En Garde: China’s National Sword Shakes Up RecyclingDecember 1, 2019
China, historically one of the largest markets for recyclable materials, has dramatically tightened restrictions on waste imports. American recyclers in search of new markets are increasingly turning to local agencies for relief. This article discusses shifts in global recycling markets and how some local agencies are adapting to these changes.
Agencies that provide curbside recycling have traditionally depended on exports to generate revenue and meet state diversion goals. California is no exception, sending approximately two-thirds of curbside collected material to foreign markets. A substantial majority of this material historically went to China. In recent years, however, the tightening of Chinese environmental programs coupled with the decline of the US-China trade relationship has required the recycling industry, including waste management agencies to take a new approach.
The changes began in 2013, when China announced “Operation Green Fence” a ten month-long inspection program aimed at reducing the level of contamination from food waste, moisture, electronic waste, etc., in imported bales of recyclable materials. In 2015, China followed up with a similar inspection program targeting scrap plastics. Then, in 2017, China escalated beyond inspections. First, the General Administration of Customs announced “National Sword,” a campaign to reduce smuggling and corruption among recyclable materials importers. Shortly thereafter, the Ministry of Environment Protection filed a notice with the World Trade Organization (WTO) indicating it planned to ban the importation of 24 recyclable commodities, including mixed paper, recycled plastics, and textiles by the year’s end.
As international markets struggled to adjust, China continued to develop new import restrictions. The most notable of these, Blue Sky 2018, further cracked down on scrap imports and set a maximum acceptable contamination level of 0.5% per bale of imported material. More recently, China has floated the idea of a complete ban on solid waste imports by 2020.
In light of the continuing evolution of China’s import policies, the recycling industry adopted the “National Sword” moniker as a catch-all term for China’s various initiatives. While the end result of National Sword is still to be determined, it has already prompted certain short-term reactions and sparked conversations within the industry and among state and local agencies about long-term ways to reduce waste, minimize contamination in recyclables, and develop new markets for recyclables.
The industry’s initial reaction to China’s WTO filing was to search for alternative markets. Vietnam, Thailand, and other Southeast Asian countries were early targets for American exporters seeking to move material and preserve revenues with no change in industry or consumer practices. As the burden on these countries has grown, however, they, too, have implemented increasingly restrictive import policies.
With limited international markets currently available to replace China and preserve the status quo, many companies and public agencies feel they have been left without viable markets for their products. Some vendors who manage recyclables have responded by stockpiling, warehousing, and occasionally landfilling recyclable materials. Some communities, like the City of Manteca, have elected to temporarily suspend portions of their recycling program while evaluating more permanent, sustainable strategies.
To help meet contamination reduction targets and reduce the number of curbside bins that must be rejected, many jurisdictions are expanding outreach and education efforts. For example, the City of Sacramento allows residential customers to quickly determine whether a given item is recyclable through its Waste Wizard tool. The Del Norte Solid Waste Management Authority produced a series of radio shows discussing challenges with recycling, changes in the industry, and best practices to reduce contamination at the household level. And haulers and jurisdictions alike have published informational fliers identifying recyclable materials and common contaminants.
Other communities are responding by improving equipment and processing to reduce contamination. In San Francisco, the waste management firm Recology has upgraded its purification process for paper, plastic, and scrap materials in order to meet China’s strict contamination requirements. GreenWaste in San Jose has made similar investments in sorting machines and staffing.
While short- and long-term solutions are developing, the industry has reported dramatically reduced revenues, and many have approached local agencies to propose renegotiation of service contracts. Many service providers have sought to transition from revenue payments/revenue share with local agencies, to a fee-based pricing model, wherein cities and agencies would pay a per ton fee for curbside collection and processing or increase the amount of existing fees.
Local agency reactions to these waste management challenges have been mixed. Some jurisdictions, such as Amador County, have agreed to proposed transitions. Where Amador used to receive $33 per ton of recyclable material, it now pays its processor $160 per ton. Similarly, Bakersfield previously earned about $25 per ton of recyclables and now is reportedly paying around $70 per ton for service. These increased costs are generally passed on to residential customers. The City of Fremont has increased its residential garbage rates by $1.50 a month to offset additional sorting and processing costs. Yet other jurisdictions have pushed back. In mid-2018, IMS Recycling, Inc. and Allen Company approached the City of San Diego about transitioning to a fee-based pricing model through the end of their franchise agreement. While the City agreed to suspend the franchisees’ per-ton, flat-rate payment to the City, the City refused to pay the franchisees for recycling services.
The City of New Bedford, Massachusetts took matters a step farther in a dispute with its hauler, ABC Disposal Services. In May 2018, after ABC charged the City in excess of its contract fees, the City sued to enforce its contract terms. ABC filed a counterclaim, alleging that China’s tightening import restrictions excused its performance under the original contract. Although the City successfully dismissed three of ABC’s counterclaims, the lawsuit is still ongoing. Trial is set for May 2020, and its outcome could have implications for recycling contracts around the country.
The varied responses to National Sword are emblematic of the uncertainty caused by China’s programs to restrict recyclable materials imports. Continuing to press for waste reduction and development of new markets for re-use of recyclables will continue to be a top goal for local communities. But given the limited ability at the local level to affect such change, local agencies may find their franchise agreements targeted. These contracts and their circumstances are unique. Cities and waste management agencies should carefully study their rights and obligations under their existing contracts, as well as what they can leverage to maintain affordable service under future agreements.
For more information, contact SMW attorney Andrew Miller.