EFFICIENCY OF PORTUGUESE RECYCLING SYSTEMS. Pedro Simões Nuno Cruz Pedro Carvalho Rui Cunha Marques

Transcription

1 EFFICIENCY OF PORTUGUESE RECYCLING SYSTEMS Pedro Simões Nuno Cruz Pedro Carvalho Rui Cunha Marques

2 Summary 1. Introduction 2. Model Specification and Methodology 3. Case-Study 4. Results 5. Conclusions

3 Introduction High operational and investment costs Growing of waste prodution Waste is a resource Sustainable services and fulfill EU targets Utilities must be efficient

4 Introduction More than 500 million euros Are recycling services efficient?

5 Model Specification and Methodology Data Envelopment Analysis (DEA) Y outputs DEA CRS The value of the objective function is invariant to the units of measure of each input and output (slacks-based measure of efficiency SBM): Utility A DEA VRS Utility B Utility C o A CRS A VRS A X inputs The value of the objective function can be interpreted as the ratio between the average input and output inefficiencies

6 Model 2 Model 1 Case-Study Inputs Outputs Sample size OPEX CAPEX Recycling services Glass Paper Plastic 34 OPEX CAPEX Recycling services Revenue Financial transfers 34

7 Results The DEA results obtained show that inefficiency is a serious problem for recycling companies. On average, all the orientated models present an overall inefficiency greater than 20%.

8 Results Higher levels of the scale efficiencies (that is, the optimal scale) are between approximately 2000 and 8000 tonnes of glass and paper and between 500 and 1000 tonnes of plastic About one million euros in total economic revenue or the financial transfers from the SPV.

9 Results A financing mechanism solely based on the amount of waste selectively collected might not be enough. More incentives should be provided.

10 Results CAPEX is the input that must undergo the highest reduction to be able to reach 60% reduction on average On average, glass and plastic collection must be developed

11 Results Total revenue and financial transfers must be increased The results also show that when model 1 is considered a greater number of efficient observations is found

12 Results Market structure analysis concerning the economies of scale shows that there is potential for increasing efficiency if the companies operated in an optimal size (5%); Despite the extent reforms carried out, the sector still requires other measures; The CAPEX input seems to be much more critical than the OPEX.

13 Policy Implications The majority of the services is economically regulated, which for several years now (since 2003) uses a rate of return method and some benchmarking techniques to estimate the adequate OPEX level. Therefore, the inefficient OPEX has been reduced over time and currently there is little excess to cut. However, the situation is quite different regarding the CAPEX where there are still great inefficiencies; The current regulatory model is not providing incentives for curbing CAPEX in the waste sector. The rate of return regulation can lead to goldplating practices or overinvestment (the so-called Averch Johson effect); A possible solution for this problem would be to adopt a price cap regulation approach.

14 Conclusions Either using oriented or non-oriented non-parametric methods, our results show that there are high levels of inefficiency in recycling companies; These results deserve attention, especially regarding the incentives for financial compensation provided to the recycling waste sector. A funding scheme based on more than simply the amount of packaging waste collected could be more effective in encouraging innovation and continuous improvement; It seems that there is no dominant technology and that the influence of economies of scale is not very relevant for the recycling market;

15 Conclusions According to the non-oriented methodologies, the companies have to increase the outputs significantly to become efficient. Concerning the inputs, the CAPEX is the one that must undergo further reductions. This state of affairs could be changed if the current regulatory model based on reported costs (rate of return regulation) was replaced by a performance-based regulatory method (grounded on a cap for prices). Concerning the operational and institutional environment, the variables regulation and ownership have a positive influence on efficiency. The influence of the population density seems to be negative and the results depend considerably on where recycling companies are located in the country.

16 Thank you for your attention!! Pedro Simões