Recycling and Deregulation: Opportunities for Market Development

Spurred on in the late 1980s by fears of an impending landfill crisis, state legislators found a ready remedy in recycling laws. Prompted by these new state laws, local governments put in place over 7,000 curbside recycling programs that began collecting tons of bottles, cans, jars, newspapers, and whatnot.

In short order, the legislative refrain moved from "Recycle now" to "We need markets." Legislators moved to calibrate recycling supply and demand with a host of proposed regulations: recycled content mandates, manufacturer take-back requirements, government procurement preferences and various subsidies.

Whatever the reason, deregulation as a way to expand recycling markets was virtually ignored.

Current evidence, however, indicates that a great deal of growth in the use of recycled materials is being hindered by overregulation on the federal, state and local levels. In many areas, recycling is a relatively new technology, and the companies that use the technology tend to be fairly small. Many people don't know about the full range of products made with recycled material, and education is costly. This is especially the case with plastics.

The basic problem is one that is common to many new technologies -- the world as we know it came about in an earlier time, before current recycling opportunities became commonplace. Where recycling technology is relatively new -- like electricity, cars, and computers before it -- it has to overcome many institutionalized barriers to change.

Many obvious regulatory barriers have been removed in recent years, but many still remain, especially on the state and local levels, where governments often choose what to buy based on "material" and "method" standards, instead of adopting performance-based standards.

Standard-setting groups

Just as many people read Consumer Reports before buying a consumer product, so do government agencies and building code officials look to recognized national standard-setting organizations like the American Society for Testing and Materials (ASTM) or the American Association of State Highway and Transportation Officials (AASHTO). Although such groups are useful in creating uniform product standards, excessive reliance on such groups can discourage the use of recycled materials.

Take, for instance, plastic lumber. Because there are no established standards, test methods, or grading systems for plastic lumber, there is no way to reliably use it in structural applications, such as building construction. Building code officials are reluctant to approve plastic lumber products, and the products fail badly in the wrong application.

ASTM is the organization that people expect to establish these testing standards, but negotiations have been going on within ASTM for over two years, and there is still no standard.

What's the obstacle? Some have blamed ASTM's slowness in establishing a standard on the youth, unprofitability, and disorganized nature of the plastic lumber industry. Others have cited the presence of members of the "wood lobby" on the relevant committee (the D20.20.01 committee on manufactured recycled plastic lumber and shapes), claiming that the wood representatives slow the process down with counterproductive suggestions -- a common allegation with industry standard-setting groups, although such allegations are generally unprovable. Nevertheless, one manufacturer says that "It's hard to have a rational conversation with wood people at public forums."

Or consider HDPE or PVC drainage pipes, which many manufacturers make with recycled content. Until recently, ASTM had no standard for pipes made with recycled PVC; even now, the standards (PS 1 and PS 8) are only provisional. The ASTM specifications for corrugated HDPE pipes -- F 405 and F 667 -- don't specifically exclude recycled materials, but they require such detailed information about the characteristics of the resin that they may as well exclude them. The AASHTO standards -- M 252 and M 294 -- are more explicit, and actually mandate the use of virgin HDPE. (The ASTM and AASHTO standards do allow "reworked material," but limit it to material "generated from the manufacturer's own production.")

The pipe specifications predate the push for using recycled materials, and the relevant ASTM committee (F17.65) has been in a seven-year deadlock over HDPE pipe standards. Decisions in ASTM typically require a supermajority to pass, so delaying is easy. It has been charged that the concrete, steel, and PVC pipe industries, all of whom would stand to lose market share if recycled HDPE pipe gained a foothold, are deliberately obstructing the process.

The problem isn't that organizations like ASTM or AASHTO exist; they are useful groups. But when governments rely on their standards so that the standards become mandatory, innovation can be deterred. Innovations like plastic lumber, recycled HDPE drainage pipe or other products with recycled content have been perceived to involve risk; when given the choice, many governments choose the path of least risk by falling back on established standards.

Restrictive regulations

Another problem is that governments themselves sometimes enforce restrictive regulations that shut out recycled materials.

Many building codes were written before widespread recycling; either they prohibit or limit the use of recycled materials, or they require testing that becomes so expensive that potential purchasers are scared off and use conventional materials. Most cities stick to the code set up by the building code organization in their general area, but all cities can have more stringent codes, and many do. For instance, in certain small cities, like Amherst, New York, and in major metropolitan areas, like Chicago, Los Angeles and New York City, there are additional building codes at the municipal level that supplement the basic codes.

In many cases, building code officials are very conservative and make it difficult for innovative building materials to be used in construction. Larger building departments have more engineering savvy, but are weighed down with more regulations; California building codes (which are statewide) are fairly prohibitive. On the other hand, smaller building departments have more discretion, but they tend to be more resistant to new products, demand more paperwork before approving something different and, in general, set up roadblocks.

The success of recycled materials depends, in large part, on their price advantage over virgin materials, and the increased cost of regulation can whittle away at such a price advantage where it exists.

