Recycling for Profit: The New Green Business Frontier

Despite the proliferation of curbside collection bins and public awareness campaigns, recycling programs around the United States aren’t working. Modern urban recycling, which began with the passage of New Jersey’s mandatory recycling law in 1984, has successfully created a tremendous supply of recycled newspapers, glass bottles, office paper, and other materials. But when it comes to consumer and business demand for the products made from these materials, the economics of recycling falls apart. According to the press and other pundits, “recycling is a victim of its own success.”

In fact, recycling is not just a matter of recovering recyclable material; it’s a total economic system. Few people realize that their local curbside collection program is only the beginning of a recycling loop. At present, the cost of collecting and processing recyclable materials far outweighs their value as a commodity that can be sold back to industry. Unless consumers buy recycled products, the markets for the material they put out at the curb or into their office white-paper bin will remain depressed.

However, precisely because of this market uncertainty, companies can turn building demand for recycled products into a competitive advantage. In the 1990s, those companies that act quickly will exploit new product niches and manufacturing technologies. Farsighted players have already found profitable openings. There’s clearly consumer demand for green products, and Rubbermaid, Moore Business Forms, and International Paper, to name but a few, have dramatically increased market share with appropriate offerings. These companies have also anticipated the tighter environmental regulations that are sure to come. Rather than simply fighting government and community groups, corporations can now form strategic alliances with public organizations and other business interests.

While public policymakers are still trying to assess what’s wrong with recycling programs, large corporations and small entrepreneurs alike are in the best position to take the lead. More important, it’s in their economic interest to do so. Certainly, U.S. corporations shouldn’t start running local collection programs or taking government’s place in implementing policies that encompass many communities or an entire state. But business leaders can challenge current recycling myths, including the supposed high price and low quality of products. Top managers of companies like American Airlines, Bell Atlantic, and Coca-Cola have made buying recycled products and investing in green R&D part of their overall business strategies. They’ve cut down on waste, increased profit margins, and, in some cases, truly closed the recycling loop.

Managers of American Airlines and Coca-Cola have made buying recycled products part of their overall business strategies.

The success of recycling—indeed, its true value in the long term—won’t depend on how much landfill space is saved but on whether or not recycling makes economic sense. To build demand for recycled materials, government and business must not only reinvent themselves, they must also reinvent their relationship, especially when it comes to economic problems that neither can solve alone.

The most common reason given for the current economic crisis in recycling is the supply and demand problem. Media stories abound about recycling centers and waste haulers dumping loads of plastic bottles, newspapers, or phone books into landfills after preparing them for markets that don’t exist. The centers store them until they become unsightly mountains of “junk” and public health problems. True, this has occurred in some cases. But the real reason that recyclables often sit in recycling yards is that recyclers, like any good commodities brokers, “bet on the come.” Mountains of recyclable material remain in storage while recyclers wait for the price to rise to a level that allows them to cover the cost of collection, transportation, processing, packaging, and storage—and to make a reasonable profit (see the insert “The High Cost of Processing What’s Put Out at the Curb”)

Yes, the supply of available recycled material has increased dramatically over the past eight years. But, no, excess supply of material is not the only reason why current market prices remain depressed. Recycled products are less predictable and more subject to contamination than many of their virgin counterparts. And over the past 50 years, U.S. industry has developed technologies for assuring high-quality, low-contamination virgin raw materials as feedstock. The paper industry, in particular, has continually improved its processes for refining virgin feedstocks. The result: high-quality, low-cost sheets of nonrecycled paper.

The advent of modern recycling, of course, has created a large supply of a new potential feedstock, composed of recovered waste from curbside and office recycling programs. To satisfy the initial consumer demand for recycled paper, manufacturers retrofitted old, outmoded plants and tinkered with existing processes for virgin feedstock. Since the main paper-industry players had no guarantee that buyers would exist for predictable quantities of high-quality recycled feedstock, it made little sense for them to invest in completely new plants and processes. But the result of this tinkering, especially in the late 1970s and early 1980s, was paper that was both more expensive and of lower quality than competing virgin products.

Meanwhile, the scrap and recycling industry, with help from state and local governments, has set up intermediate processing centers or materials recovery facilities (MRFs) to deal with contamination problems. These facilities are often capital and labor intensive, with combined hand-and automated-sort systems for filtering materials into “cleaner” commodities. In theory, the end product should be relatively high-quality raw material that can be injected into existing industrial processes once reserved mostly for large-scale scrap dealers.

