In 2019, the North American waste management market reached
$208 billion. Strict environmental regulations as
well as a surge in the amount of waste produced is expected to
expand the market even further. By 2027, the waste management
market is expected to grow into a $229 billion industry.
Anytime when I'm going to a landfill I talk to my kids and I
talk to my son and daughters, yucky, you're going to come back
as a smelly. I told them, You smell the trash and I smell
money.
America remains one of the most wasteful countries in the world
generating 239 million tons of garbage every year, about 16 or
1700 pounds per person. While some view it as a threat to our
environment in society, others see it as an opportunity.
It's a profitable industry. It's a difficult industry, but it is
profitable. If done right and I think that is why there are so
many private companies that are involved in waste management.
Thanks to advancements in modern chemistry and the support from
the government landfills have seen astonishing financial
success in recent years. Raking in millions of dollars in
profit. Private solid waste management companies like Waste
Management and Republic Services have shown significant growth
over the last five years.
They've learned how to be best in class businesses. And as they
did that, what you saw was this growth occurring in new customer
growth, new business formation linked with consumerism,
consumer engagement housing, and the garbage industry. Publicly
traded stocks outperformed the market handily between 2015 and
2019. And underpinning it is a meaningful improvement in their
free cash flow conversion.
So how exactly are landfills turning profit out of garbage,
and just how much money can be made.
When people think of landfills, they usually imagine an endless
field of garbage emitting a terrible odor and housing all
manner of pests. But modern sanitary landfills today are
much more nuanced and a lot less smelly.
A modern landfill is a civil engineering marvel. These are
extraordinarily well engineered, they're designed to protect
human health and the environment, and at the same
time, contain and manage the waste that we generate at four
and a half pounds a person per day in United States.
If you walk towards the landfill and there is a smell, that means
they're doing something wrong.
Strict regulations and the work by the EPA have changed
landfills to become more modern and sanitary than ever. The
Solid Waste Disposal Act of 1965, combined with the Resource
Conservation and Recovery Act of 1976 dramatically expanded the
federal government's role in managing waste disposal.
Open dumps where garbage is dropped off without any
protection are now illegal. When waste is brought to a sanitary
landfill, they are disposed into an open section known as the
cell. This cell is protected by a layer of reinforced plastic
known as the liner that prevents any harmful liquids from leaking
out. Any liquid from the waste is collected at the bottom of
the landfill and is removed via a series of pipes gravels and
sand. Meanwhile, above ground trash is constantly compressed
within the cell using bulldozers and other compaction equipment
using daily covers to protect the trash from sun, rain and
pests until the cell reaches its max capacity. Once that happens,
either a new cell begins on top or a final cover is placed over.
The site is then continuously monitored for up to 30 years to
ensure everything is environmentally sound.
There is the potential for the miner system to leak, for
example, over long periods of time, and probably more likely
the cover system. You know, it's just going to be subject to that
settling and weathering and different things. So there's
potential for gas emissions, you want to be monitoring the
landfill as long as there's the potential for gas or liquid
emissions.
Landfills make a majority of their revenue even before the
garbage makes its way to the pile of trash through a tipping
fee or a gate fee landfills charged trucks dropping off
their garbage based on their weight per ton. This fee acts as
the lifeblood of most landfills across the United States.
Shipping fee gets its connotation because the truck
comes in and tips, if you will, it literally tips up. The trash
is driven out of the trailer through what's known as a
walking floor. So tipping is it's your gate rate it's the
price per ton, and that is the principal source of income.
In 2020 municipal solid waste landfills had an average tipping
of $53.72 per ton. That translates to roughly 1.4
million a year in approximate average gross revenue for small
landfills and 43.5 million a year for large landfills just
from gate fees and tipping fees have seen steady growth over the
past four decades. In 1982. The national average tipping fee sat
at $8.07 per ton, or about $23 when adjusted for inflation.
That's nearly a 133% increase in 35 years. Tipping fees vary
widely depending on where the landfill is located. For
instance, the south central region in the US has the lowest
average tipping fee of $39.66 per ton, with some states like
Arkansas reporting a fee as low as $30.53 per ton. On the other
hand, the average tipping fee in the northeast is almost double
that at $68.69 per ton. With states like Delaware reporting a
fee as high as $85 per ton.
There's a list of reasons but at its simplest level, is scarce.
So where tipping fees are the highest, I would venture that
you have extraordinarily dense populations and very few
disposal options. The other difference is, the cost of
building done in western Pennsylvania dealing with rock
formations at very shallow level and I literally go 50 miles west
and go to Ohio, the cost of building a landfill in western
Pennsylvania versus Ohio are dramatically different.
While tipping fees make landfill sound like a risk free business,
they are still quite an expensive investment. It can
cost about 1.1 to $1.7 million just to construct, operate and
close a landfill. And there are financial obligations that must
be met even after the landfill has been closed entirely.
There was a major regulatory change that happened in the 70s
called the Resource Conservation Recovery Act by 1994. Every
landfill that was in service in North America had to adhere to
something called Subtitle D which is the design operation
and then the the lifecycle financial assurance obligations
of managing and overseeing that site for 30 years after closing.
So every business owner, whoever owns the business, they make
money up to the time it's working. Then even after close
up, they have to pay the maintenance fee, which is
around $1 million without making money for 30 years. That's part
of their business operation, so they need to make money upfront.
Today private companies have replaced municipal governments
to own and operate the majority of landfills across the US. In
1988, about 7900 landfills were publicly owned. By 2009, that
number had fallen to about 1900. It's now estimated that more
than half of all municipal solid waste landfills are privately
owned, with the industry controlling 85 to 90% of
permitted capacity.
Landfills are often owned by private companies. And I think
it's because the trend has been to go larger and larger so that
the small neighborhood dump can exist because the regulation in
the sophistication of the design so we're tending to see large
landfills, which would require a lot of investment upfront.
Two private companies, Waste Management and Republic Services
lead the Solid Waste Management sector. Waste Management says it
owns nearly 300 landfills across the US, while Republic Service
syas it operates just over 180 out of the 2627 landfills across
America. Together the two companies have seen staggering
performance in the market. With both companies stock prices
doubling in the past five years.
If you take the Great Recession, and sort of lay the framework of
how to garbage perform post the Great Recession. What what
you'll discover there's a five year window up to 2014 where
they did okay. They were you know they were in the green
matching or slightly outperforming the market but the
significant outperformance begins in 2014 through 2019.
They've learned how to be best in class businesses. And as they
did that, what you saw was this growth occurring in new customer
growth new business formation linked with consumerism,
consumer engagement housing, and the garbage industry public
traded stocks outperformed the market handily between 2015 and
2019. And underpinning it is a meaningful improvement in their
free cash flow conversion.
Some government jurisdictions have also transitioned to a
hybrid ownership in places like Wake County, North Carolina
landfills are owned by the county but operated by GFL
Environmental, a private company.
So if you give it fully privatized, a private company
will try to go through the regulation but they're meant
because they'll be making money. To me the combination of both is
the best choice because that way city has some control over the
landfill company. They will look at only for the profit. But city
also needs to make sure that not only the profit, the
environmental sustainability, environmental cases and people's
life, the key everything is maintained in the right way.
Private companies have also discovered new ways beyond
tipping fees to turn profit out of their garbage. Landfill
mining and reclamation a process of extracting and reprocessing
materials from older landfills is one of them.
Certainly looking at waste as a resource is the best thing for
for the economy. It's the best thing for the environment for
health. Putting metal in a landfill just makes absolutely
no sense. It's just gonna sit in the landfill forever and ever
and ever there'll be some corrosion but but it's pretty
much gonna sit there. Whereas metals are so easy to recover
and recycle, and and save so much money and energy and so
forth.
In 2011, a private scrap metal company contracted with a
nonprofit landfill in Southern Maine to mine precious metals.
In four years, they recovered over 37,000 tons of metal worth
$7.42 million. But it isn't always a success story. In 2017,
the city of Denton, Texas ended their landfill mining program
before could even start after realizing that the benefits
weren't worth its $4.56 million price tag. According to experts,
economics is usually the biggest challenge to make landfill
mining work.
There's virtually no way I can see how that makes money, the
commodity values would have to be at such higher levels than
they are today, whatever it is you're trying to get your hands
on.
However, some experts claim that landfill mining can be
profitable if done correctly. That's because mining can often
recover the most valuable asset of any privately owned landfill,
space.
You get new tipping fee, right? You put the trash back into that
little mined space. So as if you build a new landfill without
buying a new space. So that space gives you lot of money,
when you start backfilling. Many people are mining but they are
not reusing the space. So they are saying, oh, okay, we cannot
make money out of money. Yes, you cannot. But if you do the
operation, right, you're never going to be involved, if you
will always make money.
Modern chemistry has also allowed landfills to be mined
for energy. When trash decays inside a landfill, it produces
methane gas. For decades, regulations have required
landfills to suck out this highly flammable gas and dispose
of it safely. landfill gas to energy projects, however, use
the same gas to produce fuel and generate electricity for profit.
The landfill gas operations that are known as low or medium BTO
which are the predominant form of capture the gas policy a
little but turned into electricity or steam and then
sell it. Those are good return on capital projects.
According to the US Energy Information Administration,
landfill gas generates about 10 point 5 billion kilowatt hours
of electricity every year. That's enough to power roughly
810,000 homes and heat nearly 540,000 homes each year.
It just didn't paper where I was looking at how much electricity
you can generate from landfills compared to how much energy
we're using to produce electricity. And it's like, less
than 1% I mean, it's it's a minor contributer to our heav
demands for energy in the US But it's you know, it's 1%. So
you know, it's, it's helpful It's every everything counts
And if you're going to b attacking the gas for othe
reasons, you might as well g ahead and do that if you know i
it makes sense from an economi standpoint to generat
electricity
But it's also a big investment. Landfill gas to energy projects
can cost over $5 million to build and operate, while revenue
from generating energy and fuel doesn't quite cover the cost,
landfills do benefit greatly from generous subsidies.
Many cities went into that landfill gas to energy because
they get the carbon credits, and they get money from the federal
government. When they are producing the gas and capturing
the gas, they're converting that into electricity. The amount of
gas you're capturing you're reducing the greenhouse gas
emission. That's why government was subsidizing not only for
carbon credits are subsidizing because you're reducing the
greenhouse gas emission pressure on the environment.
The tipping fee combined with various mining techniques and
government subsidies have together transformed the
landfill industry into a booming business.
It's a profitable industry. It's a difficult industry, but it is
profitable done right and I think that is why there are so
many private companies that are involved in waste management.
Solid Waste Management will only continue to expand as long as
there are those who view garbage as a resource rather than waste.
Because when it comes to landfills, one man's trash is
quite literally another man's treasure.
Waste is not a waste but it's a resource. Because if you don't
recycle the plastic if we don't recycle the paper, if we don't
recycle the paper what we are going to do we are going to go
and cut more trees. If we don't recycle the plastic we are going
to go after more bio product from gasoline. If we don't reuse
the electronic material, we are going to keep mining virgin
material. World has limited resource. If we don't reuse and
recycle these, we cannot talk about circular economy. That
will always be a talk in the tabletop discussion.