Abstract. bottles designed for Hong Kong. A cost-benefit analysis is carried out in this

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5 Abstract This paper simulated a centralised deposit system on glass beverage bottles designed for Hong Kong. A cost-benefit analysis is carried out in this research paper. I have investigated the potential elements of both costs and benefits exists in the system. The possible potential costs are the equipment cost, the additional labour cost, the transport cost, the recovery center costs and the administration cost. While the possible benefits are the deposit revenue from the unclaimed deposits, the market revenue, reduced alternative landfill management costs, reduced landfill volume and cleaner public areas. The main finding of this research paper is that Glass Beverage Container Deposit System is economically justified. The benefits of the deposit program outweighs the costs. The results also show that even with high return rates, the unclaimed deposits could still fund almost half of the on-going cost every day. This shows that the proposed deposit system on glass beverage containers to be highly efficient. Total Word Counts: 11,691 words 1

6 Table of Contents 1 CHAPTER I Introduction Research Background CHAPTER II Literature Review Arguments of the container deposit laws Container deposit program or deposit refund program worldwide CHAPTER III Possible Model of the Glass Beverage Bottles Deposit Scheme in Hong Kong Central System Approach Model The deposit and return rate Background information and assumptions Total numbers of retailers in the deposit system Total glass bottles recycled in the deposit system Total number of reverse vending machine required Potential Fees & Payments included in the Central System Central Administration Fee Collection, Transport and Treatment Fees Handling Fees Potential Revenues obtained from the Central System Material Revenues Deposit Revenues CHAPTER IV Cost-benefit Analysis Cost Analysis Equipment costs: Labour Costs Transport Costs

7 4.1.4 Recovery Center Costs Administration Costs Benefit Analysis Deposit revenue from unredeemed glass bottles Market revenue from the recovery of the recycled glass Reduced alternative landfill management costs Reduced landfill waste volume Cleaner public areas CHAPTER V Results of Cost-benefit Analysis Summary Costs Benefits Results of Cost Benefit Analysis CHAPTER VI Recommandations of implementing a glass beverage bottles deposit scheme Recommadations The hong kong government should implement a deposit scheme for glass beverage bottles The deposit system should be a centralized system The deposit program should cover other beverage containers such as PET bottles and cans a few years later The Glass Beverage Container Deposit Program should be introduced by CHAPTER VII Limitations CHAPTER VIII Conclusion Appendices

8 10 Bibliography

9 1 CHAPTER I INTRODUCTION 1.1 RESEARCH BACKGROUND Hong Kong is a place with dense population. In 2014, there are over 14,859 tonnes of solid waste produced per day. From the data of the Environment Protection Department (2013), the statistics stated that there are around 250 tonnes of waste are glass bottles disposed at the landfill everyday. In other words, there are more than half a million 750mL bottles dumped to the landfill everyday. Those glass bottles accounts 3% of the daily municipal solid waste in Hong Kong. Unlike other waste materials, more energy is needed when manufacturing glass from raw materials. Besides, glass were consider as resources rather than waste since it was proven that there are many application can turn glass into other useful materials and could widely use in the constructive industry. (Ling, Poon, & Wong, 2013) The Hong Kong Government have supported several glass recycling programmes in the past including various voluntary recycling programmes. Yet, voluntary programmes seems weak in recycling waste glass bottles in an effective way. Similar to the Environmental Levy Scheme on Plastic Shopping Bags, Hong Kong government should launch a scheme to ensure and improve the recycling rate of glass bottles. Voluntary recycling programme may be weak due to the programme is lack of motives for consumers to recycle the glass bottle after finishing the 5

10 drinks. In fact, there are many other countries and states have launched a recycling programme called the Container Deposit Scheme. Namely, the scheme may be simple referred to the bottle bills. In the past, we used to have a deposit refund system in Hong Kong and has come into effect during that period of time. Consumers have to pay the bottle of drinks together with a small deposit fee which then can be redeemed once return to the stores or tuckshops. Such deposit-and return system was run by the local beverage manufacturer in order to collect the refillable glass bottles to reduce the operation cost. The operation of the deposit and refund system but then greatly diminished since the beverage manufacturer had change their product s packaging. Until now, there are only a few manufacturers running the deposit refund scheme. (Environmental Protection Department, 2013) The deposit refund scheme actually was very successful and had come into effect during those days in the past. Yet, the system is managed by the manufacturers themselves targeting on refillable glass bottles and aims to recollect them to lower the manufacturing cost. In fact, this system operates similarly to the Container Deposit Scheme; however, CDS aims differently. (Environmental Protection Department, 2013) A Container Deposit Scheme aims to enhance and ensure there is a high recycling rate of different types of containers. (Walls, 2011) Consumers may have to pay the drinks as well as the deposit fee, after finish the drink simply 6

11 return it to the collection depot and claim back the deposit. Walls (2011) stated that CDS, as kind of a deposit refund system, involves economic incentives for consumers to recycle waste in an effective way. The system requires consumers to pay the tax, as a deposit, when consuming that product. The deposit is actually a potential payment for inefficient disposal which might pollute the environment. On the other hand, the deposit fee act as kind of a subsidy, which is given to the person whom return the empty container to a redemption center. (Lavee, 2009) This kind of deposit refund program was successfully launched worldwide and has come into effect. From the data of the EPD, in Hong Kong, beverage glass bottles accounts two-third, which is over 150 tpd of all the waste glass bottles in (Environmental Protection Department, 2013) Reducing the number of waste beverage glass bottles will definitely reduce a large amount of waste glass bottles in the landfill. Moreover, since it is assumed that the refillable glass bottles returned are voluntarily collected by the businesses, so in this study, the glass bottles included in the proposed deposit refund system are all oneway glass beverage containers only. In this research project, the potential cost and benefits of Container Deposit Scheme on Beverage Glass Bottles in Hong Kong will be analysed by using the cost-benefit analysis (CBA) approach. 7

12 2 CHAPTER II LITERATURE REVIEW 2.1 ARGUMENTS OF THE CONTAINER DEPOSIT LAWS Container deposit laws or programs have always been under the scrutiny of the public. Some may think that the deposits laws can actually effective in waste managements (Numata, 2010) and can benefit the public. (Moore & Scott, 1983) Yet, some opponents may think that there are many variable cost in these kinds of laws, they might be afraid that the cost outweighs the benefits. The issues about the container deposit system have been debated for a long period of time. In Moore and Scott s research paper (1983), they attempt to reveal both the arguments favour the container deposit laws as well as the arguments which against them. They think that the benefits of deposits laws fall into three main themes. First, under the container deposit laws, countries are cleaner due to the waste reduction along the highways. Similar to the view of Moore and Scott, Lavee (2009) has suggested cleaner public areas as one of the benefits of the deposit laws as well. Another benefit is the cost of dealing with the solid waste in different cities will be reduce due to the effect of the deposit laws. The reduction of the cost including the waste collection cost as well as the disposal cost. It is believed that the relief of burden of the landfill problem also contribute to the deposit laws. Moreover, the deposits programs also lead to the decrease in consuming energy and natural resources. For instance, up to 40% of the glass would be save under the deposit laws. There is a study which estimates that the energy used to manage 60 billion waste containers is equivalent to energy used to supply 9.1million relatively 8

13 affluent Americans for a year. (U.S. Senate, 1973) The waste reduction is of paramount importance to save up energy and resources. 2.2 CONTAINER DEPOSIT PROGRAM OR DEPOSIT REFUND PROGRAM WORLDWIDE Container deposit program have been introduced worldwide. Yet, the deposit refund systems vary among different countries or states. One of the typical examples is the container deposit scheme which have launched in California, one of the United States of America. Same as other areas, the objective of the deposit refund program is to enhance the efficiency of beverage container recycling, as well as the waste reduction. According to the Fact Sheet published by the California Environmental Protection Agency (2015), the beverage container recycling rate have significantly increased, the program was first implemented in 1988 and the overall recycling rate is 52%. In 2013, the recycling rate is up to 85%, which means there are over 18.2 billion containers per year. As California is one of the large state in America, the increase number of containers also place an impact on the recycling rates of the nation as well. (Container Recycling Institute of California, 2015). In the paper of Numata (2010), he mentions and explains the overview and the flow of the California beverage container mandatory deposit system. The system is managed by the Division of Recycling (DOR) under the government of the California State. However, the deposit system in California is not a perfect one suggested by Numata. In his paper, he also reveals the weakness and the burden of the deposit system in California. He focuses on the illegal 9

14 activities within the deposit system due to the issue of the unredeemed deposits, and he has mention the means used to suppress the illegal acts. In fact, Israel had launched a similar but different container deposit program. Lavee (2009) mentions the system of the deposit-refund program in Israel, unlike the system in California, the law allows the formation of recycling corporations to serve beverage producers in meeting the demands the ELA Recycling Corporation, which is a rather unique situation when comparing to other places which have launched a deposit refund program. In Lavee s research paper (2009), he conducts a cost-benefit analysis of the beverage container deposit system in Israel. Lavee s research is conducted in 2009, the deposit refund program in Israel have launched since The purpose of his research paper is to find out different relevant factors of the program whereas to analyse whether the deposit program economically worthwhile. Cost-benefit analysis (CBA) is used in his paper. The study finds that the total benefits of the container deposit system outweigh its costs. However, the study does not evaluate the initiation (upfront) cost of the program, which is of much importance for the cost analysis. Several issues have been discovered in the container deposit system operated in Germany. It is being revealed that since the deposit system in Germany is still in a test phase (Ernst & Young, 2009), there are a few array of problems existed in the system. Hogg, Flecher & Elliott (2010) also discussed the situation of Germany s deposit system. It is mentioned that the system in Germany is not a centralized system, the retailers are able to run the 10

15 system according to their own ways of collection and processing. DPG, the organisation which manage the whole deposit system only oversees the system. The system is being recognised as an expensive program. Similar issues have been raised in Perchards s (2007) report. According to the report written by Perchards (2007), the systems cost three times compare to other countries with the selectively collection. The recycling rate of containers in Germany is similar to that of Australia, which Australia does not have a deposit scheme at that time. The container deposits system operated in Germany was put into effect in 2003, manufactures are responsible for collecting the package of the sold out products under the Ordinance of the Avoidance of Packaging Waste. The redemption rate of containers was about 95-98% of all the non-refillable containers. (Container Recycling Institute, 2009) It was suggested the system is a successful one, but at the same time, it is the most expensive one. 11

