5.2.

2 The financial costs of taking action

Financial costs and revenues are those that are recorded (or should be recorded) by accountants, which
show up in the financial accounts and are used in financial analysis. In waste management, it is important to
distinguish between direct investment, operation costs and direct revenues.

Investment costs
Investment costs generally receive more attention and
tend to be better understood largely because of the
number of projects focusing on modernizing waste
management infrastructure. Investment costs are all
those related to developing and constructing a project,
among others: project preparation, including planning,
siting, feasibility studies, permitting and the associated
public involvement and consultation; detailed design;
land costs, especially in the case of landfills; equipment,
facilities and construction.

In principle, investment costs are relatively easy to

© Jayavilal Fernando
benchmark, as equipment and technology suppliers
know the cost of their products. So the costs of a Sanitary landfill under construction , Sri Lanka
compactor truck, a container, a sorting line, or a landfill
liner are estimated based on price quotations from equipment and technology providers, in accordance with
the technical design requirements. Necessary building and foundation works are estimated by engineers and
professionals based on cost standards for the country where the investment is to be carried out.

However, in practice, various complications may appear: it is difficult to obtain reliable comparative costs
for the likely capital costs of alternative types of treatment and disposal facilities; waste properties are not
uniform, so different or especially tailored technologies may be necessary; some component costs, especially
those locally produced, vary between countries and between sites; environmental protection standards vary;
many proprietary technologies, being relatively new, have limited experience at full-scale operation under a
wide variety of local conditions; and commercial confidentiality may restrict the public availability of data.
Table 5.1 below provides order of magnitude comparative costs for some alternative treatment and disposal
technologies for MSWM.

Operation costs
The main components of operation costs are the costs of
labour, fuel, energy, maintenance and repair, emission control
and monitoring, revenue collection, public communication and
management and administration. Some important costs are often
overlooked or not properly budgeted for, such as the costs of
awareness raising campaigns, customer care, environmental
auditors, and training and capacity building, and, in case of
private sector participation, the client’s costs related to tendering,
contract negotiation, supervision, inspection, insurance and
control of activities. Though in some cases tax exemptions may
apply, operators are normally subject to sales taxes (VAT). Profit
and dividend taxes are often not relevant for public operators but © Ainhoa Carpintero

are relevant for private commercial operators. Material recovery facility, Japan

Some waste management costs arise because of requirements set out in legislation. Environmental emission
control costs tend to rise for the operator as standards become more stringent, while the environmental
regulator will also incur higher associated costs through enforcing those standards. Entirely new cost ‘centres’
may also occur, such as the after-care costs of a landfill site no longer actively receiving waste; the cost of
introducing a user pay system; and costs related to new policy priorities such as incorporating re-use and
prevention in the waste management programme.

206 Global Waste Management Outlook

 Overall, 60-70% of the total costs of advanced waste management are operation costs.2 An activity-based
cost accounting makes it possible to understand the costs associated with collection, different treatments
and disposal and is helpful for financial management and for identifying inefficiency in the waste management
system. Understanding these costs also helps with investments and upgrades in the system, focusing
investment on cost-efficient technologies with due care in designing facilities at the correct size.

Operation costs are recorded in the bookkeeping of cities worldwide and are used to estimate annual budgets.
Nevertheless, operation costs of SWM services are still often insufficiently known and it remains an enigma
why benchmarking for example collection costs or landfilling costs is so difficult even in cities where conditions
are similar. This is due in part to differences in the accounting systems. Cities often allocate only a part of the
operation costs to the activity of waste management. For example waste management may be organized in a
department together with other public utilities and allocation of costs to a particular utility service such as SWM
is not common practice, as was the case with public utilities in former communist countries. In many Indian
cities the cleansing department used to be in control of waste management, but the vehicles were supplied by
the mechanical engineering department and the workers by the ‘zones’ within the city, while the costs were
recorded by each department. Things are further complicated because of the different aggregation methods
used for costs.

Other constraints are the frequent absence of information and sensitivities related to sharing cost and revenue
data. The city staff are often very helpful in sharing all sorts of technical, organizational data, even inventories
or the investment costs of facilities and equipment that are purchased, but when it comes to operation costs,
these are often regarded as ‘confidential’ and cannot be made available. Therefore looking at data across cities
is challenging, both in terms of obtaining any useful data, and in further comparing ‘apples and oranges’.3

An initiative to benchmark operation costs could start by collecting activity-based cost information in a
standardized way. This methodology collects only the costs that are related strictly to a distinct activity in
waste management, such as the collection of mixed waste, collection of source-separated waste or final
disposal. Collecting of information can increasingly be organized through an interactive web-based interface
that instructs the user and has built in checks on input information for errors.

Revenues from resource recovery

Resource recovery activities generate revenue streams from the
sale of recovered and recyclable materials, compost and energy.4
The quality of the products and the dynamics of the different
markets for secondary raw materials and energy determine the
price of sale and thus the revenue potential. Some of these markets
are global and are volatile and dependent on price fluctuations
on global markets for secondary and primary raw materials. The
market for compost is more local but usually underdeveloped
and needs effort to become sufficiently developed based on local
potential and market requirements. Both of these markets have
very specific requirements for quality.

