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The Economics of Recycling

Key Economic Concepts:

• Demand
• Incentive
• Supply

Description:

Students will review the legislation in Japan that requires all consumers to pay a fee for recycling large appliances.

Lesson Objectives:

Students will:

• Explain recycling rates in Japan and the United States by reference to incentives, as exemplified in Japan's appliance recycling law.
• Predict how consumers, repair services, and appliance makers will respond when the government changes incentives for recycling.
• Predict the effect of incentives for recycling on the supply and demand for a good, and on equilibrium quantities.
• Develop strategies for reducing the amount of waste disposal at landfills.

Introduction:

We all want a clean environment; just how clean is often a matter for debate. Do you know of anyone who occasionally slips some recyclable office paper into regular trash bins instead of making the extra effort to place it into one marked for recycling? Or someone who tosses a glass jar into the regular trash because he or she doesn't want to wash it out for the recycling bin? Or people who leave a little juice in the bottom of a plastic jug and put it back in the refrigerator so they don't have to clean it and place it in a special bin?

Some of us feel inclined to shake a finger at an offender and remind them of their duty to Mother Earth. In so doing, we presume that our views are moral norms, and we may overlook issues of cost that help to explain why people don't always recycle. Not surprisingly, the approach based on scolding is often ineffective. Many people ignore the lectures and respond, instead, to financial incentives weighing the additional effort or cost of recycling against the perceived benefits (weighing present benefits more heavily than future benefits).

Government can change incentive structures to ensure that citizens will act as proper stewards of our scarce land resources. A local government might respond to a problem of overflowing landfills by charging more (by volume) to remove garbage to a landfill, thereby increasing the cost of producing "regular" trash. Local recycling companies might increase amounts paid for recyclable goods, providing an incentive for citizens to exercise more care when disposing of trash. How strongly these incentives are promoted is largely dependent upon the relative scarcity of land resources.

Resources:

• Anderson, Curt. Economics and the Environment, Council for Economic Education. New York: 1996.
   
• EconEdLink. www.econedlink.org , Council for Economic Education.
   
• Landsburg, Steven E. The Armchair Economist: Economics and Everyday Life. The Free Press. New York: 1993.
   
• Morton, John. Advanced Placement Economics, Teacher Resource Manual. Council for Economic Education. New York: 1996.
   
• The Economist: "Remade in Japan." April 5, 2001
  www.economist.com/business/displaystory.cfm?story_id=E1_VGQTVQ&CFID=2148998&CFTOKEN=2ee40d83658c026d-9256E12D-B27C-BB00-01274209119A9F72 ^[7]
   
• Schug, Mark, et al. Economics and the Environment: EcoDetectives. Council for Economic Education. New York: 1997.

Process:

In Japan, recycling rates are much higher than those of the United States: approximately 50% of solid wastes are recycled in Japan, compared to about 30% in the United States. Only about 16% of waste in Japan is sent to landfills, compared to about 60-70% in the United States. Chart 1 and Chart 2 indicate that Japan is outpacing the United States in recycling efforts. Although comparisons between particular categories are approximate (aluminum cans - Japan vs. aluminum - US), the overall trends are evident. Why are the Japanese more aggressive in recycling waste materials?

While it's certainly true that many Japanese feel an affinity for nature and a sense of stewardship regarding the environment, geography provides a key to explaining the difference in behavior between Japanese and US citizens. The total land area of Japan is 144,000 square miles, while in the United States there are 3,618,770 square miles for a population twice as large as Japan's. (See Chart 3.) On average, relatively more land in the United States means lower costs for landfills and lower costs for waste disposal.

In the following lesson students take a look at a case regarding disposal of large appliances. On April 1, 2001 a law went into effect in Japan that requires owners of appliances such as washing machines, televisions, air conditioners and refrigerators to pay about $60 to have their used goods taken away and recycled. The law is intended to promote the recycling of useful parts and reduce the amount of unwanted household appliances in local landfills. Consumers pay a fee to retailers to take their old appliance when they buy a new model, or they may take their appliance directly to the disposal facility and pay a fee to have it recycled.

The issue, in this case, is who bears the cost of recycling. When producers are "billed first" for the cost of recycling, the incentives encourage them to make an investment in plant and equipment enabling them to build appliances that are easier to recycle. Costs of production increase and the supply curve for this industry shifts upward and to the left. On the other hand, when consumers are billed first, the incentives encourage consumers to purchase durable goods less frequently and to rely less frequently on illegal dumping aimed at avoidance of the disposal fee. The demand curve for appliances then shifts downward and to the left. In either case, the result is fewer new appliances sold and fewer appliances dumped in landfills. Emphasize to students that decisions about the disposal of waste need not be judged in moral terms. In the eyes of an economists; decisions are simply responses to incentives. (Although stern lectures from ardent environmentalists can act as a disincentive in some cases.)

