Incentives for Recycling: Mitigating Risks to Downstream Firms

"There are a number of environmental incentives for increasing recycling, including the reduction of waste, energy and resource use. Recycling can also be advantageous for manufacturing firms in both the short and long term. Secondary material can substitute for primary material, potentially dampening primary material price increases and reducing the pressure for greater primary extraction. This paper examines the potential for and dynamics of recycling for the case of platinum using a dynamic, behavioral simulation model of the primary and secondary markets. Since the secondary supply of platinum depends on a supply chain separate from primary extraction, recycling can diversify the risks of primary supply instabilities. Over time, recycling can cut primary consumption, reduce overall costs to firms, and possibly reduce the impact of price fluctuations upon firms.IntroductionThe benefits of recycling, from the perspective of the environment, are many, and the environmental benefits of increased recycling are considered a step towards increased sustainability [1, 2]. Life cycle assessments indicate that obtaining materials from secondary sources generally requires less energy and has fewer environmental impacts than extraction and refining of primary materials [3]. Analyses of materials flows show that, in addition to landfill volume reduction, recycling reduces primary material consumption, affecting long term materials scarcity [4, 5].The benefits of recycling are not limited to the environmental. Firms can benefit from the lower energy costs of recycling, especially that of metals whose primary extraction and refining are particularly energy-intensive (e.g., aluminum). The routine participation by firms in secondary materials markets (e.g., www.recycle.net) shows that this advantage has not gone unnoticed.Recycling can also benefit firms whose costs can be significantly affected by changes in material prices resulting from material shortages and material scarcity, with potentially permanent effects upon firms [6-8]. This paper focuses on the impact of recycling in the face of platinum scarcity for supply chain downstream firms."