16 3 CHAPTER III POSSIBLE MODEL OF THE GLASS BEVERAGE BOTTLES DEPOSIT SCHEME IN HONG KONG Based on the ideas of the proposal about implementing a deposit system in UK written by Hogg, Fletcher and Elliott (2010), this section are going to simulate a model designed or modified for Hong Kong. In this study, the cost benefit analysis would be carried out to see whether the implementation of the beverage glass bottles deposit system would succeed. In order to facilitate the analysis, a model should be simulated, the analysis would base on the proposed model of the deposit scheme designed for Hong Kong. We should able to predict the deposit rate as well. There are many places and countries have successful launched the deposit programs, and those programs pose impressive outcomes. The correlation of the deposit fee and the return rates from other countries would be examples for us to estimate a reasonable deposit fee. A survey is conducted to find out the accepted range of the deposit fee of people in Hong Kong. The sample size of the survey is 60 persons, and the response rate is 100%, which means there are 60 respondents. Alongside the amount of the deposit fee is that the retail landscape and the overall system design should be clarified. In this section, the retail landscape and the system design including the background information as well as the assumptions such as the number of retailers which would included in the beverage glass bottles would be identified. Moreover, the simulated model of the deposit system would be included. 12

17 3.1 CENTRAL SYSTEM APPROACH MODEL Figure 1 The flow of the possible model of the beverage glass deposit scheme in Hong Kong. According to communication from the European Commission, a depositrefund system (DRS) should be well designed in a bid to achieve the rules a fair, open, and transparent system. (European Union, 2009) And that, it is suggested that a good deposit-refund system should be a countrywide system. Therefore, the possible model of the container deposit scheme operated in Hong Kong targeting on beverage glass bottles should be a centralized system. This is a system is designed similar to the deposit refund system which operating in Denmark and Norway. (Hogg, Fletcher, & Elliott, 2010) In a central deposit refund system, when producers or manufacturers sell the beverage glass bottles to the wholesalers, producers would send the data of selling to the central system together with payment of the total deposits on all beverage glass bottles sold. Wholesalers would pay back the cost of the 13

18 deposits of the items sold back to the manufacturers. This process is the same as the wholesalers sell the glass bottles to the retailers. Besides, in order to cover the remaining cost of this central system, producers are also requiring to pay the administration payment as well. The administration fee is determined and set once a year which reflects the market price of the glasses. When purchasing a beverage, consumer may have to pay the drink as well as the deposit fee to the retailer. Hence, the total deposits are reimbursed to the retailer. Consumers returns the empty glass bottles to the retailer or other collection depots, the retailer will then return the deposit fee to the consumers. In this situation, the retailer then sends the data of the returned glass bottles to the central system. After the central system receive the data from the retailer, it then reimburses the retailer for the redemption of the deposit fee that has been paid out to the consumers. The above process created a cycle of the deposit fee. Since the return rate of the beverage glass bottles is not a 100%, there are unclaimed deposits, which known as the deposit revenue, stored in the central system. Those unclaimed deposits are regarded as revenue and can be used to fund the operation of the deposit system as well as other recycling systems in Hong Kong. In addition, the retailer has to store the beverage glass bottles, there would be a loss of space as well as time when processing the deposit and collecting the glass containers. Therefore, handling fee is paid to the retailer from the central system for each returned glass bottle. The handling fee is to compensate the loss of the retailer during the process of the deposit-and-return system. Handling fee should be reviewed and adjusted every year. 14

19 There are two ways of collection of returned empty glass containers in this central deposit-and-refund system. Returned empty glass bottles can be collected automatically and manually. The automatic system includes the use of the the reverse vending machines (RVMs). As for manual collection, the retailer collects the empty container from consumers and stores it in crates after counting. The crates of returned glass bottles then is ready for transport. After the collection of returned container via the automatic machine, those bottles then are sorted, compacted and transport to the recycler directly. For those glass bottles that are collected manually, they should be transported to a counting or recovery center first. After counting, sorting and compacting, then those glass bottles are hauled to the recycler (the recycling facility). Both collecting method, manually and automatically, the material revenues would be paid back to the central system. 15

20 3.2 THE DEPOSIT AND RETURN RATE Figure 2 Graph shows the Return Rates as a Function of Deposit in Hong Kong Dollars The deposit value for the proposed deposit system in UK is calculated by inspecting the deposits and the return rates from other countries. (Hogg, Fletcher, & Elliott, 2010) In a bid to determine a suitable and reasonable deposit fee, the data of the deposits-return rate relationship from other countries should be a model for our proposed system for Hong Kong. The above figures include the data of the deposits and the return rate from Canada, Germany, Finland, USA, Switzerland and South Australia. The currency is converted to Hong Kong Dollars based on Purchasing Power Parties instead of just converting the exchange rate in a bid to ensure a more 16

