Reid J. Lifset Associate Director and Working Paper Series Editor

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2 The Program on Solid Waste Policy is a research and teaching unit of the School of Forestry and Environmental Studies at Yale University. The goals of the Program on Solid Waste Policy are two-fold: ~ 1) to inform contemporary policy discussions about solid waste and materials management by applying the methods and findings of social and envifon science; and 2) to embed the analysis of solid waste policy in the context of broader environmental and societal concems. The Working Paper Series on Solid ste Policy has made possible with grants from the Office of Solid Waste of the U.S. Environmental Protection Agency and The Pew Charitable Trusts. These working papers have been issued to stimulate the generation and dissemination of scholarly research of policy relevance to solid waste management. The views expressed in this paper are those of the author and do not necessanl * y reflect those of the Program on Solid Waste Policy, the, School of Forestry and Environmental Studies, Yale University, the U.S. EPA or The Pew Charitable Trusts. For a list of other papers in this series, please contact: Reid J. Lifset Associate Director and Working Paper Series Editor Yale Program on Solid Waste Policy School of Forestry and Environmental Studies 205 Prospect Street New Haven, Connecticut Telephone: Fax: pswp@yale.edu

3 Working Paper Series Program on Solid Waste Policy * Working Paper #3 WHAT WON T GET HARVESTED, WHERE, AND WHEN: THE EFFECTS OF INCREASED PAPER ~ECYCLING ON TIMBER HARVEST Peter Ince, Ph.D. Forest Products Laboratory Forest Service United States Department of Agriculture October 1995 Yale University School of Forestry and Environmental Studies

4 Recommended Citation: Ince, Peter What Won t Get Harvested, Where, and When: The Efsects of Increased Paper Recycling on Timber Harvest. PSWP Working Paper #3. New Haven, Connecticut: Yale School of Forestry and Environmental Studies. This paper is in the public domain and not subject to copyright.

5 Abstract What Won t Get Harvested, Where and When: The Effects Of Increased Paper Recycling On Timber Harvest Peter J. Ince, Ph.D. USDA Forest Service Pulp and paper production and paper recycling have increased in recent decades to unprecedented levels throughout the world. This paper presents a review and comparison of regional trends in timber harvest, pulp and paper production, waste paper recovery and waste paper utilization. On a worldwide basis, increased recycling will have the greatest effects on potential timber harvest in North America and Europe as a result of the large magnitude of pulp and paper production and potential for increased recycling in those regions. Recycling will likely have less of an effect on timber harvests in South America, Africa, Oceania, and Asia because of established patterns of wood use or relatively small volumes of pulpwood obtained from native forests. The worldwide demand for wood fiber will continue to grow, and overall pulpwood consumption is not likely to diminish substantially in any region. Projected effects of recycling on timber harvest in North America were developed by comparing projections of pulpwood harvest with and without expected increases in paper recycling. The results show that increased recycling will have great effects on softwood pulpwood harvest, mainly in the western and southern United States, and on hardwood pulpwood harvest in the South; increased recycling will have a more modest effect on pulpwood harvest in Canada and the northern United States. PSWP Working Paper #3

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7 TABLE OF CONTENTS Foreword... Introduction... 1 World Perspective... 2 Implications of Trends in Paper Production and Recovery... 4 Top Ten Producers of Paper and Paperboard... 6 Other Producers of Paper and Paperboard Recent Paper Recovery Trends in the United States and Canada Developments and Trends in Paper Recycling Markets and Mandates Economic Considerations Related to Paper Recycling Recent Studies of Paper Recycling Trends Industry Studies and Recycling Goals Studies by Industry Consultants Government and Academic Research Studies Europe The United States and Canada FA0 World Perspective Effects of Recycling on Timber Harvest in North America Conclusion Glossary References vi PSWP Working Paper #3 V

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9 FOREWORD Debates over the environmental value of paper recycling have focused on the benefits of avoiding incineration and landfilling or on the environmental impacts of manufacturing with recovered (waste) paper. Less, however, has been said about the impact of paper recycling on the forest. Obviously, many people recycle paper in order to save trees. Yet, some critics of paper recycling argue that the reduction in the demand for virgin pulp caused by recycling is counter productive: by making the growing and sale of timber less lucrative, it reduces the incentive for companies to replant to produce the next generation of trees. A careful examination of the relationship between paper recycling and forest management has to go beyond these simple positions to ask what kind of trees will be cut-or not cut? In what manner will they be harvested-with and without changes in demand and the associated changes in market price (relative price) arising from recycling? Which forests will be harvested and when? Only then, can the environmental impact on the forest be assessed. Peter Ince s paper is the first in a pair of papers that address the impact of paper recycling on forests. Originally, only one paper was planned: it would start with a simple review of what wouldn t get cut, where and when and then proceed full bore into the assessment of the environmental impacts of those changes-presumably reductions-in forest harvest. It did not take long to realize that the forecast of the impact of displacement of virgin fiber by recovered fiber is sufficiently complex to warrant a paper all by itself. This led me to ask Peter Ince, one of the developer s of NAPAP, the US Forest Service s sophisticated economic model of the pulp and paper industry, to review the existing research on this topic and to hazard some predictions. With the support of the Forest Service, he digested an extraordinary quantity of technical research in addition to the results of the NAPAP, and produced the assessment you have in hand. The ramifications of the analysis of the relationship between paper recycling and forest management go well beyond solid waste policy and forestry. They epitomize a key, if somewhat underdiscussed, question in environmental policy: should we aim our policies at means or ends? Recycling generally, for example, is advocated because it is thought to bring about a myriad of benefits: less pollution from incineration and landfilling, conservation of natural resources, and less pollution from the industries that manufacture using recovered materials, to name the most prominent. Recycling is a shortcut, in this view. Because the advantages of recycling are thought to outweigh its disadvantages in enough circumstances, detailed analysis of every situation is unnecessary: it is an intellectual time saver. By the same token, it is a biophysical shortcut: one activity generates many different good results. Energy conservation has the same character. It is a means to many valued ends, so much so that it is treated as an end in itself. Opponents of this approach argue that we should work directly and specifically for each individual end: preservation of forests or the reduction of the particular pollutants from paper manufacturing thought to pose important risks. If paper recycling is stimulated by the PSWP Working Paper #3 vi

10 price changes caused by these targeted efforts-because virgin pulp supplies become more scarce or because compliance with pollution regulations in paper manufacturing is cheaper when using waste paper as a feedstock-then recycling will increase through market forces. Should we target our efforts at each particular environmental injury-with greater precision in the use of society s resources but with the risk of being lost in the details, forgoing the chance to accomplish many environmental goals in one fell swoop? This is an ideological question in many respects, but it is also an empirical question. Through this pair of papers, we attempt to investigate whether paper recycling is a good proxy for all of the intended positive effects. The authors cannot answer even the empirical question definitively through these working papers, but they go a long way to ensuring that the right questions have been engaged. Reid J. Lifset Editor, Yale Working Papers on Solid Waste Policy PSWP Working Paper #3 vii

