An advanced waste management sector comes at a price. Not only is investment required to purchase suitable technology and construct the management facilities, but ongoing costs are incurred primarily in the regulated collection of waste and recyclable materials and in operating the facilities. Compared with these, the costs of raising social awareness and of further education and training of technical staff are small.
There is a range of possible ways to finance the construction of waste facilities and the purchase of the technology, such as through bilateral and multilateral donors and development banks, who offer loans at preferential rates, or in some cases grants, to finance the investment. However, the means to cover the operating costs must be found by the state, region or local authority itself – this might be 70–80% of the total cost of the system. It is clear from this that meeting the running costs represents the greatest challenge in building a waste management system.
“Clarifying how the running costs are to be met is a difficult but necessary discussion process. Levying user fees – as is the norm in Germany – is only one option. Building an advanced waste management sector must not place an excessive financial burden on the poorer sectors of society. There are socially acceptable solutions that demand an appropriate contribution from the more affluent. Regardless of which policy is adopted, it is crucial to ensure that the costs are covered and that the instruments used are socially acceptable. Private sector companies will only come on board if they are confident that there is a robust strategy for covering costs and providing finance.”
(Dr. Wolfgang Pfaff-Simoneit, KfW Entwicklungsbank)
Policy instruments ensuring finance and cost coverage
Meeting the costs of the waste management system from the revenues alone will prove impossible, so suitable strategies for covering the differential costs have to be developed. Without credible policies ensuring that the costs are met and without the use of suitable policy instruments, the advanced circular economy is not financially sustainable and therefore the private sector cannot be expected to invest.
„People may tell you that there is money to be made in waste, but that is only true of parts of the waste industry. Although there is a profit to be had from recycling materials such as metal, PET and paper, the revenues attainable do not cover the cost of the whole system. Despite the high recycling rates achieved in Germany, the waste management system only works because the users contribute to cost coverage by paying charges.”
(Michael Ludden, Managing Director, Sutco Recyclingtechnik/ board member German RETech Partnership)
More than two-thirds of the total cost consists of running costs that need an ongoing flow of revenues to meet them. In many cases, meeting the costs from user fees alone is impractical. Potential policy instruments and sources of funding to cover the operating costs include:
- User/service charges
- Purpose-linked levies or levies designed to promote specific conduct
− Environmental and tourism levies
− Landfill charges
− Product charges - Special arrangements such as feed-in tariffs for energy generated from waste, recovery bonuses
- Funding from general tax revenues
- Product or producer responsibility
- Grants
Imposing product responsibility or charging levies on waste-intensive products such as packaging are options especially well suited for covering operating costs – in Tunisia, for example, up to 80%. The appropriate policy mix needs to be laid down in law by way of a political decision-making process. The size of the contribution should be determined on the basis of realistic cost estimates.
Promoting the recycling market
An advanced waste management sector or circular economy is based on guaranteed marketing channels for secondary resources. The state can help the recycling industry to become established and be economically viable through relief on taxes and import duties, investment funding lines, subsidies and producer responsibility obligations to ensure recycling of their products.
The informal sector plays a major role in an emerging advanced waste management sector. Its involvement also helps to build initial and advanced training capacity, achieve greater equality of opportunity and reduce poverty.
Local or national buyers of the products of the recycling sector are vital pillars of a circular economy. A guaranteed supply of high-quality secondary resources leads to the emergence of industrial buyers who develop suitable production processes that make the circular economy possible.
Cost of Environmental Degradation
In many developing and emerging countries economic and social cost / benefit calculation have not yet entered strategic planning processes, especially not in the solid waste management. In 2014 the regional network SWEEP-Net in cooperation with the Center for Mediterranean Integration (CMI) and jointly together with its local partners has launched a cost analyses of environmental degradation due to an inappropriate solid waste handling for the cities Beirut (Lebanon), Tunis (Tunisia) und Rabat (Morocco). The findings have been published in 3 subsequent Cost of Environmental Degradation (COED) reports.
The analyses aim at the quantification of macro-economic costs and loss of opportunities resulting from environmental mismanagement and, hence, compare them vis-a-vis necessary investments for an integrated solid waste management system. The results have been translated into complementary policy notes for political decision makers in Beirut, Tunis and Rabat.