Regulators or market participants — Who's responsible for what?

Ben Franklin once commented that he was not so concerned with the return on his investment as he was with the return of his investment.

By Rob Arner

Local governments and corporate America have invested billions of dollars in disposal and recycling systems. A fierce competition for control of waste and recycling has developed in the last few years, and, because of this, we need to reevaluate the respective roles and responsibilities of the public and private sector.

Both public opinion due to the garbage barge and a 1989 Environmental Protection Agency federal report, The Solid Waste Dilemma: An Agenda for Action, falsely predicted that the country was entering a waste disposal crisis. As with the oil crisis of the late 1970s, a national movement changed existing waste and recycling management practices. A new era began in which local governments managed numerous parts of the waste stream and recycling with limited financial resources. Meanwhile, reduction, composting and recycling all reduced the flow of trash by over one-quarter, thus diminishing the waste supply.

As waste became more valuable, local governments began to realize the significance of losing this new commodity—garbage. They exercised control over their trash by sending it to selected locations at prices set to protect their financial investment in waste management. This process was termed "flow control". Revenues from flow control were used to fund other waste management efforts such as the recycling of low-value materials, the management of household hazardous waste, and public education, programs that might not have been affordable otherwise. Local governments called these activities "integrated waste management" and devised a hierarchy for their waste management efforts—reduce, recycle, waste to energy, and, lastly, landfill.

Some members of the private waste industry objected to governmental control over the waste stream because it did not permit them to operate freely in the market of their choice. Relying on the Supreme Court's 20-year-old decision that garbage is an article of commerce and has a constitutional right to travel freely in commerce, they began challenging the efforts of local and state government to control their garbage.¹

Now this trend has reversed itself: control is shifting towards private sector domination and the former hierarchy has been inverted by the economics of cheap landfills. It is clear who profits from waste management, but it is not clear who is responsible for protecting public health and the environment. If the same entity is both profiting and in charge of protection, a conflict of interest undoubtedly arises.

Who is on whose side?
There is tremendous tension between those who have a financial interest and those who have a public health interest in waste management. Local governments hold varying economic positions in the solid waste/recycling services business so that elected local governing bodies make their own management and fiscal decisions. Who are the various participants and affected parties?

Public sector
Government Operators: Heavily invested in publicly owned or operated waste management/recycling systems.

Host Communities: These political entities receive direct financial benefit from allowing the private sector to set up solid waste operations within their jurisdiction.

Local governments served either by the private or public sector
Small Local Government Landfills: Rural counties, for geographic reasons, may still operate small disposal facilities.

Private sector
National Waste/Recycling Corporations: For the last decade, eleven major companies have vastly increased their market share of the solid waste industry. These major waste companies have all experienced tremendous growth in the collection, processing, disposal, and recovery of solid waste.

Small Local Waste/Recycling Companies: A dwindling amount of small waste companies play a vital role in maintaining a healthy competition among the diverse sectors of the waste industry, however, new local opportunities are encouraging this small businesses to grow.

Waste-to-Energy Industry: These companies rely, in many cases, upon public sector agreements or partnerships to operate their highly capitalized facilities. With recent doubling of oil prices there may be an increase demand for alternative fuels.

Financial Community: Institutions involved in the issuance and rating of bonds to finance solid waste capital projects.

Recycling Industry: Scrap dealers and independent recyclers have invested much capital, diverting a major portion of the waste stream into new materials.

Transportation Industry: Shippers are also heavily involved in this area of commerce because they transport large amounts of waste/recyclables over considerable distances.

Retailers and Manufacturers: This interest can be affected two ways: by the lack of secondary feedstock if recycling fails, or by legislation that sets special fees (i.e. tire fee, litter/recycling beverage tax) to stimulate recycling.

Other participants
Environmental Groups: This group of diverse organizations has no financial stake but can become a powerful voice in policy decisions.

Citizens: Changes in waste/recycling management can have effects that are positive for one region of a state and negative for another region of the same state. More rural areas are often where waste facilities are located.

The collective interests enumerated above reveal the complexity and competitiveness of the waste and recycling commodities marketplace. Since the economic interests at stake are multi-faceted, legislation to deal with this challenge may be enacted at all levels from local to federal, and creative coalitions and special interest groups may develop involving a broad spectrum of representatives from government, business, and industry.

Without consensus among the competing interests and constituencies, some type of market failure is bound to occur. Conflict resolution of this problem is advisable over complacency since ultimately the taxpayers may have to foot the bill.

In order to develop a consensus among the various political interests, we first need to identify the overriding areas of public concern.

Fiduciary issues
Local government's first obligation is to protect public health, safety, and the environment. Certain local governments have entered the waste management marketplace for this reason.

The potential long-term costs of landfills are not reflected in the current market prices. Unfortunately, under present regulations for landfills, it is doubtful that adequate funds will be available to correct any future environmental problems. Financial assurance provided by owners or operators of landfills may not be sufficient to pay for the many potential long-term environmental costs. Another challenge: what happens to landfills after 30 years? What happens if they cannot financially survive?

Competition
With increasing privatization and market domination by several firms, local governments fear that they may have to pay high prices for refuse/recycling services due to diminishing competition. Municipalities that have privatized many solid waste management services have remained involved in those services to ensure that there is competition.

What is each participant's role?
First we need to agree that we are all shareholders since we all pay taxes. Next, all those who have a stake in waste management have to establish some ground rules. It is important to find the right level of public intervention to bring order to the marketplace without suppressing competition. How can local and state officials improve public sector oversight that will better protect us from both future environmental problems and anti-competitive behavior?

Local jurisdictions may wish to employ competent contract inspectors and administrators. In addition, local government officials should realize that experienced field supervisors do not always make good contract administrators and inspectors.

Recycling, HHW, and public education
Local governments the private sector have made a tremendous investment in capital resources and staff time to insure that these programs work. It is difficult for localities that are responsible for recycling, HHW, and public education to compete financially with private firms which provide for disposal service only. This big squeeze means that greater clarification of roles and responsibilities is essential.

In the area of environmental regulation, the recycling community can be disabled by dirty materials recycling facilities (MRFs) that are really acting as waste transfer stations, and other systems that favor disposal over conservation of our resources.

Where do we go from here?
These diverse interests somehow need to be brought together to discuss this current challenge. Governmental agencies must be scrutinized if they are market participants. At the same time, state inspectors have targeted local governments since there is less political fallout for a fine given to a government agency than for one given to a private sector company. The need for neutral third party enforcement and environmental protection is critical.

What management strategies will work from both a short and long-term cost perspective for all the varied interests? Which options will best allow the public and private sectors to work together and engage in cooperative efforts? A dialogue would be the first constructive step toward an agreement on how to properly manage and recycle waste. Needless to say, it is better to conduct such a dialogue out of the court system. Everyone with an interest in the process would have an opportunity to negotiate a better partnership of not lose/lose but win/win. It is simple: if we do not hang together we will hang separately, as Ben Franklin once observed.

¹ "Are We Defining Our Values Through Garbage?" by William Kovacs and Robert Arner, 1996

About the author: Rob Arner has worked in the field of solid waste and environmental issues both inside and outside of Washington, D.C. for the past 20 years.

Edited by Kate Goff
Editor, Solid Waste Online