Thursday, February 27, 2014

EIMPack – Economic Impact of the Packaging and Packaging Waste Directive - Cost and Benefits of the Recycling of Packaging Waste

This report summarizes the research developed in the EIMPack Project (the Economic Impact of the  Packaging and Packaging Waste Directive). The EIMPack’s objectives included the investigation of how the distribution of the extra-costs of recycling has been managed among the multiple stakeholders. Accordingly, the schemes established in seven EU countries (Portugal, France, Romania, Germany, the UK, Belgium and Italy) for the recycling of packaging waste were described and analysed. The development and changes in packaging waste management occurred mainly since the Directive 94/62/EC on packaging and packaging waste entered into force. The analysis of these seven systems had the aim of scrutinizing their different approaches to cope with the same problem: meet the recovery and recycling targets imposed by the EU law.
All (economic and environmental) benefits outweigh all the costs of the packaging waste recycling system in the three countries, even if the environmental benefits of the recycling activity are excluded.

In Portugal, total benefits (including recycling) represent 220%, 199% and 144% of the total costs for the Ecocosts2012, Stepwise2006 and Ecovalue08 methods, respectively. If the economic and environmental opportunity costs are not considered, the cost coverage is lower (89%, 86% and 82%) and the packaging waste recycling system would seem unsustainable. The benefits from the recycling represent 60 €, 35 € and 15 € per tonne of packaging waste selectively collected in each method (in the same order).
In Belgium, the recycling system seems to be sustainable both from the financial and environmental perspectives. In this case, the benefits cover 142%, 124% and 115% of the costs, according to the Ecocosts2012, Stepwise2006 and Ecovalue08 methods, respectively. Taking into account the opportunity costs, the cost coverage is higher (301%, 275% and 233%). The benefits from the recycling represent 98 €, 60 € and 38 € per tonne of packaging waste selectively collected in each method (in the same order).
In Italy, the recycling system is sustainable from the economic and environmental perspectives (including the benefits from the recycling). In this case, the benefits cover 197%, 218% and 202% of the costs based on Ecocosts2012, Stepwise2006 and Ecovalue08 methods, respectively. Excluding the opportunity costs, the benefits fall below the costs (65%, 102% and 80% for each valuation method, in same order). The benefits from the recycling activity are 22 €, 63 € and 36 € per tonne of packaging waste selectively collected in each method (in same order)....
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Local governments are generally in charge of waste management, particularly in countries with Green Dot schemes or similar extended producer responsibility systems. This leads to the need of establishing a system of financial transfers between the industry and the local governments (particularly regarding the extra costs involved with selective collection and sorting). Using the same methodological approach for Portugal, France, Romania, Belgium and Italy, the costs and benefits of recycling from the perspective of local public authorities was compared. The results point out that the industry is not paying the net financial cost of packaging waste management. In fact, if the savings attained by diverting packaging waste from other treatment (e.g. landfilling or incineration) are not considered, it seems that the industry should increase the financial support to local authorities (by 35% in Portugal, 121% in France, 459% in Romania, 11% in Belgium and 90% in Italy – Lombardia region). However, if the avoided costs with other treatment are considered as a benefit for the local authorities, the cost coverage of the systems is as follows: 128% in Portugal (i.e. the support could be reduced by 43%), 135% in France (i.e. the support could be eliminated), 87% in Romania (i.e. the support should be increased by 179%), 204% in Belgium (i.e. the support could be eliminated), and 202% in Italy – Lombardia region (i.e. the support could also be eliminated).

The economic analysis was complemented with the environmental benefits and costs for Portugal, Belgium and Italy by means of a Life Cycle Assessment (LCA) with a monetary valuation of the impact categories results. The LCA was performed with the support of the SimaPro software, the Ecoinvent 2.2 (2007) database and data collected from the national environmental authorities and the waste management operators involved in the packaging waste management systems. The same system boundary used in EIMPack (2013c, 2013a, 2013b) was analysed comprising only the waste management operations performed by the waste operators (local authorities) in charge of collecting and sorting the municipal packaging waste. However, we also considered the recycling of the sorted materials in the environmental perspective. This operation was not taken into account in the economic analysis because is not the responsibility of the local authorities. Nevertheless, the benefits for the environment achieved with recycling are the main goal of all of the packaging waste recycling system. Moreover, it is reasonable to assume that this operation is at least balanced from the financial point of view (otherwise recyclers would go bankrupt).

