Economies of scale can ensure quality and quantity alike.
Quantity and
quality are usually considered to be an either-or choice. There is an assumption
that you can have one but can’t have the other. There is a further assumption
that the two are either unrelated or are in direct conflict with each other. In
the recycling business, there are several metrics for measuring both
characteristics.
In the context
of recycling, quantity can refer to the amount of the overall wastestream being
handled by the recycling facility or program, typically measured in tons per day
or pounds per capita. Or quantity can refer to the percentage of the wastestream
that consists of the material in question. A wastestream can consist largely of
paper waste and similar waste types, such as newsprint, corrugated cardboard, or
glossy magazines. However, this material may not be as valuable as other
recycled materials (such as scrap metal) on the resale market.
This brings us
to quality. Quality can also be defined two ways. High-quality recyclables
themselves can be valuable (such as the scrap metal described above) or can be
recycled in such a way as to produce a material with high-quality
characteristics. The price that the market is willing to pay for a type of
recycled material will depend on market demand. Because of the rapid expansion
of newly industrialized economies in China, India, and other nations, the once
highly volatile scrap metal market has seen steady increases in market value.
This definition of quality is outside the control of the recycler. However, the
second definition, based on the intrinsic characteristics of the final recycle
materials produced, can be achieved through superior sorting and separating
technologies and methods. Cross-contamination of recycled materials (wastepaper
mixed in with cardboard, different colors of glass mixed together, or different
types of plastics combined in one output) is what lowers the inherent quality of
the recycled materials. Effectively, the buyers of these materials (usually
purchased by the ton) will be paying for materials they don’t want or need, or
could negatively affect their subsequent production processes.
Given the above
standards, a materials recovery facility (MRF) seeking to maximize production
(high quantity) cannot do so without an eye toward maximizing the quality of the
final product. The successful realization of economies of scale demands that the
expanded capacity of a MRF must be either matched with improved quality or focus
on the production of materials already deemed valuable by the market, or the
effort will be wasted. Without improving or maintaining standards of quality,
the recycler will be left with nothing more than bigger piles of poorly sorted
waste with little or no market value.
Economies of Scale and Cost
Reductions
Economies of
scale (often mislabeled “economics of scale”) are the cost savings achieved by a
process, industry, or company as the direct result of expansion. As a
definition, it refers to the reduction in cost per unit as more units are
processed. Though primarily applied to the manufacturing sector, economy of
scale is a universal concept that can also be applied to recycling. This is true
even though recycling is the opposite of manufacturing. Instead of using raw
materials to create finished products, recycling ideally takes discarded
finished products and reduces them to their constituent raw materials.
How are
economies of scale achieved? There are two ways: by the reduction in cost of
materials as a result of buying in bulk, and by the spreading out of more units
of production over the same fixed-cost base. Buying in bulk takes advantage of
the suppliers’ economies of scale. The cost of delivering lumber, coal, iron,
cotton, sugar, or any other commodity drops as the amount being delivered
increases. It is the trick every shopper knows when purchasing items at a bulk
discount wholesaler compared to the increased costs per item at boutique
retailers. As a manufacturer increases the number of units being manufactured,
he can order larger quantities of raw materials. The resultant cost savings are
passed onto the consumer in the form of lower prices per unit sold.
The
manufacturer and his bulk supplier achieve their respective cost savings by
applying the number of units produced over a constant fixed cost of doing
business. Fixed costs are those production costs that remain the same no matter
how many units are processed. For example, the cost of constructing a steel mill
with its floor space, warehouses, furnaces, equipment, and land may have an
up-front cost of $1 billion dollars. This cost is usually paid for with a loan
that applies interest rates to the cost over the duration of the loan to
determine the amount of each regular monthly or annual payment. These payments
are fixed and are independent of the amount of steel actually produced by the
plant and equipment.
For example, if
the payments on the aforementioned loan for the factory amount to $100,000 per
month and the factory produces only 1 ton of steel per month, the fixed cost per
ton of steel would be $100,000. However, if the factory produces 1,000 tons of
steel each month, the fixed costs per ton would fall to $100. This is true up to
a certain point defined by the design capacity of the process. Suppose the
factory’s equipment is designed to produce no more than 10,000 tons per month,
the smallest per unit fixed cost would be at least $10 per ton.
