The sudden new strength of recycling.

IT STARTED OUT AS A "DO-GOOD" ACTIVITY, THEN EVOLVED INTO A NECESSARY BURDEN FOR MUNICIPAL GOVERNMENTS. NOW, QUITE SUDDENLY, IT HAS BECOME A REAL REVENUE-PRODUCER.

Recycling, one of the key strategies for alleviating the pressures of the human presence on natural systems, has finally - and dramatically - arrived as a mainstream industrial activity in North America.

It's ironic that the breakthrough took so long. North America - or at least the U.S. and Canadian part of it - is where materials consumption is most profligate, and where the impacts of that consumption (in pollution from landfills and incinerators, energy production for manufacturing, and the spreading damage left by extractive industries) are therefore most troublesome. Yet, for a quarter-century after the first Earth Day, recycling advocates were forced to spend much of their energy trying to make their case to skeptical decisionmakers.

In the 1980s, recycling was still seen largely as a "do-good" activity. It was of little interest to fast-track business investors, who in those days were too busy pursuing "high-tech" ventures. The idea of founding a profitable business on old newspapers and empty bottles did not fit well with the ascendant lifestyles of the era. Local governments, many of which had to cope with rising landfill costs, were a bit more responsive, but still tended to regard their new recycling programs as burdens.

But now, suddenly, what was seen as a burden has become a major asset, and those communities that had the foresight to set up solid recycling programs a few years ago are beginning to reap real rewards. Since early 1994, prices for nearly all commonly collected recyclables have skyrocketed. In San Francisco, for example, recycling director Sharon Maves reports that the used paper, plastic, and metals the city picks up from curbs is bringing in "unprecedented revenue" - allowing the city to actually reduce household assessments for waste collection and recycling.

The story is the same across the continent. New York City, which two years ago was paying $6 million per year to get rid of its newsprint, now expects to earn $20-25 million from selling the same material over the next year, says recycling chief Bob Lange. Early in 1994, Madison, Wisconsin was paying $13 per ton to the processors who took its recyclables; by the end of the year it was receiving nearly $23 per ton. Madison recycling coordinator George Dreckman calls his city's program a "cash cow" that yielded the city $240,000 in net revenue (after processing costs, but not including collection costs) in the first four months of 1994.

Such numbers are making recycling increasingly attractive to many city waste administrators. While every city's economics are different - and some still have cheap municipal landfills with years of remaining capacity - many well-run programs are collecting and marketing materials at costs well below those of landfilling or burning waste. Madison now saves $40 for every ton of material it keeps out of its landfill by recycling. In Seattle, the city's total cost of collecting and processing recyclables fell from an average of $89 per ton in 1993 to $28 per ton by April 1995 - about $77 per ton less than what the city pays for disposal of what it can't recycle. In Canada, a number of communities in the province of Ontario are now earning profits of Cdn $50 per ton or more on recycling, including collection, processing, and capital costs, according to Atul Nanda, a senior official in Metro Toronto's recycling program.

Where recycling is not succeeding, a close look often reveals poor management. In Washington, D.C., for example, where city officials moved in late April to halt residential collection of recyclables, municipal administrators did not take into account the costs of landfilling and incineration that the city avoided by recycling. They tied funding for the recycling program to revenue from dumping by commercial waste haulers at the city landfill, which meant that the more trash was recycled, the less funding it received. And finally, they failed to renegotiate materials marketing contracts to take advantage of rising prices.

Even some communities with a history of successful recycling, such as Metro Toronto, have not been in a position to benefit from improved markets, because they locked themselves into long-term, fixed-rate contracts before materials prices soared. William Ferretti, director of the New York state Office of Recycling Market Development, says municipal officials and waste haulers alike need to "stop acting like garbagemen" and realize that they are now in the business of selling commodities.

As recently as 1993, North American markets for many recovered materials were unreliable, prices were low, and many communities were unsure about their long-term ability to sell the materials they collected. Now some cities are moving to expand their collection programs to take advantage of high prices for recyclables. San Francisco, for instance, is doing extensive public outreach in an attempt to recover more recyclables, and is expanding its program to cover previously uncollected materials. The high demand for recycled materials is allowing the city to market even lower-grade materials that in previous years might have been hard to sell.

