Changing demands on the recycling sector
The German circular economy is divided up into many different parts – all of which are highly competitive with a large number of small, medium and large-sized private sector firms as well as a multitude of municipal companies all trying to get a piece of the action. This competition ensures that the best possible prices are offered for kerbside collection and recycling services, thus helping to keep fees and charges stable. What’s more, the largely free dynamics of this market make sure essential services are guaranteed and can be delivered to all parts of the country. The demands on the German waste management and recycling industry are changing at the moment as a result of the EU’s Green Deal, which, for the very first time, specifically names the circular economy as being one of the five most important cornerstones of its plans to curb climate change and conserve natural resources. The different ways some kerbside collection and recycling services are offered in urban and rural areas will have a significant impact on just how efficient the regions’ sustainability efforts will be. It is certainly worth taking a more detailed look at the situation.
Municipal firms the main provider in large cities
According to official statistics, there are currently 82,175,684 people living in Germany, with just under 26 million of them residing in large cities. Kerbside collection services delivered to around 23 million or 85% of these urban dwellers are provided by municipal companies, i.e. businesses owned by the city authorities. The private sector serves a mere 15% of this particular market – a market that, due to the very nature of cities, is densely inhabited with a well-developed infrastructure, making kerbside collection and recycling logistics much easier to set up and implement.
The vast majority of the German population, namely a good 56 million people, live in rural districts or small towns such as Cottbus, Kaiserslautern and Schwerin. Just 19 million of these inhabitants are served by public sector companies – a municipal market share of just under 34%.
There are two reasons why district authorities more often turn to the private sector for the services they need: firstly, the structural set-up of their districts; secondly, it can be seen as a smart reaction to the economic challenges they have to face. The kerbside collection of residual refuse in both rural areas and in and around small towns involves long journeys and, consequently, much higher logistics costs. It makes little sense for the often cash-strapped local authorities to set up and maintain their own plant capacities, fleet of vehicles and workforce so that they can deliver this particular group of essential services. It is more prudent to work with private sector partners that can deliver a high performance and remain competitive – not least in order to keep the fees and charges local residents have to pay stable. In some cases, local authorities are actually discussing reprivatising essential services or continuing their public private partnerships (PPP), such as the Gifhorn district authorities. A look at council budgets shows why this could be a sensible option.
Rising fees due to exploding costs
Last year, local authorities in Germany with at least 20,000 residents suffered a 4.3% fall in their revenue, not least due to Covid. Their situation would have been a lot worse had they not received extensive financial aid from central and individual state governments. According to a report published by the consultancy firm EY, this financial aid made up, on average, ten percent of their total revenue.
Despite this financial support, however, local government debt levels are expected to have increased considerably in 2020. A representative survey of 300 local authorities reveals that 47% of those taking part said they were expecting a budget deficit for 2020. At the same time, the share of local authorities that succeeded in achieving a budget surplus is said to have fallen from 54% to 6%.
Saving measures likely to be introduced
22% of local councillors believe that their local business tax revenue will be at least ten percent lower in 2021 than it was in 2019. As neither central government nor the individual state governments will be able to permanently compensate for these local deficits, councils may be forced to make some unpopular decisions to ease their financial burden. 64% of district and town councils are planning to increase their local taxes and/or charges. This will, above all, affect kerbside collections and street cleaning (around 33% of councils expect to increase these fees), followed by water supply charges (32% of councils) and parking fees (29% of councils). What’s more, every one in five local authority is planning to raise property tax and local business tax. Having already greatly reduced their non-essential services, there are very few ways left for councils to save money. Indeed, any financial leeway they do have is getting smaller and smaller in view of the wide range of services and tasks they are obliged to deliver.
The vast majority of the German population, namely a good 56 million people, live in rural districts or small towns.
Given the fall in revenue caused by the pandemic, it would seem to be a good time for district and town councils to not only think about alternative ways to relieve the pressure on them but also to find new sources of revenue. There is certainly room for them to optimise their business operations in the area of cost-intensive essential services such as waste and water management – either by systematically putting these services out to tender or by founding a new PPP company. These joint ventures take over the whole range of essential services that must be provided in a particular sector and, at the same time, take the pressure off the public purse.
47 % of the local authorities taking part said they were expecting a budget deficit for 2020.
The public and private sectors & their market share
The development of the market over the last 18 years underlines just how often this potential is wasted. Looking at the overall picture, municipal companies have a firm hold on the circular economy with a market share of just under 50%. According to the latest ‘Status Report of the German Circular Economy’, the other half is divided up among around 10,700 private sector businesses. While the monopolies commission regularly assesses the market covering the kerbside collection of refuse and recyclables, it does not take the above-mentioned situation into account as it does not include the public sector market share in its evaluations. And yet the share of the municipal businesses in kerbside collections is growing much faster than the market share of all the private sector firms put together. Between 2003 and 2021, it increased by 30.9% as a result of (re)municipalisation measures without any of the services being put out for tender and, consequently, without knowing what prices competitors were charging. During the same period, the share of the three largest private sector companies in the kerbside collection market nosedived by 25.1%. Only small private sector companies, i.e. firms not among the top ten, were able to grow their share by 13.2% during this period. The accusations that are sometimes voiced, therefore, regarding a market concentration among private sector firms can be disregarded.
It is the rural district authorities that are far more likely to make the most of competition to determine the prices for their recycling services. By doing so, they are handling their taxpayers’ money far more prudently. With this in mind, it would be useful for those running large cities, such as Berlin, Hamburg, Munich and Stuttgart, to put the services that are needed for their individual boroughs out to tender. If they did this at regular intervals, then they could check whether the costs charged by their own companies, public-law entities and agencies are still in line with the market.
47 % of the local authorities taking part said they were expecting a budget deficit for 2020.
Great volumes of refuse – great need for action
In 2017, private households in Germany generated 38 million tonnes of refuse. Looking at the overall number of inhabitants, this averages out at 462 kilos per person. The overall amount of refuse collected from the households was divided up into around 13.1 million tonnes of general household refuse (158 kilos per person), 2.5 million tonnes of bulky waste (30 kilos per person), 5 million tonnes of separately collected food and garden refuse (62 kilos per person) and 12.2 million tonnes of separately collected recyclables such as paper and cardboard, glass, light sales packaging, metal, old wood, textiles and other recyclable materials (148 kilos per person).
There is still much untapped potential in each of these individual fractions to curb climate change and conserve natural resources. Special attention should be given here though to recyclable food and garden refuse. A number of advantages are created if this particular type of material is systematically collected; left unused, however, it actually advances climate change. Untreated organic material rots uncontrollably and emits methane, which, depending on how long it is in the atmosphere, is up to 85 times more damaging for the climate than CO2. On the other hand, this material offers two significant advantages if it is collected separately as it can be used to produce energy and compost.
Compost is an indispensable soil substrate that not only supplies nutrients for the agricultural sector but also increases the ability of soil to store water fivefold – a valuable property as the country faces ever longer periods of drought. At the same time, the methane generated in a digester can be captured as biogas and used to produce carbon-neutral energy in combined heat and power units.
Too few households with a food/garden recycling bin
Just under five million tonnes of recyclable organic material are collected across Germany every year. The INFA Institute, however, estimates this figure could be increased to over eight million tonnes. The problem: too much of this valuable material is being thrown away into the residual waste bin. According to the UBA [Federal Environment Agency], almost 40% of the content of general household waste bins is recyclable organic material. Instead of turning it into compost and carbon-neutral biogas, it is being incinerated as outthrow in EfW plants.
To be able to collect as much recyclable organic material as possible, food/garden recycling bins need to be used by households all across the country. Experts, however, estimate that just 55% to 60% of households actually use this bin. This means that just under half of all households are unable to dispose of their kitchen and garden refuse in a separate bin. There are two main reasons for this: firstly, a failure to implement the statutory obligation to have this material collected separately (this became mandatory in 2015) and, secondly, the fact that too many district and town authorities get round this obligation by introducing so-called voluntary food/garden recycling bins rather than mandatory ones.
And so, six years on since it became obligatory to introduce food/garden recycling bins, there are still regions where this law has been implemented poorly and, in some cases, not at all. In 2020, 56 of the 402 district and town councils (i.e. almost one in every seven) did not offer all their residents the opportunity to use a food/garden recycling bin. 15 district authorities do not have a separate collection scheme for recyclable organic materials at all. A further 28 district and town councils have met their obligations by introducing a system whereby local residents must take their recyclable food/garden refuse to their local household recycling centre rather than have their own bin. Being less user friendly, this system results in far fewer recyclable organic materials being collected than is the case with kerbside collections and is certainly not what the legislator had originally intended.
Voluntary bins prevent area-wide collections
Unfortunately, introducing a food/garden recycling bin does not automatically lead to an increase in the volumes of recyclable organic materials collected. This has been confirmed by NABU [German Nature and Biodiversity Conservation Union], which recently analysed the volumes of material being collected each year. This analysis reveals that even though towns, such as Herne, Solingen, Bochum and Düsseldorf, and rural districts, such as Zwickau, Havelland and Ostprignitz-Ruppin, have introduced the food/garden recycling bin, less than twelve kilos of organic materials are collected there per capita per year. The German average is 60 kilos per capita. It is, therefore, not enough to offer such bins on a voluntary basis. Too few households are making the most of this opportunity. Collection volumes remain too low and a further chance to curb climate change is wasted.
A variety of districts are showing the way
And yet, with a market share of 46.3%, it is the municipal service providers that clearly dominate kerbside collections of recyclable food and garden refuse. Which means they have the leverage needed to increase efforts in their regions to tackle climate change. Many rural districts are already showing how this can be done. Saale district in the German state of Saxony-Anhalt introduced the food/garden recycling bin across the whole of its district in 2017 and made it mandatory. After just twelve months, the per-capita volume of organic refuse collected rose to over 100 kilograms. The same is true for the town of Zweibrücken in the German state of Rhineland-Palatinate where over 115 kilos are being collected per person today. A hoped-for side-effect of this decision has been that volumes of residual waste have fallen by almost 50%, reducing the costs of individual households with their own food/garden recycling bin. The district of Coesfeld and other rural district authorities have also achieved excellent organic refuse collection results and are recycling this material using state-of-the-art technologies.
Untreated organic material rots uncontrollably and emits methane, which can be up to 85 times more damaging for the climate than CO2.
If Germany wishes to achieve its climate goals then it would be wise for local authorities to orient themselves towards these best practice examples – where rural and town districts have already met their obligations and introduced food/garden recycling bins. The private sector is happy to help them find solutions for those areas where introducing such a system might pose a number of logistical and economic challenges.
Image credits: image 1: Adobe Stock: 40151010, creator: arquiplay77, image 2: © REMONDIS