Integrated Systems: What is the Next Business Model?

Integrated Systems: What is the Next Business Model? Dylan de Thomas, Resource Recycling Ted Siegler, DSM Environmental Services, Inc. Maryland Recycling Network 2016 Annual Conference June 21, 2016

What is the Next Business Model? If you think a Resource Economist and a Journalist are going to answer this, you are at the wrong conference! We don t have a clue about what the future holds! But we can give you insights into where we think the industry is heading based on our experience DSM Environmental Services, Inc. Windsor, VT

About Resource Recycling, Inc.

About DSM Environmental Services Formed in 1987 Resource economists Specializing in recycling and resource management Work throughout the U.S. and in 17 countries around the world DSM Environmental Services, Inc. Windsor, VT

Recycling is Dying

... And It s All Single-Stream s Fault

And It s All Glass Fault

And It s All Oil s Fault

... And It s All Plastic s Fault

Enough Rancor Let s Talk About Something We All Agree On

What We re Talking About Today

What We re Talking About Today What Is Recycling? How Did We Get Here? Going Global Math is Hard The Road to Greater Drivers Partnering Up to Keep it Sustainable

What Are Recyclables Anyway?

What Are Recyclables Anyway? Raw materials (that compete with other raw materials) You don t sell scrap, someone buys it

What Are Recyclables Anyway? Supply disconnected from demand When demand drops, supply keeps on coming Quality matters But so does sustainability

Single-Stream Is Here to Stay Collection costs represent roughly 60 70 percent of total system costs Single-stream was developed to reduce collection costs and remains the dominant way to do so today It will play an even more important role as we look to divert organics

Glass Recycling Is Also Here To Stay We know how to recycle glass from single-stream MRF s Increased investment at the MRF Aggressive screens at the front end New investments in glass cleaning equipment at the end of the MRF And increased investment by glass processors to further clean and color sort the three-mix glass produced by the MRF DSM Environmental Services, Inc. Windsor, VT

The Single-Stream Mix Is Changing Which will require new investments MRF s were designed to sort three dimensional materials (bottles and cans) from two dimensional materials (paper) And the business model is based on an abundance of relatively valuable, easy-to-sort fiber Declines in paper and increased use of pouches and films change the material mix DSM Environmental Services, Inc. Windsor, VT

% Change from 1990 Change in Paper and Packaging in 2012 since 1990 6% 4% 2% 0% -2% -4% -6% -8% Declining prevalence Increasing prevalence SOURCE: Resource Recycling Systems, 2014 2 1

The Evolution of Packaging Pharma / Over-the-counter Baby Food & Formula Cookies / Crackers Pet Food Nuts Coffee Shaving Juice Personal Care

These Changes Will Increase Processing Costs If we are to continue to recover increasing amounts of material we are going to have to deal with these changes Reduced commodity values with reduced newspaper Increased volume but reduced weights with lightweight packaging Packaging that was three dimensional that is now two dimensional All of this will add costs to processing DSM Environmental Services, Inc. Windsor, VT

And, We Have a Growing Contamination Problem We are seeing relatively large jumps in contamination rates at single-stream MRFs Average for CT = 16.5% in 2015 Hartford, CT = 11.5% in 2012 Average for MA in 2014 11.6% New study for MA communities 15 to 20% in 2016 Changes in contamination rates have large impacts on MRF costs and revenues Translate into higher costs to municipalities An increase of 1% in the contamination rate can mean a $5 per ton increase in costs to the MRF The role of glass at single-stream MRFs is under debate Contributes to costs, hard on equipment, and can contaminate other materials How do we best deal with glass DSM Environmental Services, Inc. Windsor, VT

Reasons For Increased Contamination Contamination is more of a problem when commodity prices are lower High commodity prices mask a whole lot of sins! Our analysis of set-outs indicates that much of the plastic packaging that is not typically accepted at Single-Stream MRFs is being placed in the recycling cart/bin Expanded PS, Film, Pouches This appears to be wishful thinking recycling DSM Environmental Services, Inc. Windsor, VT

Reasons For Increased Contamination Cart based programs increase contamination Unacceptable material not left behind Some households will simply put their waste in the cart! And many municipalities put their programs on auto-pilot with minimal education and enforcement Terminology may be part of the problem Zero Sort, Single-Stream imply we can sort garbage to many! We need to re-think the name! I like mixed recyclables Promoted by Recycle Across America Name tested in Massachusetts that seemed to be the least confusing DSM Environmental Services, Inc. Windsor, VT

Consequence Is Rising Operating Costs Source: Resource Recycling Systems, 2015

Increasing Contamination Exacerbates the Problem A one percent increase in contamination Might mean as much as a $5 per ton difference in processing costs Reduced revenues Increased disposal costs DSM Environmental Services, Inc. Windsor, VT

