Global financial slowdown and its impact on SWM industry

Here are some more thoughts for the current crisis and their impacts to our industry, just some more thoughts to stimulate a fruitful discussion.


In Chinese language crisis and opportunity are symbolized by the same ideogram. What a perfect symbolism for the current financial crisis which will definitely strengthen the role of China and other emerging countries like Russia, India etc. Of course you need not to learn Chinese in order to understand that “sepsis (biological degradation) is the kingdom of creation” as Carl Marx mentioned 150 years ago.


I recall this phrase in order to outline that the current crisis is not a temporary illness that will pass easily with some medicines, even if those medicines cost 1.5 trillions $, which means one or two orders of magnitude more than the money necessary to provide medicines worldwide for 5 years! It seems much more like a partial biological degradation of one of the pillars of the global growth last 30 years, the glamorous financial services sector. Almost no one could imagine such a collapse few years before, although there were certain economists that were speaking for a no way coming ahead, but not in that manner as far as I know.


But what was underestimated? In my opinion, speaking technically and not financially, the main failure factor that drove to a so sudden and violent collapse was the degree of complexity achieved globally. Complexity is measured by the quantity of data required to describe a certain situation and practically, due to the totally uncontrolled free movement of “toxic” funds, the interactions between different financial institutions, governments and investors became so thick and “self growing” that the data required to describe them was practically non available (even if someone wanted to get it, which is not the case obviously). As this kind of complexity was expanding around the world it created a network of “risk transfer” from one to another institution or investor and finally the loop closed and this network was transformed in a global rope.


And this should be considered as key – message #1: in the era of globalization the complexity of our world becomes so high that leads to unpredictable results rapidly. This is not something new for everyone who is involved in environmental issues. We all know very well that climate change problem is a result of complex global interactions that gradually created an almost unpredictable result. And our main problem regarding climate change is that we are not yet in a position to coordinate globally actions against climate change because the environmental problems are still faced on a national basis, ignoring their global effects and complexity.


Key – message # 2: The governments globally found out a way to coordinate in order to prevent the collapse of the financial system. And although it is not an easy task they will finally manage it, one way or another, sooner or later. That means that global cooperation against common threats is possible even today, with the current level of globalization and international cooperation tools. We should grab this as an opportunity to outline that global cooperation is possible for environmental problems as well, first of all for the fight against climate change. We should highlight that if global action and intergovernmental coordination have already realized in order to save the financial sector they could be also realized to save the planet as well as the almost one billion hungry people of it (with much less cost by the way).


If the USA government found a way to inject markets with a trillion $ for the banks, how to hell is it incapable to finance with 50 billions $ the social health program? If the Greek government found 5 billions € available to finance banks with difficulties how to hell is it incapable to close the dumpsites in the country? I am sure you know the answer. It is simply a matter of priorities. And as the current crisis is clearly shown us priorities in our world have to be set again. That is a great field for environmental and humanitarian NGOs and ISWA should utilize it as much as possible.


There is also another Key-message (#3) from the current crisis. The golden boys that shoot our heads with “easy profits with almost no work” are for the time being “dead men walking”. And we must act in order to finish with their fake values too. It is now obvious that the paranoia for “profitability with any risk” led the world to this crisis. The same paranoia created a totally wrong view of the hard working people and pushed golden boys in top positions in a lot of companies. If there is a lesson from this crisis it is a simple and old one: there is no free lunch out there, even if you are the top investment bank in the world.
Now let’s move to the impacts to Solid Waste management industry. Obviously we can recognize some major changes for the near future:

Funds for new waste management infrastructure will be less available and more difficult to “pump” them.

Capital will be much more expensive and risks (which are always high for waste management projects) should be evaluated and priced higher.

Those two points will certainly create problems in the implementation and preparation of major Public – Private Partnership projects.
As it is obvious from the 20-10-2008 announcement of Veolia (http://www.euro2day.gr/ftcom_en/126/articles/385711/ArticleFTen.aspx) new investments will be reduced and profitability will be considered more risky even for multinational giants.

I think that we can also assume a strengthening of the already existing consolidation wave to SWM industry for the next 2-3 years.

One more obvious remark is that uncertainty is going higher in all levels, thus the business environment will become more conservative in any case.

