Market Developers Ponder Supply, Demand

With demand strong, market developers are looking at the supply side and harder-to-recycle items. 

Because market development efforts in the last few years have resulted in strong demand for recyclables, market developers have begun to take a hard look at their role in increasing supply.

"From the demand side, we’re swimming in capacity so we have to make sure we don’t drown and the pool doesn’t dry up," says Tom Polk, recycling industry development project manager for the Maryland Department of Economic Development, Baltimore.

"Our mission is to recover material in a way that’s cost-effective to the communities that are operating the recycling programs and the haulers who are recovering material. And at some level it must be cost-competitive for the manufacturers to use that material."

Paper, in particular, needs some increase in collection, he says. Demand for post-consumer plastics, meanwhile, may fall as prices for virgin plastics decrease in the near future.

"I don’t think we need more plastics plants," says Polk. "It’s more a question of how virgin plastics markets affect recycled plastics."

Another wise objective is to take the lessons learned from earlier efforts in market development and apply them to less-recycled materials such as tires, appliances, wood or compost, says Polk.

"There’s a lot of need for facilities that can handle that material, and there is a need for research and development to solve the technical problems," he says.

"We need to look at the underserved parts of the market on the demand side, see if there are materials available, and try to work both sides of that street and get whatever resources the state can bring to bear to make private projects happen."

The Mid-Atlantic Consortium of Recycling and Economic Development Officials -- consisting of representatives from Maryland, Delaware, Pennsylvania, Virginia, West Virginia, and the District of Columbia -- has two committees working on supply issues, one for paper and one for plastics, says Polk.

"What we’re going to do is develop grant proposals to the regional EPA office to fund demonstration collection and education programs," he explains.

The goal is to raise local public officials’ understanding and awareness of recycling markets available to them and specifications for preparing recyclable material for those markets.

"In turn, they can educate the residents and potentially either expand the current materials collected or go out and do some additional education about what is now recyclable that people may not have been aware of," says Polk.

"And we’ll also look at providing that same kind of educational resource to commercial generators and particularly smaller businesses that aren’t as well served, and large businesses that aren’t getting the capture rate that they otherwise could."

Some states such as New Jersey, says Polk, offer grant or loan programs for recycling equipment in order to assist with the processing of recyclable materials.

"They are looking at conveyors, balers -- the things a scrap handler would need, and potentially the financial help is available from the state. Paper is a big area for this."

In the past, states have offered manufacturing facilities such as paper mills financing help through tax-exempt bonds, says Polk. Now states are looking at smaller, low-interest loans guaranteed by a public entity to a processor that would use some combination of private and public financing. The purpose of these loans is to expand processors’ capacity to handle incoming materials.

"So they are beefing up the processing infrastructure as opposed to beefing up the manufacturing infrastructure," he explains.

Even if recycling market development is not yet completely part of the mainstream, says Polk, there is now a critical mass of people involved in the issue that has developed practical experience.

"This is a learning process for everybody, but the issue is a lot closer to the everyday operation of both economic development and solid waste officials than it was five years ago," he says. "I think in my office the perceptions are still there that recycling is still a fringe industry, it’s high risk, there’s lots of problems with companies that try and do things they don’t have the technology or markets to do. And people are still wary of exploring those kinds of projects."

The job of current market development officials, then, is to be very rigorous with potential recycling projects, in order to weed out those that are not legitimate, says Polk.

"Particularly when you get into the harder to recycle materials, there are a lot of snake oil salesmen out there," he says. "We don’t want to see public resources go down the drain in ill-fated projects. I think this is the mode we’ll be in for the next five years or so -- highlighting the projects that are successful, that employ people and remove materials from the waste stream."

Part of the EPA’s Jobs Through Recycling Program -- which encompasses eight states, the District of Columbia and an Oregon Indian tribe -- involves reporting to EPA on four recycling market development criteria, says Polk.

"The program seeks to measure jobs created or retained, new capital investment, increase in tons per year of capacity, and increase in tons per year of use of recycled materials," he explains.

"EPA will get this data over the next year and that will be part of the justification of the grant money they spent that it’s worthwhile to devote resources to this industry."

The next step in market development varies, depending on where a given state is physically and financially, says Polk. But two main areas of concentration are exploring the potential to recover materials that haven’t yet been recovered in significant quantities and continuing the education process.

"There are a lot of companies I come into contact with that don’t have any concept of recycling or waste costs," he says. "We might see more reaching out to the general business community -- not manufacturers of recycled products or scrap processors, but the people in manufacturing or distribution.

"They may have waste problems or are potentially sitting on a gold mine of OCC or some other kind of paper, and may not be aware of how they’re managing their waste, how it could be better managed, or how they could sell it," he continues.

With material prices in some cases at record levels, it’s easier to convince companies to eliminate disposal costs and actually receive some return for recyclables such as paper. All in all, the recycling market development picture is bright, says Polk.

