I was out to dinner with a friend the other night who described the concept of cradle to cradle as a fairy tale. I had to admit, most days, it seems that way to me as well.

Even if you design the most perfectly recyclable product, you still have to put it into our waste system, which automatically drops its chance of being recovered to 30 percent. And frankly, designing the product might be the only easy part of this whole mess, because it is under the control of a single company.

Fundamentally, the waste recovery system in the U.S. makes dreaming about effective closed loop — or cradle to cradle, or end to end, or whatever you want to call it — a bold and likely disappointing endeavor. We need more reliable supply or significant demand pressure to create the needed change.

I guess I’m a glutton for disappointment, because still I see an opportunity to make huge gains in the way we manage material flows. And, like food, a solution just might be to “go local.”

We all witness, everyday, a failure in market forces to incentivize individuals, companies, and communities to optimize the value of materials at their end of life. Most “stuff” still ends up in a landfill. We have low rates of capture of contaminated materials in inefficient systems that produce streams too unreliable for most manufacturers to count on, and therefore the condition persists.

This isn’t news to anyone paying attention, but it persists because the dynamics are complicated and tangled. The end result is that we have a lot of waste that could be recycled: According to the EPA’s 2008 waste study, the largest single category of waste in Municipal Solid Waste (MSW) is 76 million tons of Containers and Packaging, of which plastics is the most prominent material type. And with only 13 percent of plastic being recycled, the other 87 percent ends up in landfill or waste to energy plants.

My first reaction to this was that given the low recycling rates, it would appear that there is a big opportunity to do something with this mess and make some money. But the solutions aren’t that simple, and we have a few vectors creating a perfect storm to capsizing major advancements in recycling in the U.S.

1. The materials we put into circulation are not practicably recyclable. They are such a mixture of materials that not even a Jetson-era recycling facility could separate the commodity components for recycling and reuse, AND there is no clear path to incentivize a different behavior from manufacturers (other than regulation).

2. The reverse supply chain is long and inefficient. This is not helpful when working with a relatively low value commodity, so that most opportunities to add value and margin get lost in too many miles and handoffs.

3. Right now, hauling industry economics make it more profitable to landfill material than to recycle it. Most traditional waste companies make less and even lose money when they recycle something vs. landfill it. And, as a result, recycling is only available to about half of U.S. households.

4. At $75 a barrel for oil, virgin plastic is the more attractive option. Because it comes without contamination and in reliable streams, new materials are a better alternative to a manufacturer than a lower quality, unreliable recycled stream.

5. The average consumer is too confused or apathetic to demand something different.

So, you have a supply and demand problem — not enough clean streams of recyclables and demand that isn’t all that demanding. The solution requires a concerted push on both sides, but given the nature of the global commodity markets, neither side is super eager to take on the risk of pushing too hard.

The risk — that they end up with a lot of material that no one wants, or a need for scarce material that drives costs out of control — is simply not appealing. Chicken or egg.
!–pagebreak–
Despite all that, I still have some reason for hope. There are some encouraging signs that the existing model is being challenged in ways that demonstrate a willingness to take risks and innovate toward a more recycled world.

For example, RecycleBank is incentivizing customers and municipalities to raise recycling rates and create greater volumes of clean recycling streams — in ways that begin to push economies where they need to be. Coke has built a new plant to vertically integrate. They accept their own and others’ bottles back to recycle into new bottles — in effect, improving their own supply of recycled material.

So how do we move from a few bright examples to create the incentive to change collection, sorting and processing practices at a broader scale? I believe a place to start is to “go local” — finding locations where manufacturers could use greater amounts of recycled plastic in their products and packaging.

Nine times out of 10, the reason they are not using more recycled content is due to quality and reliability issues, both of which can be fixed at a local level. The solution involves three components:

* Engaging the local community by creating more access to recycling, and incentivizing better recycling behavior;
* Working with the local recyclers and processors to better isolate and process the material needed by that local manufacturer; and then
* Having the manufacturer set up long-term supply processing contracts to give the recycler and processor the confidence required to invest

At a local scale, you can address supply and demand increases in a controlled manner that helps to limit risk. It also creates a great community story and starts to build a model for manufacturer engagement in end of life issues that isn’t a tax or fee, but rather a constructive redesign of the supply chain. The opportunity for big change in our material flows is now, and all we need are innovative companies to lead the way.

Who knows, maybe someday you will see a bumper sticker, “Waste: Go local.”

Sean Martin is a partner with Blu Skye, a strategy consulting firm focused on advising Fortune 500 companies on sustainability.

Photo CC-licensed by Flickr user Peter Kaminsky.