But for a variety of reasons, the cost of this processing step has been far greater than policymakers originally anticipated. A study by the National Solid Waste Management Association indicates that the average cost of processing curbside recyclables is approximately $50 per ton. The cost for newspaper is $20 to $55 per ton, while plastic milk jugs and soda bottles are in the range of $65 to $300 per ton.

With the average landfill tipping fee at less than $30 per ton nationwide, recycling is clearly an expensive proposition in the United States. On average, the total cost of collecting, transporting, and processing recyclable commodities is generally $150 to $200 per ton. By comparison, the average cost of collecting, transporting, processing, and disposing of trash is $100 to $125 per ton. The table below, “MRF Processing Costs and Material Prices,” illustrates the relationship between processing costs and market prices. In general, aluminum is the only commodity processed by recycling programs that is clearly profitable.

MRF Processing Costs and Material Prices Source: Solid Waste Management newsletter, January 1993, University of Illinois at Chicago. Prices represent market quotes for the Midwest during the end of 1992.

Quite simply, prices paid for most of the materials processed at MRFs make it impossible to run a processing business without covering costs some other way. To get around this problem, MRF operators must charge local governments and waste haulers that collect recyclables for the service of assuring that recyclables are indeed moved back into the industrial and manufacturing process. The other option? Operators discontinue servicing recyclables that lose money.

It’s been an industrial buyer’s market over the last several years for all recyclable commodities. End users of recycled raw material, or feedstock, can choose whom they wish to do business with and can assure that the price of the material they require will stay down. In many cases, recycled commodities must also compete with virgin raw materials. During the past two years, for example, the high-density polyethylene (HDPE) industry has developed an overcapacity of virgin resins.¹ The market is so flooded with “clean” material that the price for recovered forms of this plastic from curbside recycling programs has plummeted.

Recycled commodities often end up competing against one another as well. Nowhere is this more obvious than in the paper industry. With intensive recycling taking place in most major urban centers around the United States, the huge swell of postconsumer paper (recovered from curbside and office recycling programs) available to manufacturers of corrugated cardboard, newsprint, and toilet tissue allows them to play one material off another. A Pennsylvania manufacturer recently discontinued use of recycled newspaper in its production process because it negotiated a better price for recovered phone books. Office paper can be used to make high-grade stationery, but it’s fast becoming one of the major feedstocks for lower grade paperboard and toilet tissue. That means recyclers must now pay higher prices to get rid of the low-grade, mixed junk paper that used to be one of their mainstays.

In the global marketplace, competition for recovered material exports is also intense. Asian countries, long a predictable export market for U.S. recycled-paper brokers, are opting to use European paper sources where the material is typically less contaminated and cheaper to transport. U.S. paper exports from 1991 to 1992 dropped by 6.4-million tons (2.3%) for the first time in decades, and the market value of exports fell by 7.9%. As the European waste-management infrastructure becomes increasingly sophisticated, U.S. suppliers have fallen farther behind in 1993.

For example, Germany’s latest package-reduction ordinance requires that retailers take back all sales packaging from customers and add a 30-cent deposit to most nonrefillable containers. German manufacturers and product suppliers now pay a licensing fee to place a green dot on products; the green dot guarantees that a product’s packaging will be recycled by the recycling industry. Since many German retailers now refuse to stock products without the dot, it’s likely that 80% of all retail packaging will be recycled or eliminated by 1994.

Of course, some companies in other European Community countries have called these German initiatives protectionist. Antitrust suits, which claim that the green-dot program and other German restrictions necessitate agreements between competing companies in order to handle packaging waste, are still pending. Nevertheless, without the stimulus of such sweeping environmental regulations, most U.S. manufacturers during the 1980s didn’t invest in the new plant technologies that now make German and other European companies much more competitive when it comes to waste management.

But U.S. manufacturers haven’t always been so slow to invest. For decades, the steel and aluminum industries have successfully developed their respective technologies to incorporate large quantities of postconsumer recycled materials. Aluminum cans all contain a high percentage of recycled content, and virtually all products made with steel contain at least 25% reclaimed steel. The value of steel and aluminum to industry consistently guarantees that they are worthwhile components of curbside recycling programs. While steel and aluminum containers compete against each other as food and beverage packaging, each is a comparably low-cost, functional item that’s embraced by consumers. In general, these two industries couldn’t survive without the heavy input of recycled material; and in this, they are models for the lagging paper and plastics industries.

Strong demand for recycled products ultimately requires that these products, as in the case of steel and aluminum, be cost competitive and of high quality. It also requires that they be available in large enough quantities to allow for economies of scale. By mandating recycling and setting extremely high recovery goals for both paper and plastics, government has challenged U.S. industry to develop the necessary infrastructure for incorporating these materials into manufacturing processes.² Yet for this challenge to be met, government and industry need to reach an understanding about the complexity of the problem that they are both attempting to tackle.

