scrap dealers are sometimes "captive" shippers, forced to use rail because certain scrap customers require it.

Any discussion of rail rates must be prefaced with the caveat that hard and fast statements here are indefensible. The regulatory structure administered by the ICC consists literally of trillions of posted, but not indexed rates, many for hauls that never occur. The rate setting system defies analysis. Also the process by which rates are changed is confusing. Carriers or shippers petition the Interstate Commerce Commission for changes, which then are evaluated on an ad hoc basis.

Decisions are not geared solely to the cost of providing the transportation service. Factors enter that have little to do with economic efficiency, either when rates are set or when they are amended. The size of a company or an industry affects the amount of effort it can make in discussing rates with the railroads or the ICC. Other factors include the value of the service to the shipper having the goods shipped, and whether shipped goods go at rates that are "equivalent" to those for its direct competition.

The value-of-service pricing system developed around the turn of the century to encourage Western mining, forestry, and agricultural industries. The system discriminates against secondary materials as it allows low rates for raw materials and agricultural goods, while charging high rates for manufactured goods. Secondary goods, even though they have low per-ton prices compared to manufactured goods, have been rated as manufactured goods rather than the virgin materials they compete with. By encouraging the use of mining and forestry products, the rates give them a competitive advantage over seeondary materials.

Rail rates are not necessarily related to cost, which is how a funetioning free market system efficiently allocates resources among users. Since some are urging the ICC to rely on cost-of-service-pricing, we have tried to see whether freight rates are equitable on that basis.

Cost data available, though of low quality, indicate obvious discrimination against scrap. Two different studies, one published by the ICC and the other by the Department of Transportation, show that shippers of scrap materials pay freight rates that more than cover the full costs of the transportation service received (16). Shippers of virgin materials often do not. Table 4D.8 compares the ratios of the revenues paid for various commodities to the total cost of the service. The ICC data shows, for example, that in 1966 iron ore had a ratio of 1.05; iron and steel scrap, wastes, and tailings, 1.33. This is roughly equivalent to saying that the railroads earned a 5 percent profit on virgin materials carriage, but 33 percent profit on scrap. Pulpwood was carried by the railroads at a loss; in effect, pulpwood was subsidized by the freight revenues earned on other commodities. The DOT data though shifted somewhat, indicate the same inequality.

We conclude that

although the analyses that these figures represent are not flawless, they bear out claims of discrimination. The fact that the data are less than perfect and the policies obscure, does not justify efforts to avoid reform.

We recommend that

4D.5. . . the Federal Government take the necessary steps to correct the existing freight rate differentials between secondary and primary materials.

GOVERNMENT PROCUREMENT POLICIES

Government procurement policies also often give preferences to goods made of virgin materials over goods using secondary raw materials. As the Federal Government is one of the largest consumers of goods in the United States, its procurement policies substantially affect manufacturing industries' demands for secondary materials.

raw

Within the United States, statutes and purchasing specifications often dictate that only new or virgin materials will be accepted. When purchasing agents for Government have no acceptable way to judge the relative quality of a new item as compared with a renovated item, they have little choice but to accept the new commodity and specify the use of virgin materials. The task ahead is to evaluate objectively the relative value or suitability of commodities, new, used, renovated, or manufactured from secondary raw materials.

We recommend that

4D.6 . . . the Federal Government exercise leadership by using its purchasing power to provide a market for products made from recycled materials.

4D.7... the Federal Government to help reduce the flow of solid waste by establishing, within Federal purchasing departments, performance standards rather than composition standards that discriminate against secondary materials.

4D.8... the Federal Government remove any labeling regulations, unrelated to consumer protection, that discourage consumers from buying products that contain secondary materials.

TECHNOLOGY

Technology in mineral exploration and extraction and in timber harvesting and processing has benefited over the years from federally sponsored research and development. The size of the primary materials industries compared to secondary materials industries is another reason why the technology for processing virgin materials is ahead of that for secondary materials. Even so, many methods for resource recovery, already developed, are not applied widely because potential users are unaware of them and of their economic benefits. Few users are aware that several American cities are contracting for recovery of materials and fuel from municipal collections of solid

waste.

We conclude that

research and development is needed for new technologies to recover the resources now in wastes. Information on such technologies must become widely available.

We recommend that

... the Federal Government accelerate research and development and technology transfer on resource recovery, especially to encourage recovery of resources in municipal wastes.

Addressing demand is the most effective way to turn obsolete materials away from disposal in municipal dumps and into the main current of the economy. Many of the market factors which inhibit the demand for secondary materials are there because of the Federal Government' long-standing legal, economic, and technological assistance to virgin materials. Through the modification of regulatory and fiscal practices concerning materials and the environment, the Government can insure achievement of a recycling level more to the Nation's benefit.

Although efforts to increase recycling have won good public response, they need to be accelerated and tempered with the knowledge that early results will not be impressive. Time must be allowed to depreciate and replace still useful equipment and to adjust the market to new methods and products. The changes will come in progressive phases and at many points in the materials system.

Should the full costs of production be paid by virgin materials industry by including environmental costs, and should the price of energy rise, as trends suggest, recycling is likely to increase. În addition, if our recommendations are accepted, all of these factors working together will in time substantially influence the competitive prices of virgin and secondary materials in the marketplace and optimize

resource recovery.

