the introduction of increased Landfill Levies in NSW in 2006, then why has the system since failed. The first reason goes back to demand and supply. If there are too many recyclers in the market (an oversupply of capacity or supply) then they are all prepared to pay higher prices to obtain materials, and reduce margins to sell materials. But at the same time most recycling operations benefit from economies of scale, in that the more they process the cheaper per unit rate per tonne cost. However when the volumes drop, it may not be too easy to reduce costs, by shedding staff, or selling unused plant and machinery, as these are sometimes longer term arrangements, and so the operator has to absorb losses, which in a declining market cannot be passed on, and so the losses are exaggerated further. In essence they suffer from dis-economies of scale.


The other factor that has been overlooked is the fact that the NSW Government via the EPA decided not to regulate small companies who operated below a specific threshold. This then saw the rise of many small skip companies into the market, who didnt have the same controls as their larger competitors, they didnt have stringent development approvals for noise and dust emissions, nor for any leachates escaping the sites. These companies have led to the downfall of the system, because of low entry costs into the market, quicker set up times, less business regulation costs, and when the market does turn sour, they can get out quickly, as they have little capital invested in their operations, often renting sites, and leasing equipment etc and sometimes leaving pollution behind at their sites with sometimes little prospect of landowners recovering their losses.


So the NSW Government has to date ignored requests from legitimate waste recycling companies who operate under the tight regulations to regulate the smaller operators so that there is a fair playing field for all. The difficulty is also to identify what percentage of market share the smaller unregulated companies have within the total market, because they are unregulated, then there is no way to measure their impact.


There are additional calls from the larger recycling operators for Government to provide subsidies for recycling materials to allow the recyclers to get through the difficult times. However the reality of market forces will involve that fact that many recycling operations will either not get off the ground, or others will fail and liquidate their assets, which will eventually reduce the over supply in the market.


Therefore should the recycling market be regulated from the top down, or from the bottom up. There should at least be a level playing field and certainly tighter regulation needs to be applied to smaller operators.


The Victoria Market

We next look at the recent increases to Landfill Levies in Victoria. We set out below the proposed changes to the levy up to 2014.




              Constructed by Stephens Valuation and Consultancy Pty Ltd (2010)
We then compare the Victorian increases to the current future increases to the NSW Landfill levy proposals as set out in the chart below:

               Constructed by Stephens Valuation and Consultancy Pty Ltd (2010)

It is likely that the Victorian recycling market will go through the same evolutionary process as NSW did from 2006. They both have the same starting point of circa $30 a tonne. However it has been suggested that the Victorian market is very different to that of NSW, but the market forces are likely to be exactly the same. The new Victorian levies are effective from July 2010 and so the first phase, should involve waste being transported from metropolitan to rural areas. The second phase should then involve many new small skip companies entering the market. This will in turn reduce the volumes currently processed at the larger more established recyclers. Quarry operators should also see declines in primary aggregates, as recycled material volumes are increased. Once many of these issues come to light over the next few years, then we consider that the Victorian Government will have to address the issues and likely change the landfill levies again perhaps in 2 years time.



In rural India, cow manure is collected and stored in a large container in the village centre, where gas is then produced for lighting and cooking. In pig farms in Holland, pig urine and manure is collected separately and later blended to produce ammonia, which can be used to produce gas for electricity generation. Landfill gas capture for electricity generation is now very common throughout the world. The introduction of AWTs in Australia is also at the forefront of innovation, but at present the economics are not quite there.


So whilst many involved in the waste management and recycling industry tend to run with the landfill levy scheme, there are a few who see the opportunity for innovation, who try to design new machines to process wastes, maximise the capture of recyclables, and try to find new ways and new products from waste, that in the past have been uneconomic to produce. To those few, we congratulate you. However it will take several years and certainly in NSW with the clear intention to increase landfill levies up to 2017, then this should encourage new innovation to not only create and develop new systems, and new products, but to create jobs as well.


Investment and innovation can only take place, where you have a level playing field, and this needs to be fixed in NSW as a matter of urgency. Innovation is often rewarded where market forces are concerned by either higher prices or cheaper costs or both, but this process could be speeded up by additional Government intervention by offering incentives or grants or landfill levy offsets. So we are heading in the right direction, but still have a long way to go.


The opinions expressed in the above paper are the personal views of the author gained from experience and research within the waste management industry. No responsibilities can be held for any person or company who relies on information within this paper or who attempts to take any extracts from this paper. This paper is not to be used or quoted in part or as a whole for commercial use without the express written consent of the author.


Stephens Valuation and Consultancy Pty Ltd


By Roderick Stephens BSc (Hons) MC AAPI (CPV)

Certified Practising Valuer

Registered Valuer QLD & WA

PO Box 404

Emu Plains

NSW 2750

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