Capturing profits and climate gains within waste

Economic expansion and demographic trends are driving significant growth in the waste management sector. Municipal solid waste volumes are projected to increase by approximately 81% from 2.1 billion tonnes in 2023 to 3.8 billion tonnes by 2050.

In 2020, direct waste management expenditures totalled $252bn globally. However, when accounting for externalities – including environmental pollution, public health impacts, and climate change effects – the true economic cost reached $361bn. Without strategic intervention in waste management infrastructure and practices, these costs are forecast to escalate to approximately $640.3bn annually by 2050.

This potential doubling of waste volumes by 2050 represents a big challenge, as some 4% of global GHG emissions today can be attributed to waste. However, there is an opportunity for waste service companies to combine abatement of GHG emissions with earnings growth.

Landfill emissions require solutions

Waste service companies are focused on collecting and managing household waste, a subset of municipal waste, such as food, paper, plastics and textiles, which represent a large share of waste volumes today. Half of the waste controlled by waste service companies is recycled or used for various waste-to-energy applications, but the other half is still landfilled.

Landfilling of household waste is a problem as significant volumes of methane and carbon are emitted as the landfilled waste decays over time. The methane emissions represent a particular environmental concern as methane is 28x as potent as carbon in terms of generating global warming. However, there is a solution for landfilled waste that combines abatement of methane and carbon emissions and earnings potential for waste service companies.

This solution involves collection of the methane that is produced by landfill sites as methane can be treated and then sold as natural gas, becoming renewable natural gas (RNG). While many methane mitigation options in the waste service sector are still generally more expensive or technically complex than in oil and gas extraction, innovative companies are increasingly adopting technologies to track emissions more accurately and capture methane for beneficial use in the form of renewable natural gas.

The potential for RNG is particularly great in the US as more than 17% of total methane emissions in the US come from landfill sites, compared with the global average of 12%. The reason for this is that the US has a high share of food waste and a large landfill network.

This landfill network comes with a great potential for RNG production, and four large waste services companies – Waste Management, Republic Services, Waste Connections and GFL Environmental – control 55% of all landfill sites in the US. These are Waste Management, Republic Services, Waste Connections and GFL Environmental.

Waste company innovation in RNG

The current economics for building RNG plants in conjunction with landfill sites are attractive with high project returns and payback periods of three-to-four years. This makes investments in RNG plants value accretive for waste service companies and a theme we have pursued since launch in 2022 – with positions in Waste Management, Waste Connections and GFL Environmental.

We have engaged with these companies to push for a more aggressive roll-out and expansion of RNG plants. The reception to our push has been constructive, and the waste service companies appreciate the opportunity for RNG, but the developments vary from company to company.

One group leading the way is Waste Management, which operates 263 landfills across North America and has implemented gas collection systems that capture approximately 80% of landfill methane. Of this captured gas, Waste Management sells 43% as renewable natural gas, generating enough renewable energy to power more than 300,000 homes. The remaining 57% is lit as flares, generating less potent GHG emissions in the form of CO2.

To advance its position as a sector leader in methane management, Waste Management is working to increase its beneficial use percentage even further, which would not only reduce emissions but also generate additional revenue streams. Enhancing methane measurement technologies could potentially reveal additional capture opportunities.

By effectively monetising methane reduction while delivering substantial climate benefits, we expect the well-positioned leaders in RNG to achieve both environmental and financial outperformance in the years to come.