"But when the economy turns down, people will be crying again," he adds. "Inefficient operators will be the first to go, so there will be a shakeout again. Rising interest rates are going to hurt everyone’s opportunity to expand. With the dollar so low, it’s great for export, which means that domestic waste paper is now a better deal for overseas buyers. They might take some away from domestic mills that aren’t willing to pay that high a price."

Although increasing supply is an important part of the municipal recycling picture, market development officials should not focus their resources on it, according to David Dougherty, executive director of the Clean Washington Center, Seattle.

"That’s the environmentalists’ job," he proposes.

"Anything grows unevenly, even people, and you have the same thing here," says Dougherty. "You had a crisis of supply, and everybody worked hard to develop capacity for that amount, and now there’s a need for more. So now you have to continue to focus on getting more out, but you can’t let up on continuing to develop the diversity of the market to absorb that additional material. For example, we’re collecting only a small portion of the plastic that’s out there, and there are huge areas where not even cardboard is being collected."

Those responsible for collection need to find those pockets where materials remain that aren’t being diverted, which may be parts of the commercial and industrial waste stream, he says. For example, the Clean Washington Center conducted a study of the local electronics industry and found a huge amount of recoverable corrugated cardboard containers.

"We’ve spent a lot of time on the commercial waste stream and now we’re moving into a waste stream eight times bigger than the municipal solid waste stream -- the industrial and commercial waste stream. It’s cleaner, and there’s the opportunity to divert much more material if we focus on those waste streams," says Dougherty.

"The market development people must work to create greater efficiency in the cost of reclaiming materials and in the price and quality of material reclaimed," he adds.

"There are huge inefficiencies that need to be wrung out of the system, and there are economies of scale that can be achieved by more optimizing our system and continuing to develop a more diverse marketplace."

In addition, recyclers must not become complacent about market development, says Dougherty. In the case of plastics, Asia is currently importing large quantities of U.S. post-consumer plastic. But this is not a sustainable market, he says.

"Asia is pulling an awful lot of our plastics, and they’re doing it because they had a poor cotton crop, and because they don’t have their own petrochemical infrastructure. And as soon as they do they won’t want our plastics," says Dougherty.

"So you can’t say ‘gee, market development is done for plastics,’ because they’re going to be selling plastics cheaper than we can make it over here," he continues, "so we’d better know that and be developing our own ability to sustain the plastics we’re collecting right now because they’re not going to be taking it."

The Clean Washington Center is still working on market development efforts for glass and plastics, says Dougherty, as well as less-recycled materials.

"We’re looking at the ability to move cheaper-grade fiber into higher-grade uses, and we’re moving very heavily into industrial waste, construction waste such as asphalt roofing shingles, gypsum and wood. We believe there are tremendous opportunities in those areas to divert material that’s currently going into the waste stream and move it into a productive reuse."

Although jobs created by recycling are important, job creation should not become the driving force for recycling market developers attempting to convince mainstream economic development people to espouse recycling, says Dougherty.

"The main driver is taking materials that are going to go to the waste stream and avoiding the cost of disposing of them and coming up with new products and reuses for them," he says.

"In the process, you create jobs and capital investment, but that shouldn’t be your primary focus, because in many cases you’re working with existing companies that are retooling to use recycled material, and that doesn’t create many jobs."

Although the Clean Washington Center conducted a study showing that, in a three-year period when the state lost 14,000 manufacturing jobs, recycling gained 3,000 jobs, they don’t use this as a selling point for recycling as a significant source of new jobs in the region, says Dougherty.

"It does happen, but it’s not our main focus. More importantly, we now have a number of plastics companies that didn’t exist four years ago, using plastics in a host of products, so we have a local mini-plastics industry created because of recycling."

Material prices are high, and are likely to stay that way, says Dougherty, which will help to demonstrate the legitimacy of the recycling industry.

"We still run into a lot of educated people who believe that not much happens to those materials after they are collected, that it’s probably just stockpiled," he says. "But I think once recyclables start being publicly traded on the Chicago Board of Trade -- scheduled for September 1 -- and you pick up your Wall Street Journal and read that the East Coast price of corrugated is $200 a ton, then people are going to understand that this material has value, and it will encourage people to pull more out of the waste stream."

The Clean Washington Center and the National Recycling Coalition are also putting in place a national technology network for pulling together and disseminating information about recycling technology under the national ReTap program.

"This will help people all over the country adopt best practices for handling glass, plastic, etc.," says Dougherty.

The next area of focus will be on financing businesses that use recycled products, he adds.

"We’re undertaking a needs analysis of the capital need of the 217 businesses we work with that have indicated difficulty in getting the recycling financing they need."

There is a hesitancy in the part of financial institutions that don’t understand the nature of recycling businesses, says Dougherty.

"We need to look at creating some type of financial mechanism that would deliver the appropriate type of financing to these businesses."

The Clean Washington Center is working with Shore Bank Advisory Services to create a development bank or a small business investment company approach, he adds.