Examining Waste as an Economic Externality


Glass bottles and jars. Creative Commons CC0.

Missoula, Montana, a city of 70,000 residents, cannot feasibly recycle glass. The city is too far from existing glass recycling centers to make recycling profitable. So despite the myriad of uses for recycled glass, all glass bottles sold in Missoula end up at the dump [7]. Recycling glass is not too expensive, but the only revenue for those in the recycling business comes from selling products made from recycled materials.  How might this be corrected? How might civil society properly account for the cost of wasting recyclables like glass bottles?

In an economic sense, it is usually municipal and state governments that account for the cost of damage waste causes to local environments when deciding how to deal with waste, but this cost is not already part of the price of goods or services that produce waste. Economists define this problem as a negative externality. Externalities, according to economists, are any sort of benefit or cost placed on a third party without compensation [3]. In most economic case studies, one person’s or group’s economic activity has a negative effect on a different community for which members are not compensated, such as when industry pollutes rivers. In the example above, the cost to the municipality for putting a glass bottle in the dump is not reflected in the market prices associated with the bottle. Recently, legislation to address these economic externalities surrounding post-consumer waste has been discussed and passed in various countries around the world.


Diagram explaining externality. Mikm at the English language Wikipedia(CC BY-SA 3.0)

In a capitalist market, the cost of disposing of a product after its useful lifetime has not historically been considered in the price placed on it. The full burden of disposing of goods does not always fall to either the producer or the consumer, but is placed on the municipality. This practice of shifting the cost of disposal has become an essential part of producer profits. Extended producer responsibility (EPR) is one contemporary way that market economists propose addressing these economic externalities. EPR policies mandate producers either establish methods for disposing of their products in normal waste streams, or take back their used products from consumers and handle the disposal directly. By placing the burden of disposal on producers, these legislative policies anticipate that companies will inevitably factor this cost into the price of the product, internalizing the cost of disposal.

EPR policies first emerged in the early 1990s in both the United States and Europe. In 1998, a first draft of the European Union’s directive dealing with waste of electrical and electronic equipment (WEEE) was introduced. Electronic waste makes up a small portion of landfills, but is disproportionately dangerous because it contains hazardous materials and therefore is difficult to safely dispose of [1]. When the final version of the directive was passed in 2001, it mandated that companies take back e-waste from consumers and dispose of it properly. Other EU directives sought to establish take-back policies or some other recovery system for packaging material and vehicles, but left the specifics of these programs up to the member states [2]. These programs seek to guarantee that the waste is disposed of efficiently and safely instead of whichever way is most convenient to the consumer.

rechargeablebatteriesIn the United States, these EPR programs are not as widespread, but there are new efforts to increase their use. The plans that do exist are usually limited to products that are known to be harmful and frequently disposed of improperly. For example, the first EPR laws enacted in the United States focused on rechargeable batteries, which contained mercury. Minnesota passed a law that required battery manufacturers to collect 90% of rechargeable batteries by 1995. This law persuaded manufacturers to start the Rechargeable Battery Recycling Corporation (RBRC) to get ahead of other states passing similar laws. Initially, the RBRC set a goal of 70% collection nationwide. A decade later, they stopped reporting figures, which makes it difficult to evaluate the effectiveness of the program. Because of Minnesota’s law, the state has the highest collection rate, 1.8 times the national average [6]. The cost of recycling the batteries most likely shifted into the purchasing price of the batteries for consumers, but it represents a more accurate reflection of the true cost of dealing with these hazardous materials.

These laws may seem to be placing more burdens on companies as it is extending their responsibilities, but some companies are advocating for these laws and implementing their own versions. Many companies that use packaging like paper and single-use plastic containers want EPR programs because it will help them get more materials to make their products [5]. Recycled aluminum takes 95% less energy to turn into a can than virgin aluminum, so it is beneficial for companies to get more post-consumer aluminum [4].

EPR isn’t the only way to address the waste externalities and ensure recycleables stay out of landfills. Most states have a Deposit-Refund system for bottles and cans, which reestablishes the value of recycle-ables like bottles and cans by refunding 5¢ for each. This system may also have advantages over EPR programs because each product does not need to be returned to the individual producers, but is instead sorted locally by and for recyclers.

EPR and other ways to address externalities may seem like an uphill battle, particularly when using public policy to push against the existing paradigm of consumer responsibility for waste. Historically, consumers are framed as the ones responsible for managing waste. In the mid 20th century, when single-use (disposable) containers started spreading in the United States, local and state governments started responding to the growing issue of litter in their districts by banning single-use containers. To combat this, companies created the industry-front group Keep America Beautiful. They created a famous commercial of a Native American crying at the sight of litter. This and similar campaigns make the case that litter was the responsibility of those who dropped it, not those who manufactured it [8]. Advertising and marketing created the paradigm of consumer responsibility. By the same token, perhaps advertising and marketing could be harnessed to reverse the paradigm. Regardless of how a change in responsibility is effected, the cost of disposal and recycling must be shifted onto producers before it can be accounted for in market economy logics.

Extended Producer Responsibility (EPR) does not fix all of the problems associated with waste. It doesn’t account for the damage that trash can do even when it is disposed of properly, such as the issue of leachate from landfills. Nor does it address pollutants and waste created during manufacturing. Yet from the perspective of economics, legislation implementing extended producer responsibility will ensure that a more accurate cost of a product’s entire life cycle is taken into account when it is produced, beyond the cost to get the product to market. This ensures that even when something ends up in a landfill, the cost of disposing of it is reflected in the price tag. In Missoula, glass bottles are inefficiently inexpensive because the cost of their proper disposal has not been factored into their price, but is shouldered by the municipality. By implementing an EPR program, that cost would be transferred to producers, who would then add it to the price of their products. This would ensure that by the time the glass bottle is being disposed of, its disposal has already been paid for by consumers or industry.


Andrew Bishop is pursuing a bachelor’s degree in applied physics from Harvey Mudd College.



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