2020 Review and Outlook for 2021

Date: February 11, 2021

Source: News Room

Everyone can agree that the defining characteristic of the last year has been the COVID-19 pandemic and the drastic effects it had upon the economy, and by extension, the waste and recycling industry. At its peak, double digit declines in GDP led to close to 20 percent declines in commercial waste volumes, especially as workers not laid off were relegated to working from home. Subsequently, residential volumes spiked upwards of 15 percent often overwhelming municipal collection and recycling programs. It was a double whammy for haulers who had lost volume from higher margin commercial business whose service is charged according to weight or volume while subsequently incurring higher disposal costs on increased residential volumes whose pricing is often service based or rather fixed by contract. On top of that were new safety challenges to protect workers and customers. Waste firms responded by implementing cost-saving measures, deploying more technology, and looking harder at strategic acquisitions to create economies-of-scale.


Economic Recovery

Companies have been reporting that as of their third quarter, between 70 to 80 percent of their pre-pandemic commercial business had returned. Landfill volumes have also been recovering in line with the economic recovery and are currently projected to reach breakeven with pre-pandemic levels in the second quarter depending on the vaccine rollout and the ability of some businesses to recover, especially restaurants, hotels, and entertainment venues.



Landfill pricing as of December 2020 was up 4 percent over the year, at $54.93 per ton $52.78 per ton in December 2019. Pricing discipline, which held throughout the worst of the pandemic, stalled as companies and municipalities struggled to hang on to business from cash-strapped customers. Over the longer term however, pricing has been strong reflective of a strong pre-COVID economy, decreasing landfill capacity and pricing discipline exercised by the large waste companies.

Pricing leverage remains in open markets with core prices expected to be in the 4 to 6 percent range and reported prices between 2 and 4 percent.

See also: Landfill Volumes and Pricing Evidence the Recovering Economy.



Despite lingering concerns about the potential for an increase in the capital gains and/or corporate tax rate under a Biden administration, companies are likely to predict continued strong M&A activity and robust acquisition pipelines. This is perhaps best typified by Casella Waste, which raised roughly $150 million in an October 2020 equity offering, expressly for the purpose of acquisitions. However, Casella will face greater competition for acquisition targets in its Northeast region as Wheelabrator Technologies, backed by Macquarie Infrastructure and Real Assets (MIRA), has become more aggressive and is now among the area's more active acquirors.

Although GFL is digesting two large acquisitions, it has also noted that it still has a large appetite for tuck-in acquisitions, targeting 25-30 small tuck-ins per year. RSG has also talked about another above-average year of M&A activity.

The potential for increased regulation under a Biden administration, as well as greater deployment of technology across the industry, will likely also remain ongoing drivers of consolidation within the industry.

See also: Despite All - a Surprisingly Good Year for Mergers and Acquisitions.


Materials Recovery

Recycling rates have dropped in recent years as the growth in waste generation has outpaced the ability of municipal recycling programs to keep up. These programs have been hurt by a drop in commodity prices as direct result of China's 2018 imposition against accepting contaminated materials. Consequently, many programs were either shuttered or forced to scale back. The situation has been further exacerbated by the pandemic which led to a spike in packaging wastes and single-use plastics like face shields, takeout food containers, bubble wrap for online orders, and plastic bags from grocery deliveries.

One bright spot over the past year has been the recovery of recycling commodity pricing. Fiber has experienced steadily increasing prices and natural HDPE (high-density polyethylene) hit record high prices. China was expected to end all imports of OCC in 2021, which was thought likely to put pressure on OCC pricing. While China does seem to be moving forward with this, domestic demand for OCC, and just as positively, for mixed paper remains strong, given the domestic mill capacity that has come online. The Northeast Recycling Council's (NERC) recent report lists 28 expansions or additions between 2018 and 2023, of which at least nine have already been completed. Metals prices have also been trending higher on the back of positive manufacturing reports from China and the major developed economies, which generally bodes well for scrap demand. Manufacturing Purchasing Managers' Index (PMI) reports are signaling continued growth ahead, albeit at slower rates than previously reported.

And, while many struggled over the past year, the ongoing worldwide shortage of shipping containers suggests that the waste and recycling industry will need to handle additional materials in the future.

See also: Wild Ride for OCC in 2020.


Producer Responsibility

Recent developments hint that momentum may be building for consumer product companies to share in the burden of recycling. The idea of extended producer responsibility (EPR) has been around a while but has traditionally been resisted by manufacturers. It is meant to help cash-strapped municipalities to deal with evolving recycling markets and would draw inspiration from recycling laws in Canada and elsewhere that shift at least a portion of recycling costs away from local governments, much the way producers of tires, electronics, batteries, and paint already do in New York and in many other states. The difference is that in focusing on paper, plastics, metal and glass, anything to do with packaging, would target more than a third of the waste stream.

