Financial Analysis Confirms the Economic Value of Recycling

The News Journal today published an oped I wrote about the financial benefits of recycling in Delaware. Here is the piece in a somewhat extended version:

Conventional wisdom declares that recycling, while a nice idea for reducing landfill accumulation, is hard to justify in terms of the costs. But financial analysis of the projected need to invest in landfill expansion and construction leads to the conclusion that that increasing the recycling rate in Delaware would create significant economic benefits.
Analysis I conducted for the Citizens Solid Waste Task Force reveals that a relatively modest investment in a recycling facility would make it possible to postpone the projected expansion and eventual replacement of Cherry Island landfill. Using present value analysis, a standard tool of finance in which all costs and revenues are expressed in today’s dollars, I have calculated the net capital savings created by building a $4.7 million recycling facility to be $22 million.
My analysis uses figures from the report that Michael McCabe and Associates prepared for the Delaware Solid Waste Authority (DSWA). The McCabe report estimates that achieving recycling 40% of municipal solid waste would make it possible to postpone the Cherry Island landfill expansion from 5 years to 8 years. Further, a 40% diversion rate would make it possible to postpone the need to build a new landfill from 20 years to 33 years.
The DSWA estimates the cost of expansion of the Cherry Island landfill to be $66 million. Using present value analysis, the benefit of postponing this expenditure from 2010 to 2013 is calculated to be $6.6 million.
The cost of a new landfill to replace Cherry Island is estimated to be $106 million, though I have been told the eventual figure could be much higher due particularly to land acquisition costs. The present value of postponing the construction of a new landfill from 2025 to 2038 is calculated to be $20.0 million.
The combined present value benefit of postponing these capital expenditures is $26.6 million—far greater than the relatively modest cost of a recycling facility of $4.7 million.
Are these numbers too optimistic? The DSWA estimated that the recycling facility required to achieve 40% diversion would be $8.2 million, which is still far less than the benefit achieved by slowing the accumulation of trash at Cherry Island. If a recycling facility creates net revenue (estimated to be $1.8 million annually in one study cited by the McCabe report), the benefits would be greater.
What about building a waste-to-energy facility? Cost estimates of a facility that would achieve 40% diversion are hard to come by, but the capital cost is likely to be $100 to 200 million—20 to 40 times that of a comparable recycling facility. With such a large capital outlay, a waste-to-energy facility would have to generate revenues on the order of $10 million to 20 million annually to break even.
Here again, financial analysis tools can guide us. When facing a decision between a modest capital investment and a large capital investment, the magnitude of the risk must be considered. The enormous financial risk associated with a waste-to-energy facility should caution us against moving hastily in that direction.
In contrast, the relatively modest investment required to achieve 40% recycling further underscores the strategic advantage of recycling as a cost-effective alternative to our present course.
There is an emerging consensus that we cannot continue to landfill our trash at the present rate, and that we should be recycling much more of our solid waste stream. It is becoming increasingly clear that recycling is the most cost-effective way to alleviate Delaware’s solid waste burden.
The McCabe report is available online at www.dnrec.delaware.gov/SWMTWG, where you will also find the report from the state’s Solid Waste Management Technical Working Group recommending increasing Delaware’s recycling rate. You can get a copy of the Citizens Solid Waste Task Force by contacting Common Cause of Delaware at (302) 521-0394
or by e-mail at jdf0000@aol.com.