Waste collection

The Dept Environment is now moving to change the regulation of waste collection from “competition in the market” to “competition for the market”. The reason is simple: Economies of density. In my street, we have three bins (black, green, brown) and four companies collecting bins. Every fourth Monday, no less than 12 waste trucks drive up our road, to the delight of the children and the annoyance of drivers. Three trucks (one company) could do the same work for a little more than a quarter of the cost. Even after allowing for monopoly mark-ups, there would be cost savings for households. Market power would be limited if tendering is competitive and concessions are short (waste trucks are mobile).

A perfectly sensible move by the Department so.

In today’s Irish Times, this is spun (and again) as a way to promote incineration. This is nonsense. At the surface, “competition for the market” was a recommendation in the International Review commissioned by the previous minister, and in the Gorecki report of the ESRI.

The markets for waste collection and waste disposal are largely separated; economies of vertical integration are small. Nonetheless, Irish waste collectors have vertically integrated with waste disposal. The competition in waste collection is such that hardly any money is made. The market for waste disposal would be lucrative with the EU cap on landfill and without additional incineration, but the Poolbeg incinerator would undercut the price of any other disposal technology except landfill. If waste collection would be run as a profit center, waste would be sent for incineration.

Competition for the market will allow waste collectors to make money in their core business again.

42 thoughts on “Waste collection”

  1. “Three trucks (one company) could do the same work for a little more than a quarter of the cost. Even after allowing for monopoly mark-ups, there would be cost savings for households. Market power would be limited if tendering is competitive and concessions are short (waste trucks are mobile).”

    The madness of privatisation summed up.

    The ‘competitive’ privatisation has failed- it is cleary hugely inefficient. Instead, it is proposed that a for-profit monopoly replaces a not-for-profit monopoly (the state). Lacking competition, all private monopolies increase profits by increasing charges and/or reducing services. Shortening the conession time simply shortens the period in which those profits must be realised, and reduces any incentive to invest in the business process.

  2. 1. Why would an economist worry that waste collectors were not making enough money because competition is too intense? What’s next? Perhaps we should have fewer shops to help retailers make more money.

    2. Why is it good that the Poolbeg incinerator will put all other forms of non-landfill technology out of business? Are other forms of technology not further up the EU waste hierarchy? What is the monetary cost of dissuading waste prevention and recycling through providing a below cost furnace to encourage people to set all their waste on fire?

    3. Why does the Poolbeg facility require the government to underwrite its income in future when other facilities operate without intervention? What is the monetary value of this income guarantee?

  3. Be wary of economists who announce that there is one “simple” reason for some governmental change in policital economy, or even mere economics. Richard Tol is such a simplifier.

    He anecdotes about his home street where 12 bin lorries, owned by four firms, collect “every fourth Monday.” It is odd that the four firms have so misunderstood his “economics of density” — and even of ordinary commercial competition — as to ignore the advantage of switching to some other days. Even if the firms are so silly, they are not being subsidised by rate payers and householders for their wastefulness.

    Prof. Toll ignores in his comment the organisational pressures for a government department to seek to legislate to the advantage of its slaves and clients — no, not the public, but the local government agencies that it is meant to control.

    Judge Liam McKechnie of the High Court ruled on 21 December 2009 that each of the four local government areas in the greater Dublin area, which jointly sought to commission Covanta to run an incinerator at Ringsend, was large enough to support at least three competing waste collection firms in its own territory. Further, the court found that the disadvantages of higher costs due to such “competition in the market”, compared with Prof. Toll’s ideal of locally-auctioned monoply collection, which is dubbed “competition for the market”, were probably less than the monopoly inefficiency likely to attach to his preferred scheme.

    The judge made his decision after much economic evidence and analysis had been provided by Oxera economic consultants of the UK on behalf of collection firm Panda, and against the economic arguments advanced by the Dublin councils.

    The judge also ruled that the waste collection firms owned the waste they collected. Prof. Toll does not opine upon what if any recompense he believes should be offered to them if the ownership were to be forcibly nationalised.

