The economics of waste oil recycling in the EU

Figures & data

Figure 1. Waste oil treatment in EU 28 countries in 2018 (based on Stahl and Merz 2020). Regeneration: includes exports for regeneration. Incineration: takes place in cement and lime kilns and industrial boilers. Other: includes exports. Note that the accounting of waste oil quantities and regeneration rates can differ between countries. Some countries feature regeneration rates of 100%. However, evidence suggests that such high regeneration rates are in many cases artefacts of accounting, as some countries report the initial sediment and water separately from dry waste oils and others report only on the regeneration of waste oil of sufficient quality (García-Gutiérrez et al. 2023; Le Bihan et al. 2021; RDC Environment 2023). Country abbreviations follow the two-letter ISO 3166 alpha-2 code, except for Greece, which is abbreviated as ‘EL' and the United Kingdom, which is abbreviated as ‘UK'.

Table 1. The different policies analysed in this article.

	Policy	Implementation in the model
1a	70% (85%) of collected waste oil regenerated in 2030	Increasing the regeneration rate by 1.3% (3.4%) a year starting in 2024.
1b	Share of regenerated base oil on markets gradually increased from 11.3 to 13.0% (15.8% for 85% target)	Share of regenerated base oil on market is calculated with data from Stahl and Merz (2020); Data from IFEU (2021) is used to translate base oil into waste oil quantities.
1c	Share of regenerated waste oil in Group I base oil gradually increased from 20.7 to 24.1% (29.9% for 85% target)	Share of regenerated base oil in Group I base oil is calculated with data from Stahl and Merz (2020); Data from IFEU (2021) is used to translate base oil into waste oil quantities.
2a	Implementing a subsidy that increases from 5.5 to 34.5 (14.2 to 76.6 for 85% target) €/t of waste oil regenerated between 2024 and 2030	The subsidy is calculated using an elasticity of substitution between virgin and regenerated base oil of 2 (see CalRecycle 2016).
2b	Implementing a levy that increases from 0.6 to 4.6 (1.7 to 12.5 for 85% target) €/t virgin base oil between 2024 and 2030 to finance a subsidy from 5.0 to 31.0 (13.6 to 68.0 for 85% target) €/t of waste oil regenerated	Similar to 2a, but the model has feedback effects because levy and subsidy act on the same variables and thus needs additional iterations at each time step to converge.

Notes: All policies are calibrated such that they lead to an EU-wide increase in the regeneration rate from currently 61% to either 70% or 85% by 2030. The values corresponding to the 85% target are given in parentheses. All policies are faded in gradually over the period 2024 to 2030.

Figure 2. The effect of a quantity target on the base oil market. Left panel: S_Agg is the aggregated supply of regenerated and virgin base oil (in blue). D is the aggregate demand curve (in red). The market equilibrium is given by the intersection of the aggregate supply curve and the demand curve in the point (Q₀,P₀), where a quantity of Q₀ is sold at price P₀. Right panel: A quantity target increases the supply of regenerated base oil S_RG (in green) from q₀ to q₁. The equilibrium (Q₀,P₀) is the same as in the left panel. According to the regenerators’ supply curve (S_RG), they sell the quantity q₀ << Q₀ at price P₀. If a policy (such as the 70% regeneration target) would increase the amount of regenerated base oil sold on the market from q₀ to q₁, regenerators face higher costs and would need to sell at p₁. However, as the equilibrium price is at P₀ regenerators need a cost compensation of at least the area corresponding to the pink triangle in the right panel.

Figure 3. The effect of a subsidy (left panel) and a levy (right panel) on the base oil market. S_Agg represents the aggregate supply curve (in blue), which is the sum of the virgin refiners’ and the regenerators’ supply curves. For illustrative purposes, the regenerators’ supply curve S_RG is also shown separately (in green). D is the demand curve (in red). Left panel: The effect of a subsidy for regeneration on the ratio of regenerated to virgin-based base oil. The supply curve for regenerators is shifted to the right (from S_RG to S_RG’), but the aggregated supply curve (S_Agg) hardly shifts, due to the much larger volume of virgin base oil (we therefore do not include a shifted aggregate supply curve in the left panel). Right panel: The effect of a levy on virgin base oil on aggregate base oil supply. The aggregated supply curve (S_Agg) shifts upwards (to S’_Agg) due to the increased cost for virgin refiners, making additional regeneration profitable for regenerators, as they can sell at a higher price. Policy 2a is illustrated in the left panel, while policy 2b is illustrated by the sum of the effects displayed in both panels.

