Waste Disposal Cost Savings of Garbage Collection Unit-Pricing System
Attributes
Medium: Land
Country: Philippines
Analytical Framework(s): Least Cost Concept
Unit(s): Prices
Study Date: 2001
Publication Date: 2004
Major Result(s)
| Resource/Environmental Good | PHP, per household (2001) |
PHP, per household (2014)1 |
USD, per household (2014)2 |
|---|---|---|---|
| welfare gain from unit pricing per day | 0.63 | 1.02 | 0.02 |
| welfare gain from unit pricing per year | 9,910,000.00 | 16,049,443.20 | 358,842.43 |
About the Inflation Adjustment: Prices in Philippines (PHP) changed by 61.95% from 2001 to 2014 (aggregated from annual CPI data), so the study values were multiplied by 1.62 to express them in 2014 prices. The study values could be expressed in any desired year (for example, to 2025) by following the same inflation calculation and being sensitive to directional (forward/backward) aggregations using your own CPI/inflation data.
Study Note: As in any policy reform, there will be winners and losers in the short term from the implementation of unit pricing in Olongapo City. Some households will end up paying more since they will lose some of the consumer surplus they enjoyed under the flat fee pricing regime. Other households will pay less than the flat fee and will gain additional consumer surplus. The experimental data generated by this research indicates that there would be more winners than losers. The ratio between them would be 6:4.
Study Details
Summary: This study examines the potential impacts of the unit pricing of solid waste collection and disposal on the solid waste management system of Olongapo City. Currently, the city is under a flat garbage fee regime that has been implemented by the local government since 1989. Under unit-based or quantity-based pricing systems, waste generators are charged based on the quantity of wastes they dispose of. The system, in principle, provides incentives for waste reduction and diversion since waste generators who dispose of more garbage have to pay more, and those who dispose of less garbage, pay proportionally less. Moreover, when the unit price reflects the marginal social cost of waste collection and disposal, there are potential welfare benefits to be gained from shifting to such a pricing program. A unit pricing system was tested in Olongapo City in order to examine how households respond to incentives to reduce the quantity of wastes they dispose of and to estimate the welfare gains it would produce. The system tested resulted in a 24 percent reduction in the household production of non-recyclable wastes and generated an annual disposal cost saving of PHP3.1 million. The potential welfare gains for the city associated with such a unit pricing system were estimated to be almost Php 10.0 million annually. The report recommends that the city should implement such a scheme and makes suggestions for how it should be organized and structured. It also recommends that such a system may be adopted subsequently in similar metropolitan areas across the rest of the country.
Site Characteristics: Olongapo City is located 127 km north of Metro Manila. It has a population of 194,260 (Census 2000) that generates about 66 tons of garbage daily. The city government is directly responsible for solid waste management. This consists principally of a traditional collect and dump system. Households and commercial establishments pay monthly garbage fees for a twice-weekly waste collection service. Waste collection for recycling is done under permit by ambulant collectors. Recyclables are sold to junkshops that in turn sell on to recycling establishments. Households are charged a flat household monthly fee of PhP30-40 (depending on lot size) and commercial establishments a fee of PhP 50-500 (depending on the nature of business and other factors). The garbage fees collected fund the activities of the Environmental Sanitation and Management Office (ESMO) that handles SWM. In addition to waste collection and disposal, ESMO also handles other city services such as sanitation and beautification. During recent years, the City has been incurring deficits as garbage fees collected have not covered expenditures. This deficit is charged to the City Government's budget. In turn, the City government has resorted to periodic fee increases to cover its losses. Three fee increases have been imposed since the fee system was implemented in 1989, with the most recent one taking effect in September 2002.
Comments: The study noted that it would have been ideal if the city government had agreed to suspend the fixed garbage collection fee and replace it, for the duration of the experiment, with a unit fee for the households covered by the experiment. However, offering a cash incentive (unit price) for each unit reduction in garbage, simulated the imposition of a unit charge in the following fashion. Conceptually, a household moves up from the x-intercept (the point where marginal utility of MU is zero) of its demand curve to the point where MU equals the unit cash incentive. If an actual unit price were charged, the household moves down the demand curve up to the unit price.