21 accurate value. The Big Mac Index is used to estimate the PPP value of the conversion of different currency from 2016 is used in this study. (Ong, 2003) is: From the graph, we can obtain the formula from the trend line, which Return Rate = ln(x) (where x is the deposit) $>2 27% $<0.5 5% $<0.5 $0.5-1 $1.5-2 $ % $>2 $ % Figure 3 Range of deposit fee accepted by the respondents. According to the survey conducted (see Appendix B for the questionnaire), there are total 60 respondents. Among all the respondents (60 persons), 50% of them would accept the deposit fee as HKD 0.5 to HKD 1. Based on this survey, we can estimate the return rate by applying the above equation formula: Return Rate = ln(x) (where x is the deposit) If the deposit fee were set to be at the range of HKD 0.5 to HKD 1, the expected return rate would be 85.7% to 86.7%. 17

22 3.3 BACKGROUND INFORMATION AND ASSUMPTIONS Total numbers of retailers in the deposit system In this study, it is assumed that the types of retail stores that would probably sell beverage glass bottles drinks includes the supermarkets, convenience stores, pubs and restaurants only. The following table shows the data of current number of retail stores corresponding to its type of retailer in Hong Kong. The total number of retailers in this model of the deposit system is Table 1 No. of Retailers in the deposit system Type of the retail store Supermarkets Convenience Stores Restaurants (Including Cha Chaan Teng, Pubs / Bars, Tea Houses, Cafes) Brand(s) Brand total Park n Shop 304 Wellcome Eleven 912 Circle K 349 Total in number Sells beverage glass bottles Retailers in the deposit system % % 1261 / / % Source: Frost & Sullivan, 2011; CK Hutchison Holdings Limited, 2015; Jardine Matheson Holdings Ltd., 2015; Dairy Farm International Holdings Ltd., 2016; Convenience Retail Asia Limited, Total glass bottles recycled in the deposit system According to the Environmental Protection Department of Hong Kong 18

23 (2013), the recycling rate of the glass bottles is 5%, which is 4,800 metric tons. Since a bottle with volume of 640mL weigh 0.5 kg; hence, 4,800 metric tons is equivalent to 9.6 million glass bottles with a volume of 640mL. In previous section (Section 3.3.1), it is estimated that under the deposit scheme, if the deposit fee is HKD0.5 to 1, the recycling rate would be 85.7% to 86.7%. Which means there would be total 96,000 metric tons of glass bottles recycled, whereas it is approximately equals to 192 million glass bottles Total number of reverse vending machine required The numbers of RVM installations varies among different countries. The total number of reverse vending machines under the deposit system in UK is 42,500; and for Germany, there are total 30,000. (REF) However, compare to Hong Kong, UK and Germany are big national countries with high population as well as much larger territory. Hence, in the situation of Hong Kong, the number of RVMs required would be a lot less than other countries. The following table shows the estimated number of RVM required under the deposit system for beverage glass bottles: Table 2 Estimated Percentage of retail stores that would require a RVM and the no. of RVM required per store Type of the retail store Percentage of retail stores which would require a RVM Number of RVM(s) required per store Supermarkets 100% 1 Convenience Stores 50% 1 19

24 Restaurants (Including Cha Chaan Teng, Pubs / Bars, Tea Houses, Cafes) 0% / Under the container deposit system, there would be one reverse vending machine in each of the supermarkets. As for the convenience store, since not every one of them are large enough to install a reverse vending machine as well as places free for storage, therefore, it is assumed that 50% of the convenience stores in Hong Kong would be able to install one RVM. In Hong Kong, there are different kinds of restaurants, including Cha Chaan Teng and some hawlker stalls, there would be difficult for them to install the RVM. The total number of reverse vending machines required under the glass beverage bottle deposit scheme is POTENTIAL FEES & PAYMENTS INCLUDED IN THE CENTRAL SYSTEM From the Central System Approach Model mentioned above, there are some fees included in the model in order to maintain the whole cycle of the deposit system. The fees would be the administration fee, the handling fee as well as the collection, transport and processing fee Central Administration Fee The central system would act as a financial control of the whole system, and the role of the admin system is mainly focus on over-seeing the process of 20

25 the deposit scheme, maintaining and updating the database, monitoring the material market, bridging different sectors included in the system as well as promoting the deposit refund system to the public. There would be an on-going cost of administration of the central system, which includes the ongoing IT cost, staff costs and office rental costs. IT Maintenance: IT cost is needed to ensure there is a smooth running of the administration, including the handling the system s database and the financing system. Staff Salary: In the model used in UK for their proposed deposit refund scheme, it was assumed that there would by total 100 to 120 staffs hired for the working on the administration work. (Hogg, Fletcher, & Elliott, 2010) Therefore, based on the case in UK, we have assumed that in the situation of Hong Kong, the number of staff needed would be less than that of UK. A total number of 10 staff would be needed to handle the administration work. Their average salaries for all the administrators would be 26,000 per month according to the annual earnings report from the Census and Statistics Department. Office Rents: An office should be fully equipped to processing important financial data as well as establishing the product database. As there are only ten staffs 21

26 required, leasing an office with approximately 1000 sq. ft. will be suitable for accommodate the members. The office should located in the center of the city Collection, Transport and Treatment Fees Figure 4 Flow of the Collection, Transport and Treatment of Returned Bottles With respect to the deposit system in other countries (Hogg, Fletcher, & Elliott, 2010), the flow of the collection, transport and the treatment system is carried out as follows: Collection For collection of the returned bottles, there are two ways of collection existing in the center system model. Returned beverage glass bottles can be collected manually and automatically. The collection fee includes the price of purchasing the reverse vending machines and its maintenances for the automatic collection. After that, the returned bottles would be transported to the counting centers for processing. Transportation fee is included. Besides, in the recovery center, there would be payments for processing and clearing the bottles as well. 22

