The waste problem is acute in emerging markets that rely on landfills. Shadow pricing on recycling could bring city transformation.
Brazil has recently approved a new national legislation on solid waste (23 December 2010), which had been in discussion for nearly 20 years. This has created a strong base for discussion forcing both businesses and local councils to assess their practices, evaluate risks and adapt to the new legal requirements.
At the moment, recycling rates in Brazil are very low and there are no market drivers and/or industry incentives to transform waste products into usable materials. There are lack of waste segregation and collection infra-structure and minimal knowledge and skills to guarantee proper selection and application of recycling technology. Out of the 5453 municipalities in Brazil, only 17% have separate collection systems for recycling (Ciclosoft Research, 2014). Research has also shown that the level of rejects is high which means collection is not effective and very little is actually recycled. The material being produced is usually of a low quality and industry will only use the material if it is cheaper than virgin material. Moreover, population don't see the benefits of recycling beyond the social aspects around waste pickers and general perception is that products made out of recycled material are of a low quality.
As part of the new legislation, federal government has successfully created a national fund to be allocated to regional governments and local councils. This means that financial resources are available to support the needed infra-structure, but this is subject to the development and submission of a detailed, well planned city waste management action plan.
The main problem is councils are not able to reach out for this fund as they do not have the skills and ability locally to develop efficient action plans. On the other hand, the ones being submitted have very narrow and fractioned actions and no holistic view in terms of overall city development. As a result, investments and are not necessarily contributing to closing the material loop.
Even if the media and regional councils say that the amount of waste collected and recycling rates have increased, these potentially recyclable materials will continue to go to landfill if we don't urgently look at market mechanisms and a new economic evaluation that incorporates shadow pricing on recycling.
Specially in the developing markets where production and consumption is going up, more and more people are moving to urban areas and consequently waste and pollution are increasing, it is extremely important for local governments to implement holistic plans that lower urban GHG emissions, conserve resources and improve quality of life.
Therefore, a new economic model for recycling, that have an intrinsic view of the city problems looking at government overall expenditure, has the potential to spur city development.
Which proposals are included in your plan and how do they fit together?
A few companies around the world have already started to incorporate a similar mechanism to assess investment on carbon reduction initiatives which they called “shadow” carbon prices. This is done by incorporating the external costs of carbon pollution in order to create a tool for evaluating investment choices, funding sustainable practices, encourage money saving efficiencies and spurring innovation within thier operations.
Using shadow price as an economic indicator for assessing recycling costs, also allow city councils to have a broader view of the value of the investments made on waste collection and segregation beyond their actual costs and it should help them to materialize in economic terms the overall value for city development, quality of life and tourism.
Basically, when we incorporate additional variables to this calculation, we create an economic assessment that shows a different perception of the return on the investment. In other words, the value for the city dwellers, government and tourists that will arise from efficient recycling are much higher than the investment made.
Therefore, the proposed shadow price on recycling would be much lower than the actual costs as we incorporate this holistic view and it should assist councils to approve recycling investments.
This shadow pricing aims to bring a change in the status quo by encouraging councils to divert efforts and resources to waste recycling campaigns and infra-structure as they see the additional value for the city in terms of job creation, reduced violence and avoided costs in other areas.
In order to start calculating the shadow price it is important to establish a city scenario and condtions taken as an average view of brazilian cities based on recent studies (Ciclosoft, 2014):
- the city under study is a coastal city where the city economy is strongly based on tourism
- there is very little infra-structure for waste segregation - 17% of the city is covered by recycling collection
- waste is collected door to door
- out of the material collectd, there is a high rate of reject due to lack of knowledge and commitment from the population
- the waste is collected by a private company with a long term contract with the council
- there are no recycling targets or incentives for both the waste company, citizens and industries
- other separate contracts have the responsability for beach clean up, ecosystem maintenance and managing environmental accidents, pollution and helath problems as a result of misplaced waste
In order to build the model for Shadow Price calculation, a few steps must be considered:
- The council must create a committee inviting representatives from both government bodies and local industry: waste, heath, tourism, security, ecosystem and biodiversity government bodies, job agencies, local NGOs, commerce and industry association. This will help to assess city actual condition and expensiture.
- The committe must create a detailed mapping of the overall council costs not only on waste but the breakdown of the money spent by the council on all areas: Health system, street cleaning, environmental protection, city maintenance, parks and green areas, social care, educational programme, unemployment assistance, accidents related to natural disasters (related or not related to misplaced waste).
- The council must evaluate the impact on job creation and unemployment during the summer and winter periods.
- An assessment must be made on the impact and associated costs related to city violence and drug addition due to unemployment during the winter period when tourism is lower and commerce offer less job opportunities
- Evaluate the opportunities in terms of new jobs and social benefits of establishing new recycling business in the city
- Natural accidents caused by damaged ecosystems can bring losses to the city and its citizens, as a consequence increased repair costs to the council
Having clearly defined the breakdown costs of the city overall budget and also identified the key problems and costs for the city, we can start to calculate the shadow cost of recycling. This can be an excellent way to provide both the financial framework and the view of the value for the city to drive recycling investment.
