Waste not, store that

Dr Eric Crampton
The National Business Review
15 June, 2018

Dilbert creator Scott Adams likened knowing a bit of economics to having a mild superpower.

High among economists’ mild superpowers is the ability to use formal mathematics to define what words mean. Working through the implications often leads to implications that seem counterintuitive but are hard to overturn.

It also makes it hard to read documents like Auckland Council’s Waste Management and Minimisation Plan.

Let’s think about waste and then come back to Auckland’s plan – but we’ll leave the maths to one side.

Suppose you have two ways of digging a ditch. You could hire 1000 workers, each of whom would bring a spoon with them from home, and get the job done for about $100,000. Or, you could hire an excavator that comes delivered in a cardboard box with Styrofoam packaging around it and get the job done for less than a tenth of the cost. The former is certainly more wasteful, even if the latter sends a bit of Styrofoam to the tip.

Waste is what happens when more resources are used to produce something than would really be needed, all things considered. Resources are not just physical raw materials but also time, effort, labour, ingenuity, and expertise.

And a lot is also packed into “all things considered”. If someone could create just as many widgets using fewer materials but using more time, effort, ingenuity, and expertise, then it could be wasteful to do so.

When we think about things this way, then it’s impossible to tell whether something is wasteful based only on the amount of surplus material winding up at landfill. A product with a shorter lifespan that winds up in the tip can be less wasteful than a more durable product with a longer life if it is sufficiently more expensive to build the more durable version, or the version that is more easily recycled.

The maths behind these results only really work if garbage disposal is priced properly. Landfills need to be constructed properly and tip fees need to cover the real costs of building, running, and decommissioning landfills. So it is important to get that right.

Market magic
But when those tip fees are right, markets and entrepreneurial innovation can work their usual magic. When consumers pay to dispose of their rubbish, whether through a private garbage collection service or through per-bag fees for a council service, they weigh that up when deciding whether to buy the radio in the small cardboard box or the one in the giant box with a cubic metre of Styrofoam packaging. Companies strive to provide what consumers want to buy.

And entrepreneurs able to find ways of doing more with less can profit by it. Companies able to find efficient ways of recovering valuable materials among the rubbish would be able to charge less for waste disposal overall. This is hardly new: During World War II, when scrap rubber, paper and metals were particularly valuable, Boy Scout troops would organise paper drives and tin can drives. And rag-and-bone men have an even longer history. When one person’s cast-offs have real value exceeding the costs of collecting it, someone will find a way of making use of it.

The upshot then is that firms and consumers have strong incentives already to avoid resource waste – they just measure waste over a much broader range than simply what winds up in the tip.

Waste minimisation, when we consider waste using the economist’s terms, is an analogue of profit maximisation. In fact, they are the same thing. A firm able to produce the same amount of output but with less cost is one that is saving resources – reducing waste. The maths for a firm seeking to minimise costs are identical to the maths for a firm seeking to maximise profits. We just need to be sure the tip fees are set correctly.

It is no surprise that firms already try to reduce waste, and that disposal firms try to find value in the rubbish. Reducing waste and increasing profits are rather similar – when waste is considered in the economist’s holistic sense.

Zero waste worlds
And that brings us back to Auckland Council’s waste management plan, and its emphasis on zero waste worlds.

The council has a somewhat different conception of waste. Its aim is to eventually phase out the use of landfills, in pursuit of what it describes as a ‘circular’ economic model. In that model, minimising materials going to landfill is the overarching goal – regardless of the cost involved in re-engineering products and processes to get there. It warns that wasted materials involve more than just disposal costs – there are also costs of energy, the opportunity cost of lost materials, and labour costs.


But firms and households are already accounting for those costs in their decision-making, and the council is not considering the costs it would impose on others in pursuit of a zero-landfill world.

The world market for a lot of recyclable materials has collapsed – the costs of turning a lot of rubbish into valuable materials seem higher now than building those materials from scratch. But that need not always be true. Technology will change, and some non-renewable resources may become scarcer – and more valuable – over time. And techniques for sorting those materials will only improve.

It would consequently be wasteful to recycle those materials before their time. Recycling them now would require more real resources than recycling them when the total value recovered exceeds the cost of the process – when it becomes profitable, in other words. For example, when the price of gold is high, it can make sense to recover it from old circuit boards. When the price is low, it can be better to wait.

In the meantime, we need safe storage sites for materials suitable for future recycling – which really is, potentially, everything.

We need sites where those materials will not cause damage to the environment, and where they can be kept secure. These secure storage facilities should ideally be underground, where materials valuable for the future cannot blow away. The sites should be lined thickly with clay or other suitable materials to prevent leaching.

If we might apply a bit of economic superpower, then, we might have a solution. New Zealand does not really have landfills. It has storage sites for future recycling. Thinking about it that way is a good first step towards a truly zero-waste world.

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