ISWA President Analyses Industry Trends

Challenges for the Waste Industry in the EU

Over this summer, while reflecting upon the discussions going on in the EC on the Circular Economy, I looked at the potential impact of outside forces beyond our control on the recovery of secondary raw materials in Europe.

david newman, iswa blog Opinion blog David Newman

    

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Over this summer, while reflecting upon the discussions going on in the EC on the Circular Economy, I looked at the potential impact of outside forces beyond our control on the recovery of secondary raw materials in Europe. I was quite surprised at some of the data I found and am very pleased to be able to share these with you in  the new, ISWA owned WMW magazine and website.  The magazine article is a shorter version of this and here you will find all the graphics which lead me to my conclusions.

 

I very much welcome your comments on and criticisms of this article: you can help us all understand the way in which our industry is directed over the next decade and contribute to that debate at EC level.

I try to look at several scenarios and how they may affect the development of waste recovery over the enxt few years. I firmly believe that increased global population and urbanisation will lead to resource stress. How this plays out however, in waste business and investment models, is unclear.

 

These are the scenarios I will explore.

  1. falling commodities prices
  2. changing consumption patterns
  3. the increasing competitiveness of renewable energies and lower energy costs
  4. ageing populations and migration  
Hint: You can navigate through the slideshow by pressing the left resp. right arrow keys.
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Over this summer, while reflecting upon the discussions going on in the EC on the Circular Economy, I looked at the potential impact of outside forces beyond our control on the recovery of secondary raw materials in Europe. I was quite surprised at some of the data I found and am very pleased to be able to share these with you in  the new, ISWA owned WMW magazine and website.  The magazine article is a shorter version of this and here you will find all the graphics which lead me to my conclusions.

 

I very much welcome your comments on and criticisms of this article: you can help us all understand the way in which our industry is directed over the next decade and contribute to that debate at EC level.

I try to look at several scenarios and how they may affect the development of waste recovery over the enxt few years. I firmly believe that increased global population and urbanisation will lead to resource stress. How this plays out however, in waste business and investment models, is unclear.

 

These are the scenarios I will explore.

  1. falling commodities prices
  2. changing consumption patterns
  3. the increasing competitiveness of renewable energies and lower energy costs
  4. ageing populations and migration  
© Based on Eurostat data
  1. Commodities

 

Indicators of raw material prices have been taken from the mining industry website www.infomine.com and due to data collection issues, do not all show price movements over the same time period- some for six years and some data have been collected for as long as 29 years.

Metals are important to the waste industry because they constitute over 70% of all EU recycling.  The below graph is a little out of date, but not in the overall picture it paints: 

© Infomine.com

Metal commodity price trends are all similar:  prices are in long-term decline and some are trading at levels below those of 25 years ago (zinc, nickel, aluminium) and  10 years ago (cobalt, titanium)  as the graphics illustrate. The decline in all values is long-term and for commodities such as copper and phosphate is all the more surprising given their known, finite availability.  

 

Even taking into account some of the minor more precious metals, we can note the same trend.

 

 While resource scarcity may be around the corner, markets have not factored that in yet as they have a relatively short – term vision.  

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Simlarly, woodfibre prices which determine timber, pulp and paper prices currrently trade at approximately the same US$ price as in 1990. This is important for the waste sector as paper constitutes one of the largest fractions of recovered materials from the MSW stream.

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It is important also to look at food commodity prices because the increase of population and consumption of meat especially in developing countries, is putting increasing pressure on food supplies globally.

 

Here are US wheat prices: as expected, they have risen long-term but note that in the last ten years, the period of highest propulation growth in human history, they have fallen and currently trade at levels seen pre-2000.

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Prices have not risen possibly due to rising production yields:

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Prices have not risen possibly due to rising production yields:

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And data from New Zealand, an economy highly dependent upon dairy product exports, shows how volume increase in exports has not been accompanied by price increases over the last twenty years. Indeed the “milk war” in Europe has seen dairy prices fall well below production cost in 2015.  We can see that industry has been able to increase its production volumes and this has led to price stagnation. 

© FAQSTAT

Interestingly for the question of foodwaste, one contributing element is the very low cost of food compared to incomes in more developed nations- the poorer the country obviously the higher the percentage of income spent on food. It is no surprise therefore that consumer foodwaste (ie edible food thrown away before cooking/serving)  is highest in countries with higher incomes because food is such a small percentage of disposable incomes, as shown here:

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While we can see that globally traded commodities show no price stress relative to perceived or future scarcity, we also know that global economic growth is continuing. The two trends appear contradictory but they represent today’s reality.

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Global economic growth in 2015 continues in all continents, at varying rates, but confirming that the southern hemisphere is growing fastest while Western and Eastern Europe have insignificant growth.

© Oxford Economics

Over recent years,  data illustrate how global economic growth has continued apace (except 2008-9) even while commodity prices were falling fastest.  Various sources predict growth to continue over the next five years.

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We should note within this scenario that the growth patterns of the BRIC economies, once thought to be those driving world economic growth, are not living up to expectations: Russia (thanks to sanctions and war in Ukraine) has entered negative growth in 2015 (estimated at -4.5% of GDP by the IMF); Brazil’s growth shows widely varying levels over the last decade and predictions for 2015 are for a 5% decline.  

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Turkey shows a similar decline in economic activity; India and China which both will grow at around 7% p.a.  though Chinese growth rates are declining rapidly; these countries are significant for the waste industry because all are importers of recyclates from the EU; Turkey (metals, used tyres for cement kilns), China (paper and plastics), India (metals). Their economic decline may lead to lower imports of recyclates from the EU. 

 

We will look at other conclusions from these graphs later on. 

© Internet users per 100 people, selected nations. (Source: http://mecometer.com/image/barchart-top-countries/internet-users-worldbank.png)

2. Changing consumption patterns

 

Another matter to consider when thinking of how the waste industry is affected by economic development is the growth of internet and a new economy based upon sharing, knowledge and data.

 

Non- material economies such as UBER, FACEBOOK, INSTAGRAM, TWITTER, GOOGLE, EBAY , AIRBNB or AMAZON  do not affect raw material prices  yet they affect personal and societal incomes.  As web-based services enable people to share products (like their photos, cars or houses), economic growth is beginning to occur without increasing hardware or infrastructure stocks signficantly. 

 

As people can purchase through the web everything from food to films so  the need for personal mobility changes, shopping malls close down especially in the USA and India, young people feel less need to drive a car, but suppliers warehouses and transport delivery services increase.

 

The economy is changing and the internet is forcing that change rapidly where web access is fast. How the growth of non-material economies will affect growth patterns in developed economies needs to be explored.  It’s impact upon the waste industry could be significant as consumption, transport, packaging patterns change rapidly. 

© https://shippingfinance.files.wordpress.com/2015/02/graph_dry-bulk-freight-market-snapshot.jpg

Also new products are changing the economy and consequently waste streams-  use of portable readers has decimated the printed - paper industry causing a decline in the volumes and prices of paper (therefore pulp and timber) related to the sector – ironic as world literacy rates are climbing but bad news for those in paper recycling and good news for the trees. Bio-based materials are entering the supply chain and therefore our waste streams,  from biodegradable plastic packaging and films to bio-based plastics for engineering uses or as containers.

 

None of us foresaw how rapid would be the rise in electronic waste and our industry was caught by surprise. It has taken us a decade to catch up and in that time millions of tons of highly contaminated electronics have been poorly handled, both in the EU and when exported elsewhere.  Therefore looking at which will be the new waste streams of the next decade is essential to avoid environmental pollution, and because foresight provides our industry with opportunities.

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Whilst the fastest growing economies are still those drawing in huge quantities of raw materials to increase their infrastructure stock- Asia, Africa- western economies are no longer doing so to such an extent (see figure below). Benefiting from infrastructure development are those countries exporting raw materials to support this (Australia, Malaysia, Indonesia,  Africa). 

 

This underlines the different growth patterns between developed and developing countries and leads to a fall in the production of certain types of waste in developed countries, with an overall and rapid rise in developing countries.

 

Underlining the trends, I quote from Australian commodity supplier giant BHP Billiton from June 3rd 2015:

BHP Billiton, the world's biggest mining company, warned on Wednesday that a global oversupply of commodities that is putting pressure on prices is likely to be be prolonged.   In metals markets, newly installed low-cost supply can now be stretched to meet growing demand, BHP Billiton Chief Executive Andrew Mackenzie told a gathering of sector executives and Australian lawmakers.

"Incremental supply, induced during periods of higher prices, will take longer to absorb and this means over-supply may persist for some time," he said.

