18 November 2008

Recycling's Butterfly Effect

At first glance, you would think that the environment would be a big winner as the global financial crisis is felt by all. After all, excessive consumption is at the heart of our planetary ecological catastrophe (for one particularly distressing example, see here and here). Following on this line of reasoning, as people cut back their consumption, environmental pollution should also decrease.

The logic is fine as far as it goes, but it turns out that this does not work for one of the great success stories of the environmental movement, recycling. As commodity prices have plunged, so too have the prices of the materials that we recycle the most: aluminum and steel, paper, glass, and plastic.

I first noticed the problem when I went to the recycling centre the other day here on lovely little Galiano Island. We are environmentally conscious lot and recycle assiduously but the truth is we have no choice: there are no garbage facilities on the island, so we engage in Natural Recycling. But as a result of the drop in commodity prices, our self-sufficient little recycling centre is no longer able to sell many of the recycled items that were coveted only months ago.

A bit of research reveals the problem to be widespread. Recycling Today reports that:
"The drop in prices being paid by North American steel mills for ferrous scrap has continued in November, with scrap now trading at between $113 and $167 per ton. In early November, buyers paid roughly from $60 to $110 per ton less for scrap than they did in October... In the global scrap market, reduced demand from steelmakers throughout the world remained the key factor in the dramatic change in ferrous scrap pricing in the past 90 days."
Or take a look at Nine Dragons Paper, one of the world's largest cardboard recyclers (whose founder and Chairwoman, Cheung Yan, was China's wealthiest person a couple of years ago). The company had this to say when releasing their financial results for 2008:
"We are now experiencing challenges of a downturn in the global economy..."
One might argue that the laws of supply and demand should take care of matters. As people buy less stuff, they produce less waste and therefore the system will self-correct. Unfortunately, such simple solutions don't work in the real world. Not only is a critical mass of recyclable material required to make the entire enterprise cost-effective, the price of the underlying commodity must also be sufficiently high to warrant continuing recycling as a viable business. It appears, at least for the moment, that neither of these conditions obtain.

There is a bit of a butterfly effect about all of this. A few thousand people in Nevada buy homes on ridiculously cheap credit. A few years later, housing prices plunge and suddenly many homeowners owe more on their mortgages than the houses are worth. The mortgage rates begin to rise (apparently, no one read the fine print) and homeowners begin to default. At the same time, we realize that the geniuses on Wall Street have bundled these mortgages into complex investment vehicles, and nobody knows what they are worth today or, even worse, what they will be worth tomorrow. Banks begin to fail. The economy craters. Commodity prices drop. And our little recycling centre on Galiano Island is unable to sell scrap metal anymore.

Oh what a tangled web we weave...

Cross posted to Open Salon