(FORTUNE Magazine) – JUST WHEN YOU think plastics are absolutely everywhere, they turn up someplace new. Automakers, which have long used them in bodies and bumpers, now add them to engines. Before long, our homes may be made of the stuff. The U.S. produces 60 billion pounds of plastic resins annually, and sales of plastic products exceed $150 billion a year. Demand is so intense that resin producers such as Dow, Du Pont, and Mobil are operating plants up to and beyond rated capacities, and earning stupendous profits. By 2000, U.S. output will probably be up some 25% to 76 billion pounds. People purchase all this plastic because it does amazing things, but whether they have thought about it or not, they are also buying into a Faustian bargain: Sooner or later plastic turns into garbage, and the stuff degrades so slowly that mankind may spend eternity with the computer keyboards and microwaveable trays people buy so eagerly today. Roughly a third of all plastic is sold as disposable products with economically useful lives measured in months. Where will it all go? Americans dump 80% of their garbage in landfills; at the present rate, U.S. landfill capacity could be exhausted in a decade or two. Plastics already account for roughly a quarter of all solid waste measured by volume, vs. 40% for paper. The proportion will rise as durable products such as dishwasher liners, computer housings, and auto bumpers get junked in increasing amounts. Rumblings from U.S. voters -- an overwhelming majority of whom see plastics as the cause of the solid-waste crisis -- are setting off an avalanche of legislation that could bury the plastics industry. Every business that depends on plastics, from automaking to appliances to computers to foods, risks a painful tumbling. In just the past two years, legislators at all levels have proposed over 800 laws regulating solid waste. Many of those laws specifically target plastics, through packaging taxes, degradability requirements, and / other restrictions that could significantly raise the cost of making products with plastic. New York's Suffolk County, Portland, Oregon, and other communities have passed outright bans on some plastics, such as the polystyrene foam in fast-food coffee cups and hamburger clamshells. For some operations these bans could be a matter of life and death. Procter & Gamble, for instance, buys nearly 200 million pounds of plastic annually for detergent jugs, disposable diapers, and the like. To cite just its most obvious exposure, P&G's $1.6-billion-a-year diaper business could be legislated away at the stroke of a pen. The 16 billion diapers Americans dispose of annually amount to over 1% of municipal solid waste. New York and Washington State defeated disposable-diaper bans, but Nebraska recently passed one; similar bills are pending in Oregon and California. ADDRESSING the broad subject of plastics disposal, Deborah Anderson, P&G's environmental affairs chief, says, ''We are very, very concerned -- extremely concerned. The solid-waste issue is becoming a new consumer need.'' Among other efforts, the company has begun to use recycled plastics in bottles for Spic & Span, and it recently announced programs to test recycling and composting of soiled diapers. Despite the rising tide of legislation, leaders in the plastics industry are generally optimistic -- at least about the immediate political battle. To date the buckshot spray of legislation has not wounded the industry, in part because the most onerous rules have not yet taken effect. And consumers, while spouting environmentalist platitudes, continue to buy products made or packaged with plastic in unprecedented amounts. Stoutly refusing to acknowledge the solid-waste problem as recently as two years ago, plastics producers now are scrambling to position themselves as part of the solution. They have launched a numbered coding system for containers to make them easier to sort and recycle. Richly funded industry groups such as the Council for Solid Waste Solutions suddenly are touting plastics recycling as the answer. The very idea is surprising: Plastics' recyclability has been one of the industry's best-kept secrets. With packaging and consumer goods companies as close allies, the plastics industry is unveiling recycling initiatives at a frantic rate. In the past year, Dow, Du Pont, Amoco, Mobil, and Wellman have announced highly publicized projects to recycle plastic wastes, mainly pop bottles, milk jugs, and those throwaways made from polystyrene foam. All told, the industry will spend an estimated $40 million this year on recycling projects, up from zero a few years ago. But their efforts seem designed to influence legislators rather than solve the plastic-waste problem. Recycling is not the only alternative for plastics disposal. A more promising option is burning it along with other garbage in waste-to-energy plants that use the heat to produce electricity for sale. Europeans and the Japanese already burn the great bulk of their garbage that way, plastics included. But these plants are so expensive and politically controversial that Americans seem unlikely to build as many as they need. One person who sees hope in this sad story is Uwe Wascher, the hyperbolic German-born marketing head of General Electric's boisterously successful plastics division. ''It's wonderful!'' he exclaims in heavily accented English. ''Plastic is forcing us to take responsibility for the way we live!'' The problem of plastic waste is inseparable from the rest of the solid-waste issue. The Environmental Protection Agency has proposed a four-tiered agenda for managing disposal of all types of garbage in the U.S. Widely accepted by environmentalists and industrialists, it sets ambitious goals for 1992. It decidedly would not solve the plastic-waste problem -- no proposal advanced so far would do that -- but it would represent progress. The EPA's four goals: -- Reduce the amount of waste created by 25% through such means as reduced packaging. -- Boost the overall recycling rate to 25%. -- Incinerate 20% of the remaining garbage (vs. 