The environmental impacts were converted into monetary values by means of three environmental valuation methods: Eco-costs2012, Stepwise2006 and Ecovalue08. These methods use different life cycle impact assessment (LCIA) techniques and different weighting sets for the several environmental impact categories analysed which has an important impact on the results. In this analysis the economic and environmental costs and benefits were expressed in the same monetary values (EUR). Considering all the economic and environmental costs and benefits, we concluded that the systems are sustainable in these three countries (Portugal, Belgium and Italy).
Eco-costs2012 methodThe eco-costs technique is based on the “marginal prevention costs”, or in other words, the costs required to bring back the environmental burden to a sustainable level. The marginal prevention costs in 2012 were calculated based on West European price levels and on the Best Available Technologies Not entailing Excessive Costs (BATNEC) for The Netherlands. Contrary to the damage costs (where one substance can cause damage in more than one impact category), in the eco-costs method, one substance must be accounted for in a single impact category (the one for it which proves to be more relevant or costly). This method was added to the SimaPro software, so the impact categories were directly converted in monetary values, taking into account that currency value (Euro) refers to the year 2012. Since the reference year is 2010, the monetary values obtained were converted into Euro2010, assuming the European (EU27) inflation rates....

Stepwise2006 methodThis method converts all impacts in monetary units (EUR2003) or QALYs (Quality Adjusted Life Years), combining the characterization models from the impact assessment methods, the IMPACT2002+ (v. 2.1) and the EDIP2003 methods (Weidema, 2013). The monetization of a QALY is based on the budget constraint, assuming that “the average annual income is the maximum that an average person can pay for an additional life year” (Weidema, 2009; p. 1591). Thus, the budget constraint is considered to be the potential average annual income, also called the potential annual economic production per capita. This variable was estimated to be about 74.000 EUR2003, corresponding to the willingness to pay (WTP) determined by the ExternE project. This method was added to the SimaPro software, thus the impact categories were directly converted in monetary values, taking into account that currency value (EUR2003) referees to the year 2003. Since the reference year is 2010, the monetary values obtained were converted into Euro2010, assuming the European (EU27) inflation rates between 2003 and 2010 (1 EUR2003 = 1,17234€; Eurostat, 2013c).
Ecovalue08 method
Ahlroth and Finnveden (2011) developed the Ecovalue08 weighting database based on stated preference methods (in particular, contingent valuation). The authors characterized some impact categories using the CML2002 method (Guinée, 2002). For the impact category “Acidification”, the authors used local characterization factors between Europe and Scandinavia (based on the differences in soil conditions). However, we also used the CML method for this impact category since the local factors are not applicable to our case studies. Regarding the monetary valuation, those impact categories were monetized using estimates for the WTP of previous studies. For some impact categories, the minimum and maximum values were estimated to illustrate the uncertainty involved in these modelling processes....
On average, the cost of kerbside collection of dry recyclables is around 265 €/ton; sorting should be around 150 €/ton. Apparently, in [Germany], the introduction of competition on the market was beneficial since waste management costs have decreased. Since 2004, when DSD started to put waste collection services out to tender, the collection costs decreased about 30%.
Both the magnitude of costs and the cost coverage of packaging waste recycling systems differ widely among countries. For example, in Belgium, the collection frequency (per flow) is around two times per month, while in Portugal this increases to twice per week (mainly due to the differences in terms of average temperature between the two countries). In fact, collection costs vary significantly with the type and frequency of collection. The French or Italian cases, where several packaging waste collection flows coexist provide a good illustration of this.... Finally, it was possible to confirm that in countries with competitive recycling markets (like Germany and the UK) the financial information is very scarce or not available.
Environmental costs and benefitsIn the environmental analysis, two different scenarios were analysed and compared:
(1) The real scenario in 2010 (called hereinafter “Recycling scenario”), where packaging waste was selectively collected, sorted and sent to recycling.
(2) A hypothetical scenario (called hereinafter “Non-Recycling scenario”), where packaging waste would be collected as undifferentiated waste (in the refuse collection circuit) and sent for incineration and/or landfill, as shown in Figure 8. The environmental impacts of this scenario correspond to the avoided impacts (opportunity cost) accounted for in the economic-financial analysis (discussed above). Note that, in Belgium and Italy (more specifically, the Lombardia Region), only incineration was considered in this alternative scenario.
The environmental negative (good for the environment) and positive (bad for the environment) impacts of each scenario were assessed and converted in monetary values with the Ecocosts2012, Stepwise2006 and Ecovalue08 valuation methods for each case study (Portugal, Belgium and Italy – the Lombardia Region).
Despite the numerical differences, the overall results are consistent among the case studies. The “Recycling scenario” proved to be less environmentally costly than the “Non-Recycling scenario” for all case studies. Regarding the “Recycling scenario”, the total environmental benefits (negative values) are lower in Portugal than in the other two countries due to the recycling of paper/cardboard material. In Portugal, the primary pulp production (replaced by the recycling) generates electricity from byproducts (biomass, black liquor, etc.) of the process. The pulp and paper production is self-sustainable in terms of energy (Dias et al., 2007) with a surplus of energy that is introduced in the National Grid. This surplus of electricity is accounted for as a benefit lost with recycling since this activity only consumes energy. In Belgium and Italy, the primary pulp is imported and information about the quantity of electricity generated during the pulp production process is not available. The pulp production process existing in the Ecoinvent 2.2 database of SimaPro was assumed as the avoided product in the paper/cardboard recycling process. The surplus of electricity generated in the avoided product was excluded as a simplification of the problem.