    The matter is not simple at all. It requires a much broader view than Prof. Toll has offered.

    [Disclaimers: I do not know Prof. Toll. I am not in the pay of Panda or other waste firms. I am not connected except historically with the Irish Times, which Prof. Toll accuses of ‘spin’ in its articles today. My journal just reports on competition law developments and cases.]

    Andrew Whittaker
    Editor,
    Competition Press,
    54 Sandymount Avenue, Dublin 4.
    Tel. 086-6014464

  4. Good Point Michael
    Where competition does not work better than a monopoly, why should the monopoly be a private one?

    Not related
    Any one seen this?
    Its a 60 minutes expose on Tax havens (no not Bermuda, Ireland and Switzerland)
    http://www.cbsnews.com/video/watch/?id=7376848n&tag=re1.galleries
    “If you are not in Ireland you are stupid”

    They recon there is 1.2 trillion of US profits sheltered overseas and cannot be repatriated.
    The question I have been asking since 2008 is where is this money invested?
    Isnt’ it possible some of it was in Irish Government bonds?
    If it was wouldn’t people from the IFSC have been in touch with the government to persuade them not to burn bondholders?

  5. @ Eamonn Moran

    The $1.2trn is the total of cash or near cash holding of non-financial S&P 500 companies at end June. About half is held overseas.

    Where is the money? Singapore, Dublin, Luxembourg, Beijing etc

    As for the IFSC and dependency on MNCs, it is not surprising that they would have leverage.

    @ Leon Nova

    Your questions on Poolbeg may have merit but I don’t have time to delve too much into this issue today.

    However, on waste management policy, maybe we should look at what a well run country like Austria can achieve with almost 80% of its electricity generation from renewables in 2010 up from 60.5% in 2007. The comparable figures for Ireland are 9.3 and 13.2% and for France 13.3 and 21.0%. The country has 9 incinerators.

    EU GDP data today for Q2 shows it along with Sweden and Finland are the stars of the EMU.

    Unemployment is at 4%.

    Has a bankrupt country anything to learn or should it continue with business as usual?

  6. http://www.nybooks.com/articles/archives/2011/apr/07/resisting-climate-reality/

    In particular, Lomborg wants to show that “mitigation”—running up the price of fossil fuel so we use less of it—is a bad idea because its costs will be high, much higher than the costs of global warming.

    Indeed, in several of the projections his team relies on, global warming supplies more economic benefits than costs for decades to come. Richard Tol, one of his economic gurus, points out that most of the planet’s economy is in temperate zones “where warming reduces heating costs and cold-related health problems,” and hence is a net benefit for now. “Gains for the high-income areas of the world exceed losses in the low-income areas.” There is a Marie Antoinette tone to this argument.

  7. @Richard,
    It would be good to see an array of empirical research into economies of density in waste collection, and not to rely on your “just so” story. Last time I remember seeing you posting on this, I linked to Cato Institute research that estimated economies of density in waste collection plateaued at 2 households per acre, and that 8 households per acre were enough to support two competing waste providers. If the research stands up under Irish conditions, then I would presume that many urban areas in Ireland could support more than two.

    Competition for the market is the received wisdom, and was the conclusion of the Gorecki report, but that doesn’t necessarily make it the right solution.

  8. @Michael Hennigan
    I am not arguing against incineration where appropriate. Modern incineration is certainly preferable to landfill but not to recycling or waste avoidance. The planned 600 kilotonne incinerator would have capacity to burn every scrap of unrecycled household and commercial waste produced in the four Dublin authorities plus Meath, Kildare and Wicklow from day one.

    Austria has close to double our recycling/composting rate so is it right to build such a huge capacity for incineration when we have potential to greatly decrease the quantity of unrecyclable waste we produce?

    If the incinerator is such a great idea then why can it not be built with private money like other waste disposal facilities? Why did we agree to have no incineration tax when Austria & Denmark levy such a tax? Was it because Covanta threatened in the newspapers that they would pull the project if a levy was imposed?

