August 11, 2008
Recyclers are cashing in on the fortune in your bin
Jill Sherman and Lewis Smith

CASE STUDY: ‘We could be making £1m a year profit’

A waste disposal deal that a decade ago looked like good business is now regarded by Kent County Council as a costly mistake.

Prices of recycled materials have risen so sharply that less than halfway into the 25-year deal the council is attempting to renegotiate with the contractor.

“At the time it looked a good deal – ten years later I would say never again,” said Keith Ferrin, the council’s cabinet member for environmental and waste services. “If I could get out of the long-term contract I have inherited I would do that.”

Under the agreement the private company was to incinerate 320,000 tonnes of waste annually, using a facility that has yet to be opened, but much of the rubbish is now too valuable to burn. Mr Ferrin said that recycling had changed so dramatically that plastic that the council formerly paid to have removed now has businesses clamouring to buy it. Mr Ferrin added that the most serious price increases have been in metals. Copper is 15 times more valuable than it was six years ago. As a consequence, recycling is now regarded as a much better bet than incineration.

“Over the course of a year we could make just under £1 million profit.”

Householders are missing a chance to share in the results of huge profits generated by the soaring value of recyclable domestic rubbish, The Times has learnt.

The price of recyclable plastic, newspaper and cardboard has doubled in 18 months, giving councils a source of “green gold” that could be spent on improving local services. Many are locked into 20 to 30-year contracts with recycling companies and are unable to cash in on the higher cost of plastic and copper.

As the cost of commodities rises it increasingly makes sense for manufacturers to retrieve materials from rubbish instead of buying them new. Town hall leaders have toldThe Times that the sector is missing out on millions of pounds that would come from trading commodities themselves or negotiating better contracts. They said that such profits could go to improving local services and even cutting bills.

Such is the concern over the complicated waste contracts that the Audit Commission is looking at the length and cost of the deals as well as the financial risks. The value of raw materials and the inequity of council returns are being examined as part of the inquiry. It reports next month.
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Local authorities such as Kent County Council admit that they could make up to £1 million a year by selling recyclable materials if the 25-year deal could be renegotiated. Westminster council, which has a seven-year contract to share profits as prices rise, believes that town halls are sitting on a fortune. “Where there’s muck there’s brass,” Mark Banks, Westminster’s waste strategy manager, said. Any profit made will be ploughed back into services or to lower council tax rises, he said.

This year alone the rising cost of oil – used to make plastic – has pushed prices of domestic rubbish even higher. The sale price of mixed plastic bottles has nearly tripled to £230 a tonne in the past six months. Six years ago it was £10 per tonne.

With plastic processing advances in coming months, yoghurt pots, bags, food packaging and any plastic containers will be even more sought after as manufacturers recycle plastic to avoid buying oil. Newspapers and cardboard now sell for £100 a tonne, double what they were fetching early last year. Metal from cans was £80 a tonne at the start of 2007 and has risen to £200. A tonne of copper now sells for more than £3,000, compared with a tenth of that in 2002.

The sharply rising prices give councils an added incentive to boost recycling – apart from having to meet EU landfill targets – and many are keen to cash in. But the fixed-term deals negotiated by many authorities, set at the prices of recyclable materials several years ago, allow the contractor to reap the reward.

Paul Bettison, the chairman of the Local Government Association’s environment board, said that councils had tightly judged decisions: “Do you lock the contractor into what appears to be a reasonable price and lock them in as long as possible or do you secure a shorter contract and risk seeing the price dive? Recyclates go down as well as up – a bit like investments.”

He admitted that in a few years, recycled goods could be traded on the futures market like other commodities. “The markets will be making money out of the sale of recyclables and some councils will too. Not all are negotiating long-term deals.”

Mr Bettinson wants the Government to make plain that councils are sitting on a goldmine. “We need to get the message to our authorities and say, ‘Let’s see what we can get out of this without taking silly risks.’ ” Mr Banks said: “Many councils locked into fixed-price contracts may be missing out on tens of thousands of pounds of revenue from rising prices of recyclable materials. Westminster takes a commercial approach to contracts so that we benefit in rising market situations but with a safety net in place when markets inevitably turn.”

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August 11, 2008

Local councils find that it's waste not, want not with rubbish
Jill Sherman: Commentary

Town halls' efforts to force residents to recycle more of their rubbish are beginning to pay off big time.

Recycling rates have jumped from 7 per cent to 33 per cent in the past ten years, and the amount of waste sent to landfill is declining for the first time.

