A look inside David Steiner’s waste-to-gold alchemy

Two Steps Forward

A look inside David Steiner’s waste-to-gold alchemy

I first met Waste Management president and CEO David P. Steiner in 2008, when I interviewed him onstage at a corporate sustainability event. He talked about “reinventing everything” at his then 40-year-old company by changing behavior and leveraging technology in order to turn waste into assets — energy, fuels, materials, and other things.

It was a compelling vision. During that interview, I asked Steiner, “What’s the elevator pitch for Waste Management five years from now, in 2013?”

“Five years from now, what I see us doing is a very simple equation,” he responded. He explained that the materials Waste Management’s customers were generating — and paying the company to haul to a landfill — had a potential market value of $8 to $10 billion — no small thing for a company whose annual revenues were only $14 billion. “Shouldn’t we be trying to get as much value out of those materials as we can before they go into the landfill, or maybe keep them out of the landfill and put them back into the manufacturing loop?” he asked.

Five years later, I had the chance to sit down with Steiner, earlier this month at Fortune Brainstorm Green, for an update. I began by asking, “How much of your vision five years ago has taken hold?”

It turns out change is hard — and slow. “Five years ago I would have said this could be a sweeping change through the industry,” he began. “Now, I would say it's going to be a creeping change through the industry.”

One thing that has changed significantly is the size of the opportunity: a Waste Management executive told Businessweek’s Andrew Herndon last month that “the $12.3 billion it gets for carting off rubbish to landfills may be worth more than $40 billion a year in energy.” That’s at least four times Steiner's estimate back in 2008.

As such, Steiner’s five-year-old vision remains firmly intact. And the company has made progress toward his goal of extracting value from the waste it collects. “We have not yet gotten to the point where we can mine the landfills,” he said, but then corrected himself. “We're actually mining the landfills for some materials, but we're taking incremental steps along the way.”

He referred to the company's incremental progress through the lens of “generations.” Generation 1 technologies, things that are practical and scalable right now, include standard recycling, single-stream recycling, landfill gas to energy, and waste to energy.

Generation 2 technologies have been proved viable but haven't yet been scaled. For example, he said, “We've just built our first pelletized fuel plant. The beauty of the pelletized fuel plant is that it takes standard municipal solid waste and turns it into fuel that you can use as clean coal. It basically burns like coal, except with about 10 percent of the particulates.”

Steiner explained that pelletized fuel can be substituted one-to-one for coal, but also can be customized for a variety of uses. “Different users of coal want different BTU content. They might want 7,000 BTUs for a cement kiln, 11,000 BTUs for a coal-fired power plant, or 13,000 BTUs for an industrial power plant. We can take the waste and modify what goes in there and adjust the BTU content for them.” Waste Management has built its first pelletizing plant, in San Antonio, Tex., currently running at about 60 percent of capacity. It’s building a second plant near Philadelphia.

Next page: “The garbage-to-gold stuff"

And then there are Gen 3 technologies — what Steiner calls “the garbage-to-gold stuff. That's stuff that's either still in the lab or doing small test projects to make sure that the process works.” That’s where the real alchemy takes place.

All of this has been a slower ramp-up than Steiner anticipated. “I thought we'd be able to find the technology that would change the game faster. The reality is that the silver bullet doesn't exist. Garbage-to-gold doesn't exist. But to the extent that someone's going to turn garbage to gold, it's going to be us. And if we can start getting these Generation 2 technologies to actually prove out at scale, it'll start to give us a big competitive advantage.”

Several years ago, Waste Management started a corporate venturing arm that’s investing in some of these technologies. Last year, it joined the legendary venture capital firm Kleiner Perkins as an investor in Agilyx Corp., which recycles mixed waste plastics (those labeled #3 through #7) into synthetic crude oil. Other companies in Waste Management's portfolio include Renmatix, which turns agricultural wastes into sugars for making fuels and other chemicals; Enerkem, which produces cellulosic ethanol from municipal solid waste; Fulcrum BioEnergy, which turns household garbage into low-carbon jet fuel, diesel and ethanol; Genomatica, which develops genetically modified microorganisms that convert garbage into chemicals; and Agnion Energy, which turns wood-based biomass into synthetic gas.