27 (1) Automatic Collection / Takeback With the use of machines, glass bottles could be collected automatically. In this model, we assumed that the machine used would be a reverse vending machine which would be located in the large retail stores such as the supermarkets. The collection cost includes the cost of the reverse vending machines. This collection via the reverse vending machines would require staffs to collect the returned contains and take back to the retailer for temporary storage. Therefore, the time for processing the collection should be calculated as well. (2) Manual Collection / Takeback The returned beverage glass bottles would be transported to the counting / recovery center. In UK, the predicted number of centralized counting center would be around 95, whereas there would be around three hundred relatively smaller centers located in the surrounding areas. (Hogg, Fletcher, & Elliott, 2010) Compare to UK, Hong Kong has a relatively smaller territory. The total land area of UK is around 242,500 km 2 (Young, Green & Cousins, 2003), where total land area of Hong Kong is around 1104 km 2 only (Chiu, 1986). Moreover, in Hogg, Fletcher and Elliott s research paper, the proposed deposit refund systems includes other beverage containers. Compare to this study, the container received by the counting centers should be far more than that in Hong Kong. In addition, Hong Kong would only require one counting center for processing the returned bottles. 23

28 Transport The transport costs for the above model includes the cost (1) transporting from the point of collection, which is the retailer, and the cost required to (2) transport the cleared glass bottles from the counting centers to the recyclers. (1) From point of collection to counting centers Backhauling method Backhauling transporting is a method that widely accepted by the logistic industry since it has the greatest potential for saving the transportation cost. (Carlsson & Rönnqvis, 2007) Moreover, it is a simple task for larger retailing stores since it can control its own logistics. In this model, we have assumed that all large supermarkets would be able to apply the backhauling methods to collect and transport the returned glass bottles. Besides, 100% of the convenience stores would be able to backhaul the bottles through applying particular logistic companies or their own logistic system. For restaurants, it is estimated that 30% of them are chain restaurants in Hong Kong, similar as the supermarkets, those large-scale company would able to set up their own logistic network, and that they are able to backhaul the returned bottles. (1) From point of collection to counting centers Dedicated collection method Dedicated collection method is an alternative method of returned glass bottles collection in the deposit system suggested in the research of implementing the deposit system in UK (Hogg, Fletcher, & Elliott, 2010). As some relatively smaller business retail store may not able to backhaul the bottles. According to the interview with one of the owner of a Hong Kong 24

29 style restaurant (Cha Chaan Teng), he reveals that the average bottles consumed by customers are around 10 to 20 bottles on weekdays and 30 to 40 bottles on weekends. As those consumed bottles were non-refillable, the producers would not collect them back. Therefore, the owner would just throw them to the bin and those glass bottles would become part of the landfill waste. (See Appendix C for the details of the interview) Under the container deposit scheme in Hong Kong, these kind of small business would not able to backhaul the returned bottles since there are multiple suppliers servicing the store. It would be difficult to arrange trucks or vehicles which delivering different products including non-beverage products to different locations to collect the returned bottles. Hence, dedicated collection would be suitable for those relatively smaller retail store. And it is assumed that dedicated collection method would be the only alternative method other than backhauling. The following table shows the estimated number of retailers that would require the dedicated collection and the numbers of pickups per week. Table 3 Total numbers of retailers required dedicated collection and the number of pickups per week Type of retail store Percentage estimated that would require dedicated collection Total number of retailers required dedicated collection Number of pickups per week via dedicated collection Supermarkets 0% 0 0 Convenience Stores 0% 0 0 Restaurants (Including Cha Chaan Teng, Pubs / Bars, Tea Houses, Cafes) 70%

30 (2) From counting centers to recyclers In Hong Kong, there are several numbers of recyclers would recycle glass bottles. In fact, the Environmental Protection Department in Hong Kong have published a Hong Kong Collector / Recycler Directory which includes all the collector or recycler which mainly recover or recycle materials. (Environmental Protection Department, 2013) (See Appendix A for details of the recyclers) In the directory, it is shown that there are total 45 collectors or recyclers would collect glass as part of their recycling materials. As one counting center will be set up to process the returned bottles, including counting and clearing, trucks would be arranged to transport those treated glass or glass bottles to those recyclers once or twice a week. Processing / Treatment Treatment costs refers to the cost of the operation process after the returned bottles arrived the recovery center. (Container Recycling Institute, 2016) In the center, the recovery procedures includes clear the bottles and wash them. After the cleaning, it continues with counting the returned bottles, sorting them by volume size and categories of the glass bottles. Preparation is needed before selling the glass containers back to the recyclers; follow up by sampling of the bottles in a bid to ensure the quality of the bottles. (Sustainability Victoria, 2014) In this model, it is predicted that there would be only one counting center for the returned beverage glass bottles needed for the situation in Hong Kong. 26