THE BIG TURNAROUND

The most dramatic growth has occurred in prices for used paper products. Between January 1994 and March 1995, the average U.S. price of old newsprint - which had hovered near or below zero since mid-1991 - rose 22-fold, according to Recycling Times. The price of old corrugated cardboard - used cardboard boxes - jumped five-fold. In early May 1995, a ton of baled corrugated cardboard that sold for $45 to $50 in 1991 or 1992 was commanding $230 to $250. Other grades of paper saw smaller, but still substantial, price increases. (See graphs for overall averages.)

Over the same period, used aluminum beverage can prices doubled, and recycled glass prices rose 80 percent. Prices of HDPE and PET - the two plastics most commonly collected for recycling - went up by 260 percent and 160 percent, respectively.

What happened to cause these jumps? To some degree, they are a result of international economic developments. Simultaneous economic upturns in Japan, North America, and Western Europe have driven up demand and prices for many commodities, both primary and recycled. Increased aluminum prices, for example, are largely the result of a January 1994 international agreement between the major aluminum-producing nations to reduce their production. Prices for both primary and recycled aluminum had been depressed since 1991, when Russian smelters - which formerly sold nearly all of their output within the Soviet bloc - began selling large amounts of the metal on already-slack Western markets. Higher prices for some plastics are related to poor crops of cotton in several major growing regions, which have driven prices for the natural fiber to all-time highs and sent clothing manufacturers hunting for substitutes. China has been importing used plastic soft-drink bottles and turning the polymer they contain into new synthetic fibers for jackets and other garments.

But other factors are more basic and likely to last. Demand for products with recycled content has increased substantially with the rise of government and private procurement programs that give them preference, and experience with recycled-content products has removed much consumer apprehension about their suitability for a variety of uses. Most important, large capital investments have resulted in a dramatic expansion of industrial capacity for recycling. North American industry is "buying in" to recycling.

STRUCTURAL CHANGE

The paper industry is at the leading edge of this change. Paper accounts for a larger share (38 percent) of U.S. municipal solid waste than any other material, and has received more market-development attention from governments than other materials. Such efforts are now bearing fruit. The Environmental Protection Agency estimates that the amount of paper recovered from U.S. municipal waste grew from 13 million tons in 1985 to 26 million tons in 1993. During much of this period, wastepaper prices lagged, as the amount collected grew faster than the overall capacity of paper recycling plants. In 1994, however, the tables turned dramatically. Recovered paper consumption is growing more than twice as fast as total fiber consumption, and mills are scrambling for used paper supplies.

Behind this situation, say many in the paper industry, is a major change in the industry's structure. Heavy investment by papermakers in building new recycled-paper mills and retooling old plants to take in recycled fiber has created a much more mature, stable market for used paper. While prices will eventually decline again - as is to be expected to some degree with any commodity in response to normal business fluctuations - observers believe that the tremendous paper price crashes seen in previous years are unlikely to recur. Dan Cotter, of Pacific Forest, a major broker of both used paper and new paper products, argues that recycled fiber has become a "primary" input for many paper manufacturers, rather than a last-resort substitute for virgin pulp. As a result, recycled fiber should experience future price swings no worse than those experienced in virgin pulp markets, whereas until recently, recycled-paper markets were far more volatile.

Recycling is revolutionizing the paper industry. The industry is actively moving to site its plants in areas with untapped reserves of wastepaper, and new paper mills are now being built in and near cities, rather than in more remote areas near large forests. Weyerhaeuser, for example, is a major partner in a large mill in Iowa - a state better-known for corn than for forests - to take advantage of the substantial amounts of wastepaper available from midwestern cities. The industry is also moving to recycle not just relatively low grades of paper - such as newsprint and old corrugated cardboard - but also office and coated papers, and is also making higher-grade products from recycled fiber.