Recycling Commodity Markets Overview

Strong dollar + An Ugly Equation Excess production of crude and other commodities + Changes in China + Increased processing costs = Down market, disappearing margins, hurting industry

Strong U.S. Dollar Source: Federal Reserve Bank of St. Louis June 8, 2016

Source: New York Times, June 7, 2016 Low Oil Prices

Source: Moore Recycling Associates, 2016 Capacity Issues

Million Metric Tons Excess Capacity North American Capacity Growth 2.5 90 2.0 80 1.5 1.0 0.5 0.0-0.5 70 60 50 40 30 Operating Rate, Percent -1.0 20-1.5 10-2.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 DAK Indorama M&G Nan Ya Selenis Eastman Invista Wellman Hypothetical Virgin Resin Demand Growth Excess Regional Capacity Operating Rate (After Hypo) ---- Source: IHS 2016 IHS Source: IHS, 2016

Recycling Commodity Markets Overview

Context of China

The Urbanization Trick

China s Working-Age Population Peaking Source: United Nations World Population Prospects

Which Has Led to Rising Wages Source: TradingEconomics.com, 2016

China s Shifting Labor Landscape Going from this:

China s Shifting Labor Landscape To this:

China s Shifting Labor Landscape From this:

China s Shifting Labor Landscape To this:

Which Leads (In Part) To

Value of a Commingled Ton $180.00 $160.00 $140.00 $120.00 $100.00 $80.00 $60.00 $40.00 $20.00 $- Source: Scott Mouw, NC DNER, 2016

Value of Single-Stream Commodities Source: Resource Recycling Systems, 2016

Well, What s Next?

Data Driven Performance Metrics We need new ways to measure our success Recycling Rates Pounds Per Household Recovery Rates You can t manage what you can t measure! DSM Environmental Services, Inc. Windsor, VT

Recycling Rates Recycling Rates have long been the performance metric of choice But Recycling Rates have significant limitations Real Recycling Rates for Delaware In 2005, 12% - 81% measured In 2014, 42% and 72% measured as performance metrics tightened up And Recycling Rates are falling with the changing ton Light weighting of packaging and declines in newsprint are impacting even the highest performing programs It is not clear that we aren t succeeding, but we may not be succeeding at measuring our success! DSM Environmental Services, Inc. Windsor, VT

Alternative Metrics Pounds per household per year Good for benchmarking your municipality against others But income plays a large role in household generation And not useful for programs targeting commercial generators DSM Environmental Services, Inc. Windsor, VT

Material Recovery Rates How much of a targeted material is available in a program? Disposed plus diverted What percent of it are you currently collecting? Benefits Controls for household income Numerator and denominator are the same for all materials and all municipalities Can use for residential and commercial recycling programs and for organics diversion Not impacted by material light weighting But it takes a different data collection approach DSM Environmental Services, Inc. Windsor, VT

Definition of Recovery Rate For a single material the quantity of newspaper set out for recycling divided by the quantity of newspaper set out for recycling plus the quantity of newspaper thrown away with the trash Summing the recovery rate for each recyclable material accepted in the program results in an overall recovery rate for all recyclable materials DSM Environmental Services, Inc. Windsor, VT 52

Impact of Income Cambridge, MA Old study 2004, but the example is still valid Where should Cambridge go to increase recycling Data available to the City indicated that the high income neighborhoods were doing a good job of recycling Their recycling rate was high Low income neighborhoods were not Their recycling rate was low Recovery rate study confirmed that, but offered some surprising conclusions DSM Environmental Services, Inc. Windsor, VT 53

Cambridge Results Recycling Recovery Route Day Income Rate Rate Tuesday H 43% 59% Wednesday M 36% 56% Thursday L 15% 39% Friday M 21% 35% DSM Environmental Services, Inc. Windsor, VT 54

Per Household Cambridge Analysis Where Can You Go For More? Route Day Income Recyclables (Annualized Pounds/HH) Max. Achievable Recycling Rate Total Newspaper Recycled In Refuse Total (%) (Lbs) Tuesday H 1367 489 1856 59 890 Wednesday M 320 180 500 56 Thursday L 273 442 715 39 140 Friday M 449 201 650 35 DSM Environmental Services, Inc. Windsor, VT

What Can Be Considered a Good Recovery Rate? 2014 and 2015 Data Massachusetts Recovery Recycling Maximum Achievable Programs Rate Rate Recycling Rate Worcester Curbside 80% 30% 38% Boston Curbside 54% 32% 48% Suburban Subscription 72% 30% 39% Transfer Station Based 63% 30% 43% DSM Environmental Services, Inc. Windsor, VT

