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3.4.1. Marginal Cost Pricing for Household Waste

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Savings from Economic Incentives

Communities throughout the United States have traditionally levied fixed collection fees for household waste or included the collection costs in property taxes. Such pricing practices are inefficient in that the marginal price for the household is zero, whereas the marginal collection cost is positive.

However, a growing number of communities are now charging for solid waste collection based on the volume generated by the household. Such variable rate (or "pay-as-you-throw") programs have been implemented in over 3,200 communities in 37 states, reaching an estimated 12% of the U.S. population. Four states have mandated the use of variable rate programs in some or all of their municipalities. Washington's law applies mostly to private collectors operating in unincorporated areas of the state, but virtually all municipalities in the state use variable rates. Iowa and Wisconsin require variable rates only in communities that fail to attain a 25% waste recycling/diversion goal by certain deadlines. In Minnesota, variable rates are required in all communities. Skumatz, 1996, p.1. EPA is also encouraging variable rates and has held a series of workshops to explain their advantages and disadvantages and provide information on how to implement them.

Variable rate programs can take several forms. Pre-paid garbage bags or stickers to affix to bags can be required for collection, or collection fees can be based on the number and/or size of cans. Some areas have weight-based systems. Others have mixed systems combining a fixed rate up to a certain amount of garbage and incremental rates for amounts in excess of the minimum covered by the flat rate. Such mixed systems are becoming increasingly common, perhaps because they are relatively easy and inexpensive to implement, provide a stable source of revenue for collection services, have the potential to reduce illegal dumping, and offer a minimum level of free service to many customers. Skumatz, 1996, p.2. According to one source, collection systems that require periodic billing of customers are likely to be administratively more expensive than bag or sticker systems. Miranda and Aldy, 1996, p. 16. One disadvantage of bags is that they can tear, especially if handled improperly or penetrated by animals. Many U.S. communities rely on variable rate structures; a few of them are characterized below.
Fee structure
      Glendale, CA
        65-gallon cart: $6.45/month, 2/gallon
        100-gallon cart: $10.10/month, 2/gallon
      Pasadena, CA
        60-gallon cart: $10.41/month, 4/gallon
        100-gallon cart: $16.23/month, 4/gallon
        2 60g carts: $19.01/month, 4/gallon
        60g & 100g cart: $22.40/month, 4/gallon
        2 100g carts: $28.62/month, 3/gallon
      San Jose, CA
        32-gallon cart: $13.95/month, 10/gallon
        64-gallon cart: $24.95/month, 10/gallon
        96-gallon cart: $37.50/month, 10/gallon
        128-gallon cart: $55.80/month, 10/gallon
      Santa Monica, CA
        40-gallon cart: $14.85/month, 9/gallon
        68-gallon cart: $17.76/month, 7/gallon
        95-gallon cart: $21.07/month, 6/gallon
        68g & 95g cart: $37.28/month, 5/gallon
      Oakland, CA
        20-gallon can: $10.08/month, 13/gallon
        1st 32-gallon can: $13.74/month, 11/gallon
        Each extra 32g can: $16.49/month, 13/g
      Portland, OR
        20 gallon can: $14.60/month, 18/gallon
        32 gallon can: $17.60/month, 14/gallon
        35 gallon cart: $19.30/month, 14/gallon
        60 gallon cart: $24.05/month, 10/gallon
        90 gallon cart: $27.10/month, 8/gallon
      Takoma, WA
        60 gallon can: $17/month, 7/gallon
        90 gallon can: $25.50/month, 7/gallon
      Spokane, WA
        20 gallon can: $8.56/month, 11/gallon
        1st 30 gallon can: $11.07/month, 9/gallon
        Each extra 30g can: $6.01/month, 5/gallon
      Colorado Springs, CO The city of Colorado Springs neither collects garbage nor licenses haulers. Fees here are charged by Waste Management when it supplies cans and bags. Customers supplying their own cans and bags pay other rates.
        1 34g can + 1 30g bag: $9.50/month, 4/g
        2 cans and 2 bags: $11/month, 2/gallon
        3 cans and 3 bags: $13/month, 2/gallon
      Downers Grove, IL
        30-gallon bag: $1.50, 5/gallon
      Grand Rapids, MI (City)
        30-gallon bag: $0.85, 3/gallon
        30-gallon can: $44.20/year, 3/gallon
      Grand Rapids, MI (Waste Management)
        64-gallon cart: $15/month, 6/gallon
        104-gallon cart: $17/month, 4/gallon
      Grand Rapids, MI (Able)
        90-gallon cart: $17.35/month, 5/gallon
      Hoffman Estates, IL
        30-gallon bag: $1.45, 5/gallon
      Lansing, MI (City)
        30-gallon bag: $1.50, 5/gallon
      Lansing, MI (Waste Management)
        63-gallon cart: $12/month, 5/gallon
        104-gallon cart: $15/month, 4/gallon
      Lansing, MI (Granger)
        60g cart: $11/month, 5/gallon
        90g cart + 3 30g bags: $13.40/month, 2/g
      Woodstock, IL
        30-gallon bag: $1.56, 5/gallon
            Sources: Miranda and Aldy; Bauer and Miranda

