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Let’s talk about recycling a little bit more. I have had several dozen student papers submitted to me on recycling (I ask them to evaluate a host of questions, including providing a cost-benefit study of a local recycling program). In the vast majority of these papers I see two common assertions intended to point to the success of recycling programs.

  1. The program in city So and So is successful because each year the program has been in place, the city has collected more in recycled materials than the year before. Here is one such example from Texas. Here is yesterday’s post as one consideration.
  2. Recycling so and so material is a good idea because by recycling it, we use x% less energy to turn it into a finished product than it took to get a finished product from newly sourced raw materials.

What to make of this? Well, for either of them, you cannot say anything intelligent unless someone (me?) specifies what we are trying to achieve. The concept of economic (or environmental for that matter) efficiency requires that we specify what our goal is. We might be interested in recycling for all sorts of reasons – including a desire to limit landfill space, a desire to reduce emissions, a desire to limit leaching of chemicals into air and water, a desire to find cheaper inputs into production process, a desire to … simply recycle for pleasure. In light of this, what are to make of the first observation? Would we really want to point to an increase in the amount of material we recycle as evidence of successfully reducing emissions? You cannot tell from looking at tons of MSW that are recycled, you need to know something else. The same is true for the other objectives. What if, for example, the reason we are able to recycle more material is because even more material is making its way into the MSW stream as a result of a recycling program. That is certainly possible, no? But even if not, it would be strange for company like Apple, for example, to measure its success based on the number of units it is able to sell, or even the number of units it gives away. Think about why. In the very same way, it makes no sense to speak about the gross amount of recycling as a good indicator of either environmental or economic success.

The second point I think is more important. If you peruse the EPA’s website, what you would see is that recycling some metals, like aluminum, seem to require the use of 95% less energy than it takes to produce it from raw materials. I am not disputing those facts in any way. But looking at energy use alone tells us nothing about whether it makes sense to recycle. Why? Because we would need to know just how important energy costs (internal and external) are in the process we are talking about. For example, we know that today, the amount of energy required to produce each unit of GDP is smaller than at any point in the last hundred years (citation coming when I dig it up in a future post). Thus, for many products that even seem to be energy intensive in their production, energy costs make up a small fraction of the total costs. It has to – out of our GDP, about 70% is produced by labor and the rest from capital and profits. In my home, I guess that my energy consumption is about 10% of my monthly costs. For large firms, it is not inconceivable that it is closer to 3%. Thus, even if we were to save on 95% of our energy costs (at the 3% firm) we would be saving 2.85% of our total costs. Not inconsequential, but not life changing either. But remember, when we are talking about this energy cost savings, we are assuming that this represents the product in its final use. In other words, when we say that we can save 95% of the energy costs of an aluminum can, not only does the production of aluminum involve many other costs, but in terms of the end users of aluminum cans, say soda manufacturers, the aluminum itself is but a minor percentage of the total costs of making their final product.

To illustrate, suppose that to make a can of soda for sale, the labor, capital, materials costs except for the can cost $0.90 while the aluminum costs $0.10 (that is likely WAY too high, but let’s be conservative). And suppose further that the production of aluminum using recycled materials saves on 95% of energy costs of making the aluminum, and that these energy costs represent 25% of the cost of making aluminum (I imagine this is an extremely conservative estimate). Thus, the cost savings to the soda manufacturer using recycled aluminum over originally produced aluminum would be nowhere near 95%, as those statistics would make a lazy reader be inclined to believe. How much would our soda bottler be saving? Well, they’d be saving 95% of 25% of 10% of their total costs, or 2.38 cents. That’s a far cry from 95 cents. Again, not insignificant, but not earth shattering either.

Not all recycled materials save anywhere near 95% of anything. And remember that this data point is only interesting if the reason we care ab0ut recycling is to save on energy costs, and it is not even clear that this is the right number (e.g. what extra energy is used up elsewhere in the recycling and sorting process, I am assuming zero for now).

Finally, this post is not to be interpreted as a comprehensive statement on the economics of recycling. That is coming in a future book chapter, hopefully, and I plan to post pieces of it as I finish it. The post is merely meant to address this tiny aspect of the issue that seems to get a lot of attention.

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2 Responses to “Unsuccessfully Measuring Success”

  1. BS says:

    Textbook chapter I hope?

  2. Rod says:

    One of the advantages the minimills have on vertically integrated steel companies is that it takes much less energy to produce a ton of steel by using steel scrap as the feedstock instead of iron ore. The minimills also cut energy costs by using continuous casting of steel at a thickness and width that was almost the dimensions of the finished product: a billet or bloom of steel had to run through a rolling mill maybe thirty times before it would be in the shape of an I-beam or a sheet of steel.

    Iron ore has to be turned into pig iron and then into steel through the coking process, all of which requires a lot of energy. Steel scrap might have metallurgical problems, but it is already steel. Before Bethlehem Steel expired, their costs of a ton of steel was roughly double that of its domestic, non-union competitor, Nucor. Now, some of those costs were related to labor and management, but a lot of it was making the steel from scratch.

    I don’t know that much about the aluminum business, but I’d bet it is cheaper to make beer cans by recycling old beer cans, especially if the cans magically appear at your loading dock after being dropped off by the Rochester Department of Recycling and Environmental Protection.

    It also helps to have a bottle law, which makes a market for the cans at 5 cents.

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