The North American paper industry is pouring money into a resource it once resisted stubbornly. The American Forest & Paper Association (AFPA), its main trade group, estimates that its members will invest a total of $10 billion in recycling by the end of the 1990s. They have set a goal of recycling or reusing half of all U.S. paper production by the year 2000. AFPA estimates that the United States recycled 40.5 percent of the paper it used in 1994. More than 80 percent of this was paper recovered from the post-consumer waste stream, while the remainder was scrap from paper mills and printing plants.

So much new paper recycling capacity has come on-line that existing collection programs are barely providing enough fiber to meet the demand. And more is on the way: new plants with several million tons of paper-recycling capacity. are scheduled to open in 1995. As a result, recycled-paper makers are becoming vocal supporters of paper collection programs. One paper broker describes the industry as "panicked" about future supplies of recycled fiber for the mills they have spent billions to build. Weyerhaeuser - a Fortune 500 company best-known for its timber production - has invested so much in recycling capacity that it is now offering cities 20-year, guaranteed market-rate contracts to purchase all the wastepaper they can collect. The company took in 2 million tons of wastepaper in 1994, and expects to consume 3 million tons in 1995.

The paper-recycling situation has completely reversed in just a few years. Before, paper companies were reluctant to invest in recycling, because they saw limited markets for recycled paper, and because they feared that large-scale municipal paper collection programs would not survive. Now, some industry officials are voicing caution about further investment in recycling capacity for the opposite reason - because markets have grown so fast that they are worried about obtaining adequate supplies of secondary fiber. Ironically, governments now need to reassure the companies not about the survival of the collection programs, but about their commitment to expand those programs over the long term.

THE GLUT THAT WAS

The reason that many governments embarked on market-development programs for recycled materials is that for much of the late 1980s and early 1990s, collection of recyclables grew far faster than industrial capacity to absorb them. Thousands of recycling collection programs were initiated in North American communities in the last decade. According to BioCycle magazine's annual waste management survey, the number of U.S. curbside pickup programs for recyclables grew from 1,042 in 1988 to 6,678 in 1993. This growth, and similar growth in drop-off and commercial-waste recycling programs, led to an extraordinary increase in the overall tonnage of recycled materials collected, from some 16 million tons in the United States in 1985 to 45 million tons in 1993.

Not surprisingly, such rapid growth created a glut of materials. The hundreds of communities all starting up recycling programs at the same time created a structural problem in the recycling economy. Collection programs can be implemented almost as quickly as trucks can be purchased. The capacity to turn the materials collected into new products, however, can take years - and billions of dollars in capital investment - to build. Few communities devoted the same energy to developing recycling industries that they applied to their collection programs. But the market-development efforts of a few influential cities and states - and more recent actions by the U.S. federal government - set the stage for 1994's market turnaround.

The most obvious way to develop markets is to ensure that a guaranteed minimum quantity of goods with recycled content will be purchased. Governments are among the largest buyers of many goods, and among the first prominent market-development efforts were state laws requiring or encouraging government procurement of products with recycled content. Nearly all states now have such laws, with widely varying degrees of stringency. In 1993, the U.S. federal government joined in with an executive order requiring that the paper it purchases have 20 percent recycled content by 1995 and 25 percent by 2000. The action immediately guaranteed a huge market for recycled paper, since the federal government, at 300,000 tons per year, is the world's largest buyer of paper.

States have also moved to ensure that large private buyers of some commodities buy a minimum of recycled material. The newsprint market has been most notably affected by such measures. Thirteen states now have standards for minimum recycled content of newsprint; 15 more have negotiated voluntary agreements with newspaper publishers to increase their purchasing of recycled content. According to New York's William Ferretti, the recycled-content standards for newsprint some states enacted in the late 1980s - and the threat of standards in other states - were the primary factors in the newsprint market's shift toward secondary fiber. Then, as publishers got accustomed to using recycled newsprint, they found that it could perform as well as virgin paper, and resistance to its use fell away.

FROM ENVIRONMENTAL PROTECTION TO ECONOMIC DEVELOPMENT

As municipal solid waste officials have realized that recycling can be a cheaper disposal method than land filling or incineration, collection programs have taken off. Faced with market problems, procurement and recycled-content requirements have been governments' first answer. But a few states are now beginning to make a crucial transition from viewing recycling simply as an environmental measure - a waste-disposal strategy - to seeing it simultaneously as an economic development opportunity. The most notable successes have come when economic development offices begin to promote recycling.