This understanding can only be established by developing a unified and coordinated approach. In Germany, the green-dot program funds the Duales System Deutschland (DSD), known as the “dual system” because it works in tandem with an existing system of government recycling programs. The DSD is essentially a national recycling company formed by Germany’s retailers and more than 600 product suppliers and distributors. Given the complications of negotiating business initiatives in the EC, the German model isn’t strictly applicable to the United States; but it may offer U.S. companies lessons in the value of taking a proactive stance toward environmental issues and in the need to form public-private alliances.

Building demand for U.S. recyclables is a case in point. From a public-policy perspective, the recycling issues of collection and processing certainly require further technology and systems refinement. Over time, however, these costs are sure to come down. It’s in stimulating the recycling markets that current policy—and business practice—will make the most difference. In the past two years alone, a number of national and local organizations and government groups have initiated “Buy Recycled” campaigns that actively encourage government agencies, businesses, nonprofits, and institutional organizations like hospitals to buy products made of recycled materials.

The Buy Recycled Business Alliance, for example, includes Bank of America, American Airlines, Bell Atlantic, Coca-Cola, and Anheuser-Busch on its steering committee of 33 companies (see the insert “Buy Recycled Business Alliance: 1993 Members”). In less than one year, the steering-committee members alone have accounted for $3 billion in purchases of recycled-content products and material. Approximately 10% of this investment has been for internal purchases (such as office supplies and packaging) and 90% for external materials (raw feedstock like recovered paper, bottles, cans, and products for sale to the general public). By the end of 1995, the business alliance hopes to sign 5,000 companies as members.

Steering Committee:

American Airlines, Inc.

Anheuser-Busch, Inc.

AT&T Telephone & Telegraph Co.

Bank of America National Trust & Savings Assn.

Bell Atlantic Corp.

Browning-Ferris Industries, Inc.

The Coca-Cola Co.

Cracker Barrel Old Country Store, Inc.

E.I. DuPont de Nemours & Co.

Fort Howard Corp.

Garden State Paper Co., Inc.

James River Corp. of Virginia

Johnson & Johnson

Johnson Controls

K mart Corp.

Laidlaw Inc.

Lever Brothers, Inc.

McDonald’s Corp.

Menasha Corp.

Moore Business Forms, Inc.

Quaker Oats Co.

Quill Co., Inc.

Rock-Tenn Co.

Rubbermaid Inc.

Safeway Inc.

Sears, Roebuck and Co.

Wal-Mart, Inc.

Waste Management, Inc.

Wellman, Inc.

Wisconsin Tissue Mills

Associations:

American Plastics Council

Food Marketing Institute

Steel Can Recycling Institute

Steering-committee members of the Buy Recycled Business Alliance accounted for $3 billion in purchases of recyclables.

Plenty of U.S. companies, of course, have already jumped on the green bandwagon. They’ve entered the market so hastily that the recycling symbol manufacturers put on products (the “chasing arrows”) is now used indiscriminately. Sometimes the symbol means the product contains recycled materials; in other cases, it means the product itself is recyclable. As a result, today’s consumers are both wary and confused about competing green claims. Although it’s been easy enough for companies to take advantage of demand for high-quality green toilet tissue and paper towels (sold at relatively high prices), customers aren’t so eager to buy or aren’t even aware of the many other recycled products on the market.

It’s in exposing misperceptions about the quality and “environmental correctness” of certain products (especially those made from plastic) that companies have the largest role to play. For many managers, the changes start by instituting new corporate purchasing policies, not by creating yet another green product that confuses consumers. Top-level managers in the Buy Recycled Business Alliance certainly recognize the need to take a consistent stance toward environmentally responsible products and to provide customers with the right information. However, while they believe in being good corporate citizens, they also see the possibilities for gaining market share as well as a loyal customer base.

Managers of New Jersey-based Marcal Paper Mills, for instance, believe that they have developed a loyal following of customers because of a marketing strategy that focuses on community recycling programs rather than private-sector processing facilities. In more than 1,000 northeastern U.S. communities with office-paper collection programs, Marcal accepts wastepaper for use in its manufacturing process. In exchange, each community includes at least one retail outlet that stocks Marcal paper products. Based on Marcal’s experience, building demand for recycled products can be a powerful tool for building customer loyalty.

In promoting the purchase of recyclables, the recent efforts of private companies and public interest groups deliberately challenge several recycling myths. These myths linger because of the rocky history of recycled products and continue to stymie strong, positive growth for today’s recycled-product industries. The three most prevalent misconceptions are that recycled products cost more, are of inferior quality, and aren’t available in enough quantity even if you want to buy them. But the corporate examples detailed below illustrate how, contrary to myth, companies can gain a competitive leg up by investing in recycled product lines.

