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How Some Developments from the End of 2016 Could Shape the Industry

In this month’s edition of Business Insights, we discuss a number of solid waste news items that rounded out the year.

As the New Year begins, it’s an opportune time to break down a number of solid waste news items that rounded out 2016 that could shape the industry in 2017 and beyond.

Trump Impact?

From a regulatory/policy perspective, the incoming Trump administration and the potential appointment of Oklahoma Attorney General Scott Pruitt as Environmental Protection Agency (EPA) head are unlikely to dramatically affect the solid waste management and recycling industry.

At this point in time, the solid waste industry is more economically, rather than regulatory, driven, with long-established rules which are not subject to change. With regard to recycling, federal mandates were not expected, and increased diversion goals remain primarily local in nature. The only probable exception is that the EPA’s current sustainable materials management and/or food waste focus may be de-emphasized in light of the incoming administration’s apparent questioning of climate change. Lastly, recycling could be impacted by trade policy changes (given the importance of China as a recycled commodity export market), but that remains difficult to evaluate at this juncture.

From an economic perspective, there is some anticipation in the analyst community of a “Trump Bump”, given the direct correlation of faster economic growth (as is widely anticipated) with increased waste generation, as well as the prospect of greater special waste activity from any infrastructure spending push. Perhaps the most tangible benefit may stem from any change in the corporate tax code. Both Waste Management (WM) and Republic Services (RSG) are full domestic taxpayers at between 35 percent to 40 percent, and a change to roughly 20 percent (for example) would be material to both their bottom lines and cash flows. An increase in domestic energy production would benefit most of the industry players, but particularly Waste Connections (WCN). 

Waste Management Shifts its Sustainability Focus

In mid-December, WM released its 2016 Sustainability Report, “Leading Change.”  Unsurprisingly, the opening letter from newly-minted CEO Jim Fish emphasized the need to put recycling on a firmer, more sustainable economic footing, given the protracted recycled commodity price downturn, as well as the effect of the lightweighting of the waste stream—a theme that WM management has put front and center over the past several years. In concert with this, WM has shifted the report’s focus to a more holistic life cycle and greenhouse gas (GHG) emissions reduction emphasis, de-emphasizing weight-based recycling goals.

In 2015, WM recycled and composted more than 14 million tons, down from 15 million the prior year, and its carbon dioxide equivalent avoidance was nearly 34 million metric tons, versus 36 million metric tons in 2014. However, given its recycling initiatives and landfill gas-to-energy (LFGTE) projects, among other services, the company noted that it was a net greenhouse gas reducer—by a factor of 3x. Its fleet conversion to natural gas vehicles continued in 2015 with up to 90 percent of new trucks purchased running on compressed natural gas, and these now total over 5,100 trucks, out of a total collection fleet of 18,500. The company also noted that its fleet emissions are down 24 percent since 2007, well ahead of its original goal of 15 percent by 2020.

The thrust of the sustainability report dovetails with a recycling study the company put out in August, which again looked at recycling from a life cycle, cost-benefit and climate change perspective. Among a number of observations, the company found that a best-in-class recycling program can produce an 84 percent reduction in GHG emissions with a 32 percent diversion rate and aggressive landfill gas capture. When considering different materials, paper, metals and plastic bottles offer the most GHG benefits per dollar spent.

In general, the biggest emission reduction “bang for the buck” is derived from residential and commercial single-stream recycling programs and LFGTE projects. Unsurprisingly, glass recycling nets very little in emissions reduction relative to both its cost and its well-known negative impacts on processing and contamination rates. Food waste was found to have a large potential GHG emission reduction potential, but at a very high cost if collection and conversion technologies were assumed in the handling and processing costs. As a result, WM reached the conclusion that emphasis should be put on upstream food waste prevention. Somewhat surprisingly, overall recycling collection activities were found to have a relatively negligible impact on emissions when compared to the benefits of the related materials recovery.

EPA Curbside Recycling Report Provides Incremental Insights

Also in December, the EPA and The Recycling Partnership released a report on curbside recycling—“The 2016 State of Curbside Report”—which identified what was working and what didn’t matter when considering a successful recycling program. The study encompassed 465 programs, reaching 28 percent of homes that could potentially receive curbside recycling services.

There appear to be four common themes to a successful recycling program. First, the use of single-stream recycling appeared to be very key, and within that, the use of carts, as opposed to bins or bags. Additionally, the presence of “public action” (i.e. a municipal mandate or incentive system) was also very instrumental in a successful program, particularly when coupled with some type of automatic enrollment. The three things that seemed to have very little correlation with a successful program, however, were whether it was privately or publicly run, the collection interval (every week or bi-weekly) and finally, the local landfill tip fee. It should be noted, however, that this report did not consider contamination rates, which were out of its scope. 

A New Kid on the Block?

A Spanish construction and environmental firm, Fomento de Construcciones y Contratas (FCC) won another sizable municipal contract in December, with the award of a Polk County, Fla., franchise potentially worth $102 million over 10 years. Previously, FCC had been awarded another sizable Florida franchise in Orange County, and in late 2015, it won the Dallas recycling contract and subsequently invested heavily in the associated materials recovery facility. Although a relative newcomer to the U.S market, FCC noted that it has been providing environmental services for over 100 years and is currently in 13 countries. It also has the benefit of some very well-heeled and well-known investors—Carlos Slim and Bill Gates. Gates has also long held sizable interests in RSG and WM.

L.A. Moves Forward with its Franchise System

In a unanimous vote, the Los Angeles City Council approved the solid waste commercial franchise system in Los Angeles, which is considered key to achieving the city’s aggressive diversion goals. Seven firms (including WM and RSG) won 11 zones, while there are currently 200 permitted haulers in LA, though many are considered inactive. The total franchise value is $3.5 billion over ten years ($200 million in collection and processing infrastructure investment is also required). The contract will start in July, 2017 with full implementation expected in 2018. The success (and cost) of this endeavor will be closely eyed by NYC, which also intends to move forward with a commercial franchise system of its own.

Leone Young is the Principal of LTY ERC, LLC, providing consulting and research services to, and conducting special projects for, the environmental services industry, primarily the solid waste sector.

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