Municipal Solid Waste Recycling in the United States: Analysis of Current and Alternative Approaches (2025)
Chapter: 3 Benefits and Challenges of Recycling Programs and the Role of Policy
3
Benefits and Challenges of Recycling Programs and the Role of Policy
Summary of Key Messages
- Economic constraints on recycling programs: Recycling programs face significant economic challenges, particularly related to high operational collection and infrastructure costs, limited local budgets, and unstable resale values for recyclables. Smaller municipalities, especially in rural areas, struggle to achieve economies of scale, making recycling programs financially unsustainable without external support.
- Balancing environmental benefits and external costs: Recycling offers substantial environmental benefits by reducing landfill use and multiple polluting emissions associated with virgin material production and use. While recycling processes also introduce external costs, including emissions from transportation and energy use during manufacturing, the environmental benefits of recycling can outweigh these costs. Effective policies balance these trade-offs to optimize environmental and social welfare.
- Heterogeneity is a significant factor in recycling programs: The implementation of recycling policies is complicated by heterogeneity—that is, a broad range of differences across costs, benefits, existing capabilities, different material volumes, transportation distances, access to end markets, and cultural norms across regions.
- Recycling programs require policies that are region specific, flexible, targeted, enforceable, and easy to understand: A one-size-fits-all approach to recycling policy may be ineffective, given differences across U.S. regions and municipalities in recycling capabilities, population densities (rural versus urban), economies, and environmental concerns. Tailored national policies that address regional and local constraints and provide targeted support can enhance the effectiveness and sustainability of recycling programs across the United States.
- Market failures from incorrect incentives: Even with access to recycling, households and businesses that decide which items go to the landfill or to recycling do not face all of the social and environmental costs of their choices (e.g. external costs from virgin material extraction and from landfill disposal). Policy interventions need to account for these inherent market failures by sufficiently encouraging recycling at the system, commercial, and household levels.
Recycling involves choices by households, businesses, and many levels of government. This chapter takes a step back to first consider the role of government in the recycling system. In order to identify major goals for waste and recycling policy, the chapter considers the fundamental problems that recycling may address and how governments might be able to reduce those problems. It then describes the logic of how each alternative public policy can help, including the advantages and disadvantages of each.
3.1 WHAT PROBLEMS SHOULD RECYCLING POLICIES FIX?
Recycling is a concern not only for households and businesses but also for policymakers at local, county, state, and federal levels. Later chapters detail the funding provided by municipal governments and regulations from higher levels. But what goals should governments set when choosing waste and recycling policies and financing? If consumers and firms took into account all the relevant costs and benefits of their waste and recycling decisions, government activity may be unnecessary. But in reality, policymakers need to intervene to address a well-identified market failure—a misalignment between private incentives and
social costs and benefits (the term applies even where no formal market exists). Policymakers may also intervene when the distribution of costs and benefits across households does not align with social goals.
Two categories of market failure are particularly relevant for waste and recycling. The first is “public goods,” where government provision can increase social and economic welfare. This category can encompass basic waste collection, economies of scale, information, and transaction costs. The second category of market failure is ignoring external costs such as from waste collection, recycling, and virgin materials extraction. Markets may also ignore costs for future generations if resources are depleted, especially nonrenewable resources.
3.1.1 Public Goods
When the public values a benefit such as a park, bridge, or wildlife preserve, the government may provide this public good because it would not be cost-effective for a private firm to do so. A firm would need to charge a price from every user, which may be impractical to enforce (e.g., charging to cross a pedestrian bridge or to enter a huge wildlife preserve). If people value the public good by more than its cost, then a government can use tax revenue to buy the land, build the infrastructure, provide beneficial use for free, and raise total social welfare, which is defined as including economic value, environmental value, and social justice. Similarly, a waste collection and disposal firm, which charges a price high enough to cover its costs, cannot prevent people from disposing of waste at no cost by dumping it in a remote area.
Municipal waste and recycling collection is inherently a public good because individuals cannot be charged for their benefits from environmental and public health protection (i.e., the reduction of the external environmental costs from waste disposal). Health problems associated with improper waste management have confounded cities back to ancient Athens and Rome. Regarding colonial America, Melosi (2004) writes, “In eastern cities, where crowding became a chronic problem as early as the 1770s, the streets reeked with waste, wells were polluted, and deaths from epidemic disease mounted rapidly.” Early policymakers recognized waste collection as an essential public service that government must provide (or must ensure provision by regulated private firms). They later recognized that waste can be controlled more sustainably by recycling materials that can be sold to offset some costs.
Even when governments rely on private entities—including households and waste management firms—they can support effective waste management in their jurisdiction by taking on some fixed costs, namely providing information, and by addressing economies of scale.