1. Review Charts 1, 2, & 3. Indicate probable reasons why there are differences in disposal costs between the United States and Japan.
2. The students will review the legislation in Japan that requires all consumers to pay a fee for recycling large appliances:
   • Visit "Commitment to Environmental Issues ^[3] " to learn more about waste disposal and recycling in Japan.
   • Household Appliance Recycling Law: All owners of discarded refrigerators, televisions, air conditioners and washing machines shall pay up to ¥7,600 to have their used goods taken away and recycled. "Retailers are obligated to collect and transport the discarded appliances (consumers must pay the costs involved), and the manufacturer is obligated to recycle the materials." (Source: Japan Access, "ENVIRONMENTAL ISSUES, Protecting the global environment." http://web-japan.org/factsheet.old/pdf/44CommitEnvironIssues.pdf ^[3] )
3. Ask the students to consider landfills in their area. Are there some that accept large appliances but charge a fee for disposal? Conduct research to determine costs of disposal among landfills in the United States. [Some communities have free appliance disposal days; others charge $12 to $30 for disposal.]
   • "Google"www.google.com ^[4]
     Type in the name of your city followed by large appliance disposal, for a list of sites. Be careful to read sites with information pertaining to your search.
   • "How Landfills Work" www.howstuffworks.com/landfill.htm ^[5]
     In this edition of How Stuff Works, we will examine how a landfill is made, what happens to the trash in landfills, what problems are associated with a landfill and how these problems are solved.
   • "U.S. Environmental Protection Agency" www.epa.gov/epawaste/index.htm ^[6]
     We have included an alphabetically linked list of states and US territories web sites. Wherever possible, we linked to the pages related to Solid and Hazardous Waste.
4. Students should write a paragraph to indicate how they would respond to the Household Appliance Recycling Law if they were a
   • consumer.
   • appliance repairman.
   • producer of new appliances.
   • politician.
   • landowner who lives near a landfill.
5. Have the students draw supply and demand curves, to indicate the change in the market for new appliances once the legislation was enacted.
6. Have the students propose alternatives for reducing the amount of appliances in landfills. [Use tax dollars to mount a public education campaign designed to encourage recycling; penalize manufacturers for producing waste; tax non-recycled raw materials; use tax dollars to develop easily-recycled appliances, etc.]
7. Ask students to enter their choice in the following survey and compare it to the choices made by other students who have completed this lesson. 
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   NOTE: Take this opportunity to generate a discussion with your students. This discussion should focus on the results of the survey and how their responses compare with responses from students in other states.
   

   Survey How do landfills treat large appliances in your area?

   What state are you from? --Select a State-- International Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming

   Select one... 1) Landfills accept large appliance for no charge 2) Landfills accept large appliance for a fee 3) Landfills do not accept large appliances

8. Appliance Market Line Dance. (Really!) Mark off price and quantity axes on the floor and separate students into two teams: the supply curve and the demand curve. Supply and demand teams find their positions on the dance floor (supply curve slopes upward and to the right of the origin, demand curve slopes downward and to the right of the origin). Students note where the two curves intersect; the equilibrium couple spins, separates and marks off the starting equilibrium quantity and price. The caller (instructor) calls out the alternatives proposed in the previous activity and the appropriate line moves, indicating effect on the market for appliances. After the curve moves, the new equilibrium couple spins and moves apart to indicate new price and quantity combinations. They indicate whether the resulting price and quantity are an increase or decrease over the old price and quantity. In addition to the proposed alternatives, call out the following items at random:
   • Payments to consumers for removal of appliances to landfill. [Demand curve shifts out.]
   • Tax cut for appliance manufacturers. [Supply curve shifts out.]
   • Decrease in income for consumers. [Demand curve shifts in.]
   • Electricity costs double. [Demand curve shifts in; supply curve shifts in.]

Links Used:

1. ^{^} "http://web-japan.org/kidsweb/explore/environment/q4.html" - (web-japan.org)
2. ^{^} "www.vasab.org/documents.php?go=display&ID=40" - (www.vasab.org)
3. ^{^ ^} "Commitment to Environmental Issues" - (web-japan.org)
4. ^{^} "www.google.com" - (www.google.com)
5. ^{^} "www.howstuffworks.com/landfill.htm" - (www.howstuffworks.com)
6. ^{^} "http://www.epa.gov/epawaste/index.htm" - (www.epa.gov)
7. ^{^} "www.economist.com/business/displaystory.cfm?story_id=E1_VGQTVQ&CFID=2148998&CFTOKEN=2ee40d83658c026d-9256E12D-B27C-BB00-01274209119A9F72" - (www.economist.com)

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