As everyone is predicting safely consumption patterns will be modified. Certainly consumption will be reduced and waste will be less, thus operators will have less waste to handle and thousands of jobs will be lost.

Less obvious is that waste composition will change as well. Let’s have a look at what Tamar Lewin wrote in New York Times (19-10-2008) for the upcoming crisis era:

“Buying patterns too, can be predicted in economic downturns, according to Leo J. Shapiro, who has tracked consumer behavior since he was a young man in the late 1930s. “DURING a recession, laxatives go up, because people are under tremendous stress, and holding themselves back,” said Mr. Shapiro, now chief executive of SAGE, a Chicago-based consulting firm. “During a boom, deodorant sales go up, because people are out dancing around. When people have less money, they buy more of the things that have less water in them, things that are not so perishable. Instead of lettuce and steak and fruit, it’s rice and beans and grain and pasta. Except this time the price of pasta’s so high that it’s beans and rice.” A recent Nielsen report listed tobacco, carbonated drinks and eggs as especially vulnerable to recession, and candy, beer and pasta sauce as recession-proof.”

A last but not least comment about recyclables is necessary. Extraction of raw materials will be less due to reduced consumption. Their prices will go down as well (they have already been pushed down by 25-30% for some materials like cooper or aluminum). Thus recycling will be more difficult because recyclable materials will be less competitive to raw ones. This is my feeling and I hope it is going to be a wrong one.
Let’s summarize the expected impacts.

Less funds available for infrastructure. Impact High for developed countries – medium for the rest

More expensive capital and risks – reduced bankability. Impact High for all PPPs

More consolidations. Impact High to medium

Less waste – less jobs in SWM industry. Impact High for industry “giants” – medium for the rest

Changes to SW composition. It sounds logical but no impact estimation can be done

Less extraction of raw materials. Impact Medium

Less recycling. Impact Medium to low (I hope)

A comment by George Sbokos regarding financial Vs climate crisis

This is a comment posted by my good friend George Sbokos who happens to be one of the very few lawyers I know with high environmental expertise. George is also running the web-site ECOTHESIS (http://www.ecothesis.gr/) which is unfortunately available only in Greek language – I hope that George is going to prepare and English version too. Thanks a lot George for your contribution.

“Polluter pays, speculator pays
In the upcoming World finance meeting and according to the declarations of Nicolas Sarkozi, a new compromise solution has to be found in order to get consensus for the climate protection aims (http://www.faz.net/s/RubEC1ACFE1EE274C81BCD3621EF555C83C/Doc~E6F7654340A55456BAD032FEB4EB3CFB1~ATpl~Ecommon~Scontent.html).

That should happen before January. Italy’s Prime Minister Berlusconi demanded already a suspension of the treaty’s (cut down C02 emissions) provisions. At the same time Poland, together with other five EU members, incl. Greece (!) are threatening with a veto. (http://www.reuters.com/article/environmentNews/idUSTRE4922NT20081003).

Under these circumstances the Solid Waste Industry, just like any environmental business will be politically directly affected. Indirectly, financially the impacts may stay for the next years because of the global financial crisis.

The main proof -at the time being- of the global hierarchy of environmental issues can be seeing on the comparison between the global reactions after the climate crisis (Fourth Assessment Report (AR4), published in 2007, the Intergovernmental Panel on Climate Change (IPCC)) and the present reactions after the economic crisis.

Nothing binding in the first case, globally bound in the second. Not a penny in the first case, billions of dollars in the second. Money versus Climate at it’s best!

What really matters now is the exploitation of the unfortunate (?) turn of the economy, and the reconsideration/combination of the decision making and the enforcement of some main environmental issues. The global community has to be convinced, that the solution tunnel out of the crisis leads to the environmental management. The taxation of the natural resources, the reduction in employment taxation has to be taken under consideration.

