It's a circular world: AI, robotics and chemical recycling are redefining a $110 billion industry
Recycling is big business in America. It has been for many years. In 2018, the recycling industry in America generated over $110 billion in economic activity, $13.2 billion in federal, state and local tax revenue and 534,000 jobs. 2019 is shaping up to be a year of major innovations in the recycling industry as it becomes central to circular economy business models that major consumer goods companies and cities are deploying.
Recycling continues to be the most cost-effective option for the vast majority of American cities. The economics are simple. Cities have two choices when it comes to disposal: recycle or landfill. While the value of recycling is generally reported as the amount that a city can be paid for its recyclables, the core economic value of recycling is actually the opportunity for a city to avoid costly landfill disposal fees.
New York City, the largest market in the United States, is an example of how advanced recycling infrastructure and strong local markets create long-term profits. New York has a long-term public-private partnership with Pratt Industries that converts all of its recycled paper locally into new paper products sold back into the local market. Via its contract with Pratt, New York is paid for every ton of paper its residents recycle, as opposed to a cost of over $100 per ton to send paper, or anything else, to a landfill.
Minneapolis offers another good example. Eureka Recycling and the city of Minneapolis invested in local community outreach focused on keeping their recycling stream clean of contamination, defined as non-recyclable material. The result is one of the lowest contamination rates of any municipal recycling program in the country. With a clean stream of valuable recyclables, Eureka consistently shares with Minneapolis the profits earned from the sale of their recyclables. In many other cities, unfortunately, about 15 percent of the material that arrives at the municipal recycling facility is considered contaminated.
Municipal recycling programs that keep contaminants out of the recycling stream via strong community outreach or enforcement realize lower costs and better revenue opportunities. Municipalities that recognize that recycling is part of the commodities industry, not the waste industry, generate value.
Along with the examples of Pratt Industries in New York and Eureka Recycling in Minneapolis, Lakeshore Recycling Systems in Chicago, Recology in San Francisco and Seattle, Rumpke in Ohio, First Star Recycling in Omaha and Balcones in Austin, Texas, among others, continue to provide their municipal and commercial customers robust recycling services. In addition, municipalities such as Pensacola, Florida, and Davenport, Iowa, that manage their own best-in-class recycling facilities consistently reduce landfill disposal costs and create local economic value for their constituents.
The value of recyclable commodities continues to fall into a wide range. The cost to process municipal recyclables at a recycling facility was on average $70 per ton last year. That means that for a recyclable commodity to have value, it must have a market that pays the recycling facility over $70 per ton. A sample of the commodities that are profitable to recycle include PET plastic (beverage containers), high-density polyethylene (HDPE) plastic (laundry and soap detergent bottles), rigid polypropylene (bottle caps, some yogurt containers), cardboard and aluminum.
In 2019, three innovations are driving the increased profit potential of recycling in America and the development of a circular economy. First, the introduction of robotics and artificial intelligence (AI). The future of the industry will be led by the facilities that produce the highest quality commodity bales.
Companies such as AMP Robotics have introduced robotics and AI systems that enable the production of high-quality commodity bales, supply chain tracking and safeguards against contamination that never before were imagined in the industry.
Second, the emerging leadership demonstrated by a number of consumer brands. Leadership means designing products and packaging that are profitable for the recycling industry to recycle and that are manufactured with recycled content. Any product or package that is not recyclable is destined for a landfill (or even worse, a river or ocean). And that landfill cost is passed to the taxpayer.
An example of two brands assuming leadership roles are Unilever and P&G. Unilever’s Seventh Generation Brand uses mostly recycled HDPE plastic in its packaging and recycled paper in its paper products. P&G invented a technology and helped launch a company, PureCycle Technologies, that should significantly increase the value of recycled plastic.
Third, chemical recycling, defined as the depolymerization of plastic back to the base monomer in order to remanufacture a new plastic.
Some plastics, such as PET, HDPE and rigid polypropylene, have significant value and are very profitable for the recycling industry, but they can degrade after a number of recycling cycles. Some other plastics currently have limited value or are challenging to recycle.
Chemical recycling has the potential to create an infinite circular economy value loop for all plastics. Some leading innovators are backed by major consumer goods companies. In 2019, we expect a number of emerging companies to move from pilot to commercialization phases.
These advancements are attracting private capital from leading investors. In 2018, the industry saw investments from leading investors across asset classes. Google and Baidu Ventures invested in AMP Robotics, Goldman Sachs became the largest shareholder in Lakeshore Recycling Systems in Chicago, Citi was the largest investor in rPlanet Earth, a bottle-to-bottle plastics recycling facility in California, and SJF Ventures invested in TemperPack, an advanced packaging technology that uses recycled cardboard to keep packaged food cold, replacing a significant amount of low-value plastics. Nestlé, Danone and PepsiCo invested in Origin Materials, a sustainable material sciences company, and Unilever invested in Ioniqa, a chemical recycling company. At the start of 2019, this investment trend across asset classes continued to grow.
These are exciting times in the recycling industry as the development of the circular economy continues to expand. Major innovations are entering the industry ranging from robotics to supply chain mapping to advanced technologies that recycle plastics. Like any major industry analysis in the United States, it's impossible to point to one or two cities that should be extrapolated to define the industry. There are cities where recycling is profitable and a major economic engine, and there are cities where the recycling program is struggling.
What is clear is that the cities that focus on limiting contamination in their recycling program and that contract with best-in-class recycling companies benefit from recycling programs that are profitable and produce local jobs.