In the Italian case, the environmental results for the “Non-Recycling scenario” were positive (negative sign with SimaPro) in contrast with the other two cases, in particular Belgium (for which this scenario assumes the same operations: refuse collection and incineration). The incineration process is responsible for this result since it greatly varies with the combustion efficiency and waste composition. Moreover, only one region with one incinerator and no landfilling was analysed (and not the whole Italy).
Economic and environmental balanceThe environmental results were added to the financial-economic ones.... On the costs side, we added the environmental costs related to the emissions released in the transport of packaging waste and sorting operations. As benefits, we considered the avoided emissions by recycling the packaging waste instead of incinerating or landfilling it in addition to the financial revenues due to the packaging waste management operations (selective collection and sorting). The economic and environmental results obtained for the “Non-Recycling scenario” (composed by the refuse collection and other waste treatment or disposal) correspond to the economic and environmental opportunity cost, respectively. The environmental component (mainly related to the emissions avoided by diverting packaging waste of the operations mentioned above) is a benefit in Portugal and Belgium; however, in Italy, this represents a cost (as explained above, in the Lombardia region the incineration with energy recovery of the packaging waste selectively collected would be globally positive from an environmental point of view).

The results vary significantly with the valuation method considered since the environmental modelling process is subjective and involves a high degree of uncertainty. Moreover, these methods are based on different LCIA methods and different weighting sets for the several environmental impact categories.
The sustainability of the recycling schemes depends on the approach adopted (economic or purely financial) except for the cases of Romania and Belgium. Assuming an economic approach (i.e. considering the opportunity costs), the packaging waste management systems in Portugal, France and Italy (Lombardia Region) show a cost coverage of about 128% and 135% and 202%. Therefore, according to these results, the financial support coming from the Green Dot companies to the local authorities could be reduced and the system would still be sustainable. However, the full costs of the selective collection and sorting services are not covered by the financial benefits. Thus, if a strictly financial approach is adopted, the costs coverage reduces to 77%, 57% and 50% (respectively) and the financial support of the industry should be increased. In Romania the costs are higher than the benefits in both approaches; this may be due to the fact the most packaging waste managed by the ERA recycling system comes from the industrial/commercial flow (about 93%), being collected and processed directly by the industry. In 2010, the selective collection of municipal waste was not yet implemented in the whole country. In Belgium, the recycling system seems to sustainable even from a strictly financial perspective because Fost Plus covers the total costs of the packaging waste selective collection and sorting (through different funding systems established with the local authorities).

