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Encouraging Greater Levels of Recycling

The discussion in this report so far has focused on how to improve the storage and disposal regime for EOL tyres. We have focused primarily on that area as:

  • that is the area where we consider improvements to the current arrangements are most needed; and
  • implementing any of the four enhanced disposal regimes discussed in the previous section will remove the explicit barriers to recycling that are inherent in the current system, so will help encourage greater levels of recycling to some degree.

However, we accept that it is very unlikely that a commercially viable use will be found for all of New Zealand's EOL tyres. While MfE has been contacted by a number of entrepreneurs who believe they have commercially viable schemes that could use a significant portion of the EOL tyres currently produced in New Zealand, international evidence suggests that the majority of tyres will continue to be disposed of unless the Government chooses to actively encourage recycling activity.

Governments around the world have therefore chosen to directly encourage recycling activity and New Zealand may well also chose to do so too.

Options open to the Government

Non-financial options

The Government has only limited options open to it to encourage EOL tyre recycling, short of providing direct subsidises. Moreover, these non-financial options are unlikely to provide any more than a modest increase in the level of recycling. However, the two key options we have identified would also be relatively cheap for the Government to put in place, so we recommend that it do so. The two key options we recommend are for the Government to:

  • encourage potential recyclers to use existing business facilitation measures
    • Foundation for Research Science and Technology (FRST) research portfolios
      • New Economy Research Fund
      • Research for Industry
      • Environmental Research
    • NZ Investment Fund
    • NZ Trade and Enterprise (NZTE) Business Development programmes
      • BIZ
      • Incubator
  • undertake further analysis of the likely patterns of supply and demand for EOL tyres, and determine whether there is a need for intervention to ensure security of supply, and if so to:
    • facilitate negotiations between tyre storage/dump operators and potential recyclers
    • act as a central point for enquiries about use of EOL tyres
    • provide advice on which uses are likely to be most sensible.

Subsidisation

To have any real impact on the level of recycling that occurs in the short to medium term, the Government is likely to need to directly subsidise recycling operations.

The key question regarding subsidisation of recycling activities is not whether it can be done; rather it is whether it should be done. Answering this question requires a brief discussion of the economic concept of externalities.

Any recycling activity - indeed almost all economic activity - will have a range of economic, social and environmental impacts that extend beyond the direct financial costs and benefits captured by the firm undertaking it. Yet the firms involved will typically base their decision on whether to recycle, and if so in what quantities, on the direct financial costs and benefits they face. Government intervention to encourage new recycling opportunities may therefore be appropriate where the activity offers net benefit from a societal perspective, but is not financially profitable for the recycler.

However, it should be stressed that the fact that externalities of some degree are relatively common does not mean that it will always, or even frequently, be optimal for the Government to subsidise the recycling of tyres. In many cases the size of any externalities will be insufficient to warrant a different approach to that firms would take based purely on their desire to maximise profits.

Any decision to subsidise recycling activities therefore needs to be based on a robust assessment of the full costs and benefits involved. We would recommend that the government should only subsidise recycling activity if doing so provides a clear net national benefit.

Accordingly, we recommend that the Government:

  • continue to identify possible recyclers and recycling options
  • work to gain a greater understanding of the factors that make the most promising recycling options uneconomic, and the extent of subsidy that would be needed
  • undertake an assessment to determine whether subsidisation of recycling activities is likely to provide a net national benefit.

Turning to the issue of how the Government could subsidise recycling activity if it chose to, the most effective approach is likely to be for the Government to tender the right to access the subsidy against criteria relating to:

  • the long-term financial viability of the proposals
  • the broader economic, environmental and social net benefits provided by each proposal.

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