Governments may support waste management in their jurisdiction by taking on the fixed costs of gathering, verifying, and disseminating information. Households need information about what material can be recycled, how to sort these items, what day they are collected, and how to store them until collection. And each materials recovery facility (MRF) needs information on preparing recycled materials for sale, finding buyers for each material, negotiating prices and contracts, and generating forecasts about future prices. Additionally, new market entrants can benefit by making use of the government-provided information, brokerage services, and standardized contracts. Thus, free provision of information can improve recycling behavior and recycling markets, thereby reducing environmental damage.
Governments can also address challenges associated with economies of scale through tax dollars. Landfills, for instance, certainly exhibit economies of scale. They require large pieces of equipment or facilities to operate (e.g., scale house, compactors, scrapers) regardless of the landfill size or the quantity of waste to be disposed. Smaller facilities will therefore have a higher capital cost per unit of waste disposed, while larger facilities can spread these costs over a higher quantity of waste, to achieve lower per unit costs. Thus, in areas of lower population density, governments may need to use tax dollars to support landfills.
For similar reasons, MRFs also exhibit economies of scale that cause market failures in some cases, especially in small towns and rural areas. Industry experts report uniformly that operating costs per ton are high for rural, less densely populated areas using labor-intensive technology, and that costs per ton are much lower for urban, more densely populated areas using capital-intensive technologies (Pressley et al., 2015). Bradshaw and colleagues (2025) concluded, “Small MRFs report minimal equipment use, relying primarily on picking lines for sorting. Advanced sorting technology such as optical sorters, robots, and
infrared spectroscopy are used exclusively in large MRFs, reflecting the importance of quantity of inbound material to justify capital investment in equipment.” Another challenge for rural areas is that they tend to be located at long distances from a MRF, and the MRFs they use tend to have long travel times to end markets for recycled materials. In some locations, a hub-and-spoke system, as discussed in Chapter 2, could help reduce costs for multiple, small-population, rural areas that together incur the up-front cost to build one MRF of sufficient size to achieve cost-effectiveness.
Economies of scale are not a market failure in densely populated areas with competition among several large MRFs. In remote areas where only one MRF can achieve cost-efficient size, however, a private firm could take advantage of market power and raise prices. This market failure can justify local government ownership of the large cost-efficient MRF, or possibly local government regulation of the price charged by a private, cost-efficient MRF.
In addition, hybrid facilities can partially process materials in locations with lower population densities; these limited sorting facilities are already a key part of an efficient system in many parts of the country. Other areas, with even greater transportation distances and lower throughput, will benefit from public policy that uses tax revenue to help build a MRF that is government owned or regulated. Instead of allowing a private firm to charge a price high enough to cover all costs, this policy can cover the cost of recycling while encouraging more quantity by charging a low price per additional ton.
In summary, governments can support waste management activities by providing information to the public and to waste management firms, and by leading and subsidizing efforts to achieve cost-effectiveness. Alternative sources of funding are discussed in Chapter 4.
3.1.2 External Costs
Recycling and other aspects of waste management are part of a broad process that extends from mining minerals in the most remote parts of the world to manufacturing food and household goods, to consuming those goods, to disposing of the resulting waste. Decision-makers throughout these stages may perceive some costs and benefits but not perceive or experience other costs; these are known as external costs. Ignoring external costs can lead to private decisions that are not socially optimal; it can lead to a view that virgin materials are economically favorable, despite the overall advantages of using secondary materials. This market failure can be addressed by public policy or regulations that balance private and external costs and benefits and thus raise social welfare.
A household that sorts wastes for recycling and disposal receives no private compensation for these actions. The household also receives no benefits from buying items that are cheaper for MRFs to process or that yield higher-value recyclables.1 Although many households still choose to recycle and buy recyclable products for social reasons, not all households have this value structure, nor do all have the luxury to spend time on activities that yield no financial reward.
Public policies may address this misalignment of incentives for households in two ways: First, policies may create a financial incentive for recycling. Examples of such policies include a deposit-return system and programs that charge a price per bag of garbage. All such policies are further discussed in Chapter 4. Second, in light of the lack of compensation for households, public policies may attempt to increase the convenience of recycling through single-stream curbside recycling and weekly rather than biweekly services.
Municipalities face key tradeoffs. Incentives for households to recycle may include lower costs for recycling than for disposal, but those incentives may also affect litter, dumping, and contamination in the recycling stream. Also, municipalities’ recycling may create external costs such as noise and air pollution from recycling trucks. Most municipalities will not account for the external costs of their recycling activities that are imposed on other jurisdictions.
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1 A lack of incentives for households to care about recyclability translates into a lack of incentives for product producers and retailers as well.
Existing regulations may help reduce external costs. For example, landfill regulations require protective linings to capture leachate, and can require methane capture; some states provide incentives for using that methane for heat or electricity generation. These policies reduce external costs to the environment but place burdens on municipalities. Several states, including California, Washington, and New York, have carbon fees or cap-and-invest programs that include landfill and vehicle emissions, transforming the leachate and air pollution costs from external to internal. These fees are typically paid by municipalities, waste management operators, and ultimately consumers through waste collection fees, landfill tipping fees, and carbon credit purchases. Some costs are passed to businesses and producers, in locations where extended producer responsibility (EPR) programs apply. Still, remaining indirect and external costs may justify policies that encourage recycling.