Fixed costs are
the opposite of variable costs, which do increase with the amount of units being
processed. Together, fixed costs plus variable costs equal the total cost per
unit. In the example of the steel mill, two obvious variable costs would be cost
of iron ore shipped to the factory and the cost of energy to heat up the
furnaces. Each ton of steel requires several tons of iron ore and several more
tons of coal. The overall cost of these raw materials varies with the amount of
steel produced.
For example, if
a ton of steel requires the purchase and delivery of $2,000 worth of iron ore
and $3,000 worth of coal, the variable cost per unit of production would equal
$5,000. So if the same steel mill produces 1 ton of steel per month, its
variable costs would be $5,000 per month. If it produces 1,000 tons per month,
its monthly variable costs would increase to $5,000,000. Ignoring all other
costs, the above example can be illustrated by Table 1. The table represents a
simplified scenario since it does not factor in any price reduction resulting
from purchasing large-volume bulk quantities of iron ore and coal. For example,
at a production rate of 1,000 tons per month or more, the cost of coal and iron
ore may drop to below $4,000 per ton of steel. Conversely, if the manufacturer
and its competitors increase production to meet increased consumer demand, the
variable costs per unit may increase as demand-driven inflation drives up prices
of coal and iron ore. Still, for all of its limitations, the table illustrates
in simple terms how significant cost savings are achieved with economies of
scale. The issue then, is how to apply this principal to recycling.
What Is Recycled—and How
Much?
Recycling
converts objects that would otherwise become waste into products of value. In
doing so, recycling creates a host of positive environmental, social, and
economic side effects. Not only does recycling result in earning through direct
sales on the scrap markets, but recycling also avoids the costs of disposal or
incineration. For example, if aluminum cans can be sold at a net profit of $10
per ton, the real “earnings” are the cost avoidance of having to pay a $33 per
ton tipping fee at the local landfill. So the total net positive economic
benefit would $43 per ton.
According to
EPA data from 2003, Americans generate an average of 4 to 5 pounds of waste per
person each day. With an estimated 300 million Americans, this is equal to about
675,000 tons of waste generated daily—or almost 250 million tons annually. Given
that the nationwide average for tipping fees at landfills is around $33 per ton,
this represents an annual market of $8.25 billion. In 2006, recycling diverted
82 million tons of waste away from landfills, an amount approximately one-third
of the total wastestream (compared to only 34 million tons recycled in 1990).
The recycling numbers break down as shown in Table 2 (US EPA, 2006 data).
 |
| Photo: Rotobec |
| Most landfills refuse to accept used tires, requiring them to be delivered to special stockpiles for shredding. |
For the most
part, the percent recycled is a function of market demand. The greater demand
for the material, the higher price it will bring on the scrap market and the
greater the supply to meet this demand and achieve higher profitability by
selling higher-priced materials.
There are three
exceptions, though, to this general rule.
The first
exception is automobile batteries. Because they may contain mercury, lead, or
other toxic substances, automobile batteries are typically banned from landfill
disposal by state law. As such, special recycling programs, artificially created
by regulation and divorced from the resale market, have been imposed to manage
this potentially dangerous waste product.
The second
exception is yardwaste (and agricultural waste in general). Lawn clippings and
collected leaves are often not allowed in landfills due to the amount of
disposal volume they can take up. So, in order to increase the operational
lifetime of existing landfills, bulk organic wastes are diverted to composting
programs. Fortunately, yard trimmings are easily kept separated by the homeowner
and do not require individual sorting, only their own special bags.
Third, tires
are also kept out of landfills for operational reasons. Given their elastic
characterizes, they have a tendency to work their way up through waste as it is
being compacted, often reaching the surface. As they do so, they can disturb
daily, intermediate, and even final cover layers. Furthermore, tires are highly
flammable, and this ignitability is unaffected by the waste’s overall moisture
content (unlike paper waste). Once lit, tire fires are extremely difficult to
extinguish. Therefore, most landfills refuse to accept used tires, requiring
that they be diverted to special stockpiles where they can be shredded and
utilized as drainage materials and other replacements for aggregate.
That leaves us
with metals (steel cans, aluminum cans, and other scrap-metal sources, such as
construction demolition debris), paper and cardboard (various kinds), plastics
(PET or HDPE, for example), and glass. These four broad categories are recycled
to an extent largely determined by market demand, with valuable scrap metal
taking the lead and glass taking up the rear. Paper, plastics, and glass also
suffer from inherent quality problems. There are various colors of glass that
need to be separated prior to resale. There are literally dozens of commercial
plastics, none of which can be melted and combined with other types.
Furthermore, the various types of plastic are difficult to distinguish, by color
or density, making sorting a separation difficult. Paper products have an
ever-greater variety, but most types are easier to separate by size, shape, and
weight.
Workflow and Flexible Processing
The basic
workflow for most MRFs will vary in detail, but in general it includes the
following steps (though not always in the order presented). Nonrecyclable
material is removed manually during the presort stage. A further disc separator
can remove large cardboard items. Then old newspaper is separated by a disk
separator and sent to a hopper for baling. Mixed paper continues on to another
disk separator that removes containers from the wastestream. The containers get
fed into a sorter line, where plastics are removed, followed by a magnetic
separator, which removes ferrous metals. Aluminum is then removed by an
eddy-current separator. This leaves glass, which is subsequently sorted by
color. The facility’s high-capacity and multiple-waste capabilities offer the
city a flexible option to complete reliance on landfills as a means of waste
management.
The major
problem facing recyclers is the traditional volatility of markets for recycled
materials. To expand the processing capacity of a MRF without regard to the
demand for the recycled materials it will produce is to place the cart before
the horse. Certain categories of recyclables are in less demand simply because
there is no natural shortage of these materials (glass made from silica, for
example, as there is no shortage of sand). Other types of recycled materials are
difficult to separate for resale, often requiring extensive manual labor that is
difficult to scale up (e.g., the multiple types of plastics used for containers
and other applications).
If demand is
fickle, then supply is inconstant. When a source claims that a certain type of
material constitutes a certain percentage of the wastestream, planners need to
remember that these numbers are nationwide averages with wide variations
according to location and time of year. Rural areas will have a higher
percentage of yardwaste than urban areas, as will waste collected during the
summer instead of during the winter. The amount of paper or scrap metal in a
wastestream can vary from day to day and from neighborhood to neighborhood.
Quantity also varies with time and place, with more wealthy communities usually
producing more waste per capita than poorer ones.
With all of the
above factors to consider, it seems a miracle that any kind of large-scale
recycling project could be considered, let alone implemented. Yet, as we shall
see, major urban areas have made a commitment to large-scale recycling and have
successfully managed the economies of scale in these programs. The results have
been impressive and, in most cases, profitable. The question then is how do they
do it?
As mentioned in
the example of the steel mill, fixed costs remain fixed right up to the
throughput capacity of the processing system. Suppose the steel mill was
designed and built to manufacture a maximum of 10,000 tons of steel each month.
If production had to increase to 15,000 tons, additional plant and equipment
would have to be purchased, increasing the facility’s overall fixed costs.
However, unlike manufacturing, which combines multiple streams of raw materials
(of known quantity and quality) to create one finished product, recycling at a
MRF takes a variable source of raw materials (the waste) and transforms it into
multiple products (the various raw materials separated for sale on the scrap
market). A MRF can be thought of as an “anti-factory”—one that disassembles
rather than assembles.
The resultant
complexity can be overcome by the built-in flexibility of the materials recovery
system itself and its individual components. Every stage of the MRF is designed
for some peak loading for a particular type of material. For example, a magnetic
separator designed to remove ferrous metal from the wastestream can be sized for
a peak load where scrap metal constitutes 15% of the incoming waste tonnage,
with 10% being an average load. For most of its annual operations, the magnetic
separator handles scrap metal arriving at an average rate, but it has the excess
capacity to manage additional tonnages from a peal load if necessary. The same
is true for disk separators, air sorters, and other MRF equipment.
 |
| Photo: Rotobec |
| High-quality recyclables themselves can be valuable or potentially valuable. |
The overall MRF
itself can be sized for peak loadings. Each component process can be sized for
individual peaks that accumulate to a capacity in excess of the average waste
flow. Instead of being sized to handle the amount of waste generated by a
community based on an average 4.5 pounds per capita per day, the MRFs aggregate
capacity could handle the equivalent of 5 or even 6 pounds per capita per day.
Furthermore, by increasing its capacity, a MRF can receive waste from a much
wider geographic area with greater demographic and economic diversity. The
result is a wastestream whose aggregate amounts are less vulnerable to
fluctuations and variations from the average wastestream values. Individual
communities within the area serviced by the large-scale MRF may experience such
variations, but these are counterbalanced by communities that experience smaller
variations. In aggregate, larger-scale systems tend to have proportionally less
variability than similar, but smaller, systems. Large-scale MRFs are perfectly
designed to take advantage of this behavior characteristic.
In fact, as a
result of this dampening effect, planning and operation of a large-scale MRF
tends to be easier than that of a small-scale MRF whose smaller community is
vulnerable to proportionally greater variations in both the quantity of waste it
produces and the materials that make up the smaller wastestream.
By the Numbers: High-Capacity MRFs
So what makes a
large-scale, high-capacity MRF successful? First, we have to define what is
meant by “large” in the recycling business. Table 3 gives the scope of
operations achieved by the truly high-production volume MRFs in North America.
These top 10 facilities share several characteristics. First they are located in
or near major metropolitan areas with high population densities (Boston,
Chicago, San Francisco, etc.). This provides a high volume of potentially
recyclable materials within a relatively small radius, reducing transportation
costs and increasing overall profitability. Given the right economic and
demographic conditions, the advantageous economies of scale become obvious. With
the wrong conditions, large-scale recycling makes no economic sense.
Second, they
have made an investment in high-capacity processing equipment (balers,
shredders, magnetic- and eddy-current separators, conveyors, or air separators).
This requires a further investment in enough floor space to house this equipment
and manage the incoming waste flows. Half the battle of managing waste flows is
providing sufficiently large, multiple shipping docks for both incoming and
outgoing truck traffic. Like any other system, a MRF has a system boundary
through which waste is hauled in and recycled materials are shipped out.
Third, most of
the largest recycling operations are owned and operated by major waste haulers
(regional or national). This allows for vertical integration of the waste
management process. It also allows the recycler to control the upstream
suppliers (the waste haulers) as well as the downstream distributors (recyclable
materials shippers). Such integration allows for even greater economies of
scale. Cost reduction and reduced impact from competitors naturally follow. Most
city and county governments lack the budget resources to provide both hauling
and recycling processing services. This leaves the large-scale recycling market
largely to the private sector.
Norcal
Recycling Center in San Francisco (number 5 on the list), run by Norcal Waste
Systems Inc. through its operating firm SF Recycling & Disposal Inc., is an
excellent example of these trends. Referred to as a “total urban recycling
facility,” or TURF, the facility was designed and equipped by the Enterprise
Co., a manufacturer of waste-processing equipment located in Santa Ana, CA. The
200,000-square-foot, $38 million dollar facility has been in operation since
2003. With almost 5 acres of floor space, this facility can process 700 tons per
day of all types (scrap paper, corrugated cardboard, ferrous metals, aluminum
cans, glass bottles, and PET and HDPE plastic containers). The facility is the
spear point of an effort to achieve 75% recycling rate for metropolitan San
Francisco, a goal previously considered impossible. With advanced sorting
equipment and seven different recycling lines, the facility utilizes a
three-level conveyor and sorting system. The waste arrives largely presorted via
the city’s blue-bin recycling program.
Basic
economic forces will continue to drive this trend to larger-scale MRFs, at least
for large urban areas. Judging from the sales of recycling equipment alone, this
trend towards larger recycling facilities will continue for some time. Sales of
large-capacity balers, for example, are now increasing faster than the sales of
smaller balers. This will result in industry consolidation and fewer (but
larger) facilities.