Crucial decisions in waste management industry
The European waste management industry is facing a prolonged period of turbulence and uncertainty. It must now face important choices about its future based on two seemingly opposed scenarios, according to new research by ING’s Economics Department.
Falls in business and household consumption across Western Europe as a result of the 2008 global economic downturn have seen waste generation volumes plunge. Many industry players have been left with overcapacity in their operations and there is growing pressures on margins as bidding intensifies for municipal and business waste collection and processing contracts. Against this backdrop, there is a heightened focus on scale and efficiency, with consolidation being driven by pan-European and global waste players in search of higher volumes.
In the Netherlands, waste companies are not among the largest main market consolidators, but there is a clear ambition to play an important role in international waste through knowledge and technology. As Dutch waste companies are considered a source of deep-seated skills and expertise, a number of large overseas players are making strategic acquisitions in the Netherlands. For example UK-headquartered global waste management company Shanks Group Plc. Shanks, a leading international sustainable waste management business, began its entry into the Dutch market in 2000 with its acquisition of Waste Management Nederland, and has since acquired local players Smink Beheer in 2006, Orgaworld in 2007, and Van Tuijl in 2012.
Going global for growth
The underlying challenge for most waste companies in the EU is that domestic markets offer few prospects for growth and only modest increases are expected in the years ahead. From a volume perspective, the most promising opportunities are overseas, where high growth economies with rapidly expanding urban populations such as China, Brazil, Russia, India, South Korea and Indonesia, are facing for long-term increases in waste generation and are demanding better recycling expertise and technology.
Environmental sustainability is in itself an important driver of change at a global level. The disposal of waste in landfill, the final stage in the waste management process, is the least favoured option from an environmental and social perspective, and the waste sector is coming under increasing pressure to eliminate the need for land fill by optimising its collection, handling, separation and selection of waste.
On the back of this, opportunities are growing in waste-to-energy sector, fuelling the interest of new parties, such as power and utility companies, in the waste sector.
The result is that there are growing incentives for waste management players to become smarter, and use better methods to recycle and get the most out of their streams. Their knowledge of materials and separation processes also makes them good partners for businesses that want to reduce waste and the consumption of raw materials in their production processes.
Big waste or small?
The future of waste management will ultimately be determined by these trends as well as by government policy and changing social behaviours and expectations. Two possible scenarios are likely to emerge from these developments, each of which implies a completely different way of thinking. The first is a ‘big waste’ scenario, which refers to a purely economic solution to meet growing waste streams on a global scale, coupled with efforts to offset rising costs linked to a scarcity in natural resources. The second scenario, referred to as ‘small waste’, points to unprecedented levels of recycling, re-use and prevention of waste, driven by regulatory changes and by demands from society at large.
A ‘big waste’ scenario revolves around scale and low costs that will continue to drive further consolidation and internationalisation of the industry. Research shows that it is possible to face growing global waste levels purely through better economies of scale using similar business models and technologies as those that exist today. This route is highly relevant for areas where waste generation is growing with large numbers. It also favours larger industry players with expanding networks and the creation of large incinerator and processing hubs that increase efficiencies.
The concern about a ‘big waste’ scenario is that a single-minded focus on volume and price will come at the cost of investments in recycling and waste prevention. A lack of more sustainable waste processing could result, in the long run, in higher external costs and a shortage in raw materials. In this regard, knowledge and new technology in processing will be essential for coping with global waste in an efficient and sustainable way.
In the second ‘small waste’ scenario, the sector is increasingly driven towards greater sustainability, self-sufficiency and waste prevention, and finds new ways to create more value from less waste. The focus here is on supplying knowledge and technology for recycling, waste prevention and the management of waste and raw materials streams.
It is a route that generates opportunities for new methods and entrants. Overall it requires investments in high-tech, low scale waste processing and it is supported by underlying changes in society’s views on consumption and new technologies and business models. In this way, the sector would come to play an even more critical part in its contribution towards the creation of global circular economy while steadily increasing its value proposition.
A matter of balance
The two scenarios present seemingly opposing visions for the future of waste. Big waste is a realistic scenario for the profitable processing of growing global waste levels, but implies significant environmental costs that are not be sustainable over the long term. Small waste, on the other hand, which leads to higher levels of waste processing through recycling, re-use and prevention, implies a fundamental change in thinking and behaviour from all stakeholders, as well as investments in new technologies and business models, that seem unlikely to occur in the short term. It is therefore entirely possible that a mix of both elements from each scenario could be helpful to the sector and to society as a whole.
While both scenarios have their benefits and challenges, it will be up to the waste sector to find the right balance between them, and doing so, avoid a race to the bottom. The next stage will be to see which players can follow the trend towards greater scale and globalisation to capture the opportunities that exist outside Europe. After that, they will need to further develop the business case for recycling and technological innovation. In this regard, the formation of strategic partnerships, in which larger parties with commercial power join forces with small innovative players, could be a way to unite both worlds and increase the chance of extracting more value from less waste and in the process, supporting the creation of a more circular economy.