The economics of residual waste : policies, price discrimination, and welfare

Abstract: Paper [I]: In this study, a net social cost framework is applied to provide insights on policy issues relating to the cross-border trade in waste fuel. We estimate the net social cost of using imported waste fuel in a highly efficient combined heat and power plant (CHP) in a cold climate by considering both private costs and benefits as well as external costs related to energy production, alternative waste management and fuel transport. We conclude that using imported waste fuel is beneficial from a societal perspective compared to using biofuel, given the wide range of assumptions regarding technical, economic and environmental characteristics. The net social cost is mainly determined by fuel cost advantages and the external cost of greenhouse gas emissions. External costs associated with transports only marginally impact the net social cost of waste imports for incineration. The results are robust to variation in the excess heat utilisation rate, which implies that importing waste for incineration would also be beneficial in countries with warmer climates where district heating networks already exist.Paper [II]: In this paper, I study municipal price sensitivity of demand for disposal of residual waste (unsorted waste from households) and mechanisms underlying the relationship. First, I estimate the effect on households’ generation of residual waste with respect to municipal waste collection policies. Second, I estimate to what extent municipalities change waste policies in response to higher costs for disposal of residual waste. The empirical analysis is based on data regarding Swedish municipalities’ waste management systems and disposal costs in the period 2010–2019. Results suggests that the price elasticity of demand is in the range 0.20–0.24. The effect is almost entirely driven by municipalities’ implementation of weight-based collection tariffs for residual waste in response to costlier disposal. Besides weight-based tariffs, separate collection of food waste and joint collection of residual waste and recyclables are also found to have substantial negative effects on residual waste quantities. Nevertheless, such waste policies are not more likely to be implemented in response to higher disposal costs for the municipality.Paper [III]: A theoretical model of spatial price discrimination predicts that buyers should lower input prices in line with the additional transport cost a seller would incur by selling to a competitor rather than to them. We test this prediction using Swedish contract-level data on prices of waste burned at energy plants. The results confirm that higher additional transport cost associated with selling to competitors lead to lower prices and show no evidence of additional effects of transport cost to the contracted buyer. In addition, we find that the degree of price discrimination can be underestimated if—in contrast to the established theory—one includes only transport cost for selling to the contracted buyer and not the additional transport cost sellers would incur by selling to a rival buyer.Paper [IV]: General features of waste treatment markets include comprehensive regulations and high fixed capital costs. Hence, firms operating in them have substantial local market power, which they exploit through spatial price discrimination (Granlund and Meens-Eriksson, 2023). This paper examines effects of waste treatment firms’ spatial price discrimination on Swedish municipalities’welfare and costs of waste disposal, as well as the associated distributional implications. Results show that the Equivalent Variation is 3.3% of a municipality’s cost for residual waste disposal, on average. Further, the welfare loss disproportionately affects a small number of municipalities, with 10% accounting for 62% of consumer welfare loss. Nearly the entire loss in consumer welfare is redistributed to firms. Considering political ambitions to transform the waste management sector, an alternative scenario is simulated, involving closure of the smallest 20% of waste incineration plants. This would increase the disposal cost for about a quarter of municipalities, and the negative welfare effect within this group would be 12% of their cost of waste disposal.