Date posted: 26/11/2019 10 min read

Why China’s rubbish ban could change everything

The rising cost of taking out the trash will be a major challenge for corporate finance leaders in the short term.

In Brief

  • With China, India and Thailand clamping down on plastic waste imports, developed countries need to find another solution for their rubbish.
  • In May, 187 countries (but not the US) signed a treaty to regulate international trade in plastic waste.
  • With rubbish management and recycling having to be done on-shore in Australia, the costs of waste services will rise in the short term.

By Deborah Tarrant

In the months since China announced it no longer wants to deal with the rest of the world’s plastic garbage, and a number of other developing nations have clamped down on their own plastic imports, governments at all levels in Australia and New Zealand have been scrambling to find an alternative solution.

The recycling and waste management sector has been thrown into turmoil, and rising garbage collection costs have forced some local councils to raise the rates paid by homes and business. In the year ahead, experts tip even higher disposal and recycling costs. Business and finance leaders need to start planning now to keep a handle on this.

The turmoil began spectacularly in early 2018 when China’s National Sword Policy was suddenly invoked, restricting contamination levels on waste imports and impacting Australia, New Zealand and some 100 other countries. China’s plastic waste import ban meant local markets were suddenly flooded with recycling material, causing the price of post-consumer recyclates to plummet.

Industry players globally scrambled to find other nations willing to buy recyclable rubbish, with Australia and New Zealand zooming in on India and South-East Asia, in particular Malaysia, Indonesia, Thailand and Vietnam. But these strategies, founded in desperation, delivered only a very short-term fix.

India banned the import of plastic scrap earlier this year, as Malaysia was preparing to return 100 tonnes of unclean plastic waste back to Australia, part of 3000 tonnes it promised to send back to where it came from. In May, 187 countries (but not the US) signed a treaty to regulate international trade in plastic waste.

On 8 November 2019, Australia’s federal and state environment ministers announced a timeline to ban all waste exports from Australia by 30 June 2022 at the latest. The export of waste glass would be banned by 2020, mixed plastics by July 2021, and cardboard and paper by mid 2022.

The politicians also announced a target for an 80% recovery rate of materials across all waste streams in Australia by 2030, but there were no details of how this would be done or who would be paying for it.

Putting reuse and recycling on the agenda

The realisation that exporting waste is no longer a sustainable option has been painful. The collapse of Victoria-based SKM Recycling is just one recent case in point. Starved of revenue as commodity prices remained low, the recycling giant went into administration in August 2019, leaving 33 local councils in the lurch on recycling collections. Some announced they’d abandon kerbside recycling efforts altogether. Meanwhile, tonnes of recyclate accumulated in local warehouses.

Since the China restrictions, there’s been an increasingly loud call for waste to be processed onshore. The upshot is many waste industry players must rethink their business models, while enterprises across the economy are being urged to take their lead from the circular economy approach, as recommended in Australia’s revised National Waste Strategy delivered late last year.

Wide-scale reuse and recycling are at the top of the agenda. In the big picture, this means examining efficiencies and production processes to design out waste. The first movers in this regard have tended to be major multinational firms that produce or use a lot of plastic packaging.

Consumer goods multinational Unilever is a frontrunner in reducing waste. It has a target of zero waste across its manufacturing sites globally. In 2018, Unilever ANZ announced plans to use Australian-sourced, post-consumer recycled plastic for bottles in its brands such as Dove, Sunsilk and TRESemmé.

The company also plans to introduce at least 25% recycled plastic into bottles for key brands, creating an end market and new life for about 750 tonnes of recycled plastic per year. Unilever has also committed to reducing the weight of its packaging by one-third by 2020.

But even with such big players on board, reducing plastic waste will be a complex and protracted shift. New infrastructure needs to be built to significantly boost recycling capabilities onshore, and new markets for recycled end-products must be developed.

In the interim, the cost of waste disposal and recycling is rising dramatically.

More sorting pushes up waste handling costs

Why China’s rubbish ban could change everything

Sydney-based waste consultant Mike Ritchie of environmental consultancy MRA Consulting Group notes that landfill costs alone are going up 8-20% per year – depending on where you are in Australia – as most state and territory governments impose levies aimed at encouraging recycling, while collection costs are rising in line with inflation rates. A similar trend is evident in New Zealand.

With the exception of steel and aluminium, the bottom has dropped out of the international recycling commodities market. That makes the upward trajectory of costs in the immediate future, as recycling capacity is built and the local industry matures, an inevitably, say the experts.

What can businesses expect in the near future? To put it in perspective, Ritchie says: “Waste management used to be 1% of total business costs. It rose to 2% on average across the economy around 10 years ago, and it’s more like 3% now. It might go to 5% next… With the fall in the price of recyclables, people will have to pay more to have their waste taken away.”

Operators such as Cleanaway, Australia’s largest waste manager and a major player in New Zealand, are currently taking a price hit on existing waste contracts as they manage additional sorting costs to meet higher contamination standards.

“When those contracts come up for renewal there will be price increases, not just for Cleanaway but for anyone else in the game,” reports Richard Jacobitz CA, a divisional CFO for the company until August 2019.

“When the contracts end, those costs will be passed on. You’re seeing a lot of the smaller players fall out of the market because their whole business model has been ‘pick it up and ship it to China’.”

“You’re seeing a lot of the smaller players fall out of the market because their whole business model has been ‘pick it up and ship it to China’.”
Richard Jacobitz CA [ex-Cleanaway]

Fundamentally, what’s changed with China’s National Sword policy is where and how the sorting needs to happen, says Jacobitz.

Cleanaway’s capacity for sorting varies from state to state, with much of it mechanised, and new state-of-the-art facilities in Perth and Sydney. But new standards for cleaner recyclate are requiring often significantly more people to be involved in the sorting process.

“And there’s your cost,” Jacobitz says, adding that big companies, such as supermarket chain Coles, are saving by sorting their own cardboard, for example.

“We’ve been spoilt, enjoying a pretty cheap and easy deal for a long time because China was willing to pay for our rubbish, but there are costs in appropriately managing waste,” emphasises Warren Overton, CEO of the Australian and New Zealand Recycling Platform (ANZRP), which was founded in 2012 to foster product stewardship in the electronics industry.

“We’ve been spoilt, enjoying a pretty cheap and easy deal for a long time because China was willing to pay for our rubbish, but there are costs in appropriately managing waste.”
Warren Overton, Australian and New Zealand Recycling Platform

An urgent need to rethink rubbish regulations

A first step towards Australia managing waste properly would be harmonising the different waste regulations in different states. This could stop people gaming the system, says ANZRP’s Overton. The steady flow of garbage trucks taking waste from New South Wales, where there’s a high landfill levy – currently A$141 per tonne in metro areas – to Queensland, which only introduced a A$75 a tonne landfill levy in July 2019, has been well reported.

“I’m pro-regulation that’s done in the right way, developed with stakeholders and a good implementation timeline, because all business ever wants is a clear pathway,” Overton says. “If everyone is following the same rules, then you know where you stand competitively – without them, it’s a gamble.”

Brooke Donnelly, head of the Australian Packaging Covenant Organisation (APCO), agrees it’s important everyone works to the same standards.

But Donnelly predicts that the growth of recycling capability and market demand may not wait for government. On the demand side, business can – and is – already taking the lead.

Since launching the National Packaging Target in 2018, which aims to have no packaging going to landfill in Australia by 2025, Donnelly has seen attitudes turn around. Back then, she says, “people were yelling about how it was never going to happen… but about six months ago that tone changed.”

How Coca-Cola and others are rethinking their products

Visy is leading the way in Australia, using recycled paper and cardboard onshore. Coca-Cola Amatil is now using 10,000 tonnes of recycled plastic to produce bottles 600ml or smaller.

“Investors are shouting there’s no supply or no demand for that supply, but right now there’s 10,000 tonnes that Cola-Cola are looking for,” says Donnelly, adding that trailblazers are finding they can actually make savings by rethinking their packaging.

Among the early moves to match supply and demand is a federal government commitment of A$1.6 million to support Planet Ark’s National Circular Economy Hub & Marketplace, an information portal and ideas exchange that will also help connect those that need materials with those that have them.

“The waste of one business can become a resource for another,” explains Planet Ark’s Ryan Collins, who heads sustainable resource programs at the recycling advocacy group.

Another way is product stewardship, where brand owners take responsibility for repurposing or reusing products, or ensuring the appropriate recycling or disposal at the product’s end of life.

Under the Product Stewardship Act 2011, ANZRP’s TechCollect scheme looks after responsible recycling of e-waste for some 50 members – big names including Dell, Toshiba, Fuji-Xerox, Canon and HP – who, under the legislation, must take responsibility for recycling the goods they send to market.

ANZRP runs 250 TechCollect sites for redundant equipment in Australia and New Zealand. In 2017-18, it recovered 23,522 tonnes of material from recycling 26,670 tonnes of end-of-life products.

Not all product stewardship schemes are mandatory; many are voluntary. In the lead-up to Australia’s 2018 federal election, Morrison’s Liberal Party announced A$20 million funding to boost product stewardship and recycling schemes in Australia. “So, there’s never been a better time for businesses to use some of those resources to tackle the issue in their own industry,” insists Overton.

Besides, well-run product stewardship schemes protect not only the environment but a brand’s reputation by ensuring goods are appropriately recycled, he says. And while not every organisation is suited to product stewardship, all can participate in the push via “smart purchasing” from the brands that are doing it.

Start cutting costs now

Why China’s rubbish ban could change everything

While the waste industry is in flux, there are ways for companies to mitigate additional costs. A critical goal is reducing the amount of waste produced, possibly by reducing packaging throughout the supply chain. But a no-brainer is reviewing waste contracts and calling for tenders to ensure the best market price.

The Australian Competition and Consumer Commission (ACCC) has its sights on waste industry contracts, in particular clauses for automatic rollovers and uprating – where the costs automatically go up – for businesses with 20 or less employees.

It’s also worth noting that contracts are often structured around bin pick-ups.

“Transporting skip bins full of uncompacted soft plastics and polystyrene and cardboard is effectively the same as transporting air,” observes Collins. Investing in equipment such as balers or compactors reduces the need for collections and lowers costs.

Relatively new to Australia and New Zealand is weight-based billing for waste. Many services charge the same amount whether a bin or skip is full or just contains a chip packet, explains MRA’s Mike Ritchie.

While businesses have typically lagged households in recycling their rubbish, they are getting better. Australia’s 2018 National Waste Report showed a 58% recycling rate for commercial and industrial waste, up by about 17% over an 11-year period.

Ritchie adds: “By far the easiest way to save is to recycle more. Even though, financially, recycling is less attractive than it was, it is still an awful lot cheaper than landfill – and we know that most businesses still put 40% of their recyclables in the wrong bin.”

As a general rule, the more you can sort yourself the cheaper the cost. So for businesses, the bottom line charge depends on training staff to get the right rubbish in the right bin. And there's morale-boosting potential in this: a previous Planet Ark survey showed 78% of employees like knowing they work for a responsible employer.

Read more:

Unfantastic plastic

China’s ban on importing plastic waste has spurred action on responsible plastic recycling, but more needs to be done.

Read the stats on plastic

A short timeline of the international plastic waste trade

China’s ban on plastic waste imports had a knock-on effect across Asia and hit Australia’s waste industry hard.

Read the timeline