Clearly, there’s a lot of fuel and energy to be mined in landfills. But what about turning materials back into materials? That's turned out to be more challenging.

“When we first started the venture group five years ago, we took sort of a shotgun approach,” explained Steiner. “So, we looked at a technology that took tires and basically recycled them — you know, grind them into a powder, add some specialty chemicals, and they can go right back into a new tire. A great process, great technology, great company, great CEO.

“The problem is, we don't get a lot of tires in our waste stream, so how's that going to move the needle for us? It would have been a great investment, but not one that drove the strategy of our company, because it just didn't cover enough materials for us.”

Steiner and his company have learned the difficulties of creating the homogeneous streams of materials many of these processes need to be efficient and profitable. “Once you start co-mingling waste together, you lose the ability to use these conversion technologies. Whether it's an anaerobic digester, or turning plastic into oil, or whatever you're trying to do, they need a particular type of material to go in. It can't just be the garbage that you drop off in a garbage can. You've got to separate.”

Separating also provides the company with technological options, enabling it to adjust to changing market conditions, says Steiner. “If the price of cardboard goes up, we can sell the cardboard as cardboard. But if the price of cardboard goes down and the price of industrial sugars go up, we can take one of our conversion technologies and convert that cardboard into industrial sugars. And if industrial sugars go down but oil goes up, we can take it and turn it into oil. If you're in a place that is near chemical plants, you might want to use it to create specialty chemicals. If you're in a place that's near a power plant, you might want to create pelletized fuel.”

I asked Steiner how Waste Management’s board of directors viewed all this. Do they see all of these investments and innovations as strategic, or as a nice-to-do sideline that gives the company a greener glow? After all, the $300 million or so that the company has invested over the past five years is but a blip for the $14 billion company.

“Our board definitely views it as strategic,” he said. “The whole concept is to be able to have a good position in a disposal market, whatever that disposal market might be. My board recognizes that today it's landfills and recycling. In the future, it's going to be a plant that turns waste into pelletized fuel or specialty chemicals.”

He cites Philadelphia as an example of how all this comes together in a way that is meaningful to investors and board members. Like most cities, it’s impossible to get a new landfill permitted in or around the city. So waste collection in Philly means transporting waste 50 miles to a landfill — roughly a $30 a ton round-trip in a city where collecting a ton of trash generates about $60 in revenue.

What can be permitted near the city is a specialty-fuel plant, says Steiner. Bringing Philly’s waste there saves the trucking costs and can earn the company, say, $30 a ton for the fuels — “a huge competitive advantage,” he says, and at only about a third of the capital costs of building a landfill. “My board completely recognizes that if you can do that, if you win in that game, you're going to win in the entire industry.”

So, how does Waste Management fare in a world in which there's less waste to manage — where a growing number of cities and companies are making "zero-waste" goals, and some are making good progress toward reaching them? Is that is a threat or an opportunity?

“It's 100 percent opportunity,” he said, unhesitatingly. “Our customers are demanding it, so we don't have a choice. But in my mind, what they've done is created an opportunity for us to differentiate ourselves from everybody else in this industry. You don't get that opportunity very often.

“When I talk about the timeframe, I think we all thought, ‘Wow. Zero waste is a fast-moving tide.’ But that tide's not as fast-moving as we thought. People think about their waste differently, which is a good thing, but people are still creating a lot of waste materials. Our job is to find out how to extract value out of that material and create value for our customers.”

Steiner refers to a company graph that shows the growth of landfill waste as essentially flat. “And then it shows material generation, which is growing at a pretty big clip.” The gap between those two represents a mountain of opportunity.

And it will require the company to climb a steep learning curve, especially in areas where it hasn’t yet delved deeply, such as dealing with organic waste or electronic waste. Both of those represent huge untapped markets.

But five years later, Steiner is a bit more circumspect about the pace of change. “Look, it's not going to happen under my watch,” says Steiner, who’s in his early 50s. “Either the disappearing of waste or the creation of a technology that creates gold out of garbage. I would say my job is not to score the winning touchdown. My job is to get the ball down to the five-yard line so the next guy can score the winning touchdown.”

I’ll be sure to huddle with him again to see how the game is going.

Image from Fortune Brainstorm Green