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Pricing Systems
Other Topics
- Implementation Timeline
- Administration and Staffing
- Billing
- Container Options
- Consensus Building (Gaining Public and Political Support)
- Education and Outreach
- Enforcement
- Goal Setting
- Illegal Diversion (Dumping, Burning)
- Legal Issues (Ordinances)
- Monitoring and Evaluation
- Apartment/Multi-Family Housing
- Pilot Programs
- Pricing Systems
- Rate Structure Design
- Recycling and Other Complementary Programs
- Results
- Scheduling Issues
- Special Populations
- Volume- vs. Weight-Based Programs
Communities implementing pay-as-you-throw will need to select the type of pricing system they will use. Each system has its own advantages and disadvantages. Some systems might offer greater revenue stability, for example, while others create a stronger waste reduction incentive for residents.
There are three types of pricing systems used in a rate structure for a pay-as-you-throw (PAYT) program: proportional, variable rate, and multi-tiered.
Proportional pricing
The proportional system creates the most direct relationship between trash amounts and price. Communities using this system charge residents a per-unit amount for each trash container they fill. For example, residents may pay $1.25 for each 32-gallon bag they set out. These are usually bag- or tag-based systems, with the bags sold at local retail stores or municipal offices.
Proportional system advantages include:
- A strong waste reduction incentive. Because they must pay
for the collection of each bag they place at the curb, residents have
a strong incentive to increase waste reduction, recycling,
and composting.
- Potentially lower program costs. Residents typically purchase
bags directly from the municipality or local retail outlets. This results
in relatively lower administrative and other
program costs (compared with options that require a billing
system).
The principal disadvantage of a proportional system is:
- Potential revenue uncertainty. Households might buy many bags at one time and then none for several months, creating possible fluctuations in revenue.
Variable-rate pricing
In a variable-rate system, the per-unit price varies. Residents are
usually billed based on their choice of subscription container size. For
garbage they discard above their subscription level, residents must pay
an additional fee. The price of any subsequent containers may increase
or decrease, depending on the community's PAYT program
goals. For example, a household that pays $1.50 per week for a 32-gallon
can subscription level might be charged $2.00 for each additional 32-gallon
can it sets out in weekly collections. Alternatively, the price of the
additional container might be set at $1.00.
In addition, container sizes under variable-rate systems can vary. Some communities offer only one container size for additional set-outs. Others ask residents to use containers that are larger or smaller than their subscription level container size for additional set-outs. Resident may pay the fee for extra garbage by purchasing bags or tags, or communities may count the additional set-outs at the time of collection and bill residents accordingly.
The principal advantage of a variable-rate system is:
- Increased control over the waste reduction incentive. Depending
on their program goals, communities can charge a price for additional
containers that is higher than the subscription level price. This additional
charge will create a strong incentive to reduce and recycle. Some communities,
however, are concerned that residents may dispose of their waste in
undesirable ways if they feel the pricing system
is unfair. To avoid this, communities can decide to charge households
less than the subscription level price for additional containers.
The principal disadvantage of a variable-rate system is:
- Potentially higher costs. Communities must offer residents
a choice of subscription levels, provide them with containers in varying
sizes, and bill accordingly. Some communities will need to count set-outs
during collection. As a result, these systems may be more expensive
to implement and administer.
Multi-tiered pricing
Two-tiered or multi-tiered systems are sometimes used to help communities achieve revenue stability. Similar to the billing systems used by telephone and water utilities, residents subscribe to a base level of service, for which they pay a flat fee. These "first-tier" fees can be assessed through local taxes or through a regular monthly or quarterly charge, often included in a utility or other municipal bill. The fees can be used to cover the fixed portion of the cost of the community's solid waste program.
Residents then pay "second-tier" fees based on the amount of waste they throw away. Second tier fees may be priced in the same way as proportional or variable-rate systems. These fees are often used to cover the costs of collecting and disposing of additional amounts of waste. If the multi-tier fees are variable, they may increase or decrease for additional containers of waste.
The principal advantage of a multi-tiered system is:
- Revenue stability. Multi-tiered systems allow communities
to be sure that no matter how much residents reduce waste and increase
their recycling-and thereby decrease PAYT revenues-the program's fixed
costs will be covered.
The principal disadvantage of a multi-tiered system is:
- Potentially reduced waste reduction incentive. The total cost
of trash services may not be apparent to residents when a part of the
program cost is charged at a flat rate. This may lessen their incentive
to reduce and recycle.
Additional resources
For answers to questions about pricing types for PAYT programs, visit pricing systems in the Frequent Questions section of this Web site.