For the waste industry, recycling of secondary raw materials in the EU faces flat to falling markets over the medium term. The current situation in which plastics and paper recycling facilities and MRFs are closing in the UK and USA, will continue and gain speed over the next months unless policies change (see below).  This trend in the USA has gained momentum since the economic crisis of 2008 and illustrates the close link, in open economies, between market conditions and recycling industries.

 

In Europe some market volatility has been flattened out by EPR systems and an analysis of the effectiveness of these systems in ensuring recycling markets is another chapter this paper cannot undertake. Some brief comments:

 

The 2014 EC report on EPR systems states :

EPR economic performance :  there is a lack of transparency regarding the financial aspects (fees and costs) of EPR schemes (costs are not always aggregated at a national scale), the link between the fees paid by the producers and the costs they are supposed to cover,or general access to the financial information and flows;

 

EPR technical  performance: data regarding quantities put on the market, waste generated and collection and treatment are hardly comparable, being calculated in very diverse ways, with some quality issues.

 

So while EPR systems can be considered to have improved recycling of some defined streams, their performances are difficult to compare from one nation to another even for the same waste streams, both in  economic and technical comparisons.   An analysis of how EPR schemes will continue to support recycling in falling markets is a subject requiring greater study than undertaken in this paper and I would welcome research in this direction.

 

Contributing marginally to lower mineral costs have been greater efficiencies and competition in shipping lowering transport costs.

© www.Infomine.com

3. Energy

 

As we know energy prices show a similar picture of falling prices; oil dropped briefly $40 a barrel at the end of August 2015 and is trading at prices not seen in 10-15 years. I do not believe anyone could have forseen the drop in natural gas prices, currently trading at one quarter of the value in 2008.  

 

Whilst appearing to be only marginally influential on the waste industry, the reality is that falling renewable prices are also playing a role in changing the ways our economies produce and distribute energy supplies throughout the chain. PV, solar, wind, geo-thermal, hydro-electric, biomass, anaerobic digestion, have all become competitive major players in the energy chain, reducing reliance on fossil fuels in many advanced economies. 

© Sierra Club

The consequence of this has been the dramatic uptake of renewable energies in nations that have sponsored this through incentives and subsidised investments.  In the UK (not a notoriously sunny country) 18% of electricity was produced in the first quarter of 2015 from renewable energies  (source DECC , UK Government) whilst Germany in 2014 achieved 31% of all energy from renewables (www.renewablesinternational.net).

 

Still,  global subsidies to fossil fuels exceed by a factor of 5 those to renewable energy in a paradoxical and sickening play with the major threat to human existence - climate change - and we can expect the fossil fuel industry to insist  in its attacks on renewables.  

© IEA

How do these trends play out for the waste industry ?

 

First, increasing competition between energy suppliers will put a downward pressure on energy prices in the medium term (five years, it is impossible to see beyond) forcing inefficient suppliers out of business, destroying some investments in renewables, but above all putting shale gas and shale oil projects under pressure in the USA and elsewhere. It is clear that the oil producing countries see shale sources as a major threat as they do renewables.

 

Secondly, this will lead (as the UK has just shown) to a decreasing willingness of governments to support renewables investments through price subsidies which can cause reduced competitiveness of the national economy in global markets.  The author is certain that subsidies for renewable energy production from waste are in decline as they are for many other renewable sources.

 

Finally for the waste industry, old technologies (the early waste to energy plants, the first AD plants) will quickly become obsolete and face closure as their production costs will exceed income, falling from lowering prices and subsidies. New and more efficient plants will be built, but also the scale of investments will diversify- medium scale has little future. Plants will either respond to purely local conditions (small scale AD, small scale biomass burners) or to city-wide conditions (waste to energy plants supplying electricity and district heating to cities of hundreds of thousands of inhabitants).

 

For organics treatment, energy price risks will lead to a return to old fashioned composting in many parts of the more advanced EU as such investments are lower per unit treated and carry lower market risks. Germany is, in these scenarios,  clearly and heavily involved when subsidies begin to decline. Medium sized AD will not be economically sustainable without subsidies, leading to the development of large plants (>100,000 tp/a capacity) and the return to composting where volumes do not permit this.

