India has announced new rules about who must do what in the recycling of electronic parts, products and waste. This would normally be a matter for my colleagues over talking about the environment but this is also an area where we need to talk about the economics of externalities and incentives. So, let us proceed to talk about the externalities and incentives necessary to create a good electronic waste recycling scheme. The new environmental regulations which have been announced are good as far as they go: but they should in fact have gone just the one stage further. That final stage would provide the full and complete system to deal with the problem altogether.
Our basic problem is twofold: much electronics contains materials that we'd very much rather did not end up lying around the environment. There's mercury in certain light bulbs, arsenic in mobile phones, high end electronics of many types may still contain lead in solder (standard consumer material not so much these days), there's lead in CRT glass and so on (that last really isn't a problem but still). Thus the manufacturer including these absolutely necessary metals in their product and then gaily waving them off into the economy produces an externality. The price of the goods does not reflect the total cost of the goods to all. Such externalities are something we should correct in some manner.
Our second problem is that these same electronics also contain valuable metals. There's gold on the contacts, tin in the solder, CRTs contain a nice little slug of tungsten and so on and on, boards have copper. This isn't a problem in itself: because it means that people will have an incentive to collect and recycle such electronics. However, our problem becomes that it is profitable to only partially recycle these materials. Extracting the gold, tin and copper is relatively easy (I've worked on a number of such projects) but the economics here tend to only produce a profit when only the valuable materials are extracted and the other pollutants then dumped. The current economic incentive then is to only partially recycle electronic goods.
With nearly 1.7 million tonnes of e-waste reportedly produced in India in 2014 and increasing annually at between four and five per cent, a variety of experts have warned of its dangers to the environment as well as health. This is because defunct laptops, phone and other electronic goods are usually broken down by hand for precious metals and hacked down manually or crudely burnt.
The residue is frequently thrown in rivers, drains and/or disposed in solid waste dumps that over time can contribute to degraded land and water quality as well neurological and skin diseases, genetic defects and cancer in the workers who deal with them, the ministry added.
Quite so: the current economic incentives are to partially recycle and then dump the remainder. We would obviously like to change this. Not because we're worried about running out of any of these materials and thus we must recycle to conserve resources. Not at all: the arsenic in mobile phone chips for example (actually, Ga/As) is extremely cheap in the purity that any recycling process will produce. We wouldn't call it economic to produce new chips from this residue: but we really would prefer not to have arsenic blowing around the environment all the same. We might well collect it just to dump it securely rather than reuse it. But we do need that incentive for it all to be collected and for it all to be fully processed rather than only partially and some dumped randomly.
At which point there's a germ of a good idea here:
Under EPR, producers will have to set targets over the next few years for collection of e-waste.
“Norms have been made more stringent and reflect the government’s commitment to environmental governance. Producers have been made responsible for collection of e-waste and for its exchange,” said environment minister Prakash Javadekar while announcing the new rules on Wednesday.
That's not really the way to do it. Regulation isn't as good as proper economic incentives.
The new rules say dealer or retailers "shall refund the amount as per take-back system or deposit refund scheme of the producer to the depositor of e-waste". Refurbishers, on the other hand, have been mandated to channelise the waste thus collected to an authorised recycler.
That's much closer. But there's still a choice to the equipment manufacturer. And the proper way to deal with this is to insist that all producers charge a recycling fee on materials that they sell. Then to have a licensing scheme for people who are technically capable of recycling materials properly. And any licensed such facility then receives that recycling deposit when the item is recycled. Yes, we can adjust for the costs of running the scheme, no, we don't need to know which manufacturer, once it is up and running we can simply do it by weight and type and so on.
So far this looks very much like any other such scheme but there's one important trick that this structure performs. We set the fee that the recycler receives above the value of those valuable materials inside the whatever it is. Without doing so those who can still gain access to old electronics will be tempted to do the partial recycling themselves along with the associated dumping. But if the fee the recycler pays them for delivery to the recycler is higher than the value to be gained by hand processing, then obviously hand processing will not happen. Those who would do such will now have the incentive to sell their collections to the authorised and pollution free recyclers. This converts the current (possibly illegal) reprocessing industry into the legal collection industry. And that solves our final economic problem with electronics recycling. One piece of electronics sitting somewhere has a negative value. That same piece, in a mountain with 20,000 other pieces, has a significant positive value.
The economics of recycling always work this way, entirely the opposite of the normal retail trade. We're familiar with the idea that wholesale prices per unit are lower than retail prices per unit. One container of computers is cheaper per computer than one computer on the shop shelf. Recycling economics works entirely the other way around. One unit is usually worth less than nothing. Large volumes of units have positive value per unit. It is the collection into large volumes itself which adds the value.
I've seen this working in the Czech Republic and it really does in fact work. The sum deposited for an LCD screen might be 200 Ks (200 Korunna, or about $8) at retail. The recycler might pay $2 or $3 for an LCD delivered to its works out of that sum. The CR is not a notably rich country and $2 is quite enough to encourage the local teenagers (or more organised and older groups) to pick up waste and deliver it for that sum.
We've now closed our loop: we've put in place all of the incentives we want for an efficient and as close as possible pollution free recycling system. We are discouraging low level recycling with the associated dumping by making the electronics worth more than the metal content delivered to a clean and efficient recycler. We've also motivated every cash hungry person in the country to be a collector and deliverer of such waste. We've included the costs of the whole system into the purchase price of the original goods (where they should be, this part is akin to a Pigou Tax) and, as far as we can be, we're done. The only part of the process we have to monitor is those authorised recyclers. Everything else is being done by the economic incentives we've introduced into the system.
But actually, we've still not quite and entirely closed our loop. Because if such deposits are voluntary then some manufacturers will always be tempted not to charge them. The correct answer is thus to make the deposits mandatory. And then we really are done, we've closed our loop.
It's entirely true that we normally don't like interventions into markets. But externalities, pollution being one such, are a long known exception to this. This is where something must indeed be done and quite possibly the government has to do it. Yet even with "government having to do something" it is still better for there to be the one intervention, one adjustment to the price system perhaps, in order to produce the correct incentives for all. The correct solution to electronics recycling is thus mandatory recycling deposits on all electronics. After that allow the normal greed and lust for profit to solve the rest of the problem for us. But the system works much better with mandatory deposits rather than a plethora of choices.