9% today) in waste-to-energy plants. -- Reserve landfills for materials that cannot be burned or recycled, as well as for the often toxic ash that results from incineration. Much can and will be accomplished toward each of these goals. But the EPA has no power to enforce the program, and market forces may even impede it. As the agency notes in its report, ''Manufacturers have no direct incentive to design products for effective waste management, because they are not usually responsible for the costs of waste management.'' Reason: The cost of collecting and disposing of most garbage is assumed by municipalities. In most places the cost is then passed on to taxpayers in an undifferentiated lump with other local expenses such as schools, police, and the fire department. The idea of a pay-as-you-toss system -- in which haulers charge a flat fee for each bag of waste they pick up -- makes sense, but only a few places, such as Perkasie, Pennsylvania, employ it. So consumers, like manufacturers, lack economic incentive to favor products that can be disposed of more easily or inexpensively than others. The economics of disposal are muddied even for businesses that do pay garbage collectors according to the volume of waste. Rates are based on the so-called tip fees at landfills. These fees, which can reach $120 a ton where landfills are scarce, average only $27 nationwide. The cost of operating most landfills is publicly subsidized, and tip fees don't reflect the huge capital investments needed for the future. Says David Sussman, head of environmental affairs at Ogden Martin Systems, a waste-to-energy incinerator: ''The true cost of disposal may be closer to $200 a ton by the year 2000, if we are going to recycle and incinerate garbage on a large scale.''

THE MOST PROMISING part of the EPA agenda is waste avoidance. Whereas thrifty Henry Ford once forced suppliers to deliver parts in wooden crates that served second lives as flooring for Model T's, the auto industry now pays for $500 million of disposable packaging annually -- and then spends more to burn it. McDonald's single-handedly spends an estimated $500 million annually on packaging, half of it plastic. In volumes like these, even small reductions can yield big savings. Until last year, for example, Coca-Cola syrup came to McDonald's in plastic bags encased in cardboard; now the syrup is delivered like gasoline, pumped directly from tank trucks into storage vats at stores. The savings: 68 million pounds of packaging a year. Recycling, the next item on the EPA agenda, is particularly appropriate for plastics. At $75 to $200 a ton, the plastics for which recycling markets have developed are the second-most-valuable materials in the garbage pile (after aluminum, worth $1,000 a ton). More compelling, the stuff is made from the hydrocarbons in oil and natural gas, supplies of which are expected to run out during the next century. But despite the industry's efforts, large-scale plastics recycling remains little more than a dream. Currently only 0.2% of plastics are recycled, vs. 11% for all recyclables combined and much more for certain materials (see chart). Americans recycle 31% of their aluminum, including 55% of aluminum cans. Robert Prioleau, recycling chief at Exxon Chemical, a two-billion-pound- ) a-year resin producer, says if the industry's programs succeed, they will nudge the plastics recycling rate up to only 1%. Significantly boosting that rate would require a vast infrastructure of collection, sorting, and processing facilities that might cost billions. Perhaps tens of billions: No one has bothered to calculate the cost. There's no reason to, since markets for recycled plastic garbage -- euphemistically called ''post-consumer'' plastics -- generally are so modest that vast investments in recycling don't make economic sense. Large-scale plastics recycling is still focused only on a few easily collected varieties that account for a small fraction of total plastic production. Recycling of most plastics is not a technical problem. In fact, as long as the many different kinds of plastic are kept separate from one another, it's a breeze. Just wash the stuff, grind it up, compress it into pellets, and bingo: plastics that perform almost as well as virgin resins. If better performance is required, just mix in some virgin material. Most plastics producers have been routinely recycling their own plant scrap for decades. Only 11% of plastics, a variety called thermosets, cannot easily be recycled. The problem with recycling is in the economics. At first glance they seem promising. The only plastics for which largish recycling markets have developed -- the high-density polyethylene (HDPE) used in milk jugs and the polyethylene terephthalate (PET) in pop bottles -- sell for around 50% less per pound than virgin resins. But that number doesn't tell the whole story. It doesn't include the cost of collecting and separating the plastic waste, a service that municipalities normally provide. Add that cost in, says GE's Wascher, and the total cost of producing those recycled plastics is 20% higher than virgin resins. Towns geared up for recycling pay the cost of extracting HDPE and PET bottles from the waste stream. Most PET is collected in the nine bottle-law states (Connecticut, Delaware, Iowa, Maine, Massachusetts, Michigan, New York, Oregon, and Vermont), where consumers must pay a deposit of 5 cents or more per container; deposits are refunded when consumers return the containers to stores. In effect, consumers do the sorting and hauling for free. SO ULTIMATELY that system works well enough for HDPE and PET, which are relatively easy for consumers to identify and separate. Municipalities are willing to pull the bottles out of the other garbage, and private businesses ) can recycle them economically. But what about all those other plastics -- the ones in cars, refrigerators, stereos, electric pencil sharpeners, and thousands of other products? Anyone who wants to recycle those may have to pay to recover them -- and the cost could make the whole enterprise a loser.

In the future municipalities may become more willing to extract other plastics from the waste stream as tip fees at landfills increase. Where tip fees are high -- along the East and West coasts and around some big cities like St. Paul -- communities save money by reducing the volume of garbage they send to landfills, despite the extra cost of extracting recyclables. Householders still must do the first stage of the work, segregating various kinds of garbage. Then the city or state separates the junk further. A state- of-the-art facility, such as one Rhode Island recently built, costs $4 million. Automated equipment sorts aluminum, steel, glass, paper, and plastic into separate fractions. Then unskilled workers take on the ugly task of hand sorting different types of glass and plastic from one another. One reason garbage disposal may soon cost $200 a ton is that fully automated separation systems seem the only way to process the 250 million tons of solid waste the U.S. produces each year. Even if government helps sort various recyclable plastics, there's another bridge to cross: creating markets for recycled plastics. It's a classic chicken-and-egg problem. Buyers are uncertain of the purity and availability of these resins. Potential vendors won't make the necessary investments unless confident of sufficient sales. GE is addressing that problem by intercepting plastic waste before it gets mixed up with other garbage. Through a subsidiary that distributes virgin resins to fabricators, GE buys back scrap from the plants it serves. Because plant scrap provides large volumes of homogeneous material, GE can profitably process and resell these plastics with guarantees of quality. Du Pont is attacking the other side of the market issue. ''The secret to finding markets is creating new uses for recycled plastics,'' says Frank Aronhalt, Du Pont's environmental affairs chief. In April the company created a joint venture to recycle HDPE and PET. Its partner is Waste Management Inc., the largest U.S. garbage hauler, which will supply the raw material. Du Pont will process the plastics, adding toughening agents, and manufacture them into new types of products, such as plastic paint cans. Laudable as it seems, plastics recycling doesn't really solve the problem -- it only delays the inevitable transformation of plastic into junk. Recycling ultimately could even make the problem worse, by soothing public concern while the volume of plastic continues to soar. Plastics executives generally believe recycled plastics will open new markets instead of displacing virgin resins in existing applications -- and of course they have reason to encourage that outcome. Wascher of GE, which produces only high-grade plastics that can be recycled many times, envisions a future in which GE might turn plastics made from its resins into generation after generation of profitable products. To facilitate collection, the company is starting to buy back used GE plastics from customers such as Digital Equipment, the computer maker, and Domino's Pizza, which ships pizza dough on plastic trays. The resins might start their useful lives as crystal-clear milk jugs. Then GE would make used jugs into auto bumpers, and those used bumpers into an inexpensive, high-performance replacement for wood in construction. ''What a fantastic profit opportunity!'' Wascher exclaims, lifting his eyes heavenward. But when those buildings end their useful lives two or three decades from now, all the plastic in them will once again be junk. THE BEST ALTERNATIVE in sight is the EPA's third goal, waste-to-energy incineration. Most plastics burn as cleanly as natural gas, producing emissions of carbon dioxide, nitrogen oxides, and water vapor. The incineration of certain plastics can cause ecological problems. Unless burned at very high temperatures, polyvinyl chloride (PVC), the plastic in pipes for plumbing, emits cancer-causing dioxins. Another 20% of plastics contain cadmium or other heavