5 market insights from Republic's recycling VP
Like many across the industry, Republic Services has been looking for new ways to balance the increasing demand for recycling services with the financial realities of offering them.
The company has been part of the contract restructuring trend where more of the commodity risk is shared with customers, and has been vocal about how they believe the process needs to work. As CEO Don Slager said during a recent earnings call, "You can't have sustainability without profitability."
This doesn't mean that recycling hasn't been profitable for Republic as well. The company continues to invest in new material recovery facilities and go after large municipal contracts. Their Blue Planet sustainability initiative includes the goal of adding 150,000 tons of recycling capacity per year by 2018 in addition to reducing overall fleet emissions by 3% and meeting other targets.
Waste Dive spoke to Pete Keller, Republic's vice president of recycling and sustainability, during last week's WasteExpo event for his insight into the latest recycling trends.
1. Shifting away from weight-based goals will be complex
Following the discussion around sustainable materials management supported by former Environmental Protection Agency leaders in recent years, and the financial effects of tough recycling economics, some in the industry now advocate for measuring recycling progress by emissions reduced rather than weight diverted. Waste Management announced it would switch to this format last year and CEO Jim Fish described the thought process in a recent interview. At the same time, many state and local governments are still setting weight-based diversion or reduction goals.
Keller sees this as an evolving discussion, though he noted ongoing progress at the EPA and a shift by Oregon toward a recycling model more focused on life cycle analysis.
"Weight-based goals are really easy for the public to get their head around. Everybody understands what 50% or 75% recycling rates mean. Life cycle analysis (LCA) is a little bit more of a difficult concept for the layperson to grasp," he said. "There's still a lot of debate in and around the science and what's the appropriate measure. A lot of the LCA math today is based on national averages. That works when you're looking at the nation, but it doesn't necessarily work when you're looking at a program or a system."
2. One-size-fits-all recycling approach could be detrimental to bigger goals
Keller predicted more interest in the LCA model as climate change awareness grows and said this has already created more interest in tracking sustainability progress among Republic's customers. Yet he also said when it comes to categories such as glass the costs are still very dependent on regional processing infrastructure and end markets. Republic believes that expecting companies to bear too much of the financial burden for these commodities could potentially have a detrimental effect on the larger goal.
"You know ultimately somebody needs to pay for all this stuff, right? So at the end of the day if we're providing services or we're providing products and we consistently don't get returns, we're going to stop doing it. And that's not good for anybody. It's not good for what we're trying to accomplish as a company. It's not good for our customers. It certainly isn't good for comprehensive planning, whether it's at the state, county or city level," said Keller. "In the past we've just done fixed base pricing. Throw everything you want in there including the kitchen sink and we'll just do it. Well we can't continue to do that — I'm not just speaking as a company but as an industry — because we'll just stop making investments."
"...At the end of the day if we're providing services or we're providing products and we consistently don't get returns, we're going to stop doing it. And that's not good for anybody."
Vice President of Recycling and Sustainability, Republic Services
3. Balancing fleet efficiency with material separation is a priority
Another obstacle of collecting multiple streams of material is fleet efficiency and emissions. The issue often gets raised by proponents of mixed waste processing or skeptics of curbside organics collection. Cities such as Toronto have been hailed as a model for solving this by alternating collection schedules and some companies have invested in new transfer station processing options to allow for co-collection. Keller said this has been on Republic's radar as well.
"We're spending a lot of time thinking about ways we can co-collect materials. Not necessarily split-body trucks or two-bin systems, but ways that we can create additional route efficiencies, segregate and aggregate materials after collection," he said, noting that this would be different than Republic's existing commercial mixed waste operations and pointing out the logistical issues that source separation requirements can pose for businesses. "They've got an enclosure that's designed for one bin and now we come along and say 'Hey, you've got to have three bins.' There's space constraints that we need to be mindful of as well."
4. Long-term contracts can allow for long-term investments
Republic was recently awarded a new 10-year contract extension in Las Vegas, which will shift the city's recycling program to single-stream. This will entail purchasing new trucks and carts, but Keller said Republic's local MRF was built with the potential volume increase in mind and has more than enough capacity.
Some local companies and residents cried foul over the bidding process not being open, and a state bill was recently introduced to prohibit any future franchise contracts in Nevada. Keller explained why he felt their long-term franchise contract would be more beneficial for the Las Vegas market.
"I appreciate the notion of open competition and what that does for the customers, but let's really have a serious conversation, let's have some narrative around the community and what's good for the populace. Nobody needs six or seven trucks running past each other. Nobody needs a bunch of ad hoc investments that have limited capability or capacity. Nobody needs programs that aren't consistent from one site to the next," said Keller. "Those long-term contracts are the things that allow greater fleet efficiency, lower carbon impact, greater value extraction, consistency and durability in programs, certainty in comprehensive planning. All that stuff matters. And that's something that you can't do in an open market."
"Nobody needs six or seven trucks running past each other. Nobody needs a bunch of ad hoc investments that have limited capability or capacity. Nobody needs programs that aren't consistent from one site to the next."
Vice President of Recycling and Sustainability, Republic Services
5. In light of China's 'National Sword' campaign, fiber is key
The effects of China's "National Sword" campaign, which Keller said actually translates to "Sharp Sword," have caught the attention of nearly every recycler in the industry. The program's goal is to root out corruption and improve environmental standards by limiting the flow of low-quality materials into the country. At the same time, this has created ripple effects in the commodities market that have yet to even out. This has been particularly true for recovered fibers, which Keller said are one of the largest U.S. exports in terms of container count.
Some have speculated that Chinese demand for U.S. commodities may eventually decrease as the country's own domestic recovery efforts improve. Keller said that even if that does happen he believes the fiber market will stay strong due to an e-commerce boom driven by Alibaba, like the U.S. has seen with Amazon. North America has some of the highest percentages of virgin fiber in its material stream, which could still be attractive for Chinese manufacturers. Looking toward the potential for a more closed loop recovery and manufacturing system in the U.S., Keller said fiber was also the key.
"You really have to start with the end in mind. What are you making and why, and who are you going to sell it to? So in the last five years, and again back to Amazon, there's been a lot of investment in North America in and around paper making," he said. "I would suggest those papermakers in the U.S. are as healthy as they've been in a long time."
Stay tuned for more interviews with other industry executives from WasteExpo throughout the week.
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