Adding the environmental costs and benefits for three of the case studies analyzed (namely, Portugal, Belgium and Italy – Lombardia Region), similar conclusions were achieved. The Portuguese and Italian recycling systems are not sustainable (i.e. costs are higher than the benefits) if the economic and environmental opportunity costs are not considered. In the Belgian case, considering the opportunity costs seems to be irrelevant in terms of the sustainability of the current recycling system. However, the “avoided costs” component may assume an important role in promoting the efficiency of the Belgian local authorities and reducing the financial costs and the environmental damage.

Nowadays, Belgium is the second best “recycling country” in Europe with a recycling rate of around 80% in 2010. In this country packaging waste management is the responsibility of local authorities and the “standard level” service cost is fully covered by the financial support paid by the Green Dot company (Fost Plus). Germany has also achieved high recycling rates; however, being a competitive market, it is extremely difficult to know what the costs and benefits of the recycling system actually are. Nevertheless, it is clear that the industry (private companies) entirely supports the recycling system. Considering this, it seems that Germany and Belgium are two of the very few cases for which the EPR principle is fully respected. Moreover, it should be noted that the implementation of a pay-as-you-throw (PAYT) scheme is a common feature of these two countries. This represents one of the most relevant features for the success of the recycling system in these countries. Since citizens have to pay for the collection of municipal solid waste (undifferentiated waste flow) based on the amount they throw away, there is a true financial incentive for users to separate packaging waste.

In the other case studies, the remaining costs of the service are indirectly supported by the citizens through local taxes or waste management fees. However, it should be noted that, for all the cases studied except for Romania, the financial support from the industry has been enough to compensate for the incremental costs of recycling; this means that, in reality, local waste management prices/taxes did not have to increase so that selective collection and sorting could take place (because the financial benefits plus the savings attained by diverting packaging waste from the undifferentiated flow compensated for these). However, the industry is not paying for the full costs of packaging waste management in most of these countries (i.e. the transfers plus other financial benefits are not enough to cover the costs of local authorities). The citizens’ awareness of the environmental problems should always be encouraged by public authorities. The citizens’ participation in the life-cycle of packaging waste is important for the efficiency and effectiveness of recycling, especially in Romania where the selective collection is quite recent (and coverage is still very low). All the stakeholders involved in the recycling process are important to its success and economic sustainability.

In Portugal, on average, local authorities reveal a benefit of about 260€ per tonne of packaging waste collected. However, adopting a strictly financial perspective, the benefits are significantly reduced to 158€ per tonne of waste collected. Regarding the cost perspective, selective collection and sorting of packaging waste represent 204€ per tonne collected for local authorities in this country. Therefore, the cost coverage is around 128% considering an economic perspective but only 77% if the cost savings due to recycling are not taken into account. In France, the costs and benefits are higher than in the other countries, namely 314€ and 232€ per tonne of packaging waste collected, respectively. Currently, the cost coverage is around 135%, from an economic perspective but only 57% if the opportunity costs (costs avoided with refuse collection and disposal) are not considered. The recycling financing systems in Portugal and France are quite similar. In these two cases, there is direct (subsidies to the investment) and indirect (through local taxes paid by the citizens) public money involved. In Romania, the total (economic and financial) benefits are lower than the costs. Even considering the opportunity costs (which are considerable lower than in the others countries) the cost coverage is only 87%. Belgian local authorities benefit around 286€ per tonne of packaging waste collected in 2010, considering the opportunity costs. In a strictly financial perspective, the benefits represented 126€ per tonne. Since financial benefits cover the costs of the service (in fact, the cost coverage is around 90% from a financial perspective).13 Overall, one may say that, currently, the Belgian recycling system is financially sustainable and has no public money directly involved. Finally, the Italian case (in particular Lombardia region) presents the lowest financial cost coverage (50%). Financially, local authorities benefit around 58€ per tonne of packaging waste selectively collected whereas the service’s cost is 117€ per tonne collected. The economic analysis reveal that the benefits increase significantly to 236€ per tonne and the cost coverage is 202%.
Research team:Rui Cunha Marques (Principal Investigator), Nuno Ferreira da Cruz (Researcher), Pedro Simões (Research Grant), Sandra Faria Ferreira (Research grant), Marta Cabral Pereira (Research grant), Simon De Jaeger (Consultant), Lucia Rigamonti (Consultant), Mario Grosso (Consultant), Francis Ongondo (Consultant), Ian Williams (Consultant)
European Investment Bank
Final Report Draft; January 2014
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