11 INTRODUCTION Increased paper recycling can extend the total supply of fiber for papermaking. As more paper is recovered from the waste stream and recycled, it may directly displace some use of virgin pulp made from trees, or it may simply contribute to satisfying growing demand for paper and paperboard products. An assessment of the environmental value of increased paper recycling must therefore consider its likely impacts on forests, and particularly whether increased recycling will result in a reduction or a deferral of timber harvest. This paper examines the likely impacts of paper recycling on timber harvests. 1 This examination of the impacts of paper recycling starts with assessment of world market trends for pulp and paper. Markets most likely to be affected by increased paper recycling are identified by looking at which countries have produced, consumed, and recycled the largest quantities of paper, and which have a propensity for increased recycling in the near future. Countries which consume large quantities of paper products generate large amounts of waste paper, and among those with historically low recovery rates there is the greatest potential for increasing supply and utilization of recovered fiber. Countries with large production capacities that have not fully exploited available recovered fiber resources may be expected to experience significant increases in utilization of recovered paper. Countries in North America and Europe in particular meet these criteria, and therefore increased recycling would appear to have the largest potential timber harvest impacts in those regions. Apart from patterns of world production, technology of papermaking also shapes potential for paper recycling to displace virgin fiber. Technological limitations to paper recycling have largely been overcome in recent years, owing to improvements in process technology and market incentives. Process improvements have helped to establish cost competitiveness between recycled and virgin fiber paper making processes. Legislative and policy shifts favoring increased recycling along with consumer demands for environmental stewardship have provided strong market incentives for increased recycling. Some of the key technological constraints are reviewed in this paper, along with a discussion of the role of markets and mandates in the area of paper recycling. The relative importance of supply-side mandates (e.g., mandatory collection) and demand-side mandates (e.g., minimum recycled content legislation) are discussed in the context of the recent US experience. Against this background, various quantitative projections of the impacts of increased paper recycling are evaluated. By comparing industry, government, and academic studies, a sense of what will not get harvested, where, and when is determined. The comparison suggests that increased recycling will defer substantial quantities of timber harvest in the future, but with a few exceptions it will not actually reduce harvests relative to current levels. Thus, increased recycling will generally slow the rate of growth in timber harvest. Increasing 1 A companion paper by Professor John Gordon of the Yale School of Forestry and Environmental Studies takes findings of this paper as a starting point for analysis of environmental impacts. PSWP Working Paper #3 1

12 demand and production of paper and paperboard products worldwide will require more use of both recycled fiber and virgin fiber. WORLD PERSPECTIVE World production of paper and paperboard climbed to unprecedented levels in recent decades. Between 1960 and 1990, world production increased more than threefold, from less than 75 million to 240 million metric tomes.' (Throughout this report, the word tonne is used to denote the metric weight measure equivalent to short tons or about 2205 pounds.) Recent growth in paper and paperboard production has been highly correlated with economic growth. Paper and paperboard demand has been linked closely to broad measures of economic growth, such as gross domestic product (GDP). World GDP also experienced roughly a threefold increase between 1960 and North America, Europe, and Asia led the world in production growth throughout this period (Figure 1). By 1993, North America produced more than 90 million tonnes of paper and paperboard, more than doubling annual production since 1960 and exceeding the 1960 world production level. Europe, at 75 million tonnes in 1993, also more than doubled annual production and exceeded the 1960 world production level. Rapid growth in paper and paperboard production occurred in Asia and other parts of the world as well, reflecting high rates of economic growth in those regions. In Asia, production reached more than 60 million tonnes by 1993, compared with less than 10 million tonnes in In the remainder of the world, production grew from less than 3 million tonnes in 1960 to more than 15 million tonnes by 1990, with Latin America producing two-thirds of this total. Figure 1--Paper & Board Production by Region 90,000 80,000 70,000 h C; 60,000 0 S 50,000 m 2 40,000 E g 30,000 20,000 10, Austral./NZ 'Data discussed in this section were obtained mainly from the Pulp & Paper International (PPI) Znternational Fact and Price Book (Pulp and Paper International 1992). In this report North America refers to the US and Canada. PSWP Working Paper #3 2

13 To provide historical perspective, it can be estimated that the cumulative tonnage of paper and paperboard produced worldwide since 1960 has exceeded, in all probability, the tonnage produced over the entire preceding 200 to 300 years of world history, spanning a period since the early Industrial Revolution. Rates of growth in per capita consumption of paper and paperboard, however, have been slowing or leveling out, particularly in developed countries. Nonetheless, with growing population and increased economic development, the total tonnage of paper and paperboard production has continued to move steadily upward, as shown in Figure 1. Virgin fiber pulp production also increased worldwide in recent decades, from 59 million tonnes in 1960 to 163 million tonnes in Almost all virgin fiber pulp was used to produce paper and paperboard products. Only 2 to 3 percent of pulp was employed for other purposes, such as dissolving pulp used mainly in the manufacturing of synthetic fibers such as rayon. In line with the distribution of paper and paperboard production, pulp production was also concentrated in North America, Europe, and Asia (Figure 2). Between 1970 and 1990, growth in virgin pulp production was less vigorous in Europe and Asia than in North America, partly because of higher paper recycling rates in those regions. Wood fiber is the primary raw fiber material used to produce pulp and paper products worldwide. Wood fiber is derived from timber harvested in natural or regenerated native forests, from fiber plantations, from wood residue byproducts (from sawmills, plywood mills, etc.), and from recovered paper. More than 90 percent of the virgin fiber pulp produced worldwide is wood pulp. The remainder is nonwood pulp made from other plant fibers, such as straw, bagasse, cotton, and bamboo (mostly in Asia). Figure 2--Pulp Production by Region 90,000 T 80,000 70,000 h 60, , 50,000 Lo 2 40,000 2: g 30,000 20,000 10, N. America 4%- Europe --t Asia Latin Amer. 31c Austral./NZ Africa. Pulpwood is harvested from a spectrum of forest types and management regimes. Natural or regenerated native forests often contain native tree species, usually within naturally PSWP Working Paper #3 3

14 forested areas. In some cases, natural forests have been managed to maintain native forest ecosystems in conjunction with periodic timber harvest. In other cases, intensification of timber harvest without intensification of forest management has resulted in poor preservation of native forest ecosystems. Fiber plantations have often been established in areas that had been cleared of native forests or on former agricultural lands, where native forest ecosystems had been eliminated to a great extent. Fiber plantations have sometimes been characterized by very short rotations or by intensive cultivation of exotic tree species, hybrids, or other plant species. The main purpose of such plantations has been to grow fiber. Few, if any, elements of native forest ecosystems may be preserved in such cases, although very high rates of fiber production may be achieved. Fiber plantations have become a primary source of pulp fiber in parts of Latin America, East Asia, Australia and New Zealand. In North America and Europe, pulpwood has been obtained mainly from natural or regenerated native forests, from forest plantations, and as wood residue byproducts from primary wood processing facilities such as sawmills and plywood mills. Roundwood timber harvest (see the glossary for the definition of this and other terms) has accounted for about 70 percent of pulpwood supply in the United States, about two-thirds of pulpwood supply in Europe as a whole, but only about one-third of pulpwood supply in Canada (the remainder supplied by residues). The volume of timber harvested from plantations has been increasing, but worldwide data on sources of pulpwood harvest by forest management regime are not readily available. In the United States, for example, data on total pulpwood supply have been published for decades, showing the distribution between roundwood and residues, and between hardwood and softwood. However, there is a paucity of historical data on pulpwood harvest by forest management type, such as pulpwood harvest from natural forests as compared to forest plantations. Implications of Trends in Paper Production and Recovery Trends in world pulp and paper production suggest some important implications concerning the effects of increased paper recycling on future timber harvest. Given unprecedented and unabated growth of demand for and thus the production of pulp, paper, and paperboard, it does not appear likely that increased recycling will cause an immediate decline in worldwide pulpwood harvest. Although increased recycling may moderate the growth trends in world pulpwood harvest, the rate and momentum of economic growth and production are so enormous that pulpwood harvest will in all likelihood continue to increase well into the foreseeable future. These generalizations are supported by a number of recent studies that are discussed in this report. Nevertheless, increased recycling does influence timber harvest patterns in certain key regions. -~ North America, Europe, and East Asia produce by far the largest volumes of pulp, paper, and paperboard, consuming the largest volumes of virgin and recycled wood fiber. These regions also consume the largest volumes of paper and paperboard, indicating the greatest potential recovery of paper for recycling. Thus, North America, Europe, and East Asia are the regions of greatest significance in considering the impacts of increased recycling - PSWP Working Paper #3 4

