For the second year in a row, net costs of the Blue Box program rose dramatically. Since 2016, gross costs have increased relatively steadily, while revenues have plummeted from $112 M in 2017 to the lowest revenue on record of only $55 M in 2019. This dramatic decline in revenue is due to regulatory actions, most notably in China, that severely restrict the quality of incoming material for recycling. Also impacting net costs are the continuing trend of lightweighting packaging.

Higher quality standards means fewer tonnes and higher costs, especially for single-stream

Since China Sword was implemented in 2016, many of the existing end markets are requiring better quality materials with less contamination. Unfortunately, when MRFs cannot meet these demands, it results in more materials being sent to landfill. Mainly as a result of China Sword, marketed tonnes declined by 16% year over year, from 2016 to 2019 (871 KT to 730 KT). This was mostly due to marketed tonnage losses of 26.5% in the single stream sector (440 KT to 323 KT). By way of comparison, the two stream sector only declined by 6.1% (422 KT to 397 KT).

For the same time period, gross costs increased by 10.7% overall. This is largely driven by a marked increase in processing costs, which represented 33% of gross costs in 2016 and up to 36% in 2019. Again, single stream programs have been hardest hit, recording a 5% increase in processing costs, while two stream programs report a more modest 1% increase.

The primary driver of increases in costs is processing newsprint and printed paper to a sufficiently high-quality product to be considered by the receiving markets. In the past, sellers were able to produce SRP 54 (ONP #6) bales, and with high market demand overseas, receive prices on par with higher quality SRP 56 (ONP #8) bales. Since China Sword, however, that market dynamic has been reversed. Receivers now demand a very high-quality newsprint product that requires additional sorting effort, which has driven the net cost of printed paper production up from $20/T in 2008 to $154/T in 2018. In the same time period ONP revenues have dropped from $105.60/T to $60.90/T .

Data shows recovery rates worse for lightweighted packaging

Lightweighting and changes in materials also created upward pressure on gross costs. In 2008, according to information in the SO Pay-In Model (PIM) used to set steward fees, a tonne of aggregated materials sold into the residential market had an approximate average volume of 15.1 m³. By 2018, the volume of one aggregated tonne sold had increased to 21.5 m³. The volume of material sold continues to trend upward at a faster rate than the volume of material recovered, illustrating the increasing difficulty in recovering lightweight plastic containers and wrappings.

Costs vary in different parts of the province

As expected, northern Ontario programs are generally more expensive than the provincial average of $449.59 per tonne, reflecting issues with competitive pricing for smaller programs and increased haulage costs for processing. Central Ontario and GTA programs are also higher than average, driven mainly by the cost of large single stream programs with high residual tonnages resulting from the effort to extract a market-acceptable product from a mixed stream.

Trends expected to continue

As municipalities anticipate transition, costs can be expected to continue to rise as the revenue picture remains weak and as costs increase because of the need to negotiate shorter term contracts to carry programs through to their transition date. Additional costs related to COVID-19 work stoppages and slowdowns and the increasing difficulty in getting qualified collection drivers, may drive costs up in 2020 and 2021.