© Eurostat

4. Ageing populations and migration

 

Europe faces the paradox of ageing populations whilst raising walls against immigration from the south and east, for ethnic and religious reasons.  Migration within the EU from east to west is already an estabished and continuing social phenomenon and partially explains depopulation of the eastern nations.

 

Ageing populations will affect overall economic activity as people retire, take pensions, and contribute less to GDP- indeed where pension reforms have not been introduced, the mass of retirees are a threat to the future of many nations financial viability. 

© Eurostat

We are not interested here in discussing pension rights but rather the consequences of ageing populations on the resource industry. Elderly people earn and consume less,  so more elderly people means less overall consumption of goods and services (except healthcare) and less waste. 

© ABS

The graphic refers to Australia in 2010. What we must ask ourselves, what role will migration play in altering these trends?

© United Nations

The graphic below from the UN shows a hypothetical scenario in which immigration from Asia and Africa to Europe arrives at around 1,6 million persons per annum until 2050 (about current levels during the Syria/Iraq crisis). The UK, France and Spain, countries with large populations already from those regions, will see population increases as new migrants rush to join their families and friends there.

 

Other countries are facing quite often dramatic declines in population, with eastern Europe losing up to a third of their population by 2050, whilst even rich and prosperous Germany will lose 10% and Italy 7%. Eastern Europe will empty whilst western Europe will become increasingly crowded and multicultural, if these predictions are fulfilled. 2050 is within the lifetime of those readers of this article under 50 today and living through this transformation of our societies will be quite dramatic for some.

© Statista WEF World Bank

Another feature of population decline is the decline of the working population- how will this affect the ability of Japan and Germany, motors of the world economy, to maintain and grow iundustrial production ?

 

Populations will tend to concentrate in more urban areas as the countryside villages and towns empty. Emptying villages litter east Europe already and populations have started falling in many nations.  Eight of the ten fastest declining populations from 2013 to 2014 are from Europe, the other two are small island states in the Caribbean. This demonstrates not just declining birthrates but migration into other EU countries.

 

Whilst investors in waste infrastructure will be cautious about investing in East Europe except perhaps for the large urban infrastructures, ageing populations and falling consumption/waste production  of older people will be a EU-wide phenomenon except perhaps for the UK.  

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Conclusions

 

How will the recycling industry look in the future ?  How will the new dematerialised, sharing economy affect the flows and volumes of recyclable materials ? Will low market prices enforce an increase in quality recycling and reduce demand for “dirty” or impure recyclates ?  Will the new economy growing in economically developed nations lead to cleaner production methods (bioplastics for example substituting some fossil fuel based plastics ?) and easier to recover and re-use products and materials ? Where will the non marketable recyclates end up ? Is there a new opportunity here for waste to energy plants to recover some of the materials they lost to recycling in the last decade ? And how will Chinese recycling growth affect the exports of recyclates to that economy ? We already know how this is working out.

 

The trends are clear:  unless there are signficant policy changes, particularly fiscal policies, the recycling industry in developed nations (and elsewhere it exists only as a marginal or informal economy activity) could be about to undergo a dramatic transformation in the same way it did when recycling was mandated by national and EU targets at the turn of this century.  The whole Circular Economy package, as presented in 2014, looks to be significantly out of tune with these trends.

 

Investing in infrastructure which has a pay-back of twenty or more years requires long term planning and analysis of markets. “Prediction is very difficult, especially if it's about the future” said Danish physicist Niels Bohr, but the conclusions the author has reached are the following:

 

  1. Material Resource recovery will be under growing stress unless raw material prices increase in the near future. This is not imaginable from the data available. Therefore recovery of raw materials (plastics, paper/board, glass, metals, metals from electronics) will decline unless supported by fiscal policies, such as increased or new contributions from producers under EPR schemes; higher, direct taxation of waste disposal alternatives to make recycling cheaper (landfill, incineration) ; or a carbon tax to price in the costs of extraction and transformation of virgin raw materials.  To add to this stress in recovery of secondary raw materials are falling overall volumes in some waste streams, caused by the internet changing consumption habits; and an ageing and declining population consuming less.  Investors in waste infrastructure will be looking very carefully and critically at any investments in material recovery, attempting to ensure predictable long-term markets for outputs in a scenario of falling volumes and prices.
     
