Economics of Recycling in Houston
May 21, 2015
Waste Management, a company started in Houston, Texas now serves more than 20 million customers around the United States and Canada, started its business with commodity prices at an all-time-high and made contracts with municipal governments based on a deal that required a commodity price floor of $65 a ton.
However, when the revenue falls below $65 a ton, the city of Houston does not make any money and Waste Management takes a loss.
- The sorting process at a recycling facility costs between $75 to $150 on average, depending on how contaminated the recycling load, while Waste Management sells the recycled material for just $80 on average.
- Contracts were made when average recycled commodity prices rose 20 percent in 2011 and received as much revenue as $140 per ton.
- The city of Houston gets 70 percent of any revenue over $65 per ton.
- Last March, Houston's recycling process contamination rate was 17.4 percent.
The Waste Management contracts with municipal governments have been profitable for both over the past few years. However, with recycled commodity prices as low as they now are, Waste Management's contracts might have to expire.
Cities like Houston could lose their popular recycling programs due to hasty decisions that were made a few years ago.
Source: Lloyd Bentsen IV, "Economics of Recycling in Houston," National Center for Policy Analysis, May 20, 2015.
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