Economics of Recycling

Editor’s note: The following text is an edited excerpt from “Executive Summary: The Economic Impact on Connecticut from Recycling Activity,” a study compiled by the Connecticut Economic Resource Center Inc., Rocky Hill, Conn., for the Connecticut Resources Recovery Authority, Hartford, Conn. The full executive summary is available at www.crra.org/documents/press/Press%20kit/CERC_recycling_economic_impact_study_executive_summary_11-27-2012.pdf.

Most of us like the idea of finding new and appropriate uses for things we thought we were done with. This is true for businesses as well as for households. Businesses that focus on profits know that finding a way to reuse materials can make them money. Households don’t often recognize the added value they provide to the economy by choosing to recycle; however, their contributions can be significant to the overall well-being of a region’s economy as well as a region’s environment.

In 2012, the impact of recycling activity on Connecticut’s economy, as measured in total sales, is estimated to be more than $746 million. Over seven years, from 2006 through 2012, this impact is estimated to be nearly $5.17 billion. Other measures of the overall economic activity associated with recycling in Connecticut in 2012 are estimated to include employing more than 4,800 people and contributing $469 million total in value-added income, which includes labor income of more than $275 million, indirect business taxes of nearly $59 million and other income of more than $134 million.

While these numbers are substantial, they are conservative estimates of the overall impact of all aspects of recycling activities in Connecticut. This conservative nature is a result of the complex market structure of recycling in the state, which results in some of the dimensions associated with recycling not being classified as such or with some aspects not being associated easily with recycling activity. However, this analysis has been as thorough as possible in accounting appropriately for all of the available data.

Within the structure of Connecticut’s economy, this analysis was developed to provide a measure of the economic impacts associated with Connecticut’s recycling activity for each year from 2006 through 2012, the study’s parameters.

In addition, the following report extends this analysis to include an examination of the contributions of the Connecticut Resources Recovery Authority (CRRA). CRRA fills a critical role in overseeing an efficient material recovery facility (MRF) within the state and in providing its knowledge to inform state policy. CRRA also provides an experiential and educational recycling component in Connecticut through its Trash Museum.

Impacts by Type
The total impacts presented throughout this report are the accumulation of the direct, indirect and induced impacts as estimated by the IMPLAN input-output model. They are based on known or estimated data from various sources that inform the economic impact model. For the statewide analysis, much of the information comes from the U.S. Census Bureau’s County Business Patterns data. Thus, for example, the direct effects for MRFs were primarily based on employment as observed in the North American Industry Classification System (NAICS) 56292 classification and the data for recyclable material wholesalers from NAICS classification 42393.

These direct impacts then ripple through the economy, creating additional activity. The IMPLAN input/output model captures the next level of activity as the indirect impacts. The indirect impacts measure the accumulation of the purchases from other industries within Connecticut that are needed to provide for the level of economic activity specified in the direct effects. The ripples furthest from the direct activity are the induced impacts. The induced effects are based on the change in income that would occur from the direct and indirect economic activity.

The economic impact multiplier is the ratio of all three effects (direct, indirect and induced) to the initial direct effects. The size of the multiplier is dependent on the region’s industry structure, specifically the types of inputs used for that industry’s production function that are provided from sources within the region and the labor income in those industries.

Total direct employment estimated from the activities included in this impact analysis for the recycling industry in Connecticut averages 2,710 per year, while the total direct output from this industry between 2006 and 2012 is estimated to be $3 billion.

The indirect impact on Connecticut’s employment estimated by the IMPLAN model is that an additional 755 employees are required across the state to provide goods and services for the activities associated with recycling. The total sales associated with these employees during the study’s seven-year period are estimated to be $791 million.

The total additional employment in Connecticut’s economy because of the increase in household incomes associated with the direct and indirect recycling activities modeled in this analysis was 1,325 jobs, while the increase in output over the seven years was estimated to be $1.33 billion.

Impacts by Industry
The economic impacts from the recycling industry reach into all other industry sectors within the state. This activity provides economic activity across the state to companies in a diverse set of industries and can be measured in output (total sales and the net change in inventory), employment and value added. Value added is a measure that includes employee compensation, proprietors’ incomes, indirect business taxes, profits and other property-type income. These are jobs for production that either contribute to the recycling industry or that are created because of the consumer expenditures of labor income that are associated with recycling activity.

The annual average of total jobs associated with the secondary impacts (the indirect and induced impacts) of the recycling industry in Connecticut was 2,080. Some of the industries with the most indirect jobs include transportation and warehousing; professional, scientific and technical services; and information. As is common with induced impacts, the industries with the most number of jobs include retail trade as well as accommodations and food services.

Components of  Recycling Activities
This impact analysis explores the total economic impact of the recycling industry at the state level and also the impacts associated with CRRA. For both of these impacts, the specific activities for each year were analyzed independently. Thus, for the statewide impact, the components analyzed included the state’s MRFs; the collection, hauling and transfer-station activity associated with bringing recyclable materials to the facilities; and the state’s recyclable material wholesalers industry. The basis for the activity associated with collection and hauling was estimated by DSM Environmental, an internationally recognized consulting firm with experience in all aspects of resource recovery and solid waste management.

