Examining the primary cost drivers that reshaped the industry in 2025 and their implications for financial planning in 2026.
By Eugenia Manwelyan, Morgan McCarthy, JD, Harold Mitchell, PMP, ACP, PMI-PBA, and Jennifer Porter
As the solid waste and recycling industry transitions into 2026, the operational landscape continues to move beyond a model of linear logistics and into an era of complex risk and asset management. The 2025 fiscal year served as a definitive pivot point, marked by a convergence of technological disruption, geopolitical trade volatility, and a tightening regulatory environment. Traditional budgetary frameworks, historically anchored by consumer price index (CPI) adjustments and predictable capital replacement cycles, were fundamentally challenged by a series of high-impact cost drivers that outpaced standard inflationary projections.
For municipal finance officers, public works directors, and contract managers, 2025 revealed a new reality: the economics of materials management can no longer be governed by inflation indexing alone. Instead, financial sustainability now depends on dynamic rate structures, sophisticated reserve policies, and the direct integration of federal and state policy into local financial planning. In this new environment, waste systems increasingly resemble regulated utilities, where risk pricing, capital planning, and liability management are as important as service delivery. Across Raftelis鈥� municipal client base, these forces are already reshaping rate models, capital plans, and contract structures in ways not seen in decades.
Below, we examine the primary cost drivers that reshaped the industry in 2025 and their implications for financial planning in 2026.
The Lithium-Ion Crisis: From Operational Hazard to Insurance Crisis
In 2025, lithium-ion batteries emerged as the single greatest operational risk in the waste and recycling sector. Fires at materials recovery facilities (MRFs), transfer stations, and hauling operations reached record levels as batteries embedded in vapes, electronics, toys, and power tools entered both recycling and municipal solid waste streams. When crushed in compactors, balers, or shredders, these batteries can enter thermal runaway, a self-heating chemical reaction that ignites intense, fast-spreading fires.
Publicly reported data illustrates the scale of the problem: facility fires rose from 272 in 2016 to more than 430 in 2024, with more than 100 incidents recorded in the first quarter of 2025 alone. Because lithium-ion batteries are present in virtually every waste stream, this threat now spans recycling, organics, and garbage operations alike.
The financial implications were immediate. Throughout 2025, waste operators saw insurance premiums rise by 15 to 20 percent as a baseline, with increases of 50 percent or more for facilities with fire histories. Some insurers imposed new exclusions for battery-related fires or required costly safety upgrades as a condition of coverage. By late 2025, insurability itself became a strategic risk. Facilities without modern detection and suppression systems faced higher deductibles, restricted coverage, or outright non-renewals.
For publicly financed facilities, this shift has begun to influence how insurers, lenders, and rating agencies evaluate facility risk and long-term financial exposure. To remain insurable, operators were forced into unplanned mid-cycle capital investments, installing AI-powered thermal cameras, fire-suppression cannons, and advanced sprinkler systems. In many cases, these systems quickly paid for themselves through reduced insurance premiums and deductibles. The lesson from 2025 was clear: fire mitigation is no longer optional overhead; it is a core operating cost.
In 2026, municipalities should treat battery-fire prevention as a permanent line item in their financial plans, embedding fire-risk performance metrics, safety investments, and reporting requirements directly into collection and processing contracts. Proactive public education, battery drop-off programs, and early-detection systems are now essential components of rate stability and service continuity.
The Price of Protectionism: Tariffs and the Fleet Capital Shock
While fire risk was reshaping insurance markets, global trade policy was quietly destabilizing municipal capital plans. In 2025, tariffs on imported steel and specialized vehicle components, combined with persistent domestic inflation, drove collection vehicle and heavy-equipment costs to historic highs.
Across municipal bid tabs and national fleet benchmarks, the purchase price of an automated side-loader now routinely exceeds $520,000 per unit, nearly 40 percent higher than in 2022. At the same time, lead times remained stuck at 12 to 18 months, forcing fleets to operate aging vehicles far beyond their intended replacement cycles.
This equipment shock created a secondary financial impact: maintenance and repair (M&R) budgets climbed by roughly 25 percent as older trucks required more frequent and expensive overhauls. Fleets became trapped between soaring capital costs and escalating operating expenses. In our cost-of-service and rate studies, fleet volatility has become one of the fastest-growing financial risks facing municipal solid waste systems.
In response, 2026 financial strategies are shifting toward asset preservation. Many agencies are moving away from seven-year replacement cycles and instead investing in mid-life rebuilds to extend vehicle life to 10 or even 12 years. But this strategy merely delays the inevitable capital cliff.
As a result, rate-setting models in 2026 must move beyond CPI indexing and toward cost-of-service frameworks that explicitly track equipment, steel, and financing volatility. Fleet replacement is no longer a predictable expense; it is a risk exposure that must be priced into long-term financial plans.
The AI Paradox: CAPEX vs. OPEX
In 2025, Artificial Intelligence (AI) and robotic sortation transitioned from pilot projects to operational requirements. As labor shortages for manual sorters became a permanent structural fixture of the economy, AI offered a compelling solution: high rate of material purity and the ability to run three-shift operations without fatigue.
However, the 2025 budgetary hurdle was the massive upfront capital (CAPEX) required for installation. While these systems significantly reduce long-term operating costs (OPEX) and labor-related turnover, the initial price tag, often involving millions in facility upgrades and downtime, hit during a period of high borrowing costs.
As we look at the 2026 landscape, a divide is opening between 鈥渟mart鈥� facilities and traditional ones. Facilities that automated in 2025 are beginning to realize an operational ROI, capturing higher commodity premiums because their bales meet the stringent 鈥渮ero-impurity鈥� standards of the modern circular economy. We now see automation assumptions baked directly into long-term financial models, commodity revenue forecasts, and labor projections. In 2026, traditional MRFs will face increasing 鈥減urity penalties鈥� and labor cost spikes, making their financial position precarious. The question in 2026 is does the long-term cost of manual labor exceed the amortized cost of automation?
EPR and the California Model: A Fundamental Revenue Shift
Extended Producer Responsibility (EPR) reached operational reality in 2025, as California鈥檚 SB 54 and similar programs in other states began shifting the cost of managing packaging waste from taxpayers to brand owners and manufacturers.
This transition carried real administrative costs. Municipalities invested in legal, policy, and contract expertise to align with Producer Responsibility Organizations (PROs) and ensure their programs were eligible for reimbursement. For many agencies, this has meant a fundamental rewrite of franchise agreements, rate structures, and accounting frameworks to ensure EPR revenues are captured and protected.
In 2026, the financial challenge will be integrating these new revenue streams into municipal rate models while meeting stricter diversion and reporting requirements. Transparent accounting will be critical to ensure EPR funds are directed to system improvements and rate stabilization rather than being diluted across unrelated municipal programs.
Federal Priorities and the PFAS Liability
2025 was a landmark year for federal intervention. The EPA鈥檚 finalized standards for PFAS are fundamentally changing the liability profile of landfill and processing operations. The costs associated with testing, monitoring, and the treatment of 鈥渇orever chemicals鈥� in leachate became a major, often unbudgeted, expense in 2025.
Landfills, once viewed as passive disposal sites, are now being treated as active environmental management facilities. The potential for long-term legal liability regarding PFAS-contaminated waste has driven up the cost of disposal and required municipalities to significantly increase their post-closure care fund contributions. We are increasingly seeing these liabilities reflected in reserve policies, tipping-fee structures, and long-term financial forecasts.
In 2026, the industry is moving toward integrated models that prioritize advanced mitigation and 鈥渃ircularization鈥� to minimize landfilling. Financial plans in 2026 should include 鈥渆nvironmental liability reserves鈥� to account for the evolving federal definition of hazardous waste. Leaders in the solid waste management sector should also track federal resources, such as grants, that may become available to support federal policy compliance as the goal shifts from solely disposal to long-term sequestration and mitigation of chemical liabilities.
The 2026 Roadmap
As the industry steps into 2026, one truth is unavoidable: the era of financial predictability in materials management is over. The data from 2025 makes clear that what were once treated as 鈥渆dge risks鈥濃�攆ires, climate disruption, supply-chain shocks, and regulatory exposure鈥攁re now core cost drivers.
Success is no longer defined by how efficiently trucks move, but by how well systems anticipate, price, and absorb volatility. The coming year will require a fundamentally different kind of financial leadership. Fleet transition budgets must evolve into full-scale energy and infrastructure strategies that account for charging capacity, grid upgrades, and transformer investments. At the same time, workforce planning must reflect the reality that tomorrow鈥檚 fleets will be maintained by highly skilled technicians, data analysts, and automation specialists, not just drivers and mechanics.
To remain financially and operationally viable, leading agencies are building resilience into the structure of their systems through three interlocking pillars:
1. Dynamic Financial and Climate Planning: Replacing static, CPI-based rate models with annually adjusted frameworks that can respond to insurance volatility, federal mandates, and climate-driven operational disruptions.
2. Infrastructure and Asset Resilience: Moving beyond 鈥渞un-to-fail鈥� approaches toward predictive maintenance, facility hardening, and capital strategies designed to withstand iron inflation, energy transitions, and extreme weather.
3. Risk-Based Policy Integration: Embedding fire mitigation, PFAS liability, and producer-funded revenue streams directly into contracts, rate models, and long-term system plans so risk is managed, not merely absorbed.
In 2026, the strongest organizations will be those that recognize what the numbers now make undeniable: materials management is no longer a basic municipal service. It is a high-tech, climate-exposed, capital-intensive public utility, and it must be financed, governed, and protected accordingly | WA.
Eugenia Manwelyan is a Manager at Raftelis. She is a well-versed planning practitioner with 15 years of experience in project finance and implementation in the public, non-profit, and consulting sectors. She has occupied a wide range of multi-disciplinary roles as a consultant, county government senior planner, non-profit executive director, and visiting professor at Columbia University. She has implemented projects ranging from food waste recovery and community solar to circularity and climate resilience. She has published multiple articles in 91仓库 Advantage and 91仓库 Today and has spoken at numerous national and regional waste conference, including 91仓库 Expo and RCon™ discussing equity, public sector leadership, and financial mechanisms for effective solid waste management. Eugenia can be reached at [email protected].
Morgan McCarthy, JD, is a Senior Manager at Raftelis. With more than 18 years of experience in the solid waste and environmental management field, Morgan is an accomplished professional with a strong track record of delivering practical, sustainable, and cost-effective solutions across the public and private sectors. Her work spans solid waste, recycling, organics, and yard waste programs, where she has supported municipalities, counties, and agencies in navigating complex regulatory and operational challenges. Morgan鈥檚 background includes franchise and contract negotiations, RFP and policy development, municipal code drafting, waste audits, and feasibility assessments. She is known for her ability to develop strategies that enhance system performance, support compliance, and align with long-term sustainability goals. Her collaborative approach and problem-solving skills have made her a trusted advisor to clients seeking to modernize and optimize their waste management systems. She can be reached at [email protected].
Harold Mitchell, PMP, ACP, PMI-PBA, is a Senior Consultant, at Raftelis. He specializes in solid waste financial assessments, supporting project decision-making and prioritization with detailed analyses. Previously, he optimized business applications and led IT projects at International Paper and managed SaaS and IT infrastructure projects for the City of Memphis. As a Lead Database Analyst for Memphis鈥� Solid 91仓库 Division, he enhanced fleet and route services with data visualizations and automated reporting. He led the integration of Rubicon鈥檚 SaaS with Oracle鈥檚 CRM database and ensured the fleet鈥檚 360+ vehicles were equipped for improved route tracking and maintenance. Harold holds an MBA with a focus on Project Management and Data Analytics and professional certifications, including PMP, PMI-ACP, and PMI-PBA. He is proficient in Power BI, SQL, and financial modeling. He can be reached at [email protected].
Jennifer Porter is Vice President of Raftelis. She is a planning leader with 24 years of experience in government and private sector sustainability, circularity and solid waste/sustainable materials management initiatives. Jennifer has demonstrated team building skills and has led client projects in-person and virtually in more than 20 states and territories in the U.S. and internationally, as well as with one of the world鈥檚 largest retail brands. A Certified Practitioner in Zero 91仓库 Principles/Practices, Jennifer鈥檚 specializations include sustainability, zero waste, circular economy, solid waste, sustainable materials management, communications, and team building. Skilled in program development, project management and scenario evaluation, Jennifer has worked on dozens of complex public- and private-sector client projects. She has also held past leadership positions with the Clean Cities Coalition and the Association of Oregon Recyclers, and currently services as the Sustainable Materials Management Technical Division Awards Co-Chair for SWANA and is on the Solid 91仓库 Knowledge Team and the Circular Economy workgroup for the American Public Works Association. Jennifer is the author of more than 25 published industry articles/speaking engagements promoting thought leadership. She can be reached at [email protected].
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