Is China’s scrap import ban the end of recycling?

Late last year, the mainstream media picked up on something that had already been causing sleepless nights for many in the North American recycling industry: China’s ban on certain types of scrap materials it imports. This wasn’t something totally new; China had already launched intensive inspections of incoming loads of scrap materials as part of its Green Fence crackdown in 2013. But the latest ban, announced in July 2017 and comprising 24 categories of materials (including many common plastics), set off a new storm of uncertainty and hand-wringing.

Eventually the reports started trickling in about recycled materials piling up in warehouses on the West Coast. Mountains of recyclables, previously destined for China to be made into an array of goods, were stuck in a geopolitical purgatory, the latest casualty of China’s increasing environmental standards. Uncertainty abounded. What was going to happen? Could recycling processors just wait it out? Were they going to have to start sending recyclables to landfill instead?

Then, earlier in May, China announced that it would effectively halt all U.S. imports of scrap materials altogether for one month. Whoa.

So what does this mean? Is this the end of recycling in the U.S.? Not quite.

A Brief History of the American/Chinese Recycling Relationship

To better understand the current climate, it’s helpful to know a little background on China’s relationship with the U.S. when it comes to importing waste. China began importing waste in the 1980s. As U.S. consumer demand for lower cost Chinese products ballooned over the following decades, so did Chinese demand for materials to use as manufacturing feedstock.

At the same time, recycling programs exploded throughout the U.S., and as technology came online, single-stream recycling, where different types of materials could all be mixed together for collection, became the norm. But with single-stream came issues of greater contamination—that is, the end material produced by recycling processors would contain materials other than just the desired one. This was caused by some recycling processors lacking the manufacturing technology (or the will) to thoroughly sort recyclables into single-material groups.

Because Chinese companies accepted materials with higher contamination rates—and in some cases, contaminated with hazardous materials—U.S. recyclers that couldn’t find a domestic market for their product due to high contamination were now able to ship their materials to China. For some recyclers, this lowered the incentive to produce higher quality materials with less contamination.

As the new millennium dawned, China found itself accepting scrap imports with a consistently declining quality.

To combat this declining quality, China began requiring that all importers register with the government in 2004. Things remained generally stable and calm until 2013, when China announced its Green Fence initiative, aimed at enforcing some of the previous decade’s import policies designed to improve quality, including inspections of waste imports. National Sword, another import-focused program, followed in 2016, and 2018 brought Blue Sky, a crackdown on material smuggling.

While the latest May 4th shutdown of scrap imports may have been a negotiating tactic, as it was announced while a high-level U.S. delegation was in Beijing for trade discussions, it’s clear that China is on a sustained path towards higher environmental standards, fueled by President Xi Jinping’s focus on ensuring a “Beautiful China.” (There are accounts that, after viewing the hard-hitting documentary, Plastic China, President Xi was horrified by what he saw, further strengthening his resolve.)

Additionally, there could be a healthy dose of protectionism at play here. China has stated that it wants to be more self-reliant, with scrap materials being sourced domestically, even if it causes short-term challenges for Chinese manufacturers. China’s Minister of Environmental Protection, Li Ganjie, has stated that the ban “may result in chaos in society.”

According to the Institute for Scrap Recycling Industries’ (ISRI’s) counterparts in China, the import restrictions could cause a shortfall of over 7 million plastic tons of feedstock needed for Chinese manufacturing. In China’s July 2017 filing with the World Trade Organization, it outlines plans to address this shortfall by improving domestic recycling processing capabilities, and the government is requiring 46 Chinese cities to have waste sorting plans by the end of 2020. When it comes to recycling, China appears to be playing a long game.

The Impact on U.S. Recycling

While there is no denying that the effects of China’s ban are impacting recycling in the U.S., the effects vary regionally. In places like Pennsylvania, where iSpring and most of our clients are based, the effects have been relatively minor. In Philadelphia, recyclers are focused on improving the quality of materials that come out of their recycling plants, and the city still pays much less to recycle than it would to landfill those materials. In places where landfilling is expensive, like in the Northeast and Mid-Atlantic regions, increases in recycling fees are unlikely to make recycling programs unattractive in the near term.