While it is very difficult to generalize, one ‘rule of thumb’ is that

© Adelaide
IMPORTANT!!! revenues from the sale of compost are unlikely to cover more than
40% of the costs of separate collection and processing of organic Baled aluminium cans
waste.5 For recyclables recovered from MSWM, this ratio is quite
different for different types of materials: metals, high-grade paper, and in some places PET ‘pay for themselves’
while recycling of lower-grade paper, other plastics, glass, wood and textiles often represent a net cost, but are
financially worthwhile at a system level as a cheaper ‘sink’ when the price of gate fees for disposal (of mixed
waste) rises above a level of perhaps 40 USD per tonne.6

2 Pfaff-Simoneit (2013), listed in Annex A, Chapter 5, General reading.

3 There have been attempts to collect primary data based on templates that would facilitate collection of comparable data, including applied research work carried out for
example for the UN-Habitat Solid Waste Management in the World’s Cities publication (20 cities profiled). See Scheinberg et al. (2010) and Wilson et al. (2012), as listed
in Annex A, Chapter 1, Waste management. See also a recent SWEEP-Net project to collect cost information for countries in North Africa and the Near East at SWEEP-Net
(2014), listed in Annex A, Chapter 5, Estimating economic costs and benefits. The latter information has been consolidated in the Waste Atlas, which aims to collate similar
data from around the world – http://www.atlas.d-waste.com/
4 See Boxes 3.6 and 3.7 in Section 3.5.3.
5 The maximum achieved within the EU is less than 20%.
6 See also Section 2.3 on drivers for waste and resource management.

Waste management financing 207

 For energy, there is generally a demand, and a long-term trend of increasing real prices,7 but the extent
to which energy generated from waste can substitute traditional sources depends on the composition of
the waste, the local cost of energy and access to the appropriate energy grid. Various policies, taxes and
other economic instruments have a high positive or negative impact on these revenue streams. Subsidies for
renewable and/or biogenic energy and heat and the strict regulation on waste disposal encourage energy from
waste (EfW)8 in Europe and increase the earning potential from these facilities. Recycling is similarly impacted
by the policy regime. For example the implementation of an EPR system increases recycling and tends to
diversify the recycled waste streams, similarly a high gate fee at the landfill, or the imposition of a landfill tax,
tends to encourage recycling.

Estimating revenues from resource recovery is again subject to much uncertainty. Markets vary locally and in
terms of product quality, while prices of internationally traded materials are subject to the fluctuations of the
global markets. Waste management services come at a net cost that needs to be supported in one way or
another by society. Every tonne of waste that ‘pays for its own’ recovery due to its intrinsic value is one less
tonne of waste to be treated or disposed of and paid for by a fee, user charge, tax or subsidy, decreasing the
net cost of waste management services.

© Jayavilal Fernando © Ainhoa Carpintero

Biogas Plant at Gampaha, Sri Lanka Maishima EfW Plant, Osaka, Japan

‘Typical’ net costs for MSWM

For all of these reasons, it is extremely difficult to present ‘standard’ costs of waste management. Table 5.1
brings together two published sources, which each look at the typical costs of implementing different unit
operations for MSW management, in countries at different income levels. The unit costs increase with income
level, due to the higher costs of both personnel and of compliance with more stringent environmental regulations.

This table compiles estimates from the literature to show variations in the combined net costs for different unit
operations, taking into account investment and operating costs and resource recovery revenues. Parts A and
B show net cost per tonne for each unit operation.9 Part C estimates what total cost per tonne for MSWM
could potentially be affordable in each income band, based on a ‘rule of thumb’ upper limit on affordability of
1% of the GDP/GNI per capita10 and the MSW generation per capita given in Part A. The additional column in
Part B also shows a ‘typical’ estimated investment cost for each type of technology, shown in million USD for
a facility with a capacity of 100,000 tonnes per year (approximately 300 tonnes per day).

7 The real prices for energy tend to fluctuate over time, depending on among other things global trends of recession or growth, embargoes on gas and oil related to conflicts
or discovery of new reserves and energy sources; a notable price slump occurred at the time of writing in 2014-15.
8 In this context, EfW includes a wide variety of thermal energy from waste facilities (e.g. combustion, gasification and pyrolysis); anaerobic digestion; and landfill gas
recovery. See also Section 3.5.3 and Box 3.7.
9 Note that the national income bands, as specified in the first row are different in the two Parts.
10 Scheinberg et al. (2010); Wilson et al. (2012), listed in,Annex A under Chapter 1, Waste management.
11 Hoornweg & Badha-Tata (2012), listed in Annex A, Chapter 3, Collated data sources.
12 This is just one data source. See Section 3.4.1 for a detailed discussion of collection coverage.
13 Pfaff-Simoneit (2013).
14 The term ‘RDF’ (refuse-derived fuel) is used in this table to designate all processed fuel outputs. The properties of the RDF will vary widely depending both on the exact
technology used, on the input waste, on the extent of any segregation prior to the process, and on the specification of the end-user of the fuel. Processed fuels can vary
widely in calorific value, handling properties/size and size distribution, ash content, contaminants content etc. It is common to differentiate what is termed here as ‘RDF’
into two categories, with ‘RDF’ being used for lower grade and ‘SRF’ (secondary recovered fuel) for higher grade fuel products. See also Box 3.7.
15 Estimate based on a site with a capacity of 3 million m³, which might provide around a 30-year lifetime for a city generating 100,000 tonnes per annum, depending on the
density achieved.
16 Calculated on the basis of the income ranges and waste generation data shown in Part B.
17 Spending 1% of GNI on MSWM is quite a high figure – some authors have suggested using rather figures between 0.3% – 0.6% as the upper limit on affordability, which
would extend affordability constraints also to upper-middle income countries.

208 Global Waste Management Outlook