The table shows that communities vary as to whether the city and/or private haulers collect waste. Waste collection systems can be open systems or exclusive franchises. In open systems, the city may provide optional waste collection (eg. Grand Rapids, Lansing) or it may leave collection completely in the hands of private firms (eg. Colorado Springs). In exclusive franchises, collection can be done either by the city (eg. Spokane, Takoma) or by one or more contracted haulers (eg. Oakland). In both open and franchise systems, communities can set rules regarding collection fees. In St. Paul, Minnesota, for example, the city operates no collection program but requires that collectors charge variable rates, and Portland's open system has no city program but sets collection fees charged by private haulers.

Many communities with variable rates implement public education, curbside recycling, yard waste, white goods, and holiday greenery programs as well. Education has been found to be an important element in the success of variable rate programs. The collection frequency, fees, materials collected, and participation requirements for curbside recycling, yard waste, white goods, and holiday greenery collection programs vary across communities. These complementary activities can have an important impact on the success of variable rate programs.

Cities that have adopted per-can or per-bag charge (often called "unit pricing") systems for household solid waste report significant decreases in the volume of waste collected. In most areas where variable rate programs have been introduced, amounts of waste collected have decreased significantly. A 1992 survey of 14 cities with variable rate programs found that the amount of waste destined for disposal decreased by an average of 44%. Skumatz, 1983, pp 283-84. A study in Maine found that municipalities with variable rate systems disposed of less than half as much waste per capita as municipalities without such systems. Warmer Bulletin 1996. Surveys in Tompkins County, New York and Dover, New Hampshire found that variable rates led consumers to think of ways to reduce waste generation, including altering their purchasing habits. A 1996 study of four communities in California and five in the Midwest found that they achieved reductions in waste disposal of 6% to 50% after introducing variable rate systems. The higher the unit prices, the greater the reductions. Moreover, reductions were greater in those communities with relatively small minimum container sizes. (Some variable rate structures are more variable than others.) If the minimum container size is too large, consumers often have little incentive to alter their behavior. Miranda and Aldy 1996, p. 19.

As shown in the following table, another study found reductions in tons of waste landfilled ranging from 17% to 74% following the adoption of variable rates in 21 northern cities. The study found the magnitude of the unit prices to be positively correlated with the change in the amount of waste recycled and negatively correlated with the change in the amount of waste landfilled. Seattle's 30 percent reduction might be taken as representative.