In other places like California and the Pacific Northwest, however, where many recycling processors’ main clients were in China, the effects are being felt more heavily. In Lane County, Oregon, transfer stations stopped accepting any plastics besides milk jugs, and state officials have been granting exceptions to Oregon’s landfill ban on recyclables.

To see the effects on your state, Waste Dive has developed a handy online tool that’s updated regularly.

It’s important to stress that, in some cases, our recycling was already finding a domestic market.  This is especially true of office paper, aluminum, and #1 and #2 plastics, so the primary impact of China’s ban on these materials is that these commodities may be worth less now that the market is flooded with more material that can no longer be sent abroad.

For other materials, such as mixed #3 through #7 plastics and certain types of mixed paper, the future is less certain. Markets hate uncertainty, so the biggest threat to the industry is the unpredictability of what will happen next. However, one thing we can almost guarantee is that recycling processors will start looking for new markets for their materials, domestically and elsewhere.

There’s been speculation that, as China closes its doors, other countries will open theirs, and that appears to be happening.  ISRI reported in early May that India has lifted its pre-shipment inspection certification requirement on scrap metal.  Plastic imports to Thailand, Vietnam, India and Malaysia all rose in 2017 compared to 2016—in Thailand, by a whopping 876% for polyethylene plastic (the kind used in #2 plastic).

Still, even with these increases, other countries will have to import a lot more material than they currently do to make up for the Chinese shortfall. Additionally, after seeing China’s success with imposing quality-related trade restrictions, there’s a possibility that other countries will follow suit.

As the U.S. begins to enact its own protectionist measures, such as President Trump’s proposed tariffs on steel and aluminum, it’s unlikely that China is going to reverse its trend towards placing more restrictions on scrap imports from the U.S. In fact, China has already placed a 25% tariff on scrap aluminum, a move that has been seen by some as retaliatory.

Once a “new normal” is established, the recycling markets will begin to stabilize, and we’ll have a better idea of what the future holds for the American recycling industry. Whatever that is, one thing appears certain. It won’t look the same way it did when scrap material and waste were the United States’ 6th largest export to China.

A Brighter Recycling Future

While it’s clear that there is no silver bullet for this issue, there may be silver linings.

The Chinese ban forces the U.S. to face its titanic waste production and addiction to single-use products. By having limited options for where to send waste that can’t be used domestically, there is an opportunity to rethink the American waste stream.

This could spur investment in domestic recycling infrastructure that allows recyclers to produce higher quality products for American manufacturers. The United States has lagged behind other developed countries in its recycling infrastructure for years, largely due to a ready-made market for its subpar scrap products. The ban is acting as a wake-up call for recycling processors who have been producing a lower-quality product (that they were counting on China to buy) to either figure out how to increase the quality or face going out of business. The result will be higher quality materials overall.

Another possibly beneficial consequence of the bottom dropping out of the market for recyclables is that it may make using recycled materials to produce goods here in the U.S. cheaper than using virgin materials, thus bolstering the domestic demand for recycled feedstock and increasing the recycled content in domestically-made products.

New markets for recycled materials may develop to take advantage of this low-cost manufacturing feedstock, and the U.S. could see innovation from manufacturers that encompasses materials and product design. To capture these readily-available materials, ISRI stresses the need for manufacturers to “design for recycling,” presumably on both the front-end and the back-end. “For far too long, manufacturers of consumer products have externalized the cost of disposing containers and packaging,” CEO of the Solid Waste Association of North America (SWANA) David Biderman wrote to online publication Waste Dive in an email. “We need to have a serious conversation with them and policymakers about how to address this.”

Indeed, a combination of technological innovation and new market development will be needed to ensure a bright future for recycling. It’s going to require collaboration among local, state and federal officials, investing in recycling infrastructure and cracking down on quality. It won’t be easy, but it’s necessary and overdue. And in the end, it’s a win for recycling.

We’ll be watching this story with a close eye as it develops, and we hope you’ll remain as committed as ever to recycling and waste reduction. Let your elected officials know that you still support recycling and expect them to commit to continuing recycling programs and supporting the industry as it seeks to improve infrastructure and develop new markets. As National Waste and Recycling Association President and CEO Darrell Smith said in a statement to Waste Dive, “The American people love to recycle, and the market will find a way.”

–Samantha Wittchen, Partner and Founder, iSpring