The most common reason purchasing managers give for not buying recycled products is that they’re too expensive. However, most companies that are committed to the principles of recycling and waste reduction haven’t paid higher prices just to support the public interest. Rather, they’ve instituted new procurement policies that offer additional business benefits. The computer division of American Airlines, for instance, has saved over $100,000 by converting to 100% recycled paper. Printing its annual report on recycled paper has saved American another $33,000. These savings were achieved by making the company’s needs known to vendors and demanding competitive prices.

The recycled paper that Moore Business Forms buys to produce its products is no different in cost than nonrecycled paper. Like other big manufacturers, Moore—which with more than 30% of the market is the largest single producer of business forms in the world—has guaranteed its paper supplier that the company will buy a specific volume of paper on an annual basis. The difference between Moore and many of its competitors is that the company’s supplier makes recycled stock. This partnership allows both companies to make a profit on the use and production of recyclables. Indeed, the commitment of Moore’s president and chief operating officer, John Anderluh, to environmentally responsible products has allowed the company to expand its customer base. Moore’s ReGenesis paper has been its fastest growing product line since the company began offering it in 1990. The success of ReGenesis is due in part to Moore’s bonus system, which gives an additional 2% to 3% in sales commission to reps who sell recycled products.

In order to build such profitable partnerships, suppliers and distributors must be able to guarantee not only competitive prices but also volume of sales over time. Strategic partnerships that increase the length of contracts can often be used to negotiate lower prices on recycled materials. In most cases, suppliers are willing to guarantee competitive prices on recycled products for a short term, say two years, if they’re allowed to renegotiate the next two years of pricing. And some suppliers consider their recycled stock to be a loss leader: it can be worth offering at a low price, provided business customers also negotiate contracts for products with better profit margins, such as letterhead or fine writing paper.

Just five years ago, it was nearly impossible to find a printer who carried recycled paper, let alone one who could give a good price for printing on recycled paper. Purchasing managers often found that they had to buy an entire pallet load of paper; otherwise, they’d have to pay a premium for breaking a pallet load purchased by the printer. But numerous small and large companies that shop around today will find that printers can now provide letterhead, business cards, and envelopes on recycled paper at the same price as virgin stock paper. This change in pricing has been brought about partly by business customers that have forced printers to compete and partly by manufacturers that have offered better prices to their customers.

For example, by the end of 1993, the Hammermill Paper division of International Paper will be producing its line of 100% recycled copier-quality paper. This new product, called Unity DP, will have a lower brightness factor than standard bright white copier paper; but for most day-to-day office purposes, it’s more than adequate. Hammermill is building a $100-million deinking plant in central Pennsylvania that will use only old newspaper and glossy magazines to make pulp for Unity DP. The goal: to compete with prices and quality that are the equivalent of virgin stock paper.

In addition to paper, there are a number of other products that have become less costly than their virgin counterparts. For instance, Image Carpets makes both industrial and residential carpets out of 2-liter plastic soda bottles and sells them for less than most other carpets. And for companies with large vehicle fleets, buying recapped tires can create real savings. In Pennsylvania, the Department of Transportation saved more than $250,000 in one transportation district by fitting the drive wheels of crew cabs and construction vehicles with recapped tires. In addition, with the cost of lumber rising dramatically over the past year—and with some help from growing economies of scale—Eberhard-Faber’s new EcoWriter pencil, made of recycled cardboard and newsprint, is now the same basic price as the equivalent wood pencil.

Recycled products like paper and carpets are now cheaper than their virgin counterparts.

Though once a serious concern, quality control is no longer an issue when considering recycled products. Office machinery experts now acknowledge that recycled-content paper performs better in modern copiers and laser printers because of improved conditioning of the paper fibers as well as better adjustment to humidity and temperature conditions. In addition, many people who use recycled paper report that the reduced glare is less taxing on their eyes. As Eleanor Lewis, director of Ralph Nader’s Government Purchasing Project, has said, “Paper does not have to be a light bulb that glows in the dark.”

However, quality also involves aesthetic definitions of products, a factor difficult to quantify and impossible to keep constant. Aesthetic misperceptions still greatly influence purchasing decisions. Consider plastic lumber. True, it can cost up to four times as much as its wood counterpart, but it also doesn’t rot, splinter, or break. Plastic lumber picnic tables, benches, sheds, waste receptacles, retaining walls, and fences have all demonstrated immense savings over time due to low maintenance costs. Still, while plastic lumber represents a tremendous investment by the plastics industry and one of the best product applications for recycled plastics, the market has started to grow in only the last two years.