It is a time of change and that was already foreseeing. The door to a Meta-industrial period is viciously opened, in accurate accordance to the vicious environment where it roots. A new chance for environmental policies is born. Though, next to the enforcement of the “polluter pays” principal, a frame of “speculator pays” liability has to be met

George Sbokos”

III International Conference on Municipal Waste:“THE EUROPEAN RECYCLING SOCIETY FROM THE NEW WASTE FRAMEWORK DIRECTIVE”

Lipor- Serviço Intermunicipalizado de Gestão de Resíduos do Grande Porto, and the Institute for the Sustainability of the Resources (ISR) jointly organise the III International Conference on Municipal Waste, which will be held next 23rd and 24th October 2008 in the city of Porto (Portugal).
With the recently approved new Waste Framework Directive as a backdrop, the Conference will raise the key elements like the application of the waste hierarchy, the prevention programmes, the reuse and recycling targets, the biowaste, the energy efficiency and recovery concepts, by-products versus wastes, and the extended producer responsibility.
With the aim of gathering together all the involved actors for a deep, rigorous, and at the same time, calm and impassioned discussion on the different elements that will shape the new paradigm, the Conference becomes the perfect scenario to get first-hand information on this new Directive.
The Conference will be organized in seven Sessions and one Roundtable Discussion. Each session starts with a welcome and presentation in charge of the Chairman; later a “Keynote Speaker” will present a report on the topic of the Session; and finally there will be one panel composed of two speakers, one Portuguese and the other Spanish, where they will set out their points of view and experience on the topic of the Session.

Call for vote regarding the Waste Management Industry and the Global Financial Crisis

I invite everyone to vote for the answer to the question "Is Solid Waste Industry affected by global financial crisis?" as it seems on the right side of my blog.

I also accept the call for debate regarding Waste Framework Directive and I encourage evryone to write about it. I will also do the same as soon as possible.

Call for debate regarding the new Waste Framework Directive

Dear Antonis

As you will know , the revised Directive is likely to be adopted by the EU Council of environmental Ministers on 20/21 October. Following its publication in the Official journal, Member States will have two years to transpose the revised Directive into national law. The Greek government I hope will be carrying out extensive public consultation during that two year period in order to decide how best to implement it.

In addition , if you wish , we could have a debate through your excellent blog , on how the WFD would be implemented.

I hope this is helpful,

Yours sincerely

Andrew Kouskouris

One more comment from David for global financial meltdown

It's interesting that Greg takes a US privatistic view point. In Europe, where services are paid for by municipalities, our companies working on a tender contract basis for local government entities, whether public or private companies, all face the financial stress - the growing inability of local governments to collect taxes and pay their bills.

In Italy we are already working on a payment time of six months; in Sicilly famously private companies are owed over 600 million Euros by local authorities, a debt rising monthly and now growing over 18 months.

As tax revenue falls so will many business models dependent upon local governments' ability to pay. So while our services will be required, the capacity to pay for them is falling.

David

Global crisis and waste management industry? A comment by Greg Vogt

It seems that David hit a hot-spot. Andrew Kouskouris, Chairman of the Hellenic FEAD, raised a question about waste management industry and global financial crisis and my good friend Greg Vogt, Managing Director of ISWA, gives an initial response to that question (thanks a lot for that Greg):

"It is important that we in the solid waste stick to doing what we do best, and when predicting the future, use what facts we know and make estimates based on solid assumptions. A few points to offer:

- it is a good time to encourage colleagues and employees to continue to work hard and be productive. There remains a high value for getting things done, regardless of global financial problems.

- during work slowdowns, companies and organizations often take advantage of the time to regroup, educate and train their best personnel, and take a keen look at their marketing approaches so make good value of their resources.

- the need for immediate waste collection and disposal services is very different than the need to make a retail purchase (say, shoes or cell phones). The waste industry generally has the long view with regard to purchasing equipment, servicing customers, compliance with regulations and environmental protection rules, and sustaining recycling programs.

- Those that wish for you to be nervous are winning. "

Obviously, there must be an open forum about global crisis and the future of waste management industry. I invite everyone to start it from this blog, now...

Global financial meltdown - written by David Newman

This is a note from David Newman, a nice looking + thinking friend, member of ISWA Board. He kindly permited me to publish his thoughts regarding global financial meltdown. I found theme very interesting and I am sure that all readers will do the same. Thanks a lot David and I hope that this will be just your first contribution...

"The impact in the real economy of this year's financial meltdown will now start to make itself felt. And we are all about to be hit by an economic tsunami.