31 The counting / recovery center includes one automatically high speedcounting machine and automatic glass bottle washing machine respectively Handling Fees Handling fees are paid to the retailers, for instance, the operators of the redemption or collection sites such as a supermarket. (Fletcher et al., 2012) The fee is to reimburse the costs of running the system including: (1) the loss of place for storage at the store of the retailers; (2) the loss of place for the reverse vending machine (RVM); (3) the time that a staff process the deposits and return the beverage glass bottles to the consumers; and (4) the crates for containing the glass bottles for logistic or storage. Handling fees should be reviewed once a year. 27

32 3.5 POTENTIAL REVENUES OBTAINED FROM THE CENTRAL SYSTEM Material Revenues Figure 5 Flow of the glass through the recycling chain (Sustainability Victoria, 2014) After colour sorting and crushing, glass cullet and fines would be sold as the outputs. Glass cullet is relatively larger piece of glass and it can be recovered to manufacture glass bottles or other glass products again. Yet, glass fines were different, it can also be recovered but the fines are considered not suitable for making glass bottles anymore. (Sustainability Victoria, 2014) After the glass bottles finish the clearing, sorting and counting process in the recovery center, the glass cullet or fines would be transported to the recyclers. The recyclers would sell the recovered glass cullet to the producers for glass manufacturing. For the glass fines, since they are considered no 28

33 longer useful in glass manufacturing, (Meyer, Egosi & Andela, 2001) it would be used in filling insulators as well as the production of the Eco-pavingblocks. (Environmental Protection Department, 2013) Market revenue refers to the increase market price of the recovered glass materials to the end products, such as a new glass bottled or an Eco-block for paving roads Deposit Revenues In the centralized deposit system, the most important funding comes from the deposit revenues. Deposit revenue, which can also refers to the unclaimed deposits, refers to the fees which the consumers do not return the glass beverage bottles after their consumption and that the deposits is not claimed eventually. (University of Maryland Environmental Finance Center, 2011) Actually, these unclaimed deposits are the major source of revenue which supports the deposit scheme. Although, in theory, the deposit fee act as an incentive for the consumers to return the consumed beverage bottles. In fact, there are actually large amount of glass bottles are not redeemed. (Numata, 2010) Eventually, those bottles might become waste in landfills or transport to the recyclers in another collection route. 29

34 4 CHAPTER IV COST-BENEFIT ANALYSIS 4.1 COST ANALYSIS Every system would have its advantages and drawbacks. Based on the above central system model designed for the Hong Kong glass bottles deposit law, all the possible cost will be analysed Equipment costs: In order to ensure the smooth running of the whole deposit system, different equipment is needed. The following analysis includes the initial capital cost as well as the on-going costs of the reverse vending machine Reverse Vending Machines (RVM) Costs Reverse vending machine would be an important key element in the automatic collection of the returned beverage glass bottles. (Vaajakallio,2001) The reverse vending machine includes the process of clearing the bottles and compacting as well. Returned bottles via RVM would not required further treatment in the recovery centre, and that the bottles via RVM could to transported to the recyclers directly. The overall costs of the reverse vending machines is (1) the machines including the installation fees; (2) the on-ongoing costs, and (3) the costs of the space occupied by the machines and the IT equipment associated. 30

35 TOMRA, one of the most powerful agencies which provided machineries and services in the recycling industry. (Harung, 1996) Since different installation site would required different models of reverse vending machines, the installation fee varies. The fees also refers to the connection to the internet system which linked to the central network of the deposit system. For some large supermarkets, a relatively large RVM would be preferred. And that a back office designated for the IT equipment is needed as well. And for those smaller retail store, a stand-alone machine would be preferred. According to the data from TOMRA, the average cost of the machine, such as the reverse vending machine, would be 20,000 plus the installation fee of This equals to HKD 188,000 per machine + installation fee. Figure 6 The Deposit Loop of services provided by TOMRA Source: TOMRA, 2014 The On-going cost would be the loan of the reverse vending machine paid by the retailer. 31

36 Annual Costs The lifetime of the RVM is around seven years according to the TOMRA company. Most of the retailer which have purchased the RVMs would repay the loan in seven years, with an interest rate of 7%. (TOMRA, 2010) Table 4 Total Annual Costs of a RVM Reverse Vending Machines + installation fee Assumption Cost Per Year + 7% interest rate Total Cost per year $28,737 Operating Costs The operating costs includes the (1) costs for the machines maintenance; (2) the costs of the receipt paper. Table 5 The Operating costs of a RVM Machineries Maintenance Receipt paper rolls Assumption 5% of capital costs (Machine + installation) 1% of total annual costs Total Cost per year $9,410 $188 32

37 Space Costs Spaces in the retail store would be occupied by the machine and its IT equipment, it would likely be a cost for the retailer as the spaces might required for selling products. The space for the machine would approximately required a space of 4 m 2 (store front area) + 5m 2 (storage area). The cost of the RVM occupying the space of the retail area can be calculated by estimating the rateable value in Hong Kong. For a store located in Causeway Bay, the ratable value of it with 84 m 2 floor space area is HKD 228,000 per year. (Rating and Valuation Department, 2016) By estimation, the average rateable value of retail stores in Hong Kong is approximately HKD 200,000 per annum. Therefore, the rateable value used in the model of this deposit system is calculated as HKD 2,380 per m 2 per annum. The total number of stores which require a reverse vending machine is 1251 (refers to section 3.3). Table 6 Retail Space Infringement costs Assumption Total Cost per year Retail Space Infringement Costs rateable value per m 2 per annum x Total number of machines required $26,796,420 (around 26.8 million) Total reverse vending machines costs The total cost includes the capital cost of the reverse vending machine, operating the machine as well as the costs that the machine would needed. The 33