Although manufacturers have taken great pains to make their product look like wood, plastic lumber is still not wood. Both individual consumers and company purchasing managers think of wood as the material of choice because they are accustomed to it. In addition, wood has traditionally been associated with high quality. And in a corporate setting, the buyer of wood products and materials is usually not the person responsible for maintenance and repair. Phoenix Recycled Plastics, a Pennsylvania-based company, finds that the specifications it receives from purchasers often break project cost proposals into two separate categories: lumber in one category and paint and labor in the other. Yet its plastic lumber, one of the company’s main product offerings, comes in a number of colors and doesn’t require painting. Most of Phoenix Recycled Plastics’s customers are clearly interested in recycled products; but they have trouble evaluating the available products because of their aesthetic preference for wood.

Indeed, plastic lumber has forced the issue of life-cycle cost considerations in purchasing. To a certain extent, it has forced managers to weigh their aesthetic principles against practicality. Overcoming these barriers takes time. In many cases, it also takes a management directive to place the principle of positive environmental ethics on equal footing with the aesthetics of wood or of office products made from other materials. Ted Reed, president of The Data Group, decided that his marketing research company should buy Hammermill’s Unity DP when he heard that it jammed less in copiers. But while employees like the idea of using a paper made with old newspapers and magazines, some won’t send reports to clients on off-white Unity DP. Reed plans to include a description of the paper’s contents on each sheet in order to turn a potential perception problem—“this company is unprofessional because it uses poor-quality paper”—into a marketing plus—“this company is environmentally responsible because it uses recycled paper.”

Plastic lumber has forced managers to weigh their aesthetic principles against practicality.

In general, the durability and consistency of today’s recycled products are far superior to those on the market just three years ago. Quality control tests that were run products from 1990 and 1991 have little bearing products currently on the market. Consider the case of remanufactured toner cartridges. In the late 1980s, remanufacturers simply opened up old cartridges and repacked them with new toner. Now they strip down cartridges and refit them with long-lasting, high-quality drums and other components manufactured specifically to allow a toner to be recharged eight to ten times. Remanufacturers offer free servicing of laser printers as part of their standard contracts, and responsible companies promise to repair at their own cost any printer that malfunctions due to a faulty cartridge.

The increasingly good quality of recycled products points to another difficult issue. While restriction of trade is essentially illegal, recycled products, like any product substitute, call into question established markets. Some copier companies and a few laser-printer manufacturers won’t honor service contracts or warranties if anything other than specified components and materials are used. Such restrictive contracts can also be found for car parts, computers, telecommunications equipment, and many other high-tech products and services. In addition, franchises and authorized service companies will sometimes use the name of the manufacturer as a front for their own restrictions. Where necessary, buyers and purchasing managers should force competition on service contracts and demand that manufacturers put into writing any restrictions on the use of their products.

The availability of recycled products was a real problem just a few years ago and still is when certain businesses, particularly publishers, require large amounts of materials to meet a hard deadline. But most standard business products are readily available today. Major writing-paper companies like James River now carry numerous grades of quality paper stock in a variety of colors. And in 1988, Rubbermaid, long a leader in janitorial products, started using recycled plastics in the production of recycling containers for New York City’s curbside programs. Based on this early success in New York, the company saw the market potential for developing recycled versions of a number of its plastic products, including trash cans, buckets, liners, and wheeled carts. Rubbermaid currently markets more than 70 products made from postconsumer plastic.

Even in the case of newspaper and magazine publishers that require large quantities of recycled paper in a short time, planning and vigilance can overcome the availability problem. For example, Consumers Union, which publishes Consumer Reports, examined the feasibility of converting the paper its magazine was printed on to recycled content. The driving force behind the use of recycled paper was Rhoda H. Karpatkin, Consumers Union’s executive director. She believed that it was essential for her nonprofit organization to be sensitive to environmental considerations in its purchasing and publishing activities.

With a circulation of over five million, Consumer Reports is the eighth largest magazine in the United States. Initially, the magazine’s typical publication run was too large to be accommodated by suppliers of recycled paper. However, Karpatkin and others persisted in their efforts. They identified opportunities for producing many of Consumers Union’s other publications with recycled paper, including the 1992 Guide to Income Tax Preparation. Over time, the magazine’s suppliers were able to provide CR with paper that had varying degrees of recycled content for some of its issues at a nominally higher cost.

Consumers Union identified opportunities for producing many of its publications with recycled paper.