DSM Environmental has done considerable work in Connecticut and is currently engaged by the Governor’s Working Group on Modernizing Recycling.

It is important to recognize that a larger number of activities work together to fill in a rather complex market within the state of Connecticut. While there are still pieces of the recycling market, such as food and other organic composting, that can be filled in and additional expansions in recycling in many of the areas already present, the various pieces of the state’s recycling puzzle are put together in economically sound ways. Where the market supports recycling, private independent wholesalers collect and resell materials on the international market. These recycled materials become resource inputs for industries and, because they use less energy, decrease the carbon footprint of manufacturing and put downward pressure on the prices of natural resources, which in the long run will decrease prices to consumers.

On average, they account for about 60 percent of the total impact, and because they operate in a competitive market and sell most of their output outside of the state, they naturally focus on efficient production and through their activity bring additional wealth into the state.

The focus of the second part of the recycling market is on MRFs. It is within this industry that the CRRA operates and accounts for between 30 and 40 percent of the state’s total industry employment. Although MRFs engage in recycling activities that extend beyond recycling materials from households (including governments, schools and some businesses), much of their activity is associated with providing opportunities for households to recycle. The direct activity of the state’s MRFs accounts for only around 7 percent of the total state recycling activity, yet this 7 percent still accounts for more than $53 million in sales (385 jobs) in the state. In addition, the collecting and hauling of recycled materials from generators (households, governments, schools and businesses) directly requires an estimated 969 jobs (yearly average for 2006-2012). This activity creates a total impact on the state’s economy that accounts for slightly more than 1,803 jobs each year. This activity includes the municipal and private contractors that collect recyclables from households and accounts for an average of 33 percent of the total statewide impact on recycling when measured in output. Government contractors are estimated to account for around 18 percent of the total impact on output from hauling activity from 2006 through 2012, while private haulers account for the remaining 82 percent.

In total dollars, the output associated with hauling in the state increased from about $207 million in 2006 to slightly more than $260 million in 2010 because of the advent of single-stream recycling in 2008. Since 2010, that growth was estimated to increase by nearly $13 million based on the continual increase in use of single-stream activity and an increase observed in employment in the hauling industry.
 

CRRA Contributions
The CRRA provides a number of benefits for the state of Connecticut above and beyond those provided by other MRFs in the state. Its mandate is to work for and in the best interest of the municipalities of Connecticut to find best practices for managing their solid waste. Since its founding in 1973, CRRA has fostered the evolution of the state’s solid waste management system, replacing town dumps with single-stream recycling and trash-to-energy facilities. One of CRRA’s innovative undertakings has been the development of recycling education programs and, specifically, the CRRA Trash Museum in Hartford, Conn. CRRA also contracts and oversees the MRF in Hartford, which has served as many as 82 municipalities. Overseeing this system allows it to gain valuable information on best practices and efficient methods for handling materials recovery.

The total impact from 2006 through 2012 from CRRA was:

• $883 million in total output (in 2012 dollars);
• 861 jobs per year; and
• $529 million in total value added (in 2012 dollars), which includes labor income of $362 million (in 2012 dollars).

The inputs for this analysis include CRRA’s marketing activities, its operation of the CRRA Trash Museum, its capital investments and the daily operating employment of its contractor at the Hartford MRF. Hauling activities were based on the estimates provided by DSM Environmental and shared out to CRRA based on its share of total industry employment. Although recycled tonnage would have been a better estimator of CRRA’s hauling share, state totals to compare with CRRA’s tonnage were not readily available at the time of this report. These impacts are more detailed than those used to generate the state impact estimates and do not include recycling wholesale activity because CRRA is not involved in or classified in that industry. However, the impacts associated with CRRA can be thought of as providing parallel estimates to the statewide examination previously presented. For this analysis CRRA provided costs and expenditures associated with its operations and those of the contractor that operated the Hartford facility from 2006 through 2012.

The largest output impact associated with CRRA’s recycling activities is the collecting and hauling component, which was estimated to account for nearly $646 million, or 77 percent of the entire economic impact. This includes sales of the inputs required for collecting and hauling recyclables as well as the expenditures from the income associated with this activity throughout the state of Connecticut.

The total impact on employment in Connecticut associated with CRRA’s recycling activities includes an average of 653 jobs each year in collecting and hauling and 179 jobs from the activity of the contractor at the Hartford MRF.

The largest and most active component of recycling activity for households in Connecticut, CRRA contributes nearly $120 million in output on a year-on average once the collecting, hauling, handling and educational activities of the authority are taken into account.

The Connecticut Economic Resource Center Inc. (CERC) “Executive Summary: The Economic Impact on Connecticut from Recycling Activity” is available at www.crra.org/documents/press/Press%20kit/CERC_recycling_economic_impact_study_executive_summary_11-27-2012.pdf. The summary is published here with permission from CERC.