Friday, October 9, 2009

Waste Diversion in Ontario; a Broken Business Model

This week in the Toronto Star there was further reporting of abuses of waste that was supposed to be diverted and sent for composting, being sent to landfill instead.

The problem of less waste being diverted than expected, to my mind lies in how the waste industry's current business model works.

The simple version of this story is that waste is seen as a liability and the rewards go to people who take the waste off the municipalities hands.

The rewards are best if you have a landfill; you take waste, get paid an attractive fee and bury it in a hole in the ground. Without a landfill you have to pay part of the fee to someone who has one. Thus the landfill operators are the big winners in this game. Until waste is recognized as an energy resource and should be used to create liquid fuels or electricity, this is unlikely to change.

Recyclers make their money by extracting resalable materials from the waste stream and selling these commodities on the open market.In good times they make money, but in low commodity cycles recycling is a tough business. Many of them would like to have alternatives to landfill and so would their customers.

There seems to be no particular incentive for landfill operators to find alternatives to landfill, unless the capacity of their landfill is almost used up. Most see the solution as finding other landfill sites and until we find viable alternatives they are probably right. I've spoken to a number of landfill operators and they believe that landfill is here to stay. They also feel that most alternatives are too capital intensive to justify serious attention at this time.

The article focussed on Dongara Pelletizing Plant sending waste to landfill instead of processing it into energy pellets. This story highlights an excellent example of what is wrong with the system, not what is wrong at Dongara.

York Region doesn't pay them for energy pellets delivered to customers. The way their deal works, they get paid the tipping fees for each tonne of garbage delivered to their plant regardless of what happens to it. It's off the municipality's hands, so they no longer need to worry. When and if Dongara dumps it in landfill, irrespective of the reason, by my rough calculations they appear to make about $20.00 per tonne. Its not much, but if the Star is right and they have no market for their product, that might become an important source of revenue. Is it any wonder that they take advantage of it?

In a contract of that nature, there ought to be a penalty for dumping instead of processing, rather than a reward as is currently the case. The $84 per tonne paid by York Region is a significant premium as is pointed out in the article, but it should be tied to diversion only.

Until there are incentives that drive the right diversion behavior, many promising solutions are unlikely to survive. Most are capital intensive and require investors to take significant risks. Why do that, when there are cheaper and safer investments in the area of waste handling and diversion?

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