The idea was to pay less landfill tax and avoid hefty European Union penalties. Waste disposal is one of the biggest council expenses. Local authorities in England alone manage 30 million tonnes of waste every year at a cost of £3 billion, and the volume of waste is increasing by 3 per cent each year. The average cost of a treatment and disposal contract is well over £200 million, and collection contracts cost about £13 million.

The Exchequer already takes £32 per tonne of landfill waste. Next year this will rise to £40 per tonne and in 2010-11 it will go up to £48 per tonne. Councils estimate that they will have to pay about £1.5 billion to the Treasury over the next three years - £420 million this year, £480 million in 2009-10 and £540 million in 2010-11.
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At the same time they are facing big penalties from the EU if they fail to meet strict targets to reduce landfill waste. By 2010 landfill has to be cut back to 75 per cent of 1995 levels; by 2013 it must be reduced to 50 per cent of 1995 levels; and by 2020 it has to be down to 35 per cent. From 2010 councils will be fined £150 for every tonne they send to landfill above the EU targets.

So in the past 18 months town halls have become ever more inventive about how to stop people throwing all their rubbish into black sacks and wheelie bins.

More than half of all local authorities now collect black bin waste only twice a month. On alternate weeks they collect recyclable goods such as paper, cardboard, glass, garden waste and, increasingly, plastic.

Data compiled by the Department for Environment, Food and Rural Affairs suggests that alternate weekly collections boost recycling. The top recyclers in the country almost all use this method. But the policy, or more often the threat of it being introduced locally, has produced protests about smelly bins, vermin and flies. Many council leaders do not dare adopt the policy for fear of being voted out of office.

Some town halls have tried to address the problems associated with alternate collections by fining residents who fail to close their bin lids properly or who put their rubbish out early — probably a step too far. Others, such as Brent, northwest London, have recently introduced mandatory recyling: residents who repeatedly fail to sort their rubbish are visited by town hall officials and in extreme cases fined.

But with the disclosure that householders are actually throwing out valuable commodities, perhaps a new scheme is needed. Town halls could encourage more recycling by pledging to reduce council tax or by earmarking profits for a new park or more frequent street-cleaning.

Householders might even be tempted to sell off their goods themselves. The only problem is that individuals or even streets would have to amass a vast amount of plastic over several months or years to make up even one tonne to sell at £230.

The answer is to scale up, with local councils combining with each other to take on the recycling companies and set up their own plants and trading centres. But only some will be able to do so. The rest will be ruing the day that they negotiated that 25-year contract with the local recycling company for £10 for a tonne of plastic bottles.

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August 11, 2008

Rubbish is fast becoming the new gold as cost of raw materials rises
Lewis Smith and Jill Sherman

Dented bean tins and crumpled drink cans may be rubbish to most of us, but to the recycling teams who collect them from the kerbside they have the glint of prospector's gold.

For people living in areas that have recognised the value of waste, the effort made to recycle can reduce council tax bills. Residents of Westminster have benefited from the seven-year deal in which the council ensured it received a share of recycling profits. The authority was able to claim back a portion of the income derived when the price of materials rose. Mark Banks, waste strategy manager at Westminster, said: “We are trying to get a balance between trying to keep council tax low and trying to avoid the high cost of landfill.”

“We need to benefit from increases in the market and not suffer too much from a downturn. Authorities need to balance the risk to the local taxpayer, while contractors will write in their own profit margin. But a fixed price on profits is the more common model as far as I am aware.”

The frustrations of a long-term waste disposal contract are felt sharply in Kent, which cannot cash in on the value of its residents' discarded metal and plastic. “Five years ago it was a very uncertain market as to whether you could get anyone to take them,” said Keith Ferrin, the council's cabinet member for environmental and waste services, adding that the best asking price was about £20 a tonne. “But now the price of metals is going through the roof. I think that typically councils are locked into very long contracts indeed, and that is a very real problem,” he said. “Some of them will include provisions for sharing profits. But I suspect a lot will not. I am saying to my people that I do not want to get into any long-term contracts at all, nothing over five years.”
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The rise in value of waste is illustrated by the industry's turnover: £1.2 billion in 2006, and two years later, 66 per cent higher at £2 billion.

Recycled plastics, derived from fossil fuels, have proved particularly attractive and several plants have opened in Britain to reprocess them. In 2006 an estimated 200,000 tonnes of waste plastic, much of it bottles, was sent by Britain to China but the quantity exported is expected to fall sharply.

Britain's plastics reprocessing capacity has leapt from about 30,000 tonnes in 2006 to 150,000 tonnes — and by the end of the year it is expected to increase to 250,000 tonnes.