      % Reduction in tons of waste landfilled
      % Increase in tons of waste recycled
      Antigo, WI
      Charlemont, MA
      Downers Grove, IL
      Grundy Center, IA
      Hancock, VT
      Hartford, VT
      Harvard, IL
      High Bridge, NJ
      Huntingburg, IN
      Illion, NY
      Ithaca, NY
      Lisle, IL
      Mt. Pleasant, IA
      Mt. Pleasant, MI
      Perkasie, PA
      Plains, PA
      Quincy, IL
      River Forest, IL
      St. Charles, IL
      Weathersfield, VT
      Woodstock, IL
      Source: Miranda, reprinted in Arner and Davis, p. 4.
The recycling increases shown in the table were achieved in areas that did not simultaneously implement recycling programs. In places where the adoption of variable rate programs has coincided with new public recycling activities, however, it may be difficult to determine how much of the decline in waste disposal is due to the variable rates and how much is due to the new recycling alternatives. The Dover survey found that curbside recycling programs alone encouraged recycling but that variable rates provided additional incentive.Skumatz 1994, p 284. Another study estimates that a variable rate program will increase the percentage of waste diverted under existing recycling programs by 4-13%. Skumatz 1996.

Despite the evidence cited above, variable rate programs are not without problems. Data on decreases in collection can be misleading if the programs result in significant illegal disposal or diversion to cheaper disposal services. Illegal dumping includes direct discharge to the environment as well as placing waste in someone else's container or donating unrepairable items to charitable organizations. Direct discharge to the environment is likely to be of more concern than other types of illegal disposal. The Maine study found that an increase in backyard burning and a slight increase in roadside dumping and illegal disposal in commercial containers coincided with variable rate systems. Of the cities surveyed in the 14-city study mentioned above, "six cities reported no problem with dumping, four reported minor problems, and four reported notable problems." Among the measures cited to limit illegal disposal are creation of viable recycling alternatives, public education, the locking of commercial dumpsters, high dumping fines, and minimum flat collection fees. Repetto et al., p.18-19.

Other problems that need to be addressed in designing and managing variable rate programs are that they can be difficult to implement in multi-family housing such as apartments and that they can have a regressive effect on the poor and large families. In addition, the programs can lead to significant decreases in revenue for municipal waste collectors. The magnitude of these decreases can be difficult to predict.

Variable rate programs may not be appropriate for all communities. Analysts assert that variable rate pricing is unlikely to be successful in areas with affordable and environmentally acceptable landfill disposal options, lack of nearby recycling possibilities, nearby open spaces for easy illegal dumping, and lack of consumer willingness to pay variable rates. Skumatz (1994), p. 286. In some areas, however, they appear to be beneficial. According to a World Resources Institute study Repetto, et al., "Where landfill costs are high, disposal charges would generate net economic savings of $0.17 for every dollar of revenue collected, even after the gross costs of curbside recycling programs were paid."

Based on the data in the above table, a representative figure is the 30 percent reduction observed in Seattle, where per can fees were coupled with increased opportunities for households to recycle. The entire 30 percent does not represent a cost saving, though, since recycling does not provide a competitive financial return to labor and capital inputs (particularly those of the household). Thus, the net savings are less than 30 percent, perhaps in the 20 percent range.

Unit pricing for solid wastes is likely to be cost-effective for up to one-half of the nation's households. In heavily urbanized areas, deterring littering through flat fees may be more important than the incentive effect of unit pricing. In some contexts, such as large apartment buildings, unit pricing for waste may be infeasible altogether. Also, in many rural areas, solid waste disposal remains quite inexpensive, bringing into question the ability to recover administrative costs of unit pricing.

Current EPA estimates are that some form of unit pricing currently affects about 5 million households (12% of the population). Some of these households pay per-can fees only in the form of surcharges for exceeding a weekly or monthly limit, while others pay explicit per-can fees on each can. In the absence of such incentives each of these households would generate more wastes and experience disposal costs about 25 percent higher than a current average of $200 annually (about one-third higher than the national average). Savings of $50 per household for 5 million households indicates that unit pricing may currently produce savings of $250 million annually. Repetto et al. estimate that if unit pricing is adopted in all regions with high disposal costs, the savings would be $650 million annually.

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