15 on timber harvest. A more detailed perspective can be gained by viewing their patterns of fiber utilization. One key parameter in fiber utilization is the ratio of virgin pulp consumption to paper and paperboard production. This ratio reveals the extent to which production depends on virgin pulp. A higher ratio indicates greater use of virgin pulp and a lower ratio, greater use of recycled fiber or inorganic fillers. Figure 3 illustrates trends in virgin pulp ratios for North America, Europe, and Asia since North America depended most heavily on virgin pulp, followed by Europe, and finally Asia. Pulp ratios declined in North America and Europe between 1981 and Virgin pulp use increased recently in Asia, and now matches that of Europe. Figure 3--Virgin Pulp Ratios by Region, , 0 s n --t N. America -E#- Europe +Asia I I I I I 0.5! I 1 I I I These data suggest that increased paper recycling has a greater potential impact on timber harvest in North America than in Europe or Asia because North America depends to a greater extent on virgin pulp than does Europe or Asia. Most pulpwood consumed in North America is obtained from native forests or forest plantations. Furthermore, wood fiber accounts for more than 99 percent of virgin pulp consumed in North America (in the United States and Canada) and a similarly high proportion in Europe. Only in Asia do nonwood fibers constitute a significant proportion of virgin fiber pulp (around 10 percent). A reflection of the same perspective can be observed by looking at data on recycled fiber utilization among the same regions. Figure 4 illustrates trends in the recovered paper utilization rates from 1981 to The recovered paper utilization rates are computed as the tonnage ratios of recovered paper consumed (in paper and paperboard production) to production of paper and board. Utilization rates reveal the extent to which paper and paperboard production depends on recycled fiber. PSWP Working Paper #3 5

16 Figure 4--Recovered Paper Utilization Rates, % 45%! -2 Y a i r 2 40%! +Europe --t N. America 1 20% Trends in recovered paper utilization rates reveal that Asia has been a leader in utilization rates, followed by Europe, and lastly North America, just the opposite of the pattern for virgin fiber pulp utilization (Figure 3). Whereas Europe experienced a fairly steady increase in utilization rates from 1981 to 1993, and Asia reached a plateau in the early 1990s, North America began to experience a substantial upturn in utilization rates beginning in the mid-1980s. By the early 1990s, North America had reached utilization rates found in Europe a decade earlier. As with paper and paperboard production, recycling of paper worldwide has also climbed to unprecedented levels in recent years. Furthermore, the total tonnage of paper recycled worldwide increased substantially over the past decade, from 54 million tonnes in 1983 to 100 million tonnes by 1993 (Pulp and Paper International 1992). Most of that tonnage (93 percent) was accounted for by consumption of recovered paper in North America, Europe, and Asia. Asia held a narrow lead in the total tonnage of recovered paper consumed in recycling (33 million tonnes by 1993), followed closely by North America (31 million tonnes) and Europe (29 million tonnes). These observations, coupled with the fact that North America has led in world production of pulp, paper, and paperboard, suggest again that North America is likely to experience the greatest potential impact of increased paper recycling on timber harvest, followed by Europe and Asia.._ Top Ten Producers of Paper and Paperboard PSWP Working Paper #3 6

17 Statistics for countries that were the top producers of paper and paperboard products in 1993 provide a more detailed international perspective. The United States and Japan have led the world in paper and paperboard production for many years. Among other leading producers in 1993, most had been among the top ten for many years, including Canada, Germany, Sweden, Finland, France, and the People s Republic of China. Actually, only two countries on the top ten list in 1970 were absent from the list by 1993-the former USSR and the United Kingdom. The United Kingdom had dropped to 12th place by 1993, just behind Brazil (1 lth place). The USSR had been ranked 4th in world production until Production has declined substantially in recent years (Russia is now ranked 13th). South Korea and Italy had joined the top ten list by The positions of China (the People s Republic of China) and South Korea were advanced the most between 1981 and 1993 (China from 8th to 3rd, and Korea from 15th to loth), reflecting the rapid growth of pulp and paper production in East Asia. The 13 top producers of 1993 accounted for 82 percent of world paper and paperboard production, while the top ten producers alone accounted for 76 percent. Table 1 provides comparative data on the top ten producers for 1981 and The table illustrates the relative importance of leading producers and indicates recent trends. Although paper and paperboard products are increasingly being traded as commodities on world markets, the data in Table 1 indicate that paper and paperboard industries in each country and region exhibit unique characteristics in recycling and fiber sourcing. PSWP Working Paper #3 7

18 ~ Table 1. Comparison of Top Ten Producers of Paper and Paperboard Products in and 1993" USA Japan I I (XI06 metric tonnes) Paper and paperboard I Recovered paper (xloh metric tonnes) Country I Year I Production I Consumption I Recovery I Imports I Exports I Utilization China People'sRep. Canada Germany hank (27%) (25 %) (40%) (34%) (48%) (47%) I 27.8 I (51%) 0.4 I 0.0 I 14.8 (53%) (12%) (14%) (23%) (29%) I (17%) (9%) (35%) (20%) (36%) (42%) Finland I I 6.1 I 1.3 I 0.3 (20%) I 0.0 I 0.0 I 0.2 (4%) Korea I I 1.8 I 1.6 I 0.5 (31%) I 0.7 I - I 1.2(66%) (South) (45%) (69%) Volumes of paper recovered and utilized for recycling increased among all top ten producers between 1981 and 1993, as paper recycling was generally increasing worldwide. The recovery rate (domestic recovery relative to consumption of paper and board) also increased in all leading countries, with the exception of Italy. Among the top producers in 1993, the leading recovery rates were found in Korea, Germany, Japan, and Sweden, followed by Italy and France. Germany had a lower recovery rate in 1981 (36 percent) but achieved a much higher recovery rate by 1993 (54 percent), exceeding the recovery rate of Japan. The United States had a substantially lower recovery rate in 1981 (only 27 percent) but reached 40 percent by 1993, exceeding Germany's earlier recovery rate. The utilization rate (volume of recovered paper used as raw material relative to paper and paperboard production) increased without exception among all top ten producers between 1981 and In countries where PSWP Working Paper #3 8

19 utilization rates were already relatively high in there were only modest gains in utilization rates by 1993 (in Japan, Korea, and Italy for example). More significant gains in utilization rates were achieved in countries that had started with lower utilization rates (e.g., China, USA, Germany, and France). The data (Table 1) permit categorization of top producers according to fiber utilization patterns. The leading producers fall into roughly three categories: (1) Industries that use mainly virgin wood fiber and small proportions of recycled fiber, with limited potential for increased recycling because of the relatively small population (limited domestic consumption of paper and paperboard products). (2) Industries that depend much more heavily on paper recycling, with limited pulpwood resources and larger population. (3) Industries that use virgin wood fiber and recycled fiber, with trends toward substantially greater use of recycled fiber over the past decade. In the first category are the industries of Canada, Finland, and Sweden, countries endowed with abundant timber resources, which have relatively small populations. These are developed countries with high standards of living, in which domestic per capita paper and paperboard consumption and recovery rates are comparable to that of other industrialized countries. In Sweden, for example, per capita paper and paperboard consumption and per capita recovery rates for recycling have been among the highest in Europe. However, because of their relatively small populations, the potential volume of paper recovered for recycling is limited in Canada, Sweden, and Finland. In these countries, domestic consumption of paper and paperboard was only a small fraction of total production (most production was exported) in Therefore, these countries have limited capability to increase domestic paper recovery for recycling. Utilization rates have remained among the lowest in the world, and they are likely to remain relatively low in the foreseeable future. An exception to this generalization could occur if imports of recovered paper from more densely populated neighboring countries increase. In that regard, Canada has some advantages over Finland and Sweden. The geographic proximity of Canada to the United States, overland transportation connections, and the free trade relationship (NAFTA) all help to facilitate Canadian imports of recovered paper from the United States. In countries like Sweden and Finland, local paper and paperboard industries have come to recognize their unique opportunity to capitalize on indigenous strengths as suppliers and exporters of virgin pulp and high quality virgin fiber paper and paperboard products. Even though the world paper and paperboard production system is moving toward substantially higher recycling rates, the system will continue to need virgin fiber inputs to replenish the constantly depleting stock of fibers; with repeated recycling, fibers deteriorate and are eventually lost from the system as broken fibers, fines, or sludge. Thus, there continues to be a need for virgin fiber inputs to the system, as well as a market need for high PSWP Working Paper #3 9