Recycling policies and regulations aim to balance economic and environmental trade-offs, shifting costs and benefits across different stakeholders. While municipalities may benefit from lower landfill costs and reduced litter, they also face external costs such as increased truck emissions and noise pollution. In some cases, existing regulations help internalize these costs—for example, landfill fees and carbon pricing programs place financial burdens on municipalities, waste operators, and consumers to account for environmental impacts. However, not all external costs are fully addressed. Gaps in enforcement, inadequate infrastructure, and insufficient incentives can lead to unintended consequences, such as illegal dumping, unsustainable resource extraction, and environmental harms that extend across jurisdictions and generations.
Littering and Dumping
Regulations on haulers and landfills may lead to higher fees for legal waste disposal, which may inadvertently provide incentives for litter or improper dumping. Most jurisdictions have rules against these practices that are not enforced and are easily ignored. The social or environmental costs of littering and dumping can be substantially higher than those of landfills or recycling facilities, but those costs are external to those who commit these acts. Litter is a visual pollutant, and its removal to a landfill is much more costly than curbside collection of waste. Illegal dumping has even higher external costs, including substantial damages to ecosystems. Many policymakers have addressed this market failure by enacting deposit-return systems—for example, for beverage containers (to avoid visual pollution from litter) and lead-acid batteries (to avoid the serious health costs of lead exposure).
Virgin Materials Extraction
Research shows that the external costs per ton of virgin materials extraction are substantially higher than those per ton of waste or recycling. Advocates of a circular economy point out that recycling provides secondary materials for use as inputs for production and thus can reduce the need for mining new metals and harvesting new timber (Fullerton and Kinnaman, 2025; Stahel, 2016). The use of secondary materials for product manufacturing and infrastructure is advantageous from environmental, sustainability, and materials security perspectives. But mining and other primary sources continue to dominate material supply chains for several reasons, including the greater ability of mining sources to meet high-volume demand in a reliable manner, the history of existing infrastructure and contracts for primary sources, and the variability (and low predictability) of recycled material prices (Moore et al., 2024; Schmidt, 2021).
For 100 years, the Eagle Mine in Colorado extracted virgin materials including gold, silver, and zinc. The U.S. Environmental Protection Agency named it a Superfund site in 1986, pointing to soil contamination from large quantities of arsenic, zinc, cadmium, and lead. The mine also killed fish in the Eagle River and threatened downstream drinking water. Resulting environmental damages were estimated using empirical models of residential house prices, finding reductions in property value. Within 6 miles of the mine, these devaluations were about $25,000 per house, in 1985 U.S. dollars (USD) (Damigos, 2006). Current mining activities face stronger regulations than in those past years, so their damages are lower but
not necessarily small. What is more, external costs can be substantial in developing countries with less regulation.2
Many studies of external costs from virgin materials extraction use life cycle assessment models to estimate overall environmental costs associated with final products sold to consumers. Kinnaman (2014) summarizes external costs per ton of virgin materials extraction and also external costs per ton of waste at the end of a product’s life. His estimate of the external cost of waste disposal is only about $10–$15 per ton, and the external cost of recycling might be similar; but the external costs of some virgin materials extraction can be over $200 per ton. If mining policy does not directly address external costs, and if recycled material is a good substitute for virgin material to make a new product, policy interventions by U.S. and state governments may be justified. Such policies include those that encourage recycling; make recycled inputs cheaper; and reduce use of virgin materials, thus reducing environmental damages from extraction.
Interstate and International Pollution and Harms
Because municipal solid waste (MSW) recycling budgets are often limited, municipal policymakers may not worry about environmental damages from extraction of virgin materials elsewhere in the United States or in other countries. The same is true for environmental and public health harms associated with pollution due to exporting recyclables and other waste (e.g., electronics) to other countries. External costs that cross many jurisdictional boundaries could be addressed by financial support and other policies at the federal level that can maximize U.S. economic well-being by taking into account all direct, indirect, and external costs on all U.S. citizens. And external costs can become more internal and direct when U.S. citizens care about damages to ecosystems and wildlife around the world; this concern may increase support for policies for reducing interstate and international costs of recycling and waste disposal.
Future Generations
Using natural resources has costs for future generations that may not be felt by present generations. For instance, funds can be raised from private investors for major investments to build new sanitary landfills. Those investors earn a return by charging fees sufficient to cover the reduction in the value of their investment as the landfill becomes full. Indeed, higher fees that reflect the full costs of landfills can provide incentives for recycling. And landfill owners can use the extra fees to reinvest in future assets. But these dynamics do not address the reduction in the remaining value of the land from resource depletion. For another example, public lands are leased to private companies for mining, forestry, and other resource extraction. Economic studies show that these public lands and even private lands are often leased at rates that are too low to cover environmental damages or the reduction in land value from using up the resources on the land (Prest, 2022). These activities impose a cost on future generations, as well as people alive today who will live long enough to feel the reduction in national wealth.