New York state took the lead in this area in 1988 when it created the Office of Recycling Market Development within its Department of Economic Development. The office offers financing, technical assistance, and market information - and a helping hand through the regulatory thickets - to companies that use recycled materials. Similar efforts are now underway in at least 18 other states, according to a 1994 BioCycle survey.

Bringing in state, regional, and local economic development officials to help promote recycling helps such businesses get access to a wide variety of proven tools: Industrial Development Bonds and other financing mechanisms, special property-tax treatment, siting assistance, and expedited regulatory action on permits, zoning, and related matters. Twenty-seven states now offer some form of tax incentive for recycling. The Environmental Protection Agency has supported these efforts by establishing a "Jobs Through Recycling" project, which offers grants for hiring Recycling Economic Development Advocates in state economic development offices, and has also helped establish Recycling Business Assistance Centers in four states.

California has become the laboratory for what is probably the most extensive effort in North America to develop recycling industries. The state has created 40 Recycling Market Development Zones, which are, in effect, enterprise zones specifically targeted toward recycling-based businesses. The state's Integrated Waste Management Board offers technical assistance with financing and marketing, and local governments also offer strong incentive packages designed to meet their communities' needs. The Board has approved some $12 million in loans for such enterprises, and is currently considering $3 million more. Board officials - who see the state financing as a bridge to much greater amounts of commercial capital - estimate that the zones have created 1,000 new jobs since the program was established in 1989.

During the long market slump - when cities were offering a few dollars per ton to anyone who would haul away their newsprint - extraordinarily cheap secondary materials helped lure entrepreneurs into recycling-related businesses. In the long run, however, businesses don't need cheap raw materials so much as they need predictable prices for what they buy and what they sell. In an effort to alleviate the uncertainty and unpredictability of recycled-materials markets, the Recycling Advisory Council (a program of the National Recycling Coalition) has been working with the Chicago Board of Trade, one of the world's premier commodities markets, to develop a formal trading system for recycled materials.

Among the project's elements are the development of product specifications that materials will have to meet to be traded, the design of an electronic trading system, development of dispute-resolution procedures, and an effort to inform and involve potential participants. The system initially will be only a cash market, but the feasibility of futures markets will be investigated. The system is being tested this summer, and trading in glass and some types of plastic was expected to begin in September.

DOING GOOD... AND MAKING MONEY

During the past year-and-a-half, it has become clear that the recycling industry is maturing. And while recycling is worth doing for environmental reasons, its success will eventually be measured in dollars as well. Recycling is a business. Whether that business thrives will eventually determine the success or failure of community recycling programs.

The broad environmental benefits of recycling - especially, savings in natural resources and energy - will only be realized if manufacturers substitute used materials for a major share of the virgin wood, metals, and plastics they now consume. For this to happen, there must be a large, vigorous industrial sector devoted to taking used materials, processing them, and turning them into salable commodities. In North America, that sector is clearly now developing on a large scale, at least for some materials - and the environmental benefits, though hidden, are substantial. The United States and Canada are now substituting generally less-polluting recycling facilities for virgin materials industries that are often among the greatest offenders in air and water pollution, energy use, and damage to ecosystems. The United States alone is now saving about 1 exajoule of energy - about 1 percent of total U.S. energy use - each year by recycling municipal solid waste.

With recycling beginning to fall into place, it is time for the next step. Within the limited universe of municipal solid waste (which is only a fraction of total U.S. waste production), growth in recycling appears to be stabilizing the amount of garbage going to landfills and incinerators, which had been growing for decades. Yet, U.S. waste generation is still increasing. In the long run, market mechanisms need to be developed not just to increase recycling, but to reduce the quantity of waste that we generate in the first place. Only then will a truly sustainable materials economy - one that consumes a minimum of virgin products and recycles most of what it takes in - be achieved.

John E. Young is a senior researcher at the Worldwatch Institute and coauthor of State of the World 1995.