20 ~ quality virgin fiber products. Industries in countries like Canada, Sweden, and Finland appear to be positioned to fill those needs. The industries of Japan, Italy, and Korea fall into the second category. In these countries, recycled fiber has been a mainstay of domestic paper and paperboard industries for many years, providing roughly half or more of the fiber input requirements. These countries have fewer timber resources and have much higher population densities than countries in the first category. Imports of recovered paper have also begun to provide a larger share of fiber needs. Exports of recovered paper are negligible in all cases. In Japan, for example, the domestic recovery of recycled fiber has generally matched domestic utilization, both at just over 50 percent in In Italy, increased domestic recovery and increased imports of recovered paper (for the most part from other European countries and the United States) enabled the domestic industry to reach a recovered paper utilization rate of 49 percent in 1993, up from 47 percent in Among top ten producers, Korea reached the highest recovered paper utilization rate-69 percent-by 1993, utilizing imports of recovered paper. It can be noted also that the fourth largest producer of paper and paperboard products in Asia (behind Japan, China, and Korea) was Taiwan (14th in world production in 1993). Taiwan has depended even more heavily on imported recovered paper (for more than half of its fiber inputs) than has Korea and has reached a utilization rate of 98 percent (i.e., in Taiwan, almost all paper production is based on recycled fiber, along with smaller quantities of imported wood pulp). In the last general category are the industries of the United States, China, Germany, and France, all of which use large volumes of both virgin wood fiber and recycled fiber. Trends in these countries have been toward substantially greater use of recycled fiber. In 198 1, for example, all four countries in this category had lower recovered paper utilization rates than Japan: 42 percent in Germany and France, 25 percent in the United States, and 14 percent in China. By 1993, however, all four countries had substantially increased their utilization of recovered paper, primarily via increased domestic recovery, although Germany and France had also substantially increased their imports of recovered paper. By 1993, utilization rates had climbed to 34 percent in the United States, 29 percent in China, and 47 percent in France; in Germany the utilization rate reached 54 percent, exceeding that of Japan. All four countries in this category have been net importers of paper and paperboard products. Domestic consumption of paper and paperboard products has generally exceeded domestic production. The large volumes of domestic paper and paperboard consumption have resulted in a capacity to sustain large volumes of domestic paper recovery for recycling. Not surprisingly, as the United States leads the world in paper and paperboard product consumption it also leads the world by far in domestic recovery of paper and paperboard for recycling. Indeed, the United States has almost twice the recovery volume of Japan, partly as a result of the higher population and relatively high domestic consumption of paper and paperboard products in the United States. Likewise, China now ranks third worldwide in consumption and production of paper and paperboard products, and fourth in recovery of paper and paperboard for recycling, partly as a result of its large population. However, China PSWP Working Paper #3 10

21 still has a relatively low per capita consumption of paper and paperboard products. All four countries in this category have been able to increase domestic utilization of recovered paper, in large part because of their capability to increase domestic recovery of paper for recycling. The United States and Germany, and to a lesser extent France, are unusual in their capacity to export large volumes of recovered paper for recycling in other countries. In essence, while countries like Canada, Finland, and Sweden are relatively rich in timber resources, countries like the United States, Germany, and France are relatively rich in recycled fiber resources because of the high rates of domestic product consumption relative to production. In addition, China differs greatly from all other top producers in that only around onefourth of its virgin fiber input is obtained from wood fiber. The bulk of virgin fiber pulp in China is obtained from nonwood plant fibers (e.g., straw, bagasse, reed fiber, and bamboo). By contrast, among all other top producers, including Japan and Korea, more than 95 percent of virgin fiber input is wood pulp. Thus, although rates of recycling are likely to continue to increase in China, the impacts on timber harvest are likely to be much less significant than those in other parts of the world. Finally, among all countries of the world, it must be recognized that the United States stands unparalleled in the volume of pulp, paper, and paperboard produced and consumed, as well as in recovery and utilization of recycled fiber. The United States alone is rich in both virgin fiber as well as recycled fiber resources. Thus, the United States appears to have a unique potential for achieving a substantial shift from pulpwood harvest to recycled fiber. The data on top producers reinforce earlier generalizations. Specifically, the United States and Canada (especially the United States) appears to be the most significant region to consider in terms of the potential impacts of increased recycling on timber harvest, followed by Europe, and last, Asia. The United States and Canada have an enormous share (roughly one-third) of world paper and paperboard production and consumption. North America is also relatively heavily dependent on the use of virgin pulp fiber in paper and paperboard production (Fig. 3), and most of the pulpwood harvest in North America is obtained from native forests or forest plantations. Furthermore, North America has significant potential for further gains in paper recycling. Leading producers in Europe, on the other hand, are more segregated into producers that will likely remain heavily dependent on virgin wood fiber (e.g., Finland and Sweden) and other producers that have already achieved high rates of recycling (e.g., Germany, France and Italy). Certainly, increased recycling in Europe could have significant impacts on timber harvest, but aggregate impacts are not likely to be as substantial as those in North America. Finally, leading producers in Asia include those that depend heavily on recycled fiber (e.g., Japan, Korea, and Taiwan) or on nonwood fiber resources (eg, China). Recycling and use of nonwood fiber has already reached high levels in Asia, with some indication that recycling may have reached a plateau (Fig. 4). In that case, future increases in Asian demand PSWP Working Paper #3 11

22 for pulp and papedpaperboard products will likely place growing demands on virgin fiber (wood and nonwood resources). Furthermore, Asia has experienced high rates of economic growth and will likely continue to experience high rates of growth in the future. Thus, the prospect that increased recycling would reduce demand for forest fiber in Asia seems fairly remote. Other Producers of Paper and Paperboard As a final perspective on the worldwide situation, Table 2 shows data for seven other selected countries-brazil, Russia, Indonesia, Australia, New Zealand, Malaysia, and Chile. Together, the countries in this group account for less than 7 percent of world paper and paperboard production. Although none of this group is currently among the top ten producers of paper and paperboard products worldwide, in each country the forest sector of the domestic economy is thought to be relatively important or forestry issues are thought to be fairly significant. Therefore, it is useful to consider the potential impacts of increased recycling on timber harvests in these countries as well as in the leading producers of paper and paperboard products. Two countries of this group are in Asia (Malaysia and Indonesia) and one spans Europe and Asia (Russia). The others are outside the major production regions of the world, as noted previously (North America, Europe, and Asia). Thus, the data also provide a sampling of information on trends in other world regions, including South America (Brazil and Chile) and Oceania (Australia and New Zealand). Also, some countries in this group may be considered developing countries (e.g. Malaysia, Indonesia, Brazil, and Chile). PSWP Working Paper #3 12

23 Table 2. Comparison of Selected Producers of Paper and Paperboard Products in 1981 and 1993a Country Brazil USSR, Russia, CIS Indonesia Australia Paper and paperboard (x106 metric tonnes) Recovered paper (x106 metric tonnes) Year/ Production 1 Consumption Recovery I Imports I Exports I Utilization rank 1981 / (43%) (42%) 1993 / (38%) (31%) 1981 / (17%) (15%) 1993 / (22%) (21%) 1981 / (17%) (46%) 1993 / (16%) (48%) 1981 / (29%) (40%) 1993 / o (37%) (45%) New I 1981 /28 I I 0.1 (14%) I - I 0.0 I 0.1 ( 8%) I 1993 /30 I I 0.1 (19%) I 0.0 I 0.0 I 0.1 (11%) Malaysia I I 0.1 I 0.4 I 0.1 (18%) I 0.0 I - I 0.1 (100%) I I Zealand Chile 1993 / (12%) (32%) 1981 / (17%) (18%) I 1993 / (42%) (43%) The data in Table 2 reveal some important trends. Although paper recycling rates increased generally among the world s top ten producers (compare Table I), this trend was not reflected throughout the world, particularly not among some key developing countries. For example, Brazil and Malaysia actually experienced significant declines in paper recycling rates (utilization rates) in conjunction with increased paper and paperboard production. Although domestic recovery of paper for recycling generally increased in these countries between 1981 and 1993, the rate of recovery declined along with a decline in domestic utilization rates. This indicates that Brazil and Malaysia are relying more heavily on virgin pulp and available virgin wood fiber resources in order to expand paper and paperboard production, which has resulted in lower rates of recycled fiber utilization. However, it is not apparent to what extent this trend has affected demand for forest fiber per se, as much of the wood fiber used for pulp in those countries is obtained from fiber plantations (e.g., eucalyptus plantations in Brazil). Apart from Brazil and Malaysia, it is possible to characterize the other countries listed in Table 2 according to the same categories used to differentiate the top ten producers. Two of the countries, Russia and New Zealand, appear to share characteristics with the first category of top producers (i.e., Canada, Sweden, and Finland). Specifically, all of these countries share the characteristic of relatively abundant timber resources, particularly PSWP Working Paper #3 13

