WASTE MANAGEMENT PRICING

Waste Management Pricing



Waste Management Pricing

Introduction

In a perfect world, solid waste management would operate economically. In reality, the Minnesota Pollution Control Agency (WRA) is tackling this issue by evaluating the pricing structure of solid waste management. One problem prevails in solid waste management: the difference between what residents pay for MSW services and what it actually costs. The difference between the price and the true cost represents the amount a product or service is subsidized. Subsidized costs can hinder industry competition and eventually lead to higher prices for a product or service. When the price is closer to its true cost, resources can be distributed better and residents are encouraged to reduce waste.

Analysis

In a full-cost pricing system, consumers pay only for the costs of managing their solid waste. For a full-cost pricing system to succeed, the public sector should educate citizens and businesses on the true costs of solid waste management and also follow up with strict enforcement. Available Subsidies Within the solid waste management sector there are many different types of subsidies. Some subsidies are easily identifiable; others are hidden and difficult to assess. To supplement tipping fees at publicly-owned municipal solid waste (MSW) facilities, subsidies can be used. These subsidies may include taxes, service charges and grants(Simons, 1987).

More difficult to identify subsidies include flat fees. For example, some municipalities charge every household a flat price per month for solid waste management service. Since this rate does not correlate to the amount of waste generated by a household, a two-person household, in actuality, is subsidizing the costs of an eight-person household. Private haulers may also subsidize costs. To gain a greater share of the commercial market, some haulers might charge a commercial or business customer less than their costs. In this instance, the hauler may subsidize the commercial customer's costs with surplus revenues from residential customers (Roslender and Hard, 2003).

Externalities are another form of a hidden subsidy. Externalities, for example, derive from landfill costs that were never factored into disposal prices. This includes contaminated surface water and groundwater cleanup costs; the costs to provide long-term care for landfill property and to monitor wells for contaminant release; and past-due environmental and human health costs (Pratt, 2003).

Land disposal has always been expensive, but until recently solid waste managers did not realize just how expensive it really is. To identify all existing subsidies for a particular product or service would be nearly impossible. In an WRA economic report, researchers focused on the amount of subsidy from indirect prices. Researchers believed the other forms of solid waste management subsidies to be fairly insignificant or too difficult to assess under time and financial constraints (Fatzinger, J., Dupuiss, V., Mudial, D. and Hall, G. 2003).

Contributing Factors Over the past 10 years, solid waste management costs in Minnesota and the rest of the nation have increased dramatically (see Figure I on page 42). Regulations and legislative policies that aim to incorporate the true costs of solid waste management into consumer prices are partially ...