38 total overall RVM costs is HKD 26,834,755 (around 27 million) per annum, while approximately HKD per annum per glass bottle Labour Costs Under the deposit system, additional labour would be needed to facilitate the whole system. The staff at the point of sale as well as the point of collection would need to have addition work on handling the glass bottles under the deposit system. Time would be required to do these additional work. This would be an additional cost to the retailer. The addition works includes (1) collecting the returned glass bottles and (2) facilitate the pickup or unloading of the glass bottles. Assumptions A few assumptions should be made before carrying out the calculations: 1) Each consumer takes back and return one to 5 glass beverage bottles every time. 2) A reverse vending machine can store up to 300 glass bottles when it is full. 3) Staff would need to empty the machine when it is full, around 5 minutes would be needed for this process. 4) For manual processing, the time that the staff accept the returned bottles and give back the receipt and deposits to the consumers is around 20 seconds. 34

39 5) The Staff is assumed to be unskilled workers and is paid at minimum wage plus 25 % Labour costs for automatic collection or take back Consumers could return the glass bottles via the reverse vending machine located in the retail stores. Receipt would be given to the consumers and they could take it to the front/cashier of the stores to take back the deposit fee. The staff would need to process the receipt from the reverse vending machine. Based on the situation of deposit system in Germany, it is reported that the it will take 0.3 hours per day. (TOMRA, 2001) The staff is paid at the wage of HKD 40 per hour. As this process would take the staff 0.3 hour per day, the total labour cost for automatic collection is HKD 39,420 per annum Labour costs for manual collection or take back For manual collection, time is needed for staff to process the returned bottles and the deposit fees at the cashier. Consumers would take the bottles back to the cashier, the staff would need to count the bottles, return the deposit fee and place it into the carte for storage. Based on the assumption, 20 seconds of labour time is required to process one to five returned bottles. Additional 10 seconds in needed to place the bottles to the place of storage which is usually near the cashier. (Harung, 1996) The staff is paid at the wage of HKD 40 per hour, working for seven days a week; the total labour cost for manual collection would be HKD 1,091 per annum. 35

40 Labour costs for facilitating the pickups and unloading of returned bottles In section 3.4.2, Table 3 shows the number of pickups of the retailer which requires a dedicated collection of the returned bottles. Total 7722 of the restaurants would require the dedicated collection three times a week. Time needed for the staff to facility the pickups and unloading of every collection is approximately 5 minutes. Table 7 Numbers of pickups for dedication collection Retailer No. of pickups per week Total costs per annum (HKD) Restaurants (Including Cha Chaan Teng, Pubs / Bars, Tea Houses, Cafes) 3 10,906 The total labour cost need to facilitate this process is HKD per annum per glass bottle Transport Costs The transport costs includes (1) from point of collections to the counting center, and (2) from the counting center to the recyclers. 36

41 From point of collection to counting centers (1) Backhauling Method Costs In this study, all supermarkets are assumed to use backhauling method to transport the returned bottles since most of them have their own logistic system. The cost for the distribution company to backhaul the bottles to the counting or recovery center would not cause a significant increase in using extra fuels. Although there would be an increase in the vehicle s weight due to the more bottles are loaded into the truck. (Carlsson & Rönnqvis, 2007) Yet, it would be a minor increase in weight. However, it is assumed that there would be no additional cost. As for the staff required to load the bottles, it is assumed to be insignificant as well. No additional labor cost is added, the total impact applied to the system would be low. (Hogg, Fletcher, & Elliott, 2010) (2) Dedicated Collection Method Costs Dedicated collection rounds is suitable for small business which do not able to backhaul the returned bottles since most of them do not have their won logistic system. It is assumed that the 7,722 restaurants are evenly distributed in the territory of Hong Kong. In order to collect those returned glass bottles in an effective way, four trucks would be needed. One for the collection in Kowloon, Hong Kong Island respectively, where another two trucks would be needed to transport the returned bottles in New Territories. According to the interview with the owner of the Chinese local restaurants (Cha Chaan Teng), the average number of glass bottles consumed is around 15 to 20 bottles on weekdays and bottles on weekends. 37

42 Assume the average bottles consumed in each restaurant is around 30 bottles a day. The number of pickups is three times a week and would be arranged on Tuesday, Thursday and Saturday. The Census and Statistics Department of Hong Kong states that the total land area of Hong Kong is 1104 km 2. The road network of Hong Kong is 2,101 km. The capacity of the truck would so be calculated. First, it is known that the capacity of logistic container for the glass bottles in 40. One plastic crate volume is around m 3 and weigh 0.02 tonnes. A 9-tonnes-truck has a volume of 52 m 3, maximum loading weight is 4 tonnes, it could pack in 200 plastic crates at most. In practical, the number of plastic crates packed would be less than 200 since the loading weight includes the weight of the passengers; hence, 150 plastic crates would be used for calculations instead. The capacity of a 16-tonnes-truck would be approximately 6000 glass bottles. Based on the corresponding land area and road network of different district, assumed the retailers is even distributed all over Hong Kong, the estimation of the total number of retailers and the number of trucks needed in each district are as follows: Table 8 Estimated number of tucks needed in different district Districts in Hong Kong Total land area (km 2 ) Estimated number of retailers Estimated number of returned bottles per day Estimated number of plastic crate needed per day Number of pickups per week Number of Trucks needed for each collection 38