In June the first plant in Britain able to recycle plastic bottles to a standard sufficient for use in food packaging opened in Dagenham, East London. Closed Loop London processes polyethylene terephthalate (PET) plastic, used for water and drinks bottles, and high-density polyethylene (HDPE) plastic, and can recycle 35,000 tonnes each year.

In November a plant was opened by Intercontinental Recycling in Skelmersdale, Lancashire, with a capacity of 30,000 tonnes, though with a lower hygiene standard so the processed material is used for products such as plastic sheeting rather than food packaging.

Four other plants in Britain have a capacity of at least 20,000 tonnes, including the Alternative Waste Solutions plant, in Newcastle upon Tyne, which is to be extended from 25,000 to 100,000 tonnes by the end of this year at a cost of £14 million. By the end of next year, 70 per cent is expected to be of sufficient quality to be used in food packaging.

Jonathan Short, the managing director of the plant, said the decision to expand was taken 18 months ago, so that the rapid increase in recycled prices since then had been a bonus. “This decision was made before prices took off,” he said.

“The real difference is the margin — there's enough margin there now to justify the investment. Another factor is the demand for food-grade recycled plastic.”

Of plastics, Mr Banks said: “We anticipate this price continuing to rise in relation to oil prices, and also increasing demand from manufacturers to expand the ranges of plastics collected.”

Rises in oil prices have been key to the decision by the Waste & Resources Action Programme (Wrap) to invite tenders for Britain's first mixed plastics recycling plant. The plant should be operational in 2011 and it will be able to process plastics such as yoghurt pots, margarine tubs, egg cartons and cutlery as well as bottles. Steve Creed, of Wrap, said: “There is a lot of value in the material we are treating as rubbish. Maybe calling it waste is the wrong phrase - we should be calling it resources in the wrong place.

“There's been a strong growth in the sector. It's probably a combination of an increase in the value of the waste and the ability to benefit from economies of scale. The value of things like plastic bottles has gone up significantly because of the cost of raw materials — oil, in particular.”

Attempts to reduce carbon emissions are also playing a part in the switch to recycled materials.

The glass industry faces tougher emission regulations, so by using recycled bottles, which causes less carbon dioxide to be pumped into the atmosphere, rather than creating them from virgin materials, it can lessen its impact on climate change. Similarly, manufacturers using recycled plastic rather than creating it from fresh ingredients can halve their carbon emissions.

Carbon pricing, which is expected to become more rigorous, is likely to put further pressure on manufacturers to use recycled materials. “It's becoming more of a factor for people. The pricing of carbon is still in its early days but people are becoming aware,” Mr Creed said.

“I wouldn't want to see scarcity as the main driver but looking forward we are going to have to do something about using materials as many times as we can. Paper fibres can, for example, be used seven times. If we use them just the once we've missed out.”

David Hughes, a partner at the Foresight Group, venture capitalists specialising in environmental sustainable investments, expects more plants to be built in Britain and that these will encourage more people to recycle.

“We think there's a virtuous circle,” he said. “A lot of councils don't recycle the plastic waste because there haven't been processing facilities. We think by building plants you encourage more councils to recycle.”

CASE STUDY: 'There's money to be made'

Chris Dow has every confidence that his investment in plastics recycling will generate brass from muck.

“There's money to be made from rubbish,” he said. “The UK is the land of milk and honey for recycling and environmental technology.”

He has a personal stake in the Closed Loop London facility and uprooted his family from Australia to take up the post of managing director at the Dagenham plant.

The rise in commodity prices over the past two years has underlined the potential of recycling plants as green goldmines because of the improvement in profit margins.

“Obviously, it makes us more competitive with virgin resin, which is a product of the oil refracting process,” he said. “All the recycled alternatives have found themselves much more competitive.

“The past two years have been great for us and our investors — they've been great for the environment in general.”

For Mr Dow, the venture is more than just a way of making money. He sees recycling as an important and necessary way to protect the environment. The most obvious benefit is reducing the amount of waste that would otherwise be dumped in Britain's limited number of landfill sites.

“We take bottles from the kerbside, sort them, shred them, wash them and return them back to food-grade resin, which can be used to make bottles again,” he said.

It can also reduce carbon dioxide emissions, regarded as a prime cause of climate change. Recycling plastic consumes at least 50 per cent less oil than making plastic from scratch.

Mr Dow said of the reprocessing plant: “We are a small but important step in the right direction. I really believe in it. It's the way we need to go as a community and a society.

I consider it the best thing I've ever done in my life. It's the future.”

August 11, 2008

The Green Gold