Recycling will exert a beneficial influence in affairs of growing national concern which stem from major socio-economic trends, such as exponential growth, resource depletion, energy shortages, environmental degradation, excessive imports, and an adverse balance of trade and payments.

As the objectives of recycling are accomplished and as the linear materials system evolves toward a closed, circular flow, the long-term implications and structure of the recycling industry will become pervasive in and ultimately fundamental to the economy and national life.

C. U.S.E.P.A., "Report to Congress on Resource Recovery” (February 1973), pp. ii-iii, 7, 25-30:

This report presents an exploration of resource recovery as a method of solid waste management and resource conservation. Information developed over the past several years is summarized and the many questions surrounding the complex subject of resource recovery are discussed.

The emphasis of the report is on the recovery of materials and energy from mixed municipal wastes and other "post-consumer" wastes that are discarded outside the normal waste collection channels. Although only 5% of the total national solid waste load, these wastes tend to have the most frequent population impact in that they occur in the nation's urbanized places. More than 50% of the total waste load comes from agriculture and is usually returned to the soil. More

than 40% of the total burden is mining waste, which occurs in the hinterland.

Nearly all major materials are recovered to some extent by recycling. Most recovered materials are derived from industrial fabrication wastes. Post-consumer wastes are also recovered to some extent (waste paper, old automobiles); post-consumer recycling has grown in an absolute sense. However, the proportion of the nation's materials requirements satisfied from recycling materials has remained constant or has declined in most instances.

The level of recycling depends almost entirely on economics. Recycling takes place to the extent that it is the most efficient use of resources. In the absence of artificial economic subsidies for "natural" or "virgin" materials more secondary or recycled materials would be used. The economics of recycling are also influenced by apparently inequitable freight rates-both ocean and rail-which make the transportation of secondary materials relatively more costly than the movement of virgin resources.

There has been sufficient technology development to allow extraction of materials and energy from mixed municipal wastes. However, few full scale recovery plants exist. The Environmental Protection Agency is funding the demonstration of the most significant conceptual alternatives.

The costs of recovery plants are estimated to be relatively high, making recovery by technological means attractive only in areas where high disposal costs prevail and local markets for the waste materials exist. There is evidence that recovery by separate collection is not only feasible but economically attractive provided that the collection makes use of an existing transport system and markets for the collected materials exist.

Preliminary research and analysis indicates that, when compared with virgin materials extraction and processing, resource recovery results in lower quantities of atmospheric emissions, waterborne wastes, mining and solid wastes, and energy consumption. There is substantial disagreement among experts about the extent of such different effects over time, particularly as strengthened environmental constraints on use of both virgin and secondary materials begin to narrow the differentials that now exist.

Recycling should become more economical relative to other solid waste disposal options during the next esveral years. Energy costs are rising, making energy recovery more attractive and more economical. As pressures increase to bring about environmentally sound waste disposal, the costs of disposal will rise and recovery will become more attractive as an alternative. Finally, to the extent that air and water pollution control regulations are intensified, the incentives of industry for using secondary materials will improve.

Other incentives for recycling also exist under existing Federal policies. The General Services Administration does not purchase paper unless it contains a specified amount of recycled paper. The military services are exploring procurement policies to reduce waste quantities or to mandate inclusion of secondary materials. The Treasury Department has determent that tax exempt industrial revenue

bonds may finance the construction of recycling facilities built by private concerns to recycle their own wastes.

Additional Federal incentives for recycling are not considered desirable at this time. Studies to date indicate that the effectiveness of specific incentive mechanisms that can be formulated is extremely difficult to predict. New tax incentives may well distort the economics of resource utilization much as preferential treatment of virgin materials distort them today.

There is an obvious need for further exploration of the complex issues of materials utilization in the Nation in the context of total resource utilization. Resource recovery is an important part-but only a part-of the larger picture. Before additional Federal policies are developed-aimed possibly at overcoming institutional and market imperfections in some areas-a better understanding of the complex materials and energy situation must be developed.

The key findings of this report can be reduced to four major points: (1) The use of recycled materials appear to result in a reduction in atmospheric emissions, waste generated, and energy consumption when compared with virgin materials utilization.

(2) The recovery of materials from waste depends largely on economics. The cost of manufacturing products from secondary materials is generally as high or higher than manufacturing products from virgin materials, and consequently only high quality and readily accessible waste materials can find a market. Artificial economic advantages available to virgin materials users (e.g., depletion allowances and capital gains treatments, and inability of the traditional market to internalize pollution and resource depletion costs) appear to have been major contributors to this

economic situation.

(3) There has been sufficient technology development to allow extraction of materials from mixed municipal wastes. However, the costs of extraction is high making recovery processes attractive only in areas where high disposal costs prevail and favorable local markets exists for the materials.

(4) Recovery of materials (as opposed to energy) from mixed municipal waste, while conceptually the best alternative to disposal, cannot be instituted on a large scale in the absence of: a substantial reduction in processing costs and/or upgrading in quality, which is simple unattainable given reasonable projection of technology; and/or a major reordering in relative virgin and secondary materials prices, to make secondary materials more economically attractive.

EPA's studies have progressed to a point where the major options available to bring about resource recovery at an increased rate-where Such action can be justified on environmental and conservation grounds are generally identifiable. The fundamental requirement is