Figure 4. Regenerated (RG) waste oil (WO): policy versus business-as-usual (BAU).

Figure 5. Waste oil regeneration facilities in the EU-27 (absolute number). Source: Stahl and Merz (2020).

Figure 6. Free regeneration capacities in the EU as a percentage of the total spare capacity. Country abbreviations follow the two-letter ISO 3166 alpha-2 code, except for Greece, which is abbreviated as ‘EL' and the United Kingdom, which is abbreviated as ‘UK'.

Figure 7. Employment effects of 70% and 85% regeneration targets in terms of FTEs in 2045 for different EU countries. We assume that the regeneration target set in policy 2a shifts waste oil from waste oil-based fuel producers to regenerators in countries with spare regeneration capacities. FTEs by 2045 can roughly be interpreted as the number of jobs lost over the course of the period 2024–2045. Top panel: 70% regeneration target. Bottom panel: 85% regeneration target. FTE: full-time equivalent; RG: regenerated; WODF: waste oil derived fuel. Country abbreviations follow the two-letter ISO 3166 alpha-2 code, except for Greece, which is abbreviated as ‘EL' and the United Kingdom, which is abbreviated as ‘UK'.

Table 2. Summary of environmental, economic and social impacts for regeneration rates of 70% and 85% of all collected waste oil (sLCC = societal life cycle cost; FTE = full time equivalent).

Target	Avoided GHG emissions (Mt CO2-equivalent)	sLCC savings (M€)	Administrative cost (M€)	Employment Creation (FTEs in 2045)
70%	0.6	124	11-213	124
85%	1.7	330	11-213	329

Notes: Avoided greenhouse gas emissions are aggregated over the period 2024 to 2045. sLCC savings and administrative costs are reported in terms of their net present value in 2024 summed over the period 2024 to 2045 with a social discount rate of 3%. Employment creation only refers to the final year, 2045.

Table 3. Comparison of environmental, economic, and social effects of the different policies until 2045 at EU level. All monetary values are given in 2024 NPV.

Policy	Environmental effects (until 2045 at EU level)	Economic effects (until 2045 at EU level)	Social effects (until 2045 at EU level)
1a (a target specifying the share of collected waste oil to be regenerated)	Waste oil moved from fuel production to regeneration: 70% target: 3.11 Mt 85% target: 8.29 Mt	Societal life cycle cost savings: 70% target: 124 M€ of 85% target: 330 M€	Net employment creation: 70% target: 124 jobs 85% target: 329 jobs
	CO2 emissions avoided: 70% target: 0.6 Mt of 85% target: 1.7 Mt	Cost incidence: depending on exact implementation	Regional disparity in employment effects
	Significant reductions in other pollutants	Shift in economic activity from waste oil-based fuel production to regeneration
	A regional shift in emissions	Cost of regulation depends on specific implementation chosen by Member States
1b (a target for the share of regenerated base oil on markets) and 1c (a recycled content target for Group I base oil)	Identical to 1a	Avoided societal costs and econ. activity shift as in 1a	Job creation and regional disparity as in 1a
	Indirect policy: higher uncertainty regarding effect on regeneration rate and the resulting environmental benefits	Shift of burden from regenerators to lubricant producers	Lubricants price increase: distributional incidence small
		Lubricant producers (partially) pass through cost burden to consumers
2a (a subsidy for waste oil regeneration financed out of the general budget)	Identical to 1a	Avoided societal costs and econ. activity shift as in 1a	Job creation and regional disparity as in 1a
	Indirect policy: higher uncertainty regarding effect on regeneration rate	Expensive; costs of subsidy: 595 M€ (70% target) and 1604 M€ (85% target)	No direct effects on price of lubricants
			Distributional effects at household level negligible
2b (a subsidy for regeneration financed by a levy on virgin base oil)	Identical to 1a	Avoided societal costs and econ. activity shift as in 1a	Job creation and regional disparity as in 1a
	Indirect policy: higher uncertainty regarding effect on regeneration rate	Burden shift to virgin base oil producers via levy with the total cost: 361 M€ (70% target) and 954 M€ (85% target)	Lubricants price increase (small, paid by consumers). Distributional incidence small
		Government: no additional spending on subsidy

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