Recycling in Sustainable Materials Management

The Reframing of Recycling Source: Oregon DEQ, 2015

Nothing Good is Free Recycling costs $ MRFs can t bear costs alone Quality matters and is everyone s responsibility

Source: Scott Mouw, NC DNER, 2016 Playing Fair

Policy Drivers Recycling participation mandates Pay-as-you-throw (PAYT) Landfill/disposal bans High(er) tip fees EPR Building code requirements Building permit requirements

Support for consuming industries/end markets Universal access to recycling Increased awareness Pilot projects Access to funding Policy Changes

Policy Pushback Education is not engagement (but both are needed) Single-Stream/Rollcarts is a start Everything is local Doing one thing doesn t work Next: Going Organic

Increased Diversion Through Organics Everyone has heard the statistics 40 percent of what we through away is organic The U.S. wastes 40% of our food Food waste creates methane at the landfill Our soils need more organic material All good stuff to spur us on! But achieving high levels of diversion will require a lot of work! And increased costs DSM Environmental Services, Inc. Windsor, VT

Opportunities Food rescue and diversion can feed a lot of people Adding 10 percent slurried food waste to a manure digester doubles energy output Even low levels of increased diversion can make up for declining recycling rates Food waste is heavy! Just like newspaper and glass And recycling rates rely on tons If we remove food waste from refuse, then we really could have a dual stream collection system and clean dirty MRFs DSM Environmental Services, Inc. Windsor, VT

Costs Separate organics collection is costly Food waste really does need to be collected no less than once per week from residents Even more frequently in some cases from large commercial generators Much of the food waste is heavily contaminated with packaging Especially plastic packaging Plastic is a contaminant in compost, and in digestate if you are not going to landfill the digestate Broken glass is also a potential contaminant in the digestate Plastic also reduces the efficiency of Anaerobic Digesters DSM Environmental Services, Inc. Windsor, VT

Solutions Target un-contaminated food waste New data from Delaware waste characterization study indicates that only about 50% of residential and commercial food waste is uncontaminated with packaging Use food de-packaging equipment The potential exists to significantly increase the viability of food waste diversion if they work as advertised DSM Environmental Services, Inc. Windsor, VT

Plastics! I want to say one word to you. Just one word Yes sir Are you listening? Yes, I am Plastics Exactly how do you mean? There s a great future in plastics. Think about it. Will you think about it?* *The Graduate, 1967 DSM Environmental Services, Inc. Windsor, VT

There Is A Common Theme Running Through This Presentation The growth in plastic packaging impacts all that we do Single-stream MRFs will have to develop technologies to sort films and pouches Ballistic separators, new disc screens that don t wrap as easily, bag breakers and air removal systems Development of viable anaerobic digesters and other organics processing facilities will depend on the ability to remove plastic packaging DSM Environmental Services, Inc. Windsor, VT

But That Is Not Enough The plastic industry broadly speaking can and must do much more to finance plastic collection and recycling Definition of plastic industry resin producers and all of the consumer goods companies that package their products in plastic While we can certainly applaud the Recycling Partnership and the Closed Loop Fund The total investment is really a drop in the bucket compared to what needs to be spent both here in the U.S., and more importantly in developing countries to reverse the flood of plastic waste entering our environment DSM Environmental Services, Inc. Windsor, VT

Plastic Production Continues to Grow Exponentially, And With It Discharges to the Environment A Scientific American article estimated that in 2012 roughly 8.8 million tons of waste plastic was discharged into the ocean!

RISING CUMULATIVE EXPOSURE Ocean plastic debris Million tons 1 250 130 x2 By 2025, there will be 1 ton of plastic for every 3 tons of fish 2013 2025 DSM Environmental Services, Inc. Windsor, VT

A Penny For the Planet One penny per pound of resin produced worldwide would raise close to $1 billion per year Which coincidentally gives us some indication of the amount of money made each year selling resin If invested here and around the world, we could make great strides at reversing the flow of plastic waste to the environment While increasing the recovery of this potentially valuable resource But it won t happen unless we, as environmental and waste management advocates demand it! DSM Environmental Services, Inc. Windsor, VT

Growing Partnerships

Partnering Up for Better Tools

Partnering for Funding

Growing Partnerships

Top Five Takeaways 1. Recyclables are Raw Materials 2. Silver Bullets Don t Exist 3. Pushing Industry is Integral 4. Communities Need to Use Available Tools 5. Recycling Costs $, but It s Worth It

Thank You! Ted Siegler DSM Environmental Services, Inc. www.dsmenvironmental.com Dylan de Thomas 503-233-1305 ext. 116 dylan@resource-recycling.com www.resource-recycling.com