To compensate for the higher price, CR established a price preference fund that was partly fed by the savings from their in-house recycling program. Karpatkin and her staff also recognized that supporting the recycling industry’s efforts in developing consistent materials would help it catch up to the magazine’s needs. The recycled content of Consumer Reports continues to increase: half of the press run for Consumer Reports is now printed on recycled-content paper. In addition, more than half the books published by Consumers Union are currently printed on recycled paper. During the next several years, Consumers Union expects its suppliers to develop both a consistent feedstock and competitive prices.

To stave off potential legislation that would mandate recycled content in newsprint, the Pennsylvania Newspaper Publishers Association (PNPA) proposed a voluntary program that would increase its use of recycled-content newsprint to 50% by the year 1995. In 1988, PNPA found that recycled newsprint was at 8%. In 1993, the association estimates a level of 35%. PNPA is confident that the efforts of their 250 member papers can raise that level to 50% before the 1995 deadline. The only thing standing in PNPA’s way is the availability of recycled newsprint—not the supply of old newspapers themselves but the blank sheets of newsprint produced by mills.

Ironically enough, while plenty of people dutifully bundle newspapers for recycling programs, a number of local recycling programs have stopped collecting them. While temporary, the glut in unprocessed newspapers highlights the problems caused by the time lag between collection and processing. Once again, it’s not enough to stimulate supply or demand for a recycled commodity. In efficiently generating a supply of unprocessed newspaper, government programs have made a new resource available to industry. Manufacturers, in turn, are now scrambling to catch up by upgrading processes and creating new uses for recycled newspapers. By the year 2000, every U.S. newspaper will contain at least some recycled content.

By the year 2000, every U.S. newspaper will contain at least some recycled content.

A similar desire to outrun legislation moved Bell Atlantic Directory Services to research the use of recycled-content paper for its phone books. After extensive review of its options, the public utility learned that its only source of stock paper was a mill in Europe. At considerable investment to the company, the paper has been imported to the United States for use in publishing Bell Atlantic’s phone books. The company has persisted in asking U.S. paper companies for directory stock paper at competitive prices. And in the next several years, a plant will probably be built in North America that can provide Bell Atlantic with all the paper it needs.

Ten years ago, small U.S. companies and entrepreneurs were the ones investing in new manufacturing processes because they had the most to gain from entering niches for recycled products. However, as recently as the late 1980s, most large companies were still investing in plant upgrades for handling virgin natural resources. In order to produce recycled products of equivalent quality and price, then, industry must now invest heavily in new technologies. Socially responsible mission statements aside, R&D investment on this scale will occur for only two reasons: anticipated profits and the threat of competition.

In fact, a number of products have been made with recycled stock for decades, including steel and aluminum cans, soap, and low-cost toilet tissue. For the past 70 years, companies like Fort Howard, Wisconsin Tissue Mills, and Marcal have used wastepaper from mills and printers as the primary source of their manufacturing processes. By doing so, they tapped a cheap resource that allowed them to create tissue products for the low end of the market. At the same time, they didn’t advertise the recycled-fiber content of their products because past consumers saw this as an indication of poor quality more than anything else. But with today’s consumer demand for recycled-paper products, these companies have repackaged a number of their lines to present a greener face. And with the increasing supply of postconsumer wastepaper, especially from office recycling programs, all three have upgraded plants to handle this new feedstock. Now they’re increasing market share by positioning themselves as companies that offer environmentally responsible products.

Or consider Rubbermaid, which has pioneered the use of postconsumer plastic in both blow-molding and injection-molding technologies, forcing smaller competitors like Zarn and Toter to follow suit. At present, the increased competition and the depressed market for postconsumer HDPE has chipped away at Rubbermaid’s market share, particularly in trash cans and curbside recycling containers. But the company has responded by developing what they call a hands-on, closed-loop approach to feedstock acquisition, allowing better quality management of the recyclables they’re using in the manufacturing process.

Because of Rubbermaid’s closed-loop program, for example, it is now a leader in the recovery and reuse of low-density polyethylene (LDPE) stretch wrap. Using a small plastics-processing company to clean up the postconsumer LDPE, Rubbermaid buys stretch film from distribution centers for companies like Giant Foods. It ships them for processing and then buys converted pellets from the processor to use in the production of new products (such as recycling containers or trash cans) for resale to the same consumers. In order to close this loop effectively—and profitably—Rubbermaid works with both the processor and Giant Foods to ensure that the plastics they recover for reuse are of the highest quality and virtually free from contamination. Quality management is key, since it allows Rubbermaid to produce products in a number of attractive colors rather than the usual black or gray containers made of recycled plastics.

Investing in green R&D creates many opportunities for closing the recycling loop, from new manufacturing processes for a single product to a collection-and-processing loop like Rubbermaid’s. Although a number of large companies have started investing in new processes because of competitive pressures, they’ve also developed strategic alliances with public institutions, local government, or other companies to help split the initial high costs of R&D. In the case of International Paper, its Hammermill division licensed the technology for producing Unity DP from the German company Steinbeis Temming Papier. For more than a decade, Steinbeis has been producing Hammermill’s Unity DP for the German market. Steinbeis will continue to manufacture the paper for sale in the United States until production at Hammermill’s new Pennsylvania plant is underway.

Of course, while Hammermill currently plans to price Unity DP competitively in the United States, it had other economic reasons for licensing the technology in 1990. Since the licensing agreement with Steinbeis is exclusive, it gives International Paper a niche in the growing market for environmentally responsible products. In addition, like most old-line industrial giants, International Paper has had its share of environmental disasters. Switching to more environmentally responsible processes will in and of itself help the company retain customers. Not to mention the fact that the wood-pulp processing required to make virgin stock paper creates hazardous wastes that have become increasingly costly to clean up.

Coca-Cola’s partnership with Hoechst Celanese exemplifies another strategic R&D alliance, in this case with a regular supplier. In addition to glass and aluminum recycling, Coca-Cola has invested in developing a 2-liter soda bottle made with 25% recycled postconsumer plastic. Coca-Cola is committed to producing a range of environmentally responsible products; in particular, top managers wanted to address the public’s negative attitude toward recycled plastics and the overall recyclability of plastics. Hoechst Celanese developed the new technology for Coca-Cola in order to remain the soft-drink giant’s main supplier of plastic bottles. In exchange, Coca-Cola underwrote much of the R&D costs and allowed Hoechst to keep the rights to the technology.

This new type of container has been accepted by the Food and Drug Administration for use in direct contact with beverages. The container’s innovative packaging design closes the recycling loop, since the same plastics used in making the bottles can potentially be cycled back into Coca-Cola’s manufacturing process and reused to make the same product. In order to gain approval for this new packaging technology, Coca-Cola had to convince the FDA that the company could handle any possibility of contamination or resulting health problems. As a result of this pioneering work by Coca-Cola and the FDA, some of the outdated government regulations for hygienic quality in the packaging of recyclables have been changed. Now other food and beverage containers made from postconsumer plastic—including jars and bottles for salad dressings, peanut butter, and ketchup—are either on the market or in development.

The plastics that Coca-Cola uses to make its new bottle can be reused to make the same product, closing the recycling loop.

Bell Atlantic’s approach to combining government and business interests presents an interesting twist on R&D costs. As a public utility, the phone company is subject to more government regulation than private companies, and, consequently, Bell has developed new manufacturing processes. Bell hasn’t only invested in using recycled paper for its telephone directories, it has also extended resources into making the phone directories themselves recyclable. Among other things, Bell has eliminated the use of hot-melt binding glues that would literally gum up paper-pulp recycling operations. In addition, the company has done away with glossy paper covers.

Bell Atlantic has invested in using recycled paper for its phone directories and in making the directories themselves recyclable.

However, Bell Atlantic and other utilities can also raise consumer rates to cover additional R&D expenses. This public-private balance of costs is delicate; but it can spur the larger changes a complicated economic issue like recycling requires. Bell has also invested heavily in establishing working phone-book recycling partnerships with local public-sector recycling programs in its service territory. Local recycling coordinators are responsible for setting up the collection and public-education component of the program, while Bell pays for transportation to markets and guarantees that recycled phone books will not be landfilled.

One of the best examples of a government-business partnership driven by leading-edge ingenuity can be found in Recycled Plastics Marketing of Seattle. RPM, a small but keenly entrepreneurial company, has entered into an agreement with the City of Seattle to produce a backyard composter for use in Seattle’s intensive waste-reduction program. RPM’s composter is made of 100% recycled plastic. The program’s inventiveness stems from the fact that the Seattle Composter is made of the HDPE milk jugs recovered in the city’s recycling program. RPM receives a predictable flow of materials for its product, and the city guarantees payment on a large number of composters. The composters, in turn, are given to the city’s residents for free; but their use reduces the quantity of trash that must be picked up at the curb, substantially cutting down on the city’s waste-management costs. Cooperative partnerships like this demonstrate the potentially positive effects of recycling on local economic development—as well as how business and government can negotiate mutually beneficial deals.

