Incentives and Waste: Pay-as-You-Throw

Landfills are a pressing issue in many communities: They are finite, filling up, and unlikely to expand much to accommodate the seemingly ever-increasing amount of trash we continue to generate.

Applying market principles to waste management would reduce the volume of trash generated, and would be one of the most effective approaches to waste management. That approach would also benefit the environment, by shifting the incentives to throw out, recycle, or compost.

Most municipalities have their residents pay a fixed price per month for waste haulage service, either as a separate fee or as a component of property taxes. Neither one of those choices harnesses the incentives to reduce waste that having residents pay by weight would.

Because they do not pay per unit of weight, number of bags, or any other measure of the quantity of waste, residents are more indiscriminate in what (and how much) they throw out. But some municipalities—as different as Austin, Texas and Vancouver, Washington—have changed their approach to charging for waste removal, and the results they see are striking.

Pay as You Throw

A recent Reason Public Policy Institute study concluded “pay-as-you-throw” or variable-rate waste programs result in 17 percent less garbage (by weight) and increased participation in recycling programs. Pay-as-you-throw programs are available for 20 percent of the country’s population, in all but four states.

Under a pay-as-you-throw program, residents pay for waste removal by weight of the garbage. Pay-as-you-throw leads to increased conservation by changing the incentives to throw away versus recycle, or throw away versus composting organic matter. This is known as source reduction; it reduces the costs of solid waste management, reduces landfill costs, and improves the environment by reducing the amount of solid waste.

The Reason study calculates a benefit-cost ratio of 7.6 to 1 for variable-rate programs: For every dollar spent, the programs save $7.60. Much of that savings comes from reducing solid waste management costs.

Pay-as-you-throw programs are varied and flexible; the Reason study describes the various approaches and the advantages and disadvantages of each. For example, bag/sticker systems, in which the resident purchases bags or stickers for waste, are easy to implement and monitor. They do not require elaborate billing systems, can take advantage of color coding to make recycling easier for the resident and the waste hauler, and the prepaid nature of the service is good for the waste hauler’s cash flow.

Bag/sticker programs also have disadvantages. They include having to arrange with a retail outlet, such as grocery stores, to sell the bags or stickers. Residents must have the bags or stickers on hand when they need to bag their waste, so distribution of bags and stickers has to be extensive and convenient for residents. The hauler’s revenue is entirely a function of the number of bags hauled, which is good for efficient resource use but creates revenue uncertainty.

Over the past decade, variable-rate programs have grown dramatically in the Northeast, the upper Midwest, and on the West Coast. The most common programs are bag programs, where residents buy bags in which to dispose of waste, and can programs, where the resident pays a given amount per can size per month.

Critics of pay-as-you-throw often note low-income families may see their waste management fees go up if they are charged by volume instead of a fixed fee. Those critics fail to see that under a variable-rate system, such families have a lot of control over their waste haulage bills, because they have control over how much waste they generate and how much they recycle or compost.

Moreover, variable rates remove the implicit subsidy to large waste generators, so if these families are not large waste generators, they are more likely to see their bills go down than up.

Personal Story

My personal experience with pay-as-you-throw programs illustrates the power of economic incentives to influence household solid waste behavior.

In 1992, Upper Arlington, Ohio implemented a variable-rate bag and sticker program, effective January 1. I was home visiting my parents for the holidays, and my New Year’s Eve Day 1991 chore was to help my parents clean out the basement, because they wanted to throw out as much as they could while they were still subject to the fixed-rate charge.

My parents’ house was not the only one in the neighborhood with a huge pile of trash at the curb. Every house in sight had a mound of boxes, decrepit furniture, old machinery parts, and other items they wanted to throw out before getting charged for it. That experience illustrates the power of economic incentives in pay-as-you-throw waste management.

Lynne Kiesling is Director of Economic Policy at Reason Public Policy Institute and Senior Lecturer of Economics at Northwestern University. http://www.rppi.org

For more information

Variable-Rate or “Pay-As-You-Throw” Waste Management: Answers to Frequently Asked Questions. Variable-rate pricing, or “pay as you throw,” gives customers an economic signal to reduce the waste they throw away, because garbage bills increase with the volume or weight of waste they dispose. Variable-rate pricing is being adopted in thousands of communities to create incentives for additional recycling in the residential sector. (Reason Public Policy Institute, July 2002, 38pp.)

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