The banks can no longer finance themselves through inter bank relations. This means they are without liquidity. They will not therefore be financing companies at risk, even for solid companies ordinary day to day financing is at risk.

Vulnerable companies in all sectors are now going bust; this will escalate rapidly in the next weeks. By the year end this will have caused a significant increase in unemployment worldwide. Solid companies have frozen new investments, either for lack of bank financing or due to adverse risk factors. Export led economies are equally vulnerable as their major markets shrink. We will see unemployment rise here too leading to widespread social unrest.

Those economies that have benefited from high prices of raw materials will be particularly hit as the investments made on the assumption of increasing prices became unsustainable.

The western economies have a varied capacity to react because some of them are overleveraged already and have no further lending capacity. Others are reasonably immune because they have small domestic economies based on services. Among the first are GB, Italy, among the second Ireland, Greece, Belgium.

Our individual investments will be worth much less, or even nothing, in the short term as housing and stock markets collapse and banks fail. Many of us will lose our jobs as companies fail, governments slash spending, consumers spend less.

The power of the western economies will be significantly reduced relative to the east and middle east, awash with years of accumulated export and mineral wealth. But the key will be to what point the western economies will be able to sustain their unemployed masses before social breakdown occurs.

The measure to protect savings accounts are necessarily limited; taxpayers payments to governments being used to guarantee taxpayers savings- the mathematics doesn't work if that guarantee needs to be given over a long term.

So what to do ?

A first reaction is to go out and celebrate ! What the hell. But after the hangover we've all got some very serious thinking to do, and our collective reactions will determine for how long the depression will last.

For those of us with debts, by dramatically cutting our spending we will contribute to an economic depression; by not doing so we are ignoring the reality of our individual vulnerability and will shorten the time in which our banks close the credit lines. For those of us with savings in the banks, it's a frightening period- are they safe ? Are they hell ! But what do you do with these savings ?

Interest rates will now fall dramatically and leaving money in the bank will mean seeing its real value decline. And it is this group which will inevitably lead us slowly out of the mess as they withdraw their savings and take advantage of cheap markets to buy- property and shares mainly.

It takes a brave man to invest today but the profits from doing so in the medium term will be extraordinary. Companies have stock values so low they are give aways; fire sales of houses make some properties incredible bargains. They will reach the point of the early 1990s when to buy a house cost less than to build a new one- then is the time to buy and the whole economy will start to move again. It's two years before this happens.

Two years in which we've all got to face insecurity, fall in spending power, actual or relative poverty. A dramatic response to a decade of over spending fuelled by cheap money and sheer greed.

One bright note: economic decline will mean the use of less resources and may actually benefit the environment. Take some comfort from that if you can !

David
October 6th, 2008"

Some words about the global financial meltdown from David Newman

This is a note written by David Newman, member of ISWA Board. David sent it by e-mail and he kindly permited me to publish it



The impact in the real economy of this year's financial meltdown will now
start to make itself felt. And we are all about to be hit by an economic
tsunami.

The banks can no longer finance themselves through inter bank relations.
This means they are without liquidity. They will not therefore be financing
companies at risk, even for solid companies ordinary day to day financing is
at risk.

Vulnerable companies in all sectors are now going bust; this will escalate
rapidly in the next weeks. By the year end this will have caused a
significant increase in unemployment worldwide.

Solid companies have frozen new investments, either for lack of bank
financing or due to adverse risk factors.

Export led economies are equally vulnerable as their major markets shrink.
We will see unemployment rise here too leading to widespread social unrest.

Those economies that have benefited from high prices of raw materials will
be particularly hit as the investments made on the assumption of increasing
prices became unsustainable.

The western economies have a varied capacity to react because some of them
are overleveraged already and have no further lending capacity. Others are
reasonably immune because they have small domestic economies based on
services. Among the first are GB, Italy, among the second Ireland, Greece,
Belgium.

Our individual investments will be worth much less, or even nothing, in the
short term as housing and stock markets collapse and banks fail. Many of us
will lose our jobs as companies fail, governments slash spending, consumers
spend less.

The power of the western economies will be significantly reduced relative to
the east and middle east, awash with years of accumulated export and mineral
wealth. But the key will be to what point the western economies will be
able to sustain their unemployed masses before social breakdown occurs.

