A framework for thinking about ULAB recycling policy

An attempt to prioritize targets for policy intervention

This post was initially a Google Doc I wrote for myself and a few collaborators to try to structure some thoughts around what kinds of policies might most effectively reduce lead poisoning from used lead-acid battery recycling. Since I found myself sending it to someone else the other day, I figured I would post it here as well.

The underlying challenge of informal recycling in LMICs is that it is often more profitable than safer high-standard recycling. Recyclers can substantially reduce costs by neglecting safety (and creating massive negative public health externalities that they don’t pay for). Because they’re more profitable, low-standard recyclers can afford to outbid high-standard recyclers for scrap, leading to a large share of low-standard recycling within a market without government intervention.

---

The objective

Our goal is to shift recycling from informal to formal firms. We can do this in two ways: decrease informal sector profits, and increase formal sector profits.

For informal firms, we can try to increase their costs and decrease their revenues. For formal firms, our goal is the opposite—we want to decrease their costs and increase their revenues.

In the kinds of markets we’re looking at, the supply of used batteries is probably relatively inelastic.¹ Some fixed number of lead-acid batteries come onto the scrap market every month, and that’s where we’ll begin our analysis.

The framework

Informal firms

1. Increase costs

   1. Fixed costs

      1. Equipment. In general, informal firms have relatively cheap and unspecialized equipment. Hard to drive up these costs in a meaningful and targeted way.

      2. Land. Firms operate with relatively little land, asset light model.

      3. Legal risks. This is kind of interesting. If the chance you’re thrown in jail if you run a recycling business is high, that’s a real cost. The odds may be ~0 right now—maybe we can do something like with turmeric and increase these perceived odds substantially but relatively cheaply.

      4. Social cost. Your neighbors think you’re poisoning children and it’s hard to run this kind of business; people don’t want you to live or work near them, etc. Some kind of information treatment fits into this.

   2. Variable costs

      1. Scrap. Can we make it more expensive for informal recyclers to buy batteries? Some kind of buyback system directly tied to formal sector might decrease slippage and leverage formal sector relationships, driving up formal demand for ULABs from importers/manufacturers and requiring informal sector to pay more for scrap as a result.

      2. Labor. Can we make it more expensive to pay people to recycle batteries (or increase what they see as the required compensation if self-employed)? Seems like recyclers are often not fully aware of the health risks to themselves, if they were more aware, perceived health costs might increase. To what extent not clear, depends on outside options etc.

      3. Other misc. COGS. Things like transportation, fuel, etc. But hard to specifically target for informal sector. 

2. Decrease revenues

   1. Quantity of lead they’re able to sell. Implement policies that make it difficult for them to sell to either major domestic buyers or the global lead market.

   2. Price they get for their lead. Can we find some way to create basically an informal sector discount, where they get paid less for the lead because it’s informal? This is where demand-side lead solutions are interesting, could potentially accomplish (a) and (b).

Formal sector

1. Decrease costs

   1. Fixed costs

      1. Recycling plant. Are there specific parts of the recycling plant that are very expensive but chasing the long tail of safety benefits? Can we subsidize plant development? Offer cheaper financing to decrease cost of capital and required return on investment?

      2. Land. Largely the same as the above. Subsidize locations outside of populated areas.

      3. Knowledge. Are there certain kinds of expertise that we can offer recyclers for free that would meaningfully decrease costs to build plants?

      4. Regulation. Are there certain kinds of very cumbersome regulation we might be able to remove?

   2. Variable costs

      1. Scrap. Can we find some way to get them scrap cheaper? One clear angle is eliminating taxes on scrap batteries — could be an effective 5-15% cost reduction basically immediately. Another is to implement buyback requirements to make importers/manufacturers provide them with discounted ULABs.

      2. Transportation. Can we find ways to drive down collection and transport costs for ULABs? May be difficult given how efficient scrap collectors already are in many LMIC markets. A buyback policy likely reduces transportation costs for recyclers, shifting some of that costs to manufacturers/producers (who may be able to do it more cheaply, as in Brazil).

      3. Labor. Maybe some kind of technology that reduces # employees required? Not sure what angle is here.

      4. Energy. Could directly subsidize electricity costs or something (but gets expensive fast), which would be directly tied to recycling volumes.

2. Increase revenues

   1. Increase volume of lead sold. See notes on supply above, not obvious what the angle here is.

   2. Increase the price for the lead they get. Can we create some kind of formal recycler premium that they get for the lead they sell vs the general market?

Potential interventions

Most promising project ideas:

• Eliminate all sales tax for scrap batteries to decrease formal sector costs

• Mandate manufacturer/producer ULAB buybacks and sale to formal sector recyclers

• Implement demand-side regulation to create a premium for formal lead (and discount for informal lead)

Some other things that might have an effect:

• Get governments to publicly crack down hard on informal recyclers, increase penalties and/or enforcement substantially increase real and perceived legal risks to conducting low-standard ULAB recycling

• Inform general public about the kinds of poisoning this creates. Increase social costs and have your neighbors try to make you leave, etc. (May work well alongside increased legal enforcement, provide ways for people to report informal recycling to the government)

• Inform workers about dangers of lead. May somewhat increase labor costs, but these might not be markets where that matters a lot, not a job people are doing because they have a lot of better options

• Develop some great technology to find informal recyclers quickly and give that to regulators who will use it. Both halves of this seem tricky

• Give the informal sector some kind of cheap technology that makes them a little more money but substantially reduces poisoning. This is a nice idea, but have not seen evidence that this exists)

• Try to scale down high-standard recycling and reduce the minimum quantity of scrap they need to profitably operate. Could reduce capital costs and address some of the challenges some high-standard recyclers have in consistently acquiring sufficient scrap volumes

1. There are probably some policy levers you can pull to get this number down. If you can find ways to either reduce reliance on lead-acid batteries (potentially by encouraging shifts to other technologies) or make batteries last longer (likely by improving average battery quality within a country) you can get the ULAB production rate down.