By demonstrating a lower shadow price, it provides a justification to prioritize investment and therefore cost reduction across the city, generate new jobs and improve quality of life.
This shadow price committee will therefore be responsible to define a city waste management action plan that incorporates a shadow price on recycling that will be crucial to get access to available federal funds and comply to federal legislation. Moreover, it is likely to get the local industry on board as they see their business benefit with increased tourism and a growing local economy.
Finally, as the recycling industry develops across the city and a new market is created when waste started to be seeing as a new material, we can start to see a similar reflection on nearby cities with addition funds being diverted to increase the scale and improve the industry.
I have looked through the proposals under the Waste Management Contest and have selected the ones focused on the development of recycling incentives for developing countries.
Secondly, I have searched throughout the other contests looking at proposals that have applied an economic approach.
The expertise of the teams from all proposals together, could help the identification of the different elements needed to build the first ever shadow pricing model for recycling. This demonstrate the innovative aspect of this proposal that creates an economic model that looks beyond the recycling chain with a holistic view of the city benefits.
Moreover, it establishes a new methodology to substantiate the added value of recycling that can be replicated in other developing countries.
1) Design 4 Climate Action Initiative - Turning waste into a valuable raw material
The 1st proposal to take into account is the one I have submitted that consider the same assumptions and highlight the country’s challenges.
2) GHG Rescue; Buying Waste from Households and selling it to Recycle Companies
The project will use the slogan from the local Akan language “Borla y3 Sika” meaning waste is money. This slogan is aimed at creating a lasting sense of reminder that waste is not actually waste, but money, and by this we hope to encourage people who hear the slogan to join the segregation and delivery of waste to our Hubs.
The knowledge in terms of creating an awareness campaign and getting the community involvement could contribute to this proposal.
3) Cash for Trash: E-Waste Disposal and Management in China
The idea of app development to encourage recycling is powerfull as it is fun to use. However, the determination of material value over an app might be difficult and scale might be needed to ensure the economics for the recycling companies. There are some initiatives already in place by brand owners applying the model of take back schemes as it also considers the brand reputation aspect. In that case, economics is based on different assumptions. However, the expertise of the people involved with the development of this app could contribute to the development of the new economic model for recycling described on this proposal.
4) Novel Strategy On Private Sector's Internal/"Shadow" Carbon Pricing
Even though this proposal is focused on the private sector, it applies the same view of shadow pricing as a means to establish a new economical model that promotes changes and sustainable development. It could therefore, collaborate with the discussion and the identification of the areas that could be considered to build the shadow price of the new economic model recommended on this proposal.
Explanation of the emissions scenario calculated in the Impact tab
This proposal recommends a novel approach that includes the investment on an activity that brings a positive change and not an impact. This is the biggest challenge and innovation as it requires a different perception and application of a shadow price. The simulation has to be based on avoided carbon emissions and not carbon emissions. How much carbon has been avoided by recycling the waste material instead of sending the material to landfill.
What are the plan’s key benefits?
The key benefit of identifying shadow prices for recycling is that you establish a different ground for the discussion that is based on economic terms and not just environmental or social benefits. This will create a market pull for recycled materials contributing to a circular economy and city development.
Many research projects are incorporating the value of ecosystems as a means to create economic value for intangible items and broaden the scope of the discussion around waste management and recycling.
The shadow pricing recommended on this proposal incorporate government costs from different areas that could be avoided by improving city waste management conditions.
If the government is able to see its expenditure from all different areas in a joint model and how they connect with each other, a new economic model can be developed that contribute to better use of public funds, conserve local resources, generate costs savings and improve quality of life.
What are the plan’s costs?
The costs presented here are just an estimate of the costs needed to put together and manage the shadow price committee. Industry and government representatives will participate due to the formal invitation by the council. Industry can also offer private funding.
Activities will be carried out in 3 stages:
1st stage: A comprehensive assessment of the city overall budget, defining budget allocation for all different sectors: city cleaning, domestic waste management, industry waste logistics, biodiversity protection, beach/coastal cleaning, health costs, education and others
ACTIVITIES: mapping exercise, primary data
TIME: 6 months
COST: US$ 60.000
2nd stage: Merging balance sheets and defining a calculation for avoided costs and cost savings
ACTIVITIES: economic assessment
TIME: 3 months
COST: US$ 30.000
3rd stage: create the shadow pricing and define the new economic model that will promote recycling and improve city development
ACTIVITIES: economic assessment
TIME: 3 months
COST: US$ 30.000
What are the key challenges to enacting this plan?
The key challenges are having the right stakeholders on board committed to work together towards a common goal: overall city development.
As you need to collect data from different bodies and assess different balance sheets, a collaborative platform with a common vision must be established to ensure positive communication and efficient data gathering.
The argument applied is that, by working together, the city as a whole will benefit generating different benefits for each individual government bodies. Benefits could be on cost savings, better and easier service, better use of staff.
The project duration is 1 year.
Pesquisa sobre pagamento por servicos ambientais urbanos para gestao de residuos solidos, IPEA, Diretoria de Estudos e Politicas Regionais, Urbanas e Ambienatis (Dirur) - Brasilia, 2010