The measure to protect savings accounts are necessarily limited; taxpayers
payments to governments being used to guarantee taxpayers savings- the
mathematics doesn't work if that guarantee needs to be given over a long
term.
So what to do ?
A first reaction is to go out and celebrate ! What the hell.
But after the hangover we've all got some very serious thinking to do, and
our collective reactions will determine for how long the depression will
last.
For those of us with debts, by dramatically cutting our spending we will
contribute to an economic depression; by not doing so we are ignoring the
reality of our individual vulnerability and will shorten the time in which
our banks close the credit lines. For those of us with savings in the banks,
it's a frightening period- are they safe ? Are they hell ! But what do you
do with these savings ?
Interest rates will now fall dramatically and leaving money in the bank will
mean seeing its real value decline.

And it is this group which will inevitably lead us slowly out of the mess as
they withdraw their savings and take advantage of cheap markets to buy-
property and shares mainly.
It takes a brave man to invest today but the profits from doing so in the
medium term will be extraordinary. Companies have stock values so low they
are give aways; fire sales of houses make some properties incredible
bargains. They will reach the point of the early 1990s when to buy a house
cost less than to build a new one- then is the time to buy and the whole
economy will start to move again. It's two years before this happens.

Two years in which we've all got to face insecurity, fall in spending power,
actual or relative poverty. A dramatic response to a decade of over spending
fuelled by cheap money and sheer greed.

One bright note: economic decline will mean the use of less resources and
may actually benefit the environment. Take some comfort from that if you can
!

David
October 6th, 2008

Recycling Benefits Vs Transport Impacts: globalisation makes Life Cycle Thinking a Necessity

The rise of recycling rates in developed countries and the contemporary growth of China and other big Asian economies have created a global transfer network for recyclable materials. Only in 2007, 4.7 million tones of recovered paper and half a million tones of recovered plastics were exported from UK.

Everyone who is involved, even a little bit, in Solid Waste Management and Life Cycle Thinking, knows very well that there are two major findings:

· Recycling is useless without a facility, even far away located, to receive recyclables and drove them back to a new Life Cycle loop.
· The results of Life Cycle Analysis are strongly depended on the geographical boundaries of the system because for some materials regional, national or even continental borders are not enough to materialize the actual benefits of recycling.

As the Climate Change factor got more and more important in decision making, it became clear that the more the distance of transfer the less the global benefits from recycling. Due to the globalization process and the differential requirements for raw and secondary materials between developed and developing countries, a new question emerges: is it worth to recycle if the actual close of the material life-cycle loop will be thousands miles away?

Although we can be quite sure regarding the benefits of recycling, it is a question whether those benefits are traded - off if we take into consideration the CO2 emissions from recyclables transfer for thousands miles.

Trying to answer to that question is not a simple task, but under certain assumptions and limitations WRAP provided an answer in the new report:

“CO2 impacts of transporting the UK’s recovered paper and plastic bottles to China”

The report is available at http://www.wrap.org.uk/

The major finding is that CO2 emissions associated with transporting one tone of recovered paper from the UK to China are estimated to lie between 154kg and 213kg of CO2. The emissions associated with CO2 impacts of transporting the UK’s recovered paper and plastic bottles to China 4 transporting one tone of recovered plastic bottles range between 158kg and 230kg of CO2. These CO2 emissions levels represent less than a third of the carbon savings from recycling identified by a majority of the life cycle assessments (LCAs) reviewed in the study. This suggests that there are CO2 savings to be made from recycling, even if the recovered materials have to be transported to China.

Reading this interesting report I made some more general conclusions.

The result confirms something that we already know: in order to achieve significant benefits from recycling a global network should be developed for recyclables management and utilization. For this network we need a set of flexible but effective rules and regulations that will assure that what is gained locally by recycling will not be lost globally by inappropriate management of recyclables.

Like all the Climate Change issues, recycling either it will be a global practice or it will die. Once again the future of our planet calls not just for cooperation but for a global recycling consortium which will include all continents and all countries. Is that possible? The answer is unknown but ISWA has a very important role to play in order to make it a “Yes”.

And last but not least, in the era of globalization Life Cycle Thinking should be a minimum requirement in order to take decisions for environmental issues. Our planet has become too wired to avoid it…