The fundamental problem is that building codes mandate materials, not performance. A similar situation exists in highway departments, where highway construction specifications are wedded to particular materials and technologies. According to the National Cooperative Highway Research Program (NCHRP), true "performance-related standards":

• are based on properties of the finished product, not on the processes used to produce it
• consider the variability inherent in the finished product and in the testing processes
• are based on attributes that have been related to the actual performance of the product through validated quantitative models
• incorporate sampling and testing procedures whose combined costs are consistent with the importance of the quality benefit being sought
• make the contractor's payment dependent on how close the product comes to the level of acceptable quality.

State highway departments are moving toward performance-related standards, but, at present, only New Jersey uses them, and only for portland cement concrete and pavement. According to the NCHRP, "while the research community involved in the development of [performance-related specifications] is well versed in both its theory and practice, awareness within the highway construction community at large seems quite low. [Performance-related specification] development to date has been advanced almost exclusively by a small number of university and industry consultants."

We certainly don't want to use recycled materials for their own sake, especially in areas like highway or building construction, where failure can actually kill people. But if the appropriate performance standards are put into place, materials usage will take care of itself, with recycled materials being used where they are truly worthwhile.

Procurement practices

The deregulation of government procurement practices could significantly increase the use of recycled materials.

Currently, procurement guidelines are rife with regulations, many of which may have been well-intentioned, that prevent the best product from being used. Some regulations require that a supplier fill out large amounts of paperwork; others may give preference to companies without regard to whether they provide the best product; still others may insist that the government agency deal with a contractor that carries the entire range of products -- office supplies, for example -- that the agency needs. Many of these regulations favor large businesses over small businesses, and since recycled-content manufacturers tend to be small businesses, they are disproportionately hurt by such rules.

The most harmful sorts of procurement guidelines, again, are those that mandate that products be made out of a certain material or have characteristics unrelated to performance that may subtly discriminate against the use of recycled materials. Color requirements -- like the Lansing, Michigan requirement that trash bags be a light mint green -- can exclude recycled materials because recycled commingled plastic is difficult to color. Brightness requirements for paper, or maximum thickness requirements for trash can liners or shower partitions, can also discriminate against recycled materials.

In short, for the recycling advocate, there is ample room for government procurement reform. Not that private industry's procurement processes are flawless; they're not. But there are valid reasons for closely scrutinizing the government procurement process. First, waste in private industry is somewhat less likely than waste in government, because private industry tends to be more fixated on the bottom line. Second, waste in private industry is a private matter to be sorted out between those who do the procuring and those who pay the bills -- while waste in government is everyone's business, since we all pay the government's bills. Third, the public-sector procurement process is notoriously costly and rule-bound.

One way of reforming such a system is by removing some of the rules that govern procurement. Many of these changes will have to be done on a case-by-case basis, though some changes can also be done wholesale, like the removal of a number of restrictions on federal purchases below $100,000 and the radical deregulation of purchases under $2,500 in 1994.

Adopting performance standards

Of course, we need standards, both in our private lives and to guide governments in their procurement process. But does this mean that any standard will do? Surely not. Not all standard setting-processes are rational; sometimes, as in the case of the ASTM or AASHTO, politics can get in the way of sound decision- making; at other times, standards can end up merely embodying the way we've always done it. As Spanish poet José Ortega y Gasset put it, "Half our standards come from our first masters, and the other half from our first loves."

Our first masters and our first loves do not, in general, have a monopoly on sound procurement practice. The answer, though, is not to bend over backwards and reject old ways of doing things wholesale -- in favor of, say, minimum recycled content requirements.

In the past, minimum recycled content requirements may have increased the use of recycled materials and made the paper industry come up with performance standards that had previously been lacking. But, in the end, such standards are just as misguided as the old "method" and "material" standards. They don't allow for assessment of cost, performance and the cluster of other variables that determine product quality. Just how much recycled content makes sense in each case depends on the "devilish details" involved in producing and using specific products.

The true answer is to adopt performance standards -- to care about what a product can do and not where it comes from. As long as our roadways perform properly, why should we care whether they're made with asphalt, concrete, fly ash, scrap tires, or orange-flavored Jell-O? More specifically:

• Governments shouldn't always rely on industry standards. In areas like plastic lumber or drainage pipe, when the ASTM or AASHTO don't have standards for a possibly good product, it may make sense for governments to draw up their own performance standards, allowing companies to submit performance data from approved testing labs.

• Local building code offices, highway departments and similar agencies should establish clearer and more predictable approval procedures that are more open to innovative technologies. They should rely less on material and method specifications and use performance standards whenever possible.

• Government procurement agencies should scrutinize their procurement specifications to see whether they're using irrational or non-performance- related criteria to buy the products they need.

Recycled materials aren't appropriate all the time, and neither are virgin materials. Most importantly, we can't even know which is appropriate at what time without adopting performance standards. Governments are in the business of providing certain services, and they should stick to providing these services with as much quality for the dollar as possible. Only such an approach can treat both virgin materials and recycled materials fairly.

Alexander Volokh is an assistant policy analyst at the Reason Foundation, a public policy think tank in Los Angeles. He is the author of Recycling and Deregulation: Opportunities for Market Development, a series of policy studies from the Reason Foundation. This article is based on the most recent study in the series, How Government Building Codes and Construction Standards Discourage Recycling. Other studies in the series include The FDA vs. Recycling: Has Food Packaging Law Gone Too Far? and Recycling Hazardous Waste: How RCRA Has Recyclers Running Around in CERCLAs.