24 softwoods (including natural forests in Russia and extensive pine plantations in New Zealand), and they have relatively low population densities. Likewise, as with Canada, Sweden, and Finland, Russia and New Zealand exhibit relatively low utilization rates of recovered paper in their domestic paper and paperboard industries. New Zealand in fact has maintained a utilization rate of recycled fiber that is among the lowest in the world, comparable only to that in Finland. In general, industries in these countries have depended mainly on virgin wood fiber inputs and will likely continue to have relatively low recovered paper utilization rates. Russia is a possible exception to these generalizations, given the higher population densities in European Russia and the fact that the former USSR had actually achieved higher recycled fiber utilization rates in the 1980s (a utilization rate of over 25 percent was achieved around 1985 to 1989 before the collapse of the Soviet system). Since then, Russia has reverted to lower recycled fiber utilization rates as overall production and consumption have declined. Given the possibility of an improved economy and infrastructure, it would appear that Russia has at least a latent potential for achieving substantially higher recycling rates in the future. The patterns of fiber utilization in Australia and Indonesia appear to align more with countries in the second category of top producers (Japan, Italy, and Korea)-countries in which the domestic paper and paperboard industries have relied heavily on recycled fiber for many years. Australia has actually maintained relatively high utilization rates40 percent in 1981, increasing to 45 percent by 1993; likewise, Indonesia had a 46 percent utilization rate in 1981 and 48 percent utilization rate in As with Italy, consumption of paper and paperboard products in Australia has exceeded domestic production by a wide margin, forcing a reliance on imported paper and paperboard products and creating an abundance of paper available for recycling. Australia has substantially increased its domestic recovery of paper for recycling in recent years. Indonesia has a positive balance of trade in pulp and paper products, with substantial exports, so it relies heavily on imports of recovered paper to achieve high recycling rates. Finally, the pattern of fiber utilization in Chile appears to align with that in countries in the third category of top producers (the United States, China, Germany, and France). In Chile, recycled fiber utilization was substantially lower at one time (with a utilization rate of only 18 percent in 198l), but both domestic recovery and utilization rates grew significantly (to 42 percent recovery and 43 percent utilization rates by 1993). At these higher rates, Chile has recently approached the recycling levels of Europe. PSWP Working Paper #3 14

25 Recent Paper Recovery Trends in United States and Canada As suggested previously, the United States and Canada appear to have a unique potential in relation to trends in paper recycling and wood utilization. This section provides a more detailed overview of significant recent trends in paper recycling in these two countrie~.~ The United States began to experience substantial increases in the recovered paper utilization rate in the mid-1980s. This followed a period when the utilization rate had actually declined from higher levels in the World War I1 era. Utilization rates stabilized at relatively low levels in the 1970s and early 198Os, although the total tonnage of paper and paperboard production and recycling steadily increased throughout most of that period. Figure 5 shows the historical trend in the recovered paper utilization rate for the United States from 1970 to While the recovered paper utilization rate remained relatively flat in the United States from the 1970s until the mid-1980s (and then increased), the total volume of recycled fiber consumed in the paper and paperboard industry increased throughout most of that period (from 10.7 million tonnes in 1970 to 14.9 million tonnes in 1985) as U.S. paper and paperboard production steadily increased. In addition, virgin fiber wood pulp consumption also increased throughout most of the same period. Figure 5--Recovered Paper Utilization Rate in United States d) 2 30% 25%.* %.3.e 5 15% 10% Figure 6 illustrates historical trends in consumption of recovered paper and wood pulp in the U.S. paper and paperboard industry since Although the tonnage of recovered paper consumption increased from 1970 to 1985, a larger increase occurred in the period since 1985 when the utilization rate began to increase substantially (see Fig. 5). Although the tonnage of wood pulp consumption increased throughout most of the period since 1970, in 4Figures presented in this section are based on data for the United States published by the American Forest & Paper Association (AF&PA, 1993) and data for Canada published by the Canadian Pulp & Paper Association (CPPA, 1994). PSWP Working Paper #3 15

26 recent years wood pulp consumption began to show a tendency toward slower growth in conjunction with increased recycling rates (e.g., since 1988). Figure 6--Wood Pulp and Recovered Paper Consumption in US Paper and Board Production, o T 50 h s Wood Pulp I Recovered Paper 0 i Historically, the utilization rate in Canada has been in the range of percentage points lower than that in the United States. In 1975, it was just under 6 percent in Canada, while it was 23 percent in the United States. By 1980, the utilization rate exceeded 8 percent in Canada, while it was 24 percent in the United States. As with the United States, the utilization rate in Canada was relatively low for many years and then began to increase more recently. As shown in Figure 7, the utilization rate in Canada began to increase substantially around Figure 7--Recoverd Paper Utilization Rate in Canada, z CI 00 2 W * 2 W 00 2 W W s 0 a s By 1993, the recovered paper utilization rate had reached 20 percent in Canada, while in the United States it had reached 33 percent. In 1975, imports of recovered paper accounted for only 15 percent of recycled fiber utilized in Canada, but by 1993 imports accounted for 42 percent of recycled fiber utilized in Canada. Canadian imports of recovered paper were - PSWP Working Paper #3 16

27 primarily from the United States. Domestic recovery of recyclable paper also increased in Canada. Whereas only 16 percent of domestic paper and paperboard consumption was recovered for recycling in 1975,38 percent was recovered in As was the case in the United States, the Canadian paper and paperboard industry has generally been increasing its consumption of virgin wood pulp as well as its consumption of recycled fiber for many years. Figure 8 illustrates historical trends in consumption of recovered paper and wood pulp in the Canadian paper and paperboard industry since It appears that increased consumption of recycled fiber has begun to offset growth in virgin fiber consumption to some extent in Canada in recent years. However, the decline in wood pulp consumption has also been the result of other factors, including the general trend toward increased recycling in the United States, which traditionally has been a large importer of Canadian pulp and paper products, as well as a cyclical downturn in the pulp and paper economy during the early 1990s I 12 - h , z 8- G Figure %-Wood Pulp and Recovered Paper Consumption in Canadian Paper and Board Production, O! I 1 I 1 I I I I i PSWP Working Paper #3 17

28 DEVELOPMENTS AND TRENDS IN PAPER RECYCLING Development of paper recycling technology has been accompanied historically by a need to overcome inherent technological limitations associated with recycled fiber. An understanding of the limitations helps reveal constraints on development of paper recycling as well as the prospects for making further inroads vis a vis virgin fiber. As suggested in the following discussion, many of the technological limitations are being reduced or overcome. Future evolution of recycled and virgin fiber consumption will depend more on economic and market conditions than technological constraints per se. Thus, market trends in pulpwood and recovered paper prices, and comparative cost advantages of recycled or virgin fiber production processes, have become key determinants of trends in paper recycling. Nevertheless, expansions in recycled or virgin fiber production capacity generally represent large capital investment decisions involving facilities with a service life intended to last for many years, even decades, so the evolution of technology tends to be gradual over time. Also, as paper recycling increases, some technological limitations may regain importance as greater volumes of marginal or lower quality grades of recovered paper are utilized in the future. Papermaking has remained categorically the same type of physical process for thousands of years. It is a type of mechanical process known in engineering as felting, in which fibers are aligned randomly in a mat, pressed and dried to form a sheet. The random interlayering (or felting) of the fibers provides integrity and strength to the sheet. Fiber characteristics (such as fiber length, thickness, and rigidity) have a significant influence on sheet characteristics (strength, smoothness, and opacity). Fiber characteristics vary by plant or tree species. The technology of modern papermaking is largely the detailed knowledge of how to produce uniformity and quality in pulp fibers and paper products in large-scale production facilities despite substantial natural variation among the various types of fibers used in papermaking. Wood fibers differ substantially in physical characteristics from other natural fibers used in papermaking. There is also substantial variation in fiber characteristics among wood species (particularly between hardwood and softwood species), as well as differences between virgin and recycled fibep of the same species. Knowledge in papermaking often tends to have specific application to production and utilization of particular types of fiber. This undoubtedly contributes to the fact that papermaking remains an industrial art as much as a science. Nonetheless, generalizations can be made. Recycled paper tends to be associated with contaminants such as inks, adhesives, and plastics, whereas virgin wood tends to be a cleaner source of wood fiber, or at least free from contaminants commonly associated with recycled paper. Therefore, in general, paper recycling technology must cope with overcoming the problems of contaminants, and indeed contaminant removal or deinking has been a major element in the development of recycling technology for papermaking. Another generalization, based on scientific and engineering experience, is that paper or paperboard made from recycled fiber tends to be somewhat. - PSWP Working Paper #3 18

