The consequences of Putin's fateful march into Ukraine on February 24 have now begun to spread across the European continent. They are most visible in the form of human suffering and a wave of refugees Europe has not seen since World War II.
At the same time, the Russian invasion is creating both economic and logistical headaches, with serious knock-on effects that we are not yet able to see the full extent of.
Like many other industries, the war in Ukraine is creating an imbalance for waste and recycling operators across Europe. Admittedly, this is an imbalance that the industry has experienced during COVID, but the challenges we saw last year are now being amplified in several areas, contributing to further uncertainty in the waste markets in Europe.
In particular, the following factors are helping to shake up the waste and recycling industries in a Europe at war.
- Raw material shortages
The waste industry is among the first to receive signals of significant economic changes in a society. Household consumption and business production levels have a direct impact on the quantities of waste that find their way to waste disposal sites. These quantities will always vary, but large drops in volumes - as we are currently witnessing - mean a shortage of raw materials for sustainable goods and energy production. The war in Ukraine is creating further uncertainty and helping to cool the economy and consumption in Europe.
One example of the raw material shortage is related to the supply of wood. Russia has long been a significant supplier of roundwood and biochips to the chipboard industry, the paper industry and to power plants using wood chips. With the sanctions imposed, these exports were stopped more or less overnight. The European waste wood market was already short of waste wood before the war started and the price has been increasing. This is also a challenge for WtE plants, which, due to a shortage of household and commercial waste, are compensating with wood to meet their fuel needs. The scarcity of biomass is something that several actors in different industries have noticed, and is causing headaches for energy recovery plants with strict requirements for the share of biomass in their boilers.
- Increased transport prices
If there weren't already enough challenges for the transport industry in Europe, the war is also affecting transport capacity on the continent. This is something the waste industry is feeling as well - or better - than other industries. An acute shortage of drivers is reducing capacity on the roads, and with many Ukrainian drivers now returning home to protect their country, this challenge is increasing.
In a short period of time, bunkers on ships have doubled in price and the price of diesel for road transport has never been higher. This is reflected in transport prices, which a price-sensitive waste industry is noticing.
At the same time, Russian bulk carriers are exiting the supply chain, which also limits the capacity of maritime transport. Trains cannot currently compensate for the lack of other transport services either.
- Increased energy prices
The price of electricity and fossil fuels are closely linked, and although gas is still flowing from Russia to Europe, the war has significantly increased operating costs for many industry players. The extreme electricity prices we are currently seeing are forcing several recyclers to shut down their operations. There are several examples of this, including some paper mills in Europe, where losses in cardboard and paper recycling (CPR) are currently too high to justify operations.
- Unpredictable market
The EU's Emissions Trading System (ETS) for greenhouse gas emissions is going through turbulent times as the war brings changes to the market. On 3 February, allowances were traded at €94 per ton. After the invasion of Ukraine, on March 7, allowances were priced at a low €58 per ton and are currently at €80. For energy recovery operators - who are used to long-term and predictable market conditions - fluctuating quota prices and squeezed gatefees are a headache that comes on top of the shortage of waste fuels in the market.
The waste market, which is based on spot trading, faces challenges when market prices change rapidly and widely. Cross-border shipments of waste for recycling, which follow the Transfrontier Shipment of waste (TFS) regulations, often take several months to be approved, thus creating further uncertainty in the current situation.
If the war in Ukraine can teach us anything, it is that the entire value chain quickly becomes vulnerable when market mechanisms - in combination with emission quotas and other regulations - undergo unforeseen changes. Broad international cooperation - with a unified regulatory framework and greater access to raw material markets across Europe - could help make the waste and recycling industry less vulnerable in future crises.