    BTW:
    1. Austria has a high proportion of electricity production from renewable sources because it is ringed by Alps which provide hydroelectricity.
    2. Sweden is not in the Eurozone
    3. Copying every Austrian policy because it generally seems to be a better country would be silly. This is cargo cult science. That said, our policies should be informed by international review such as that by Eunomia.

  9. @Michael Burke,

    The madness of privatisation summed up.

    I think your argument ignores fairly obvious nuances, Michael.

    Moving from a dictatorial system to a democracy is tricky business. Good planning with a properly scheduled introduction of courts/institutions etc will probably end well, whereas shock doctrines (or whatever Ms Klein and Mr Fisk are calling it this week) are a recipe for disaster.

    The same applies to privatisation. Opening up bus routes from Dublin city to the Dublin Airport on a regulated, licenced-basis was a great thing. In contrast, selling the line network as part of the privatisation of eircom (the equivalent of ‘buy Dublin Bus and get the roads free!’) was a disaster. No surprises there.

    The usefulness of privatisation is obviously going to depend on the “transition plan” and the regulatory system put in place afterwards. The waste management sector is a mess (excuse the pun). Improving it should be welcomed. IMHO using the waste sector as a blanket example of “the madness of privatisation” is akin to saying “Iraq and Afghanistan shows that democracy is a bad idea.”

  10. My own “just so” story:

    I estimate from observing my own road in the inner suburbs of Dublin that the average speed at which Dublin City Council waste collection trucks move along the road is close to being inversely proportional to the number of homes that have put out wheelie bins. If this is the case, then the cost of collecting from the road should be close to proportional to the number of bins put out, and (locally) independent of housing density. Adding a competitor to the route should not change the cost of collection per household.

  11. @Seafoid

    The nexus of public choice theory, neo-liberal economic policies and right libertarianism is a strange intellectual landscape to behold. The last post of Mr Tol’s on water meters contained a gem about consumption taxes being better than income taxes for “growth”, just as an aside. and there is always some libertarian bomb throwing going on.

    I can see what Mr Tol is getting at here though (there are economic costs associated with too many trucks on the roads which reduce the benefits of competition to the consumer) but it sounds like an area ripe for regulation (every company gets its day to collect in each area) rather than
    than trying to create a more profit friendly environment for what is essentially a public utility.

  12. Or to phrase it more accurately “… the cost per bin of collecting from the road should be (locally) independent of housing density”.

  13. The current model is ineffective because of the way the tendering for waste collection is structured not because the stupid business people are unable to produce an integrated service at lower cost. The conclusion is not that the monopoly should be brought back but that the way the licenses are awarded should be changed so that provision of integrated service becomes possible. After that the best bidder wins and the fact that several companies are competing for license will ensure that the savings are passed on to the customer.

  14. “The madness of privatisation summed up.”

    No – just the competition in the market formula.

    It’s nothing to do with privatisation. As Richard says, if you have competition for the market you can have fewer companies but still run them privately. Rubbish collection had to be privatised because the public sector costs of running the service were prohibitive. The fact that so many private companies can run profitable enterprises despite the intense competition tells you a lot about terrible management and work practices in the public sector.

    Here in Meath, where rubbish collection was privatised over 30 years ago, we’ve never quite understood the outrage which greeted the concept in the capital.

    btw, I toured the Greenstar and Thornton sorting centres last year. It’s really impressive how they separate and monetise the rubbish.

  15. @Eoin, Shay
    The issue is not agglomeration of waste trucks, although they occasionally get into each others’ way. Rather, the issue is that the waste trucks and bin(wo)men spend a lot of time driving and little time collecting waste.

  16. @Richard Tol

    I see, that sounds entirely reasonable, even if I am sceptical about whether providing waste management should be a private sector function.

  17. If you actually watch them in an urban environment, you will see that as the distance between stops to load waste goes up, the speed bin lorries hit between stops also goes up. The increase in time between stops to load waste seems fairly minimal.

    I find it interesting that the Gorecki report just asserts economics of density, and makes no endeavour to show that they are sufficiently significant to guide policy.