29 weaker than paper made from virgin wood fiber (e.g., according to various measures of paper strength, such as tear strength and tensile strength). Broadly speaking, recycled fibers have physical characteristics somewhat different than those of virgin wood fiber, which in turn affect strength properties of paper made from those fibers (Kleinau et al. 1987). The use of recycled fiber has a long tradition in papermaking. For example, recycled fibers (chiefly cotton, flax, and other fibers from rag cloth) were once a dominant fiber source of the paper industry in the United States, at least through the middle of the 19th century. The use of virgin wood fiber for pulp and papermaking on a large commercial scale did not begin until the 19th century (in the United States around the time of the American Civil War). However, throughout the 19th century, recycled fibers continued to be used for a substantial share of paper products; in the 20th century, the use of wood fiber from recycled paper has steadily increased. Thus, papermakers have had to cope with problems such as contaminant removal for a long time and they have developed many sophisticated techniques for dealing with such problems. Over time, however, the nature and character of the problems themselves have changed. For example, the nature of contaminants in recycled paper has changed (e.g., with new types of ink formulations, new printing techniques, etc.). The recent development of laser-type printers and copiers, and the advent of new types of contact adhesives for paper labels have presented substantial challenges to the technology for removing contaminants. Contaminant removal is necessary for producing uniformly high-quality paper products that consumers will find acceptable. In printing and writing papers, contaminants tend to reduce the brightness and visual quality of paper. In packaging and other grades of paper, contaminants tend to reduce product strength as well as visual quality and uniformity. Particularly in the past decade, however, consumers have become increasingly willing to accept and even demand recycled paper products despite off-white color, low brightness, and ink specks. This is the result of growing awareness by consumers that marginal sacrifices in product quality may help advance environmental goals. Marketing strategists seek to capitalize on this desire by using a recycled paper label. In addition to shifting consumer preferences, government policies and programs have also favored increased acceptance or demand for paper made with recycled fiber. In the United States in recent years, federal government agencies have adopted purchasing preferences for recycled paper, mandated by Presidential order. In addition, most state governments have also adopted purchasing preferences for recycled products, and most states have generic recycling goals. Thirteen states have mandates requiring recycled content in all newsprint and another 14 states have voluntary agreements committing industry to the use of recycled content. Various other state policies and programs also tend to favor increased recycling (Raymond Communications, Inc. 1995). Nevertheless, contaminant removal technology remains a necessary and significant element of recycling in conventional papermaking. PSWP Working Paper #3 19

30 Technologies have been developed that remove many conventional types of inks, dyes, or other contaminants from most recycled fiber sources. The modern techniques of washing and flotation deinking are most widely applied, often in combination, and both techniques have been used for many decades in the paper industry. Washing is a mechanical process where inks and contaminant particles are rinsed from pulp fibers (Horacek 1987). Flotation deiriking is a chemical and mechanical process using chemical agents that adhere to ink or other contaminants. These can then be separated from the pulp fibers by bubble flotation or frothing and skimming, as a result of differences in the hydrodynamic properties of the chemicals and pulp fibers (Ortner 1987). In addition, other mechanical techniques such as centrifugal separation and screening are also used to remove contaminants from recycled fiber (Doshi et al. 1987); mechanical techniques have been enhanced by the use of chemicals or enzymes that promote ink or contaminant removal. As increasingly varied and new types of contaminants have been encountered, new combinations and refinements of deinking and contaminant removal technologies have been applied, with generally improved results. A full description of the range of recent technological improvements in contaminant removal is beyond the scope of this paper. However, it is possible to say that available technologies provide the capability to clean and remove many, if not most, conventional contaminants. Therefore, depending on processing and raw material costs, contaminants generally do not prohibit the use of recycled fiber in most major commodity grades of paper and paperboard. One distinct exception is solid bleached paperboard (used in food packaging and food service applications such as frozen food containers and paper plates) for which the use of recycled fiber is generally proscribed to avoid possible contamination of food (e.g., by the Federal Food and Drug Administration in the United States). Other exceptions to the use of recycled fiber also exist, depending on market requirements, such as the need for high quality and brightness in printing and writing grades of paper. However, increasing the removal of contaminants can raise processing costs, and increased fiber processing can also result in the degradation of fiber quality. There are economic tradeoffs between contaminant removal and costs. Therefore, the presence or absence of various contaminants in recycled paper can play a significant role in determining the utility and economic feasibility of paper recycling. As most of the higher quality, lowcontaminant sources of recovered paper (such as sorted office papers and corrugated containers) are already being tapped for recycling worldwide, future gains in recycling depend in part on utilization of more heavily contaminated stocks of recovered fiber (such as mixed wastepaper, discarded food containers, disposable baby diapers, etc.) Technology has also been developed to cope with problems of strength loss in paper and products made from recycled fibers. These developments include fiber refining and treatment techniques designed to restore some of the natural characteristics of virgin fibers to recycled fibers, and improvements in sheet forming and pressing technology that have accommodated or overcome some inherent fiber strength limitations. Refining of recycled fibers in pulp refiners is a common and often necessary practice in paper recycling. The mechanical action of pulp refiners tends to roughen surfaces of recycled PSWP Working Paper #3 20

31 fibers, emulating surface characteristics found in virgin wood fibers and enhancing fiber-tofiber bonding. Chemical and enzymatic treatments can also be used to achieve some of the same results. Improvements in sheet forming and pressing technology are more generally associated with improvements in paper machines (the machines used to convert pulp into paper or paperboard products). Most modern paper machines are based on derivatives of the Fourdrinier concept of the late 18th century. In a conventional paper machine, a mat of pulp fibers is formed on a continuously moving wire screen. The mat is removed or lifted from the screen and pressed into a sheet in a roll press. The sheet is then dried by passing it over a series of steam-heated drying cylinders. Although the basic outline of this type of mechanical process has existed for nearly two centuries, the process has undergone substantial refinement and improvement, chiefly through improvement in the speed, size, and design of paper machines. In a modern machine, the fiber mat and sheet are often more than 10 meters wide and move through the machine at linear speeds of more than one kilometer per minute. Since the 1960s, a series of major improvements to paper machine design have helped to accommodate or overcome the strength problems associated with use of recycled fiber. One such improvement has been the advance of twin-wire former concepts, where the fiber mat is formed on one screen and a second or twin screen is introduced to hold the mat in place. By holding the fiber mat in place, paper machines can run at appreciably faster rates without losing the integrity of the fiber mat. In addition, fibers that tend to have lower fiberto-fiber bonding strength, such as recycled fibers, can more easily be accommodated at higher machine speeds. Another substantial improvement to paper machine capability has been the advent of high-intensity pressing along with wide-nip or extended-nip press technology. Beginning in the 1970s, techniques have been developed to increase the pressures applied in the paper machine press, where the fiber mat is formed into a sheet. In addition, technologies have been developed to extend or widen the area of the press that exerts pressure (the press nip) so that the sheet could also be pressed for a longer interval under high pressures. These advances have resulted in many product quality improvements and gains in efficiency, particularly in paperboard grades such as linerboard used in corrugated boxes (linerboard, the facing material, constitutes more than two-thirds of the fiber in corrugated containers). Among the gains, the improved press technology imparts greater strength to the paper sheet, which in turn has enabled the increased use of recycled fiber. Linerboard mills, which formerly could use little or no recycled fiber, now routinely use 20 to 30 percent or more recycled fiber. In addition to technological developments, changes in market demand and governmental policies have also facilitated the increased use of recycled fiber. In Europe, North America, and elsewhere, marketing strategies seek to exploit consumer preferences for products that may provide environmental benefits. Consumer demand for recycled paper products has risen as consumers learn that such products are likely to be superior to virgin paper in reducing solid wastes and saving energy associated with processing. Thus, despite marginal deficiencies in product appearance (e.g., lower brightness or off-white color in PSWP Working Paper #3 21