Some companies, of course, contribute to the public interest simply because they believe in the importance of doing so. For example, Conservatree Paper Company, a San Francisco-based recycled paper distributor, recently began a pilot project in 20 California school districts for the Inner-City School Donation Program. Under this program, Conservatree helps schools that have funding problems by donating paper supplies worth 1% of the company’s total sales. Schools receive sorely needed supplies and recycled paper. From an educational standpoint, children get a chance to see the full recycling loop—from curbside collection to buying recycled products to recollection—in action.

But coordinating business-government programs to this extent is no easy task, whether a participating company is driven by public or private interest. Even in the case of the Seattle Composter, RPM and the city went back and forth with bids and counter-bids for six months before the program was implemented. In many respects, the partnerships that do exist now, such as the Buy Recycled Business Alliance, are a public-private experiment in social change. Given that consumers currently receive mixed messages from industry, environmental groups, and their own local recycling programs—and given that recycling professionals still argue about everything from the value of bottle bills to whether or not there’s a landfill crisis—how government and business achieve their respective recycling goals will doubtless shift and adapt over time.

In addition, business strategists and policymakers can’t rely on hard data to model the benefits of recycling based on classic economic theory. Assuming that issues of feedstock supply, labeling standards, and pricing are adequately dealt with, whether full-scale demand for recycled products will actually create enough stability in the marketplace to assure the long-term economic viability of recycling infrastructure remains an open question. The Environmental Protection Agency’s goal for the United States is to divert 40% of waste by the year 2000. That means individual consumers and companies would need to buy back approximately 80-million tons of recycled products per year. At present, 20-million tons of postconsumer material are purchased in the United States (about 50% by business) and turned back into recycled products.

Yet the simple economics of supply and demand can’t fully capture the value of building demand for recyclables. When compared with their virgin counterparts, recycled products provide a number of intangible but increasingly crucial business benefits. From a marketing perspective, use of recycled office products or investment by industry in new technologies that use recycled feedstocks will help win new customers and retain old ones. In addition, reassessing procurement policies to determine if there are subtle prejudices against recycled products calls into question more general quality standards and buying practices that may cost more than management had assumed. Investment in recycled products also means more competition and will inevitably force design innovations and new technologies that can further lower production costs.

Needless to say, recycled products tend to be less energy intensive and often have a lower impact on the environment than their virgin counterparts. Although it’s exceedingly difficult to calculate the relative levels of environmental and energy impact, it is conceivable that in the near future, U.S. companies and government agencies alike will list their investment in these products in an official green “report card.” This report card (somewhat akin to the social balance sheets many German companies produce voluntarily) will detail the energy a company has saved and the pollution it has reduced through buying recycled products and developing new manufacturing technologies.

Even when it comes to policing industry claims for recycled content, business has the most to gain by helping to coordinate, rather than hindering, the efforts of the EPA, environmental groups, the Federal Trade Commission, and private companies. The Recycling Advisory Council to the EPA is making tremendous strides in working out suitable and acceptable standards for all parties. But since its technical capacity and understanding of recycled products increases yearly, industry is best equipped to lead the others. Witness Coca-Cola’s efforts to change FDA regulations and testing procedures.

On a grander scale, consider the potential of recycling for revitalizing U.S. industry. With some of the cheapest power costs anywhere in the United States, the Pacific Northwest is a prime area for the paper industry to invest in plant retrofits that can use recycled feedstock instead of virgin wood pulp. In fact, a number of companies like Smurfit, International Paper, Georgia Pacific, and Weyer-haeuser have already done so.³ Loggers can then be retrained to operate recycling vehicles, “mill” plastic lumber, operate paper balers, or work in deinking plants. Emphasizing the recycling industry just might be one answer to an ailing local economy, provided corporate managers and government policymakers are willing to work as partners rather than the usual adversaries.

References

1. The Society for the Plastics Industry has assigned HDPE Code #1. HDPE is most commonly recovered in the form of one-gallon milk, water, and cider jugs.

2. Government recycling goals around the United States range from achieving a recycling rate of 25% to one as high as 60%. A recent study commissioned by the EPA indicates that Americans achieved a recycling rate of 17% in 1991.

3. According to the American Forest and Paper Association (a recent merger of the American Paper Institute, the National Forest Products Association, and the American Forest Council), over 100 U.S. paper mills are scheduled in the next three to five years to be retrofitted or rebuilt in order to handle the increasing demand for recycled-content products.

David Biddle is executive director of the Public Recycling Officials of Pennsylvania (PROP). He is the author of numerous articles and several manuals on recycling and waste management, including The Pennsylvania Buy Recycled Procurement Guide and Desk Reference (PROP, 1993).

Recycling for Profit: The New Green Business Frontier

Research & References of Recycling for Profit: The New Green Business Frontier|A&C Accounting And Tax Services
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