August 8, 2005

"Taking out the Trash" advocates wider use of user-pay systems for waste management

Because not enough Canadian communities charge residents for garbage disposal based on the amounts that they send into the municipal system, the environmental and fiscal costs of solid waste management are excessively high. The environment, individual householders and governments would all benefit if people were charged directly for the waste they send to the curb, and in direct proportion to how much they put out for pick-up. This would encourage residents to produce less garbage and recycle more of it.

A new CD Howe Institute commentary titled "Taking Out the Trash: How To Allocate the Costs Fairly" says most Canadian communities send unnecessarily large quantities of waste to landfills. Authors Maria Kelleher, Janet Robins and John Dixie-consultants specializing in waste and the environment-point out that the cost of residential waste management service is usually buried in municipal property tax bills, together with items like police and ambulance services. While the cost is modest to the householder, its invisibility mutes consumers' incentive to keep down the amount of waste they generate.

A user-pay, or pay-as-you-throw, system in which a fee (either partial or full-cost) is charged based on the weight or volume of waste sends a message to consumers that a reasonable, but not infinite, level of disposal service will be provided. The authors cite numerous case studies clearly showing that introducing partial- or full-unit pricing mechanisms can reduce the amount of residential waste disposed by anywhere from 8 to 38%, while increasing the amount recycled, by 6% in mature systems to as much as 40% in newer recycling programs.

Fee-for-service financing of residential waste management services is typically structured as a uniform monthly or annual charge; it can also, however, include a variable-rate, or user-pay, component. Utilities established to provide and finance waste management services in this way are fairly common in British Columbia and the U.S., but have not caught on to any great extent in the rest of Canada, notes the report.

While it may not be widely known, there are, in fact, more than 200 Canadian and 6,000 U.S. communities currently financing at least part of their waste management systems through fees charged to householders. Indeed, since the early 1990s, unit-pricing programs for waste disposal have mushroomed in the U.S., to the point where four states have legislation mandating implementation of unit pricing for residential solid waste management and another dozen states offer direct financial incentives to municipalities putting such programs in place. By 2004, says the report, only four states had not adopted unit-pricing programs and in Canada, unit-pricing programs were beginning to spread from smaller communities to larger urban centres such as Markham, Peel Region and Niagara Region (all in Ontario).

Unit-pricing can be implemented through full-unit pricing systems, in which the fee for each unit of waste collected is the sole source of revenue for the system, or partial-unit pricing systems, in which waste management is financed through a combination of taxes or flat utility fees and household unit pricing charges. In any case, requiring consumers to pay part or all of the cost of their waste management services directly enables them to see exactly what the service costs. In addition to providing a pocketbook-based incentive to increase waste reduction and recycling, this also leads to a better understanding of waste management costs, a necessary step for any community considering a shift from the traditional funding structure to one based on user fees and per-unit charges.

Where residential waste management service is delivered through a separate cost centre or utility, full-cost accounting itemizes and recovers the entire expense of the service. This approach is fairer than the current system in most Canadian communities in which waste management services are paid through property taxes, and those who make little use of the service pay the freight for those who make greater use and produce household waste accordingly. Moreover, add the authors, new domestic landfills are difficult to site, and the potential for sudden border closures poses severe risks to communities that rely on exporting garbage.

User fee programs would lead to a more equitable distribution of the costs of providing residential waste management services. They can also provide a long-term funding solution for recycling and composting, by incorporating the cost of waste diversion programs into the fees charged for waste collection and disposal, or by implementing user charges for these services as well.

One of the overwhelming features of unit-pricing mechanisms, says the report, is the positive influence on waste diversion behaviour by householders. Residents are compelled to scrutinize their waste generation habits in order to reduce the amount disposed to a level that is economically advantageous to themselves. Unit-pricing mechanisms also target residents who usually generate large amounts of waste and participate only sporadically in waste diversion programs.

There are challenges to be addressed in moving from the traditional financing structure to user-pay systems. Municipal experience has shown that it is essential to address a number of public perceptions and concerns. For example, user fees are often seen as a new, or "double" tax. This issue will be raised if property taxes are not reduced as user fees are introduced. Strategies for addressing this concern have included partially offsetting user fees with property tax reductions or explaining that user fees are necessary to prevent future tax increases.

In many cases, industrial, commercial and institutional (IC&I) property taxpayers have been subsidizing (by as much as 50% or more) the costs of residential waste management services without actually receiving the services themselves. The move to a system in which the IC&I sector no longer pays for services not received and residents pay the full cost will not be popular and may need to be phased in over several years, says the report. Alternatively, mandating the shift at the provincial level will take the decision-making responsibility away from local politicians, the authors note.

Other issues to be addressed include the increased administrative burden associated with utility fees and user-pay programs; the need to build consensus; and the possibility of increased illegal dumping or burning of garbage. Experience has shown that this last issue can be addressed through effective education, adequate enforcement measures and provision of sufficient outlets for recycling, composting and bulky waste collection.

Unit-pricing mechanisms for residential waste management should be considered by all municipalities in Canada, states the report. Moreover, such programs should be encouraged by provincial and territorial governments through incentives (such as making their implementation a condition for municipalities' receiving provincial financial support) or even legislation mandating unit-pricing.

The "Taking Out the Trash: How To Allocate the Costs Fairly" commentary may be viewed on the CD Howe Web site, www.cdhowe.org. More information is also available from Maria Kelleher at 416/488-5408.

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