32 printing paper) or lower strength, marketing strategists have sought to respond to consumer demand by labeling paper made with recycled fiber. In most industrialized countries, government policies have promoted recycling, to a great extent as a means of reducing the public waste disposal burden, and also as a means of conserving resources. Particularly in Western Europe and North America, policy makers have promoted recycling avidly. This is exemplified by the emergence of much stricter packaging disposal and recovery requirements in Germany, for example, and by a multitude of state-level mandates in the United States, including landfill bans, more active local recovery programs, and minimum recycled content requirements for newsprint in some US states. Increasingly, consumers have been made aware of the environmental and policy imperatives of recycling and the need to buy recycled products. Another substantial market change over the past decade has been the emergence of new technical product standards that are more accommodating to recycled paper products. An example is the advent of new corrugated container standards, which appeared in the United States several years ago. For many decades, corrugated containers had been subject to standards promulgated by the rail and trucking industries. The container standards were designed to ensure that freight shipped in corrugated containers would be afforded a standard degree of protection against damage in transit. The standards were widely adopted, and the use of boxes that met the standards was a necessary prerequisite for freight insurance coverage in most cases. However, the original standards had been developed in the early part of this century, when corrugated boxes were first coming into commercial use. Boxes were often hand-carried at loading docks, making them vulnerable to being dropped and bursting open. Therefore, the original standards were specified in terms of a burst test, designed to ensure that corrugated containers could withstand some impact against the hazard of being dropped. Over the years, however, shipping practices changed. It became increasingly common for boxes to be shipped in unitized stacks (loaded together on pallets) and stacked in transit or in warehouses. In that new shipping environment, the hazard of boxes being crushed as a result of stacking pressure became generally greater than the hazard of being dropped. Thus, after many years of deliberation and development, new corrugated container standards were prom~lgated.~ The new standards were based on edgewise compressive strength rather than the burst test. The significance of this development is that whereas virgin wood fiber generally provides superior burst characteristics in products such as linerboard used in corrugated boxes, recycled fiber can nevertheless generally provide compressive strength similar to that obtained with virgin fiber. Thus, recycled fiber is now more easily accommodated in corrugated containers as a result of changes in market standards. Improvements in paper machine press technology have also helped facilitate this development, as higher sheet density and better compressive strength are obtained with higher intensity press technology. For more detail on the impact of the Cardboard Rules on fiber use, see Twede, Less Waste on the Loading Dock (PSWP Working Paper #2, 1995). PSWP Working Paper #3 22

33 In addition, technological developments in the pulp and paper sector tend to spread rapidly from one country to another. This is due partly to the large scale of production equipment and facilities. Consequently, capital equipment, such as paper machines and pulp digesters, are supplied internationally by a limited number of specialized fms. The industry is also served by a number of large industrial architectural and engineering firms who operate internationally and are often involved in the design, construction, and start-up of production facilities. Thus, the latest pulping and papermaking technology available in one part of the world is usually available elsewhere, whether it be the United States, Europe, or Malaysia. Some countries may have short-term advantages in recycling technology as a result of their extensive experience with higher levels of recycling, such as Japan, but closer review generally reveals that in most cases technological options and solutions are similar to those being developed in other countries. For example, a recent review of trends and technological developments in the Japanese pulp and paper industry by Dr. Kunio Hata, Director of Research and Development for Nippon Paper Industries, revealed that new processes being developed for recycling in Japan included high-consistency pulpers, pulp kneaders for deinking, high efficiency surfactants for deinking, and flotation devices with large separation rates (Hata 1994). However, similar recycling research in North America and Europe focuses on problems of adhesives and waxes as contaminants in recovered paper, application of enzymes and other chemicals in deinking, and development of new deinking equipment. Markets and Mandates There is no doubt that gains in paper recycling of the past decade were stimulated fundamentally by governmental policies, particularly environmental mandates related to waste management and disposal, but the story of which mandates were most effective and the relative role of markets and mandates is complex. In the United States for example, a compelling case can be made that early policy shifts in the waste management arena (in the 1980s and earlier) contributed to emergence of unprecedented conditions in the fiber market, which in turn were sufficient to foster substantial investment by industry in new capacity to use recycled fiber (in the early-to-mid 1990s). It is somewhat more difficult to claim that later recycling policies (in the early 1990s) were solely responsible for expansion of recycling, as it seems by then the market had established itself as the main driver of increased recycling. Results of econometric modeling studies, discussed subsequently in this report, suggest that market conditions emerging in the early 1990s were alone sufficient to foster the increased investment in recycling observed during recent years, although market conditions were themselves the result of earlier or contemporaneous waste management policies. In any case, one conclusive result of the interplay between markets and mandates was to effectively reduce market barriers to increased recycling, by fostering increased collection and recovery of paper for recycling, by promoting consumer recognition of related environmental issues, and by fostering consumer demand for recycled products. Among the categories of mandates and policies that were relevant in the United States for example, among the most effective for paper recycling were those which focused initially on reducing the environmental burdens resulting from landfilling and incineration as means of PSWP Working Paper #3 23

34 waste disposal. These policies led to diversion of wastepaper from landfills and incineration, and to increased recovery of paper for recycling. In this category were various governmental mandates or policies-federal, state, and local-which began to emerge more widely in the 1980s, encompassing more stringent air quality standards which increased the cost and reduced the feasibility of waste incineration, and more stringent water quality standards and groundwater protection requirements which increased the costs and reduced the availability of landfills. Policies and programs played an equally important role which aimed specifically to divert wastepaper from landfills or incineration to recycling, such as mandatory and voluntary collection programs, landfill bans, and, in general, support for development of recycling collection infrastructure. From the standpoint of recycling, this grouping of mandates and policies may be regarded as supply-side stimuli, because they effectively boosted supply of recovered paper (shifting the material from garbage going to landfill or incinerator, to bales of recovered paper going to market for recycling). This grouping of mandates and policies can be contrasted with a later grouping of mandates and policies, discussed below, which are demand-side stimuli. As the numbers of operating landfills declined steadily in the 1980s, and as fees for disposal of waste via landfill or incineration rose, municipal and private sector paper recovery and collection efforts increased, largely as a means of avoiding the costs of disposal. Consequently, by the late 1980s, recycled fiber markets became saturated with an oversupply of recyclable wastepaper. A precipitous drop in prices for recovered paper occurred beginning in 1989, leading to a period of a sustained market glut when most grades of recovered paper remained at record low price levels (measured in real price terms). The market glut continued until early 1994, when recovered paper prices began to increase dramatically to the point where they had reached historical highs by Recovered paper markets have always been subject to price volatility, but the glut of the early 1990s was unprecedented. Furthermore, the market glut was sustained over about five years, providing a relatively lengthy period over which the industry faced a very strong market incentive to increase recycling capacity: cheap fiber from recovered paper. The duration of the market glut was significant because of the lengthy planning period and large capital investments associated with expansion of production capacity in the pulp and paper sector. Siting and construction of new paper recycling facilities generally takes several years, and the need to avoid financial risks in large capital outlays means that the investment response will tend to be conservative, responding more to sustained market conditions than short term market signals. By 1991 and 1992, after some initial hesitation, industry expansion in new paper recycling capacity was steamrolling ahead..~ However, because of ever growing collection and recovery efforts which increasingly fed more supply to the market, the glut did not immediately disappear. Thus, in the early 1990s as collection programs and recycling of paper were increasing, financial returns to collection programs remained quite depressed, due to the sustained low prices for recovered paper. Ironically, as recovered paper prices remained depressed, local governments responsible for funding recycling programs began to feel the pinch of insufficient revenues, and state governments were urged to take some initiative. Perceiving in the early 1990s that - PSWP Working Paper #3 24