Sustainability
To some extent, finite resources can be depleted and still satisfy the definition of sustainability, if reductions in natural resources are offset by new investments that ensure that future citizens are at least as well off as current citizens (Solow, 1991). Those new investments can be in the form of physical infrastructure, technology, or intangible assets. However, if investments are insufficient to maintain future well-being, then using up natural resources imposes an external cost on future generations across the
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2 One study of mineral mining in Indonesia estimated damages from mining noise, dust, decreased quality and quantity of groundwater, and various air pollutants. From interviews with 50 households, Furoida and Susilowati (2021) collected a combination of objective data and other qualitative information about costs of illnesses and of replacing losses to water supply. They estimate that the average family’s loss is about 143 USD/year, a substantial figure in an area where the average annual income is 205 USD.
country, including long-term pollutants such as greenhouse gas emissions, and depletion of land, minerals, and other natural resources.
The local governments and private parties that fund most recycling in the United States (see Chapter 4) cannot be expected to account for the external costs such as littering and dumping or virgin material extraction that are felt outside their jurisdictions (across states and internationally) and in future generations. State and federal governments must help if these external costs are to be taken into account. This help may come in the form of support for local policies with statewide and national benefits that justify funding from higher levels of government. So far, state and national policymakers have enacted targets and even mandates for MSW recycling programs (see Chapter 7). Most of these mandates are not funded, however, so they impose costs on municipalities for the sake of statewide or nationwide benefits. Finally, moreover, accounting for external costs of waste disposal and recycling would also likely affect product design and prices.
3.2 THE HETEROGENEITY OF RECYCLING
Different materials have different optimum recycling levels, which change over time; thus no one public policy is ideal for all materials. Both waste management in general and recycling in particular have costs and benefits that are extremely heterogenous. This heterogeneity affects both private household costs and benefits and the public policies that will be most effective.
First, material type is key to determining whether items should be recycled, landfilled, or incinerated. Each household or commercial recycling bin could include bottles and jugs made of polyethylene terephthalate (PET) and high-density polyethylene (HDPE), cans made of aluminum and steel, paper, cardboard, and glass bottles and jars. These materials are typically processed cost-effectively by a MRF; other materials that could technically be recycled cost more to collect and process than they can earn in end markets. In addition, many materials are not accepted at MRFs because they do not have critical mass in generation to link to regular truckload shipments of those materials to markets. These factors are affected by available technology and market fluctuations (Table 3-1). In addition to immediate financial cost considerations, some inert materials could remain in landfills with low external costs, while other materials (e.g., lithium-ion batteries [see Box 2-1]) are dangerous for MRFs to handle.
Second, as discussed in earlier sections, waste management in general and recycling in particular differ greatly across locations. Large cities usually have good access to recycled commodity markets, but, in some cases, remote locations can have extremely high costs of recycling. Collection trucks must travel further to the MRF, which raises costs even before that material can be cleaned, crushed, and baled. Then the bales may require longer and more expensive transport to end markets. Geography, community size, and access to markets are complex in the United States and result in different experiences with recycling. Locations also differ by demography and preferences, which can increase the costs of promoting participation in recycling programs. Table 3-1 shows how private and external costs and benefits together can make recycling socially worthwhile, even when private costs exceed benefits, for some material types. Accounting for these external costs can justify public intervention to encourage or require recycling. Other material types have lower total costs and higher net social benefits associated with disposing of them in a landfill.
Third, waste disposal choices might need to differ across time because of changes in technology, market prices, preferences, and other conditions. An older MRF may rely on labor-intensive technology to collect and sort materials and to clean or bale each material. Newer facilities have capital-intensive technologies where the truck can dump mixed materials onto a conveyor belt that uses video cameras trained by machine learning to identify each material. Then a puff of air or a robotic arm can cost-effectively move each item to the appropriate pile. Other examples appear in the third column of Table 3-1. End-market prices for each recycled material change over time and are often quite volatile.
TABLE 3-1 Examples of the Wide Variation Across Components of Cost for Waste and Recycling
| Costs | Dimensions of Variation | ||
|---|---|---|---|
| Different Materials | Different Locations | Changes Over Time | |
| Private cost of recycling |
|
|
|
| External cost of recycling |
|
|
|
| Private cost of landfilling |
|
|
|
| External cost of landfilling |
|
|
|
| External cost of litter or dumping |
|
|
|
NOTE: HDPE = high-density polyethylene; MRF = materials recovery facility; MSW = municipal solid waste; PET = polyethylene terephthalate.
