E-waste is the world’s fastest-growing solid waste stream, and companies are struggling with a deluge of waste produced by their manufacturing processes and products. Some have been illegally exporting their e-waste—which may contain hazardous substances that need special treatment—or illegally dumping it in landfills closer to home.

In 2021, for example, Amazon was caught destroying some 130,000 unsold items in a U.K. warehouse over the course of one week. Among the trashed merchandise were smart TVs, laptops, drones, hairdryers, computer drives, and other electronic devices.

The company acted in line with financial incentives: It was cheaper to destroy these goods than store, repurpose, or properly recycle them.

Yet recovering useful materials like precious metals from discarded electronics can reduce mining and forest degradation. It can also allow many jurisdictions to reduce their dependence on raw materials imports from other countries.

These clashing incentives are causing waste processing systems to fall far short of best practices, according to a new paper co-authored by Assistant Professor Sytske Wijnsma and published in the journal Management Science. She and her fellow researchers—Dominique Olié Lauga of University of Cambridge and L. Beril Toktay of the Georgia Institute of Technology—considered the impacts of various policy interventions on waste treatment and disposal, and offered practical recommendations to help regulators better align incentives and improve ineffective laws.

“Research on these systems is important because they are highly complex and not very transparent,” Wijnsma says. “Often, well-intended policy interventions can backfire.”

Simulating waste streams

It’s estimated that 75% of e-waste globally is exported, typically from the EU or the U.S. to developing countries, where recycling is less regulated. Only slightly over a third of e-waste in the EU is handled in line with waste regulations.

To simulate the confounding dynamics within waste processing chains, Wijnsma and her colleagues constructed a model. They drew from real-life scenarios shared with Wijnsma by Europol, the European law enforcement agency responsible for recommending and enforcing several waste management policies in the EU. The model was intended to shed more light on where in the waste chain incentives are misaligned and at which stages waste can leak from the system through local dumping or export to developing countries.

The simulated waste chain contains two key actors: a manufacturer producing waste and a treatment operator responsible for undertaking waste treatment within a country.

Within the model, waste producers are either the sort that generate high-quality waste—which can create more revenue for the treatment operators because of the high resale value of its component parts—or low-quality waste, which comes with higher hazard levels and lower revenue post-treatment.

The simulated waste chain ferries waste producers and waste treatment operators through three stages, representing a common real-world progression. First, a treatment operator sets a price a treat a batch of waste from a producer. Importantly, the operator doesn’t necessarily know whether the waste will be of high or low quality—which has significant repercussions. If the quality is likely to be low, the operator can’t count on recouping any resale value and would want to charge a higher price to treat it. On the other hand, if the quality is expected to be high, the operator could charge a lower price to process and treat it because they will recoup some value.

Next, the waste producer considers the quoted price and decides whether to contract with the treatment operator or to export the waste—either legally or legally. Currently, many regulations prohibit the export of low-quality waste, while the export of higher-quality waste often remains legal. As a result, exporting high-quality waste is relatively straightforward and inexpensive, while exporting lower-quality junk requires an expensive and risky circumnavigation of laws. Most of the electronic waste currently leaks from the system through export.

Finally, if a treatment operator has been contracted, it can opt to either treat the waste or dump it illegally. The difficulty in that decision lies in the fact that treatment operators typically have to quote a price while the contents of the batch of waste are still mysterious to them.

“You can imagine that operators get containers full of waste and don’t necessarily know the exact quality,” Wijnsma says. “They could sort the waste, immobilize hazardous substances, and recover as much valuable materials as possible, but this is not a profitable endeavor if the waste turns out to be of low-quality.” The decision thus largely depends on a best guess, based on past experiences and market dynamics, Wijnsma explains: “If an operator thinks there’s a very high probability of only getting bad waste, they could be less inclined to properly treat it.”

Addressing system breakdowns

The model highlights two key reasons the waste treatment chain breaks down.

• First, it’s relatively easy for treatment operators to receive payment for treating waste while in fact dumping it—an example of moral hazard, i.e., when an actor faces little or no potential consequence for unwanted behavior.
• Second, export policy has focused primarily on only prohibiting the export of low-quality waste. This can create situations in which the more valuable, high-quality waste is sent abroad, where treatment is cheaper. The result is that local recycling programs and treatment operators are left with mostly low-quality waste, which creates cascading effects. Operators have a greater incentive to dump the waste they receive since it’s very likely not profitable to treat.

Wijnsma and her colleagues formulated this second dynamic into one of their key recommendations: Regulations that treat high- and low-quality waste dramatically differently are likely to backfire. She calls this pattern the “waste haven effect,” wherein waste exports tend to flow to the countries where regulations and costs are lowest.

“Because of that, there’s been a large focus on trying to even out regulations between countries,” Wijnsma explains. A similar phenomenon occurs when regulations focus on low-quality waste and leave high-quality waste unregulated. “If you strengthen regulations for one waste category too much compared to another, then you also create perverse incentives.”

Another of the research team’s policy recommendations seeks to address the moral hazard problem by holding waste producers responsible when their downstream waste is disposed of improperly.

Notably, new laws in the EU and some U.S. states are trying to enforce that very shift. Extended Producer Responsibility (EPR) regulations place responsibility for the proper management of post-use products that contain hazardous materials with the producers that made them. In practice, this has required producers to simply contract with treatment operators to deal with their waste. But Wijnsma says that the paper’s findings suggest the laws should go even further.

“A still-nascent practice…is fining the manufacturers when they contract with treatment operators who are found to be engaged in dumping,” Wijnsma says. In other words, producers must be held accountable for not only contracting with a treatment operator, but for contracting with a trustworthy one. “Our results support expanding regulations where the producer can be held (partially) responsible for downstream violations,” she says.

Read the paper:  

“Treat, Dump, or Export? How Domestic and International Waste Management Policies Shape Waste Chain Outcomes”
By Sytske Wijnsma, Dominique Olié Lauga, and L. Beril Toktay
Management Science, December 2023