  18. In today’s Irish Times, this is spun (and again) as a way to promote incineration. This is nonsense. At the surface, “competition for the market” was a recommendation in the International Review commissioned by the previous minister, and in the Gorecki report of the ESRI.

    Hmm. Follow the money trail back, starting with that last.

    The ESRI – home of the brass necks.

  19. Richard,

    You are assuming that waste collection is a commodity business and that one collection is the same as another. This is not true. There are qualitative differences.

    You say that waste collection and waste disposal are separate. This is a way of looking at things, for sure, but in fact these have always been a single business in Ireland.

    I do not see how you could run a sustainable waste collection business in Ireland without also having a waste disposal business. It is a theoretical possibility but not really workable in practice.

  20. @ Sarah Carey

    You might wish Richard Tol had said fewer companies (but even that would be less competition), but he actually said,

    “Three trucks (one company) could do the same work for a little more than a quarter of the cost”.

    My textbook says that’s a monopoly.

    We now have the bizarre spectacle of advocates of the free markets advocating private monopolies because……the private sector competitors can’t make a profit.

    The state can perform the same service a darn sight more efficiently, it too can have just 3 trucks.

    Anyone might think that the real objective of the policy is not, after all, competition, efficiency, consumer choice, etc., but the boosting of profits.

  21. @Michael
    I am no advocate of free markets. I’m an advocate of economic efficiency.

    In some cases, the costs of competition (i.e., duplication of infrastructure) outweigh its benefits (lower prices) and then a tightly regulated monopoly is preferred.

    In this case, the monopoly would expire after a few years and that should keep the monopolist on its toes.

  22. Who says the private companies aren’t making a profit? Sure they wouldn’t bother otherwise.
    I think Richard’s point is that it would be more efficient if one had the service in particular geographic areas. (although an earlier point that there are qualitative differences in the services is correct as here in Meath the services are vastly different e.g. tagged bags vs wheelie bins etc)
    And the efficiencies Richard would like are ( I understood) not just monetary but environmental e.g. less trucks on the road.

    I agree completely that the actual competition for the market would have to be rigorously supervised to ensure that the consumer wins. Right now, the consumer is king. I’d hate to see a couple of companies stitch up the market (you have Kildare, we’ll have Meath, let’s all bid similar prices – we know it would happen).

    So my position is: As a consumer I like competition in the market, but I can see the arguments in favour of competition for the market PROVIDED there are SLA’s and ruthless genuine price competition. The pros and cons are arguable – but one thing is for certain: the public sector has proven itself incapable of performing the service at an economic rate.

  23. @Sarah Carey

    I agree completely that the actual competition for the market would have to be rigorously supervised to ensure that the consumer wins. Right now, the consumer is king. I’d hate to see a couple of companies stitch up the market (you have Kildare, we’ll have Meath, let’s all bid similar prices – we know it would happen).

    This is an active research area in micro theory/IO and there have been some very nice papers on how to make collusion more difficult and/or how to make it profitable to report collusion, etc.

    However this is all a bit moot, since nobody would want to work in Meath.

  24. “The market for waste disposal would be lucrative with the EU cap on landfill and without additional incineration, but the Poolbeg incinerator would undercut the price of any other disposal technology except landfill. If waste collection would be run as a profit center, waste would be sent for incineration.”

    In other words, Poolbeg makes perfect sense as long as you’re happy for all waste to be either landfilled or burned. A good summary of the nature of the battle we’ve been engaged in over the years.

  25. By the way, in the International Review, returning control of the collection market to the local authorities was linked with the imposition of collection and segregation standards, something which was scoffed at by the ESRI and has apparently been ditched in the current proposal.

  26. @EndaH

    Oi! Now I know our GAA performances have been disappointing in recent years, but that’s just mean 😉

    of course, we think Dubliners should burn their own rubbish AND use their own water. Poor liddle South Siders enduring a teency bit of their toxins blowing over from Poolbeg. Haha say us culchies.

    Is there a study on the tribal influence of waste disposal policies? I think it certainly influences the politics.