To further explore the role of volatility in end-market prices, Table 3-2 shows the change in price for each of seven materials from 2020 to 2021. The lowest price increase was 69 percent, but most prices in this table tripled between those years. Any large jump in price may be followed the next year by a larger
price crash. This price volatility increases risk to planners trying to ensure that MRFs are profitable. Thus, strategies are needed for dealing with volatile prices, even if the average price over time is adequate. This risk can be shifted away from MRFs by long-term contracts. For example, MRFs are now ensuring cost recovery and margins through processing fees.
TABLE 3-2 National Average Prices per Ton
| Commodity | Dollars per Ton | Ratio 2021/2020 | |
|---|---|---|---|
| September 2020 | September 2021 | ||
| Corrugated cardboard | $60 | $171 | 2.85 |
| Mixed paper | $18 | $96 | 5.33 |
| HDPE | $1,100 | $2,169 | 1.97 |
| PET | $130 | $511 | 3.93 |
| Polypropylene | $105 | $663 | 6.31 |
| Aluminum cans | $915 | $1,550 | 1.69 |
| Steel cans | $78 | $250 | 3.21 |
NOTES: Prices based on materials sold after they are cleaned, crushed, and baled. Glass is not listed because it is near zero or negative, depending on location. HDPE = high-density polyethylene; PET = polyethylene terephthalate.
SOURCE: SWANA, 2021.
Moreover, the question of whether an item ought to be recycled does not depend on the private and external costs of recycling alone. It also depends on external costs for other forms of disposal—sending to a landfill, littering, or dumping. While a particular material might not be recycled through a MRF because private costs are high or its sale price is low, that same material may have much higher external costs in a landfill, and even higher if it is littered or dumped. In that case, environmental damages will differ across these various materials, their toxicity, their persistence in the ecosystem, and their threat to wildlife. Damages for each material type will also differ by location, the social value of the ecosystem, and the fragility of the ecosystem. Box 3-1 displays a mathematical formula for assessing the net social costs of recycling versus other forms of disposal. For an application of those formulas, Box 3-2 considers a case study for determining the net value of recycling a specific material in a specific place—namely, glass jars or bottles in Fargo, North Dakota.
3.3 POLICY APPROACHES THAT RESPOND TO HETEROGENEITY
While some municipalities may choose to recycle many materials, a few might be wise to recycle fewer or even no items (e.g., a town in a very remote location with low access to commodity markets and low landfill costs). A state or national policy that requires a uniform list of recycled materials may result in costs of recycling that exceed its social and environmental benefits.
Trade-offs arise between the simplicity of the recycling system and the balancing of costs and benefits. Consistent rules about what can or cannot be recycled are easier for consumers to understand and can reduce the information burden of the system; however, as mentioned above, consistent rules may create too much uniformity.
Several state EPR laws for packaging aim to create more uniform curbside recycling programs across the state. However, the requirements vary not only between states but sometimes within a single state. For example, Oregon’s EPR law includes a Uniform Statewide Collection List, but it makes an exception for glass collection in the Portland Metro region. California’s program also includes a standard list of materials that must be accepted in curbside recycling, but local jurisdictions are allowed to add more items if they choose. These examples show that while uniformity is often a goal, states still recognize the need for flexibility in how recycling systems are implemented.
BOX 3-1
Is Recycling Worth It?: A Formula for Assessing Net Social Costs
A municipal solid waste authority must decide whether a particular item is to be collected for recycling, “R” or sent to a landfill, “G.” Suppose the private cost of recycling exceeds the private benefit from selling it, so the net “private cost of recycling” is positive. Call it PCRilt (for item i in location l, at time t). The external cost of recycling it is ECRilt. Those private costs plus external costs are the social cost of recycling. In addition, the external cost of mining a new source of the material is ECMilt. Then the net social cost of recycling this item, on the left side of the comparison below, is the net private cost and external cost, minus the avoided external cost of the amount of mining that would be needed if this item were not recycled:
PCRilt + ECRilt − ECMilt < PCGilt + ECGilt
To enhance environmental and economic welfare (i.e., overall social welfare), the net social cost of recycling on the left must be less than the social cost of placing that item into a landfill or incinerator instead (PCGilt plus ECGilt, on the right). The heterogeneity in those variables means that welfare-maximizing decisions depend on measuring all five kinds of costs for each material in each location at each point in time. In other words, optimal recycling policy is complicated. No single policy is best everywhere for all recycling, and these local policies may need to change as technology improves with time.
SOURCE: Based on Fullerton and Kinnaman, 2025.
BOX 3-2
Case Study: Recycling Glass Jars or Bottles in Fargo
To assess the value of recycling glass jars in Fargo, North Dakota, several key pieces of information need to be researched and measured:
- Private costs, which might be higher than for other items because glass is dense and requires extra care to avoid hazardous breakage during collection.
- Capital and labor costs, which are specific to the area of Fargo.