43 Hong Kong Island Kowloon New Territories Source: Census & Statistic Department, 2015 Truck Rental Costs According to the logistic companies in Hong Kong, the average cost for renting a 9-tonne-truck for a month is around HKD 380 per day, HKD per year. Total number of 74 trucks would be needed for each collection, the total cost would be around HKD 4.05 million (HKD 4,049,280) per annum. Fuel Costs The following table reveals the total distance of the road network in different districts in Hong Kong. Assume that the trucks will not pass through the same road; the distance travelled by each truck would be shared evenly. Assume the fuel efficiency of a truck is 5 litres per 100km, and the price of the fuel (usually deiseal for trucks) is HKD 8 per litre. (data on April, 2016) (NUMBEO, 2016) Table 9 Total Fuel Cost by One Truck per Round Trip Districts in Hong Kong Road Network (km) Number of Trucks needed for Distance travelled by one truck Fuel consumed by one truck Fuel Costs by one 39

44 each collection per round trip (km) per round trip (L) truck per round trip (HKD) Hong Kong Island Kowloon New Territories Source: Census & Statistics Department, 2015 There are three collections round per week. The total fuel cost for one collection is HKD 4,215 per week, HKD 244,470 per year. Total Transport Cost Therefore, adding up the cost for renting the delivery trucks and the fuel cost for operating those trucks, the total transporting cost for the dedicated collection round is HKD 4.29 million (HKD 4,293,750) per annum, which means the transport cost per annum per bottle is HKD From counting center to recyclers According to the Hong Kong Collector / Recycler Directory, there are total 38 recyclers in Hong Kong which would collect glass or glass bottles for recovery or recycle. (Environmental Protection Department,2013) In order to calculate the cost of the truck to transfer those glasses after counting and washing from the counting center to those recyclers, the average distance between the counting center located which assume to be located in 40

45 Tsuen Wan (to be discussed in section ) and those recyclers is km. Assume the returned bottles would be transfer to the recyclers at the day right after the date of collection, there would be three rounds of transport per week. Same as the dedicated collection method, 74 trucks are required as well. Since the rent of the trucks is given for the dedicated collection, no additional cost would be needed, we do not have to calculate in this section again. Fuel Costs The average distance travelled is estimated as km. Similar to the calculation as the transport price of the dedicated collection round, assume the fuel efficiency of a truck is 5 litres per 100km, and the price of the fuel (usually deiseal for trucks) is HKD 8 per litre (data on April, 2016) (NUMBEO,2016). The cost of each round trip per truck is HKD The total fuel cost is HKD 16,346 per annum Recovery Center Costs This section would cover the costs of operating a counting and recovery center. In this center, returned glass transported from the point of collection would undergo treatment such as counting and sorting the glass bottles, and wash the bottles before transporting to the recyclers. (Sustainability Victoria, 2014) The costs of leasing a place for setting up the recovery center and the machinery which would be placed in the center for bottles processing would be calculated as follows: 41

46 Rental Costs The place chose to be the recovery and counting center is located in Tsuen Wan Industrial Center, since Tsuen Wan is the district located in the center of Hong Kong geologically. Hence, it would be easier and more convenient to transport the returned glass from all retailers and to all recyclers in Hong Kong. The price to rent a place with the area of around 9,000 sq. ft. is around HKD 80,000 per month including the rateable value. The total rental costs for the recovery and counting center is estimated as HKD 960,000 per year Machinery Costs (1) Automatic High Speed Counting Machine Figure 7 Automatic counting machine sold on Alibaba.com In the counting center, there would be two Automatic counting machines for counting the numbers of returned bottles. 42

47 Set-up Costs According to Alibaba.com, the average price of this automatic counting machine is around USD 35, The cost is around HKD 271,380 for one machine. The total cost would be HKD 542,760. Operating Costs The operating costs includes the costs for the machines maintenance. Table 10 The Operating costs of an Automatic counting machine Assumption Total Cost per year Machineries Maintenance (x2) 1% of capital costs HKD 5,427 (2) Automatic Automatic Glass Bottle Washing Machines Costs In the counting center, there would be two Automatic automatic glass bottle washing machines for clearing and washing of returned bottles. 1 The exchange rate of USD to HKD is 1:

48 Figure 8 Figure 6 Automatic glass bottle washing machine sold on Alibaba.com The On-going cost would be the loan of the Automatic automatic glass bottle washing machines and the maintenance costs paid per annum. Set-up Costs The average price of the automatic washing machine designed for glass bottles is around USD 10, The cost is around HKD 77,537 for one machine. The total cost would be HKD 155,074. Operating Costs The operating costs includes the costs for the machines maintenance. Table 11 The Operating costs of the automatic glass bottle washing machines Assumption Total Cost per year Machineries Maintenance (x2) 1% of capital costs 1,550 2 The exchange rate of USD to HKD is 1: