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December 2007

Solid waste sector promotes environmental initiatives

The Rubber Manufacturers Association notes continued good market penetration in the sports surfacing marketplace.

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Waste Management Inc. plans to spend hundreds of millions of dollars over the next dozen years to make its solid-waste operations more environmentally friendly.

The country’s largest solid waste company is not alone, however. All the major players in the solid waste sector are looking for ways to make its vast fleet of vehicles more energy efficient and increase the amount of materials recycled, among other efforts.

“We have historically taken innovative steps to protect and enhance the environment. We are going greener,” said Lynn Brown, vice president of corporate communications at the Houston-headquartered solid waste company.

“That’s why we are monitoring for investment in technology that can be economical and commercializable – we want to bring new, innovative technologies to managing waste in the most environmentally efficient and effective manner.

Waste Management plans to direct its capital spending of up to $500 million a year over a 10 year period to environmental initiatives. Among the goals is to increase fleet fuel efficiency by 15 percent and reduce fleet emissions by 15 percent by 2020.

“We expect these investments to add to earnings, margins and to meet our internal rate of return threshold targets, which has generally been 15 percent,” Brown said.    

“We expect these projects will generate positive cash flow, which can be used for purposes such as share buybacks, dividend payments, debt reduction and acquisitions or investments in our business.” Brown said the company plans to implement the initiatives while maintaining yearly capital expenditures at approximately 10 percent of revenue.

The $500 million is roughly what the company already spends on new trucks, Leone Young, an analyst with Citigroup Inc. in New York, stated in a research note.

“Although not expected to be material over the near term, the environmental initiative will be incremental over time to revenues and returns, as well as positive to the company’s image and an aid to building community relations,” Young said.

“We think it’s important to note that this is also expected to be accomplished within the current capital expenditure parameters or capital expenditures in the rage of 10 percent of revenues annually. This is not expected to be incremental spending,” she said.

Young also noted that Waste Management intends to increase the volume of recyclable materials it processes annually from 8 million tons to 20 million tons in 2020, implying an increase of 7 percent annually. Young said that a significant amount of the increase in recyclables is expected to come from increased electronic waste recycling.

“There’s a global campaign among all industries to be more environmentally conscious, and there are also tax incentives for companies that try to be more energy efficient,” said Stewart Scharf, an analyst with Standard & Poor’s Corp. in New York.

“These initiatives are looked upon very favorably from a political sense, but will likely have a small impact on Waste Management’s overall operations in the near term. However, on a longer-term basis, these efforts could provide solid returns.”
Corey Greendale, an analyst with First Analysis Corp. in Chicago, said Waste Management has been among the most visible among the solid waste companies with its efforts to promote environmental efforts. “They’re more than anyone else, using it as kind of a nationwide marketing effort,” Greendale said. “They have a television campaign nationwide that they have been working on, making sure that they have a good image.”
Phoenix-headquartered Allied Waste Industries Inc., the second largest solid waste company in the country, is investing approximately $200 million annually in new, more fuel-efficient vehicles, as well as installing new technology like oxidation catalysts, said Jesse Stallone, director of sustainability initiatives at Allied Waste. It is also expanding its use of bio-diesel fuels to power a growing percentage of its fleet.
Allied Waste is also focusing on recycling. “Allied’s state of the art recycling facilities process nearly two million tons of recyclable materials annually, including cardboard, newspaper, aluminum cans, plastic and construction materials,” Stallone said.

Fort Lauderdale-based Republic Services Inc., the third largest solid waste company in the country, is also focused on environmental efforts. “We were green before it was cool to be green,” said Will Flower, vice president of communications.

“We have always been a steward of environmental responsibility. Protecting the environment is our business. For years, we have been introducing creative recycling programs for our customers and investing in facilities to process recyclables.”

In addition to Republic Service’s 33 recycling centers located in 21 states, Republic Services has introduced the use of duel-fueled vehicles which can operate on traditional fossil fuels, or cleaner burning fuels such as compressed natural gas.

“We wanted to make it easier for others to be green. After we invested in and constructed a refueling station for compressed natural gas vehicles, we decided to open up our fueling station to other commercial fleets to make it convenient for smaller businesses that are interested in using compressed natural gas in their fleets,” Flower said.

“These smaller businesses probably would not make the switch to compressed natural gas if they did not have a reliable local fueling station that they could depend on.”

Keeping focused on bottom line issues is also important, Flower said.

“Being green is important. So is operating in the black. We evaluate every project to ensure there is an adequate return. The fueling station is an example where we earn a profit and encourage others to be more environmentally friendly,” Flower said.

More could be done, however, Flower said. There needs to be more education among consumers and product makers to boost environmental efforts, he said.

“Far too many consumers do not participate in recycling programs. This is only the first step in the recycling process,” Flower said. “Product makers also need to step up and ensure that outlets exist for the materials they would like to see collected. Product manufacturers must be willing to buy back and reuse recyclable material.”

Flower said the government could also help by stimulating markets for recycled products – especially for items that are difficult to recycle, such as plastics.
“If needed, government should work with product makers to determine the best means to promote the use of recycled materials,” Flower said. “It’s time for people to put their money where their mouth is when it comes to recycling. Many product manufacturers and packagers can be better partners in the recycling process.”