- External emissions costs, which might be lower than other items, as clean glass gives no odor or toxic emissions in the materials recovery facility.
- External extraction costs, which are not trivial for acquiring new virgin material if this jar is not recycled. The principal source of silicon dioxide for making glass is sand, usually taken from beach, river, or lake deposits (Corning, n.d.).
- Private and external costs of landfilling the recycled jar instead. Direct private costs of landfilling depend on cost of transport or distance to the landfill versus the materials recovery facility and the price of land—which is lower in North Dakota than in many other states. And glass is relatively inert in the landfill, causing no leachate or methane emissions.
This initial overview is not intended to be conclusive but to demonstrate the difficulty of research and measurement even to determine whether the total net social cost of placing this item in the landfill is higher or lower than the total net social costs of recycling the glass jar. In other words, recycling in this example may or may not reduce total costs or enhance social welfare.
With differentiated rules over time and space, recycling information is bound to be imperfect and sometimes outdated. Consumers may receive conflicting information when they talk to people in other jurisdictions that have a different list of recyclable items. MRF operators often complain about contamination by nonrecyclables in the recycling bin, but some amount of improper sorting may be a cost worth paying to allow flexibility in the rules. Future technology that improves sorting of single-stream recycling (e.g., using artificial intelligence) may thus have the benefit not only of improving the quality of secondary materials, but also of making complexity less costly.
3.3.1 “Ideal” Waste Management Policy
It is helpful to sketch out an “ideal” or “optimal” policy (although its implementation would be infeasible) as a benchmark for comparison with real policies. One version of such a policy relies on the economic idea of using corrective taxes (known as “Pigovian” taxes, from Pigou, 1920) to make every external cost into a cost borne by private parties. The Pigovian tax system would place a tax on every activity that generates an external cost, which could include a tax not only on garbage heading to the landfill, but also on dumping and virgin materials extraction (e.g., mining). Household waste going to landfills imposes external costs on society that households do not consider when sorting their waste. Market-based initiatives can internalize the cost of the externality by increasing the relative price of sending waste to landfills. The effectiveness of these instruments depends on the demand elasticity with respect to the tax or price. Low price elasticity makes these instruments either environmentally ineffective or costly.
If every polluting activity was discouraged appropriately by the right tax rate, then recycling policy would not have to take on goals related to those other activities. In that case, the ideal system would only tax recycling at a rate that reflects its own external cost (see Box 3-3).3 However, the possibilities of illegal littering, dumping, or burning of waste present major obstacles to the Pigovian tax approach. Because a tax on garbage collection would raise the cost of legal waste disposal, it might encourage substitution with illegal waste management. Illegal littering and dumping have very high social costs but are nearly impossible to tax and very difficult to observe, regulate, or punish. However, the job of discouraging litter might be shifted to other policies that apply to activities that are market transactions, such as the deposit collected on beverage containers upon purchase in some states and the refund paid for their observable and documented return after use. The right-hand column of the table in Box 3-3 shows the optimal deposit-return system (DRS) that is equivalent to the ideal tax system. Real-world policies do not need to work perfectly, of course, but this column clarifies usefully that the perfect DRS would need to be tailored to the toxicity of the item and to the ecosystem fragility of its possible dumping location, as well as to changes from year to year as technology and costs evolve.
This discussion can be summarized in three key points. First, an ideal set of tax incentives on every form of disposal might be infeasible, but the same outcomes can be re-created by a feasible combination of appropriately chosen tax and subsidy rates (i.e., deposits and returns). Second, this optimal DRS can include many items in addition to beverage containers and lead-acid batteries. It can include any item for which disposal choices can be redirected away from improper disposal. Third, heterogeneity is relevant not only to the ideal tax system but also to the ideal DRS; the optimal deposit rate and refund can depend on the waste material and the location where dumping is most costly.
In a different model, Palmer and Walls (1997) calculated optimal rates for a DRS, finding that the deposit must equal the refund, and that both must be set equal to the marginal external damage per unit of disposal. Because of transactions costs, Numata (2011) argued that the refund should be equal to the sum of the following three components: (1) the suppliers’ marginal net revenue from collecting and treating used, returned goods; (2) the marginal external cost; and (3) the deposit multiplied by the share of the unredeemed deposits that the government and the recycler collect from the supplier. Porter (1983) also disputed the perhaps intuitive-seeming notion that higher deposit and refund amounts necessarily lead to higher return rates. He noted that, although Michigan had relatively high deposit-refund amounts of 5–10 cents per aluminum can (other U.S. states at the time had deposit-refund amounts of 2–5 cents per can) recycling rates in Michigan were not higher than other states. Chapter 4 discusses DRS in detail and examines available data for assessing their effectiveness.
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3 These “ideal” taxes are useful for a conceptual discussion about how to fix problems with external costs, but do not fix other market failures, such as monopoly power, or public goods, such as information or economies of scale. Also, this conceptual discussion pertains only to the optimal pricing of each activity like landfill disposal, recycling, or illegal dumping. It does not deal with the practical issues of implementation, enforcement, administration, financing, political feasibility, or the distribution of burdens from such taxes. These topics are discussed elsewhere in this report.
BOX 3-3
Optimal Incentives via Taxes or Deposit-Return System
A list of heterogeneous waste material costs is indexed by item i in location l, at time t. Suppose the external cost of placing it in the garbage is ECGilt, the external cost of recycling it is ECRilt, and the larger external cost of dumping it is ECDilt. A simple model like the one in Fullerton and Kinnaman (1995), where firms and households are only interested in their own private costs and benefits, can be used to show how two policies can achieve the same first-best optimal recycling increases and dumping reductions.
The first column of Table 3-3 shows the optimal tax system of Pigou (1920), with no tax upon purchase of the item, but with a set of positive tax rates: the tax is ECGilt if it is placed in the garbage and ECDilt if it is dumped. However, if the tax on dumping is infeasible, then the exact same optimal outcomes can be achieved by a deposit-return system (DRS).
TABLE 3-3 Comparing Pigovian Tax Rates with Deposit-Return Systems Costs
| Tax on Purchase | Pigovian Tax Rates | Item-Specific DRS |
|---|---|---|
| 0 | ECDilt > 0 | |
| Tax on Garbage | ECGilt > 0 | ECGilt − ECDilt < 0 |
| Tax on Recycling | ECRilt > 0 | ECRilt − ECDilt < 0 |
| Tax on Dumping | ECDilt > 0 | 0 |
| Tax on Mining | ECMilt > 0 | ECMilt > 0 |
The optimal DRS charges a tax (i.e., deposit) upon purchase of any item, at a rate equal to the external cost of dumping that item in that location that year (ECDilt). Then the “tax” per unit of garbage is equal to its external cost (ECGilt), minus the refund of the original deposit (ECDilt) because it was not dumped illegally. That net tax is negative (a subsidy to garbage collection), because the refunded amount (damage from dumping) is larger than the damage from putting in in the garbage. Garbage collection is indeed subsidized using local tax revenue.
The optimal tax per unit of recycling is equal to its external cost (ECRilt), minus the refund of the original deposit (ECDilt). This net tax is also negative (a subsidy), because the refunded amount (damage from dumping) is larger than the damage from recycling. If the external cost from garbage is higher than from recycling, then the optimal rate of subsidy to recycling is larger than the subsidy for garbage collection.
3.3.2 Recycling Subsidies
Alternative economic choice models can help gain general insights into behavior and the factors likely to influence it. More detailed models can allow extensive evaluations of system constraints, feasibilities, and actual performance, but they may require more extensive data collection, calibration, and verification. Including such information in MSW data collection efforts is thus an important part of improved nationwide recycling assessment and design.
Fullerton and Stechuk (2024) solved for an alternative tax system for when the ideal is infeasible. They suggested a tax on garbage and negative tax on recycling (a subsidy for recycling) that can help divert waste from other untaxable forms of disposal with high external costs. This subsidy might be difficult to provide per household recycling cart, but similar incentives can be provided with easier administration if the subsidy for each recycled material is paid to a MRF per ton of recycling that is cleaned, crushed, and baled. It could even be set for each material at a different rate that reflects its damage to the environment if not recycled. To obtain more of this subsidy, the MRF has incentives to encourage household participation. In general, the ideal subsidy per cart or per ton has the logical advantage of getting people to recycle additional carts or tons, but similar effects might be achieved in other ways. Cities can get more people to recycle and achieve additional quantities simply by devoting additional municipal expenditures to aid recycling generally, including collection, transportation, and processing at MRF facilities. This logic provides the strongest rationale for most existing recycling finance and policy (Fullerton and Stechuk,
2024). Moreover, since many external costs from waste disposal spill over to other counties and states, this logic also provides a rationale for funding from higher levels of government for proper MSW management.
3.3.3 Quantity Regulations
This discussion of externalities can also explain the conceptual equivalence between tax incentives and quantity regulations. For example, a recycled content standard (RCS) requires that a certain fraction of each produced item must be composed of recycled material. And an EPR rule can require that the producer be responsible to pay for disposal of their packaging or even the eventual disposal of the item they produce. These regulations are discussed in more detail both in this chapter and in Chapter 4.
3.3.4 Trade-Offs
Each tax or regulatory approach has trade-offs. For example:
- The tax or fee approach may have lower information and administrative requirements. To set each tax rate (or deposit-return rate), a policymaker needs to know only the external cost of disposal. To set the optimal behavior or quantities, however, they also need to know how households and MRFs would react to those tax rates in adjusting their behavior and the chosen disposal quantities. Imperfect information means imperfect regulations.
