Facilities that sort solid waste and recover recyclable products more efficiently are increasing in popularity, but a recent analysis warns that the trend could hurt traditional resource recovery plants.

Nancy B. Feldman, vice president of research at Asch-Dwyer Municipal Securities in Peapack, N.J., said in a report last month that these new facilities would reduce the waste streams flowing to resource recovery plants and incinerators, cutting their output and potential revenues.

"This may create a shortfall in available waste and force the government guaranteeing the waste stream to find another waste source to make the difference," Ms. Feldman said. She added that tipping fees might also have to rise to make up for energy sales that incinerators lose to lower volume.

Material recovery facilities, as the new breed of plants are called, are also becoming victims of their own success, Ms. Feldman said.

the increased volume of recycled products generated by the facilities is pouring into an underdeveloped market unable to cope with the volume. At times, governments have had to pay to get rid of recyclables when no buyers could be found. Some recyclables have even ended up in landfills.

The report predicts construction of material recovery facilities will accelerate, boosting tax-exempt bond issuance in the environmental sector. But Ms. Feldman advised credit analysts to investigate how the new facilities might affect traditional resource recovery plants in the area.

"I don't think we're talking about defaults, but the problem does create some weakened credits," Ms. Feldman said. She added that some resource recovery facilities have taken into account the possibility of smaller waste flows, making them better prepared for the results of aggressive recycling.

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