Plastic collection and sortation form a critical component of the plastic circularity ecosystem. The collection and sortation system can be categorized into two main models: centralized and decentralized.

Centralised collection

Centralized models are typically large-scale systems operating at municipal level, characterized by a strong governance system. In some locations those receive direct or indirect financial support from a sub-sovereign entity (i.e. municipal authority), however in many places in the global south they are reliant on household fees. Centralised collection systems benefit from a more organized and financially stable approach to waste collection and sortation. However, they require significant initial capital investment and their profitability may be limited.

Decentralised collection:

Decentralised models are usually characterised by a lack of stable governance and are financially dependent on fee collection from households. They can be more adaptable to local conditions in emerging countries but may face challenges in achieving economies of scale and professionalizing operations. Their lack of strong governance and their dependency on fee collection can hinder scalability and financial sustainability.

In some middle income countries waste collection and sortation are built as an integrated system, with the waste collected being centrally processed at a Material Recovery Facility (MRF). In low and middle-income countries recycling/resource recovery is done by the informal recycling sector with recovery purely based on resource values (and cost of material collection); residual waste is either openly dumped or burned or there are periodic collections/clean ups by the municipal authorities where the material is taken to a dumpsite.

Costs and revenue model

High variable costs, particularly in developing countries with limited automation, limit economies of scale. Maintenance costs also form a significant portion of expenses due to asset mobilization and short asset lifespan.

Most revenues are derived from customer fees for waste collection. Advanced systems collect fees indirectly, e.g., via taxes or joint utilities, while basic systems rely on direct cash payments, suffering from low payment rates, payment opacity, and fraud risks. The revenue volatility of waste systems which rely on direct fee collection can distract service providers from their primary responsibilities. In systems where budget is predetermined at the beginning of the year and revenue collection is managed separately and indirectly, technical specialists can focus more effectively on service quality.

Revenue growth depends on capex investment due to the public service nature of this activity, considering the need for affordability. The collection and sortation systems are a public utility which may by be supported by government subsidies. Systems for material recovery can generate extra income by selling materials to aggregators and recyclers. Innovative financial and policy mechanisms like EPR programs, plastic credits, and carbon credits provide additional revenue opportunities.

Volatile revenues, high variable expenses, and thus limited profitability necessitate periodic or continuous support. This is particularly true in systems where service providers focus are diverted from their primary responsibilities to address revenue-related challenges.

Due to the high perceived risk of these systems, traditionally waste collection and sortation systems have been funded primarily through public funding.

Pilot projects can also be funded by official development assistance, while more established municipal collection systems can be suitable for concessional loans from development banks. Philanthropic funding can also play a catalytic role in providing financing to facilitate the implementation and optimisation of these systems. As philanthropic donors do not have any expectation for financial returns, this funding can be targeted towards specific components of the system, or specific implementation stages such as the initial feasibility studies or the stakeholder capacity building effort necessary to successfully implement these system.

Under specific enabling conditions, development finance (DFI / MDB) can play a role in the financing of these waste systems. Specifically municipal collection systems which are able to transition towards a utility-type business model, with agreements between waste operators and municipal authorities, could attract development capital. Development finance institutions often provide favourable payment terms, which can help mitigate issues related to low expected return on investments and long payback periods.

Other enabling conditions

• Scale/centralization: Achieving economies of scale is crucial for cost-effectiveness.

• Strong governance: A robust governance structure is essential to ensure the efficiency and effectiveness of waste collection and sortation.

• Legal framework: Establishing a legal framework that supports private sector participation, such as tipping fees, can encourage investment.

• Stakeholder/operator capacity building: Operating large centralized utilities require multi-disciplinary expertise.

• Utility business model: Transitioning to a utility business model is necessary to mitigate risks.

• High commercial risk: The prevalent business model in low and low-middle income countries, dependent on direct fee collection, carries high commercial risk due to loose contractual relationships and difficulty in assessing payment risk. This risk is greatly mitigated if financial and legislative infrastructure are in place to support collection and sortation.

• Low profitability: Plastic collection systems lack the profitability margins and growth profiles to provide attractive risk-adjusted return on investment.

• Long payback period: Waste collection and sortation have distinct needs when it comes to accessing finance, in part because they require long tenors in order to service debt while maintaining affordability for users, which may not align with traditional investors' investment cycles.