- Uncertainty can be a challenge in either approach. If policymakers require a specific quantity reduction, the costs of compliance could end up being too high. But if they set a tax rate instead, they provide no guarantee it will lead to the intended reduction in waste, since households and MRFs might not adjust their behavior as expected.
- Voters tend to oppose new taxes, so adding a tax might be politically infeasible; on the other hand, voters may support a new tax if it provides revenue that can be used to cut other tax rates, or for some other useful purpose.
- The distribution of tax burdens will likely differ, depending on the chosen policy, but not always in the ways that might be expected. A tax on waste disposal is a very visible policy with high salience to households, and its burden might be a higher fraction of income for those with low income. Perhaps the revenue from the tax can be used to help these households. In contrast, regulations can have similar effects, but their burdens on households are less transparent. Levinson (2019) showed how and why regulatory burdens on low-income households can be higher than tax burdens on low-income households. For example, “a policy that targets energy-efficient appliances, either by subsidizing efficient ones or taxing inefficient ones, will favor richer households because they already spend more on energy efficiency” (Levinson, 2019).
- Either policy type can be difficult to change as circumstances change. New information about external costs might suggest a change to either disposal taxes or regulations. But each would also require an update to account for changes in economic growth, behavior, or technology.
In some ways, the above distinctions between taxes and regulations are overstated. While a waste tax or DRS is a price-incentive policy, and regulations are not, a requirement to undertake particular activities or to reach certain targets will affect relevant prices in the economy, and these price changes themselves are incentives. For example, a regulation may require producers to pay for packaging waste (i.e., EPR). Knowing they must pay for this waste, producers will charge higher prices to cover future disposal costs, with greater price increases for those products with high-quantity packaging and/or packaging with expensive disposal. Thus, the cost to consumers for such regulations may be equal to the amount of a tax. Similarly, requiring that producers use more recycled materials in production (i.e., RCS) increases the demand for recycled materials, which may drive up the price for recycled materials and raise the supply of recycling—just as would a price incentive such as a recycling subsidy.
3.3.5 Belt and Suspenders Approaches
In light of these pros and cons, policymakers could consider a combination of policies that support each other (i.e., a “belt and suspenders” approach). If a deposit-return system generates additional supplies of recycled material, without additional demand, then much of that additional recycled material may find no market and get relegated to a landfill. However, the deposit-return system can be combined with a recycled content standard that requires producers to use more recycled materials in production. Then the extra demand may better match the extra supply (see Basuhi et al., 2024; Lifset et al., 2023).
3.3.6 Addressing Economies of Scale
This chapter discussed economies of scale for landfills and MRFs. Governments can adopt policies to address this market failure and reduce total costs of recycling materials. This government provision differs from a tax or regulation. For instance, a small municipality can subsidize or otherwise encourage recycling in a way that generates enough total volume to build a MRF with reduced processing costs per ton. If the environmental benefits of that additional recycling spill over to other towns or states, then a higher level of government could improve statewide or nationwide economic and environmental welfare by helping small towns build MRFs of sufficient scale to take advantage of the lower cost per ton of processed material. County or state governments can help pay for a hub-and-spoke system in which multiple rural towns build one MRF of sufficient size to achieve cost-effectiveness (see Chapter 2).
3.4 CONCLUSIONS FOR RECYCLING PROGRAMS AND POLICY CHOICES
Tremendous heterogeneity and variability across time, materials, and geography impact the cost and benefits of recycling. The committee draws the following conclusion based on its assessment of these factors.
Conclusion 3-1: Effective MSW recycling programs help meet waste management needs, save resources, improve the environment, and benefit society. These economic, social, and environmental benefits can outweigh the costs of well-designed recycling programs.
Different contexts and recycling programs require tailored policy solutions, based on variations in materials, geographies, economies of scale, existing infrastructure and programs, demographics. and other social considerations. While guiding policies from higher levels of government can be appropriate, it is important to consider and tailor policies for recycling based on local factors.
Conclusion 3-2: Because of the significant heterogeneity in local conditions, no one-size-fits-all nationwide recycling policy can effectively fund and encourage recycling for all municipalities, waste generators, dwelling types, or materials. Understanding community differences is important when tailoring location-specific programs for consumers and recycling operations.
Regardless of the specific context, however, it is helpful to identify and articulate the objective(s) that effective recycling policy is designed to achieve.
Conclusion 3-3: Effective recycling policy would target some or many of the following objectives:
- Enhance end markets for recyclable materials
- Provide stable financing of recycling systems
- Clarify information for consumers, including what is recyclable, how to recycle, and which products best support recycling goals
- Track and evaluate recycling activities through improved data collection and distribution
- Increase the cost-competitiveness of recycled materials (relative to virgin material inputs) and of recycling (relative to landfilling)
- Improve access to recycling collection and processing
- Increase the cost effectiveness of recycling collection and processing
- Decrease contamination of postconsumer recycling streams
- Enhance social and environmental benefits associated with recycling
- Maintain affordability, without undue burdens on low-income households
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