  27. @Sarah

    Unfortunately the “burn your own rubbish” argument doesn’t work on Poolbeg anymore – as Dublin won’t need most of its capacity it will need to burn waste from throughout the country.

  28. @ Sarah Carey

    “The pros and cons are arguable – but one thing is for certain: the public sector has proven itself incapable of performing the service at an economic rate.”

    Do you have any evidence for the relative costs of collection by the public sector versus collection by these 4 companies? Or is this certainty just a sweeping assertion?

  29. @RyanO

    I know, but they do want do dump theirs in Kildare/Meath. But I’m just being facetious (and yet, acknowledging there is county resentment on the issue that does influence the politics of this issue).

    @Michael Burke

    em, the evidence would be the councils one by one SAYING “we can’t afford to run this service, we are going to outsource it”. Meath gave up the service 30 years ago.

    Here’s the statement from SDCC saying its losing 10 million a year – yet private companies are cutting each other’s throats for contracts because there’s so much money in it.

  30. Is Sarah Carey now a credible source for matters of interest to the Irish Public?

    [LIBELOUS LANGUAGE REMOVED]

  31. @Richard Tol

    Quote: In today’s Irish Times, this is spun (and again) as a way to promote incineration. This is nonsense. At the surface, “competition for the market” was a recommendation in the International Review commissioned by the previous minister, and in the Gorecki report of the ESRI.

    Spin & Lies:
    Mr. Tol, you omit that unelected Dublin City Council officials paid ESRI to write the ESRI “report”. You omit the McKechnie ruling of Dec 2009 where the judge was of the opinion that DCC told lies (“massaged the truth” of data from RPS) in other DCC “reports” on incineration.

    Have you now, or have you ever played Golf, at the surface, with TD Hogan?

    Is Fine Gael funded covertly by Covanta in golfing outings, as Seanie was? Does ESRI depend on Fine Gael?

  32. @Dublin Voter
    As both the International Review, commissioned by Minister Gormley, and the Gorecki report, commissioned by Dublin City Council, recommended “competition for the market”, one cannot deduce that the funding agency had an undue influence over this particular conclusion.

  33. Privatisation of waste disposal is a false economy , the goverment / city council cannot borrow / extract tax from a declining money supply so the remaining cash is extracted by privatised utilities.
    I am sitting hear with my rubbish outside the door all morning , perhaps all afternoon and maybe even all week on the first day of a privatised “service” – watch the disaster unfold as private operators gain a monopoly on the “business”.
    The street rubbish problem will be epic soon.
    You must laugh at this shithole – what else can you do ?

  34. @Richard Tol

    [Quote]
    one cannot deduce that the funding agency had an undue
    influence
    over this particular conclusion.[End of

    Quote]

    According to the Sunday Business Post (Jan 2010), Judge
    McKechnie ruled:

    “Massaging of reports by Matt Twomey, which were later, in

    their edited versions, released publicly, is a strong

    indicator to me of unacceptable influence in a process

    supposedly carried out in the public interest,

    So why woud I not conclude, with 99% confidence, that any
    report funded by unacceptable influencers is itself suspect?

    Especially as other data not ruled on by the judge and
    presented to the Bord Pleanala public hearing by the
    ‘unacceptable influencers’ was also apparently untruthful
    and a distortion. If they have a solid case why use “untruths”?

    Perhaps ESRI should sever all links to the undue influencers.

    That would do wonders for ESRI bcredibility. The Irish Times did
    so when a writer/agent apparently damaged the credibility of
    the newspaper in the eyes of many readers.

  35. @ Site Moderator

    Why was my comment @Sarah Carey at 11:11 PM not published?
    I have been told this site is not moderated/censored/

    My comment @sarah carey was submitted at 11:11 PM.
    An earlier truthful comment (valid under French & USA law) but deemed libellious under Irelands firewall.

    Later comments addressed by Mr Tol, not wrt SCary, have been either published with a 3 hoor delay or immediately.

    Land of The Free or Chinese Firewall?

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