Energy Recovery and Waste: Is There a Trade-Off?

This paper investigates incentives, trade-offs and equilibria in a simplified two-Region model of the final treatment of municipal solid waste. The two regions are identical but for the waste disposal facilities operating in each region, which are: a Waste to Energy (WtE) plant in Region 1, and a landfill in Region 2. In this setting, and in the absence of spillovers, we investigate how waste mobility and the institutional setting (public/private ownership of the WtE plant) affect waste management choices and welfare in the two Regions. When waste mobility across Regions is not allowed, the institutional setting is uninfluential, but it does not necessarily minimise its environmental damage. Allowing for mobility when the incinerator is publicly owned, leads to an equilibrium outcome which is both globally efficient and Pareto improving for the two Regions. Compared to the no-mobility case, the optimal level of recycling is higher in Region 1 and lower in Region 2; moreover, the total amount of waste incinerated is larger. Finally, the mobility scenario with private ownership may not be welfare improving for all parties involved.