{"id":9,"date":"2024-04-04T04:57:17","date_gmt":"2024-04-04T01:57:17","guid":{"rendered":"https:\/\/sisu.ut.ee\/waste\/22-economics-waste-management\/"},"modified":"2024-10-10T20:29:10","modified_gmt":"2024-10-10T17:29:10","slug":"22-economics-waste-management","status":"publish","type":"page","link":"https:\/\/sisu.ut.ee\/waste\/22-economics-waste-management\/","title":{"rendered":"2.2. Economics of waste management"},"content":{"rendered":"

Waste is part of the economy \u2013 it is a by-product (output)<\/strong> of economic activity by businesses, government and households. Waste also forms input <\/strong>for economic activity, whether through material or energy recovery. The management of this waste has economic implications \u2013 for productivity, government expenditure and, of course, the environment. [Ref 14]<\/p>\n\n\n\n

Waste-related revenue and expenditure<\/h2>\n\n\n\n

From an economic point of view, the generation of waste creates both expenditure and revenue. While generators of waste often pay for its disposal and treatment, these costs constitute revenue for actors operating within the waste sector.<\/p>\n\n\n\n

\"2_2_1\"<\/figure>\n\n\n\n

Figure 12.<\/strong> Waste-related revenue and expenditure\u00a0[Ref 6]<\/p>\n\n\n\n

Private actors operating in the waste sector may generate revenue<\/strong> from the sale of recyclables, the by-products of recyclables, the sale of biogas from energy recovery or waste sector funding. High energy and raw material prices increase demand for these activities.<\/p>\n\n\n\n

Costs<\/strong> are mainly related to the direct costs of collecting, sorting, storing, transporting and treating waste. In addition, the cost of raising public awareness on waste issues and research can be included.<\/p>\n\n\n\n

Externalities<\/strong> are costs or benefits\u00a0that are not borne by the waste generator \u2013 these are\u00a0not reflected in the prices charged for the goods and services. Negative externalities occur when neither producer nor consumer covers the costs of negative\u00a0impact to the society. Therefore, they are cause of market failure.<\/p>\n\n\n\n

In the case of waste management, externalities tend to be mainly negative ones. For example, health and environmental impacts may be caused by improper landfilling or incineration\u00a0\u2013 recall Module 1 \u2013 which are as a result born by people, businesses and governments. To address negative externalities, the internalization of costs (shifting the cost from external to internal in the budgets of\u00a0projects or policies) through different pricing tools and subsidies is undertaken. For\u00a0auditors, it is important to review and understand where the externalities are and if these are approached by policies and tools\u00a0to get the prices \u2018right\u2019. It is also worth bearing in mind upon investigating concrete waste projects or policies that internal costs should\u00a0not be reduced on the expense of increasing the external ones.\u00a0<\/p>\n\n\n\n

\"case\"AUDIT CASE: ECONOMIC VIABILITY OF WASTE MANAGEMENT<\/h3>\n\n\n\n

Morocco \u2013\u00a0Management of the public service for the disposal of solid waste in Casablanca<\/strong><\/p>In 2016-2017, SAI Morocco audited the solid waste management service in Casablanca (public waste dump). One of the lines of enquiry in this audit was whether the solid waste management was economically viable. To this end, the financial balance of the delegated management contract for the Casablanca landfill was taken under review by the auditors along with its business plans and financial statements. Additionally, the auditors made a comparative analysis for benchmarking the contract with similar ones in other public landfills. SAI Morocco concluded that the delegated management contract was unbalanced and in favour of the delegate, making the solid waste management system economically unsustainable. Recommendations were made with a view to ensure that the contractual commitments\u00a0related to investments were respected and that\u00a0remunerations of the delegate and the household waste collection companies would be\u00a0calculated on the basis of the quantities actually landfilled.<\/span>

FULL CASE (pdf)<\/a><\/p><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

\"tips\"Tip for auditors<\/h3>\n\n\n\n

Understanding the economics of waste in your country will help in analysing the causes of problems and in suggesting recommendations to improve the situation.<\/strong><\/p>\n\n\n\n

Economic obstacles to recycling<\/h2>\n\n\n\n

The waste hierarchy ranks the various waste management options broadly according to their environmental desirability (prevention, reuse and recycling being preferred). However, it does not include economic considerations. If the collection and processing costs of waste are lower than the value of the recycled end-product, recycling makes economic sense. For example, aluminium, steel, paper and plastics (PET and HDPE) can be collected in high volumes, processed at relatively low cost and then brought back to the market for a profit. [Ref 13]<\/p>\n\n\n\n

However, there remain several waste streams which are not as economically viable for recycling compared to using virgin raw materials and instead dumping or incinerating them, e.g. certain plastics and mixed material products.<\/p>\n\n\n\n

Without government intervention, waste treatment options with better environmental performance may be penalised relative to treatments with poorer performance due to higher costs. For example,\u00a0incineration may prove economically more profitable compared to recycling and consequently decrease incentives for recycling.\u00a0 Governments could improve recycling infrastructure by making producers responsible for the waste generated and by making disposal less attractive. Accounting for this externality would require the costs of various treatment options and levels of the hierarchy to fully reflect the environmental externality of each option. Additionally, governments could impose regulation to level the playing field and\u00a0incentivize environmentally friendly options, e.g. banning single-use plastics.<\/p>\n\n\n\n

\"case\"AUDIT CASE: INCLUSION OF COSTS IN PAYMENTS FOR WASTE MANAGEMENT<\/h3>\n\n\n\n

Latvia \u2013 Inclusion of costs in payments for waste management<\/strong><\/p>In 2015, the State Audit Office of the Republic of Latvia carried out a performance audit on municipal waste management wherein one line of enquiry for the SAI was whether local governments had ensured that only justified expenses were included in waste management payments. Three following criteria were established: waste management enterprises include only economically and technologically reasonable expenses to payments necessary for effective provision of service; waste managers weigh waste either on-spot or the amount of waste is weighed using sound conversion methodology; disposal fees are applied only for the disposed waste excluding sorted and recycled waste. SAI Latvia analysed invoice databases and concluded that a total of 3,6 million EUR had been overpaid within 2,5 years due to incorrect weight-to-volume conversion methodology and\u00a0excessive natural resource tax\u00a0levied on\u00a0waste not actually disposed to landfill sites.<\/span>

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