  2. Foodwaste will continue to be the highest proportion of MSW arisings and offers the most interesting opportunities in investment as climate change policies drive foodwaste from landfill into treatment.  Very small volumes of foodwaste are collected separately and treated in the EU today compared to the potential. The City of Milan is now intercepting almost 100kgs/inhabitant annually, an indicator of what good collection systems can achieve.  If fiscal policies go in the direction of lower subsidies, we should expect the growth of composting to handle increasing volumes of foodwaste collected; similarly, we can expect source segregated collection schemes developing across Europe; low energy prices may lead to the decline of small to medium sized AD plants (<100,000 t/pa) and cuts in subsidies will render them financially unsustainable. AD plants will need to offer to the market not just biogas transformed into electricity, but also methane into the grid and as fuel for transport, whilst heat from AD turbines should be used for district heating, as the example of SESA (350,000 t/pa) near Padova in Italy has demonstrated, to render the plants highly efficient.
     
  3. Energy prices appear unlikely to rise in real terms  into the forseeable future.  Indeed when Iraq, Iran and Libya start exporting serious volumes of hydrocarbons, they may decline further. The author predicted this in a lecture given in 2012.  Renewables are becoming competitive, ubiquitous and accepted by the population;  the ability of renewables to feed into their grids, but also to supply locally off-grid, makes them a realistic alternative now and into the future as their unit costs decline. Still, the fossil fuel industry has halved its costs in one year to regain market share and fight against the growth of renewables and new fossil sources such as shale gas/oil. The fossil fuel industry enjoys wide ranging political support and therefore enjoys subsidies five times those of renewables, globally. The disaster of climate change appears irrelevant to such investors and politicians.
     
  4. For waste sector investors the message is : renewable energy from AD or thermal plants will only be competitive if large-scale , highly efficient and offering a series of services- electricity, gas, district heating, motor fuel.  The opportunity is evident for new, efficient waste to energy plants in an era of declining resource recovery levels due to low raw material prices. Where will those materials go if there are no markets for them ? Not to landfill surely.  One example is Austria where the efficient packaging collection system is now sending much of its recyclates to energy recovery. Energy recovery  has a window of opportunity which may close in the medium term and new investments depend in part on EU policies and taxes, the growth of recycling,  and the development energy recovery of capacity in Eastern European countries.
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The message to the EC from the waste sector should be :

  1. Higher future targets for resource recovery are unrealistic unless accompanied by fiscal measures to make them achievable.  As fiscal measures are adopted by nations and not by the EU, is there any sense in trying to enforce targets shown to be, so far, unachievable at 50% let alone trying to enforce the predicted 70% resource recovery target (will we get a EU-wide CO2 tax which could change this scenario?).
     
  2. Phasing out landfills is a preferential environmental policy but we have to ensure first that the compliance bodies in those countries prevent illegal dumping and ensure waste goes to secure disposal.  Further, banning landfill without making alternative disposal methods financially attractive is just ensuring chaos- waste will always go to the cheapest disposal destination. In this sense we could encourage transfer of waste between EU nations to the best available disposal technologies- the shipping of RDF from the UK to northern European incinerators is a preferential environmental solution, rather than landfilling in the UK, with guaranteed secure disposal which has positive social implications (district heating in northern European cities, for example) as well as using spare capacity that was, until recently, valued at 2.5 million t/pa.
     
  3. The EU should work to promote collection and treatment of foodwaste, for climate change and soil quality reasons; eliminate the inefficiencies in the system, harmonising EPR systems for example to ensure a level playing field throughout the EU; by modernising the grid to allow interconnectivity for energy suppliers; promoting standards for waste derived fuels (methane from biogas  to grids for example or RDF) ; by reducing extra-EU shipments of waste and recovered resources to promote domestic  growth in these industries and to prevent waste dumping in non – EU nations; eliminating residual subsidies on carbon based energy ; establishing an effective EU-wide emissions trading system which prices in resource extraction and transformation that could revolutionise recycling; simplifying end-of-waste criteria, standards and trading of secondary raw materials to encourage resource circularity;  promoting the introduction of innovative products to reduce resource consumption and waste, such as bio-based and biodegradable materials; banning certain materials that are virtually impossible to recyle (as New York State has done with polystyrene, France will do with plastic disposable tableware and oxo degradable plastics, Italy with plastic carrier bags);  and finally, harmonising the data collection systems which are shamefully chaotic today for a continent wishing to be a unified market.

 

David Newman

ISWA President

September 2015