35 the industry needed additional stimuli to increase demand for recovered paper, some states enacted legislative mandates requiring higher levels of recycled content in certain products, such as in newsprint, or began to develop other programs aimed at fostering increased demand, such as state investment tax credits for recycling capacity. State and federal government agencies also adopted purchasing preferences for recycled paper products. Demand-stimulating efforts can be contrasted with the earlier category of supply-side mandates and programs aimed at diversion of paper from landfills. Whereas the supply side stimuli helped create the glut in recovered paper markets through increased collection, the demand side efforts were more of a reaction to the market glut. Meanwhile, the market glut itself was providing real economic incentive for increased investment in recycling capacity. Between 1989 and 1995, recycling capacity increased such that consumption of recovered paper in US paper and paperboard production increased by nearly 50 percent, from around 19 million metric tonnes to 29 million metric tonnes. The annual rate of increase in recycled fiber consumption during that period exceeded by several fold the annual rate of increase in virgin pulp fiber consumption (virgin pulp fiber consumption in US paper and paperboard production, however, did not decline during that period, and in fact increased from 55 million to 60 million metric tonnes). In early 1994, recovered paper prices began to climb as growth in demand finally caught up with growth in recovered paper supply. By 1995, the prolonged market glut had definitely come to an abrupt end, as recovered paper prices reached historical high levels. New recycling capacity continued to come on stream and consumption of recycled fiber continued to increase, but by late 1995 the annual rate of increase in virgin wood pulp consumption in US paper and paperboard production was twice the annual rate for recovered paper consumption. The period of rapid escalation in US recycling rates had come to an end with the end of the recovered paper glut. More modest increases in recycling can be anticipated in the future if market forces remain the principal driver of trends in paper recycling. An interesting issue in this context is whether future recycling mandates could once again supplant the market as the principal driver behind trends in paper recycling. From the present perspective, it would seem that the supply side stimuli have largely run their course, having fostered expansion of collection programs over the course of a number of years and having stimulated the prolonged market glut of the early 1990s, but having been largely superseded by mandates focused on the demand side. The decline in supply side initiatives may also be attributed in part to more efficient management of landfills, with larger and generally environmentally safer facilities. Landfill disposal fees do not appear to be increasing as dramatically as in the 1980s. Also, substantial quantities of wastepaper have been diverted from landfills already, and thus there is perhaps less pressing incentive for diversion of paper from landfills. Recovery of paper for recycling will continue, no doubt, to be promoted and advanced by governmental policies, but it is questionable whether another major push on the supply side will occur in the future, or instead, whether the rate of growth in recovered paper supply will PSWP Working Paper #3 25

36 ~ decline to levels matching growth in paper and board consumption. Market trends seem to suggest the latter course for the near term at least in the United States, as the increase in US recovery of paper for recycling over the past year ( ) indeed dropped to an annual rate that was actually less than the rate of increase in domestic paper and paperboard consumption, despite strong recovery incentives of record high prices for recovered paper commodities. Thus, effects of supply side mandates and programs, once powerful drivers of the market, appear to have largely subsided. On the demand side, the likelihood that mandates could offset market trends depends on the stringency of such mandates. This is ultimately a policy question to be resolved in the political arena. However, an objective consideration that can shed some light on the future is whether demand side mandates of the early 1990s were sufficiently stringent to change market behavior or whether such mandates merely reinforced market trends. It is difficult, if not impossible, to tease apart relative causality of market forces and demand side mandates in relation to trends in paper recycling in the 1990s. Many editorials and comments from industry observers seem to support a view that demand side mandates were very important, while others indicate that the market was the most important determinant. Upon closer inspection, it appears that the relative significance of demand side mandates can be questioned. In particular, state minimum recycled content mandates were enacted for only two paper product categories, newsprint (in 13 states) and telephone directories (in 3 states). Those two products together account for only a small fraction of total US paper and paperboard production (less than 10 percent), yet recycling increased prodigiously in other paper and paperboard products, including, for example, tissue paper and corrugated board products, where there were never any legislative mandates on recycled content. This suggests the sufficiency of market forces in advancing the level of recycling in the early 1990s. However, the threat of additional legislated mandates may have played a role in forcing an increase in recycling rates in a manner that is difficult to measure. In 14 other states newspaper publishers have entered into voluntary agreements committing themselves to the use of recycled newsprint-effectively expanding coverage of recycled content rules for newsprint to 27 of the states in the United States, including the 13 states with legislative mandates for recycled content in newsprint (Raymond Communications, Inc. 1994). In addition, government agency purchasing preferences for recycled paper may have stimulated industry changes not attributable to recycled content rules for newsprint (the purchasing preferences pertained to other grades of paper products purchased for government use, while the recycled content mandates and voluntary agreements applied to newsprint purchases in the private sector). Newsprint, the product with the most widespread mandates for recycled content (in 13 states), is a paper grade which is unique in that about half of US consumption is imported from Canada (for all other paper and paperboard grades over 90 percent of domestic consumption is satisfied by domestic production). Some Canadian observers have suggested that the reason newsprint was singled out for minimum recycled content mandates in the states was because of the weak lobbying presence of Canadian industry vis a vis US industry in state PSWP Working Paper #3 26

37 legislatures. Although minimum recycled content bills were introduced for other paper grades in many state legislatures, they were always effectively blocked. In the thirteen states which adopted minimum recycled content mandates for newsprint, the laws generally required that newsprint used by newspaper publishers contain around 40 to 45 percent recycled fiber content on average by the year 2000 (specific content schedules for compliance varied slightly from state to state, but were remarkably similar in most cases). When the laws were enacted in the early 1990s, recycled content in newsprint produced in the United States was, on average, less than 30 percent, but by 1994 it had in fact risen to approximately 40 percent, meaning that the US producers had effectively achieved the recycled content requirements well ahead of schedule. In fact, the average recycled content of newsprint produced in the United States has always exceeded the schedule of content mandates in force at any given time. Although Canadian producers lagged somewhat behind in recycled content, they too dramatically increased recycled content in newsprint during the early 1990s, taking advantage of the market glut and cheap backhaul freight rates for shipping recovered paper from the United States to Canada. By 1994, the share of the newsprint market represented by the thirteen states with recycled content mandates could be served adequately with newsprint meeting the recycled content mandates for the year 2000, with considerable margin for providing recycled content in many other states as well. Thus, any technological imperative associated with the mandates was already obviated by 1994, so long as producers in the United States and Canada maintained recycled content levels in newsprint. Furthermore, the legislative intent of such mandates (to stimulate demand for recovered paper in order to restore markets) was also satisfied by the end of the market glut and rising prices for recovered paper beginning in Since 1993, no states enacted additional minimum recycled content legislation related to paper products, and all such bills introduced in state legislatures have failed to be passed. During 1995, several states proposed legislation to roll back existing minimum recycled content mandates for newsprint given the very high prices for recovered paper inputs. Demand side mandates and policies may remain in effect, including investment tax credits for recycling, generic state recycling goals, technology assistance programs, and purchasing preferences, as well as the minimum recycled content mandates for newsprint. However, the legislative record among the states seems to indicate much less activity in this arena at the present time, no doubt influenced by the fact that the legislative intent and need for such mandates has been obviated by recovery from the market glut and also influenced by conservative electoral victories in Municipalities and others who collect and recover paper for recycling are now in a market that offers much higher revenues, reducing the need for market stimuli. Thus, on the whole, the record would seem to indicate that the demand side legislation related to paper recycling was more of a response to a unique and temporary market situation (the unprecedented and sustained market glut of the early 1990s). Retrospectively, the legislation of the early 1990s does not appear to have been a harbinger of more stringent legislation. Nonetheless, it is not clear if industry decision makers viewed that legislation as short-lived at the time. PSWP Working Paper #3 27