Funds could lead to upgrades at MRFs and other recycling infrastructure. It also provides incentives for consumer brand owners to use more recyclable materials and reduce their packaging overall. A national trend could be emerging as other states including New York, California, Indiana, Massachusetts, Maine, and Oregon are considering similar bills and appear eager to be part of the conversation.

See also: EPR Bill Could be Model for Other States.


Environmental, Social and Governance (ESG)

According to industry consultant KPMG, close to 90 percent of North American companies now report on sustainability under the rubric of environmental, social and governance (ESG). Driving this trend is rising societal concern about environmental issues such as sustainable development, environmental protection, and climate change, and social issues like labor practices, board diversity, executive pay, product safety and business ethics.

The waste industry has much to boast of in promoting ESG principals especially regarding recycling and resource management, operating low-emissions vehicles as well as social initiatives like deploying worker safety programs and elevating more women and minorities into its upper ranks.

Recycling in particular plays a critical role in conserving natural resources, reducing energy costs and greenhouse gas emissions, and preserving low-cost raw material inputs for our manufacturing industries.

Publicly traded green company stocks have recently risen in value as institutional investors poured $80 billion into sustainable or ESG funds world-wide in the third quarter of last year, up fivefold from the quarterly rate in 2018, according to Morningstar.

Investment in ESG will likely get a big boost from initiatives laid out by the incoming Biden administration. President-elect Joe Biden campaigned on requiring companies to provide more detail on environmental risks and greenhouse-gas emissions as part of a broader agenda to combat climate change.

See also: Focus on ESG Likely to Drive Development of Green Tech.

See also: ESG Drives Energy Firms to Pursue Renewable Natural Gas Projects.

See also: Most Companies Now Report on Sustainability.


Legislative Outlook

President Biden campaigned on the promise of tough environmental action and followed up on that with a host of executive orders during his first week in office. Among them are plans to rejoin the Paris Agreement, review rollbacks of environmental regulations under the previous administration, pause oil and gas leases on federal lands, set goals to reduce emissions, and address environmental justice, among others. There will also be incentives for onshoring and renewable energy investments rising in prominence among policy levers to spur job growth with protectionist tendencies remaining in place in the first year.

However, there will be limits to what Biden can accomplish through legislation given that currently, 60 votes are needed in the Senate to overcome a legislative filibuster. Democrats would need unanimous support from their own party in the house and all 50 senators or at least some support among Republicans in both houses to pass any meaningful legislation including tax increases.

The administration and Congress also have other more pressing priorities that include the pandemic, the economic downturn, immigration reform, improving Obamacare, addressing continued racial and social strife, the aftermath of the attack on the Capitol and the impeachment trial, among others. All of which is likely to consume Congress over much of the next year.

Pertaining to the waste industry, the administration's initial focus is likely to be on climate change and environmental justice. One of the president's executive orders called for a review of the EPA's Emissions Guidelines for Municipal Solid Waste Landfills (EG). EPA will likely press ahead with enforcing new source performance standards (NSPS) on landfills, finalized in 2016 as revisions of regulations put in place in 1996, but delayed by the Trump administration.

Another regulatory focus is likely to be Per- and polyfluoroalkyl substances (PFAS) which will likely to get a federal maximum contaminant level (MCL) under the Safe Drinking Water Act and possible designation as a hazardous substance under the Superfund program. This would increase the cost to landfills to process leachate.

The administration will also likely focus the EPA on finalizing its National Recycling Strategy, especially amid of the public's awareness of marine plastics and China's discontinuation of imports of municipal recyclables, as recycling is an effective way to address climate by conserving energy and natural resources.

Spent Coal Ash (Coal Combustion Residuals, or CCR) may get renewed attention as environmental justice issue and as an ongoing environmental concern. The president's appointee to head the EPA Michael S. Regan is credited with reaching the largest coal-ash cleanup settlement in the country. In 2012, 470 coal-fired electric utilities generated about 110 million tons of ash. EPA's final rule on April 17, 2015 set requirements for ash disposal as a solid waste under subtitle D of the Resource Conservation & Recovery Act (RCRA), which was the option preferred by states, power companies and the ash reuse industry. However, environmental groups argue that it should be classified as a hazardous waste and therefore subject to regulation under more stringent subtitle C regulation. They also claim EPA set a "double standard" by requiring new ash impoundments to include composite liners to prevent leaks while allowing existing sites without such liners to continue operating, a provision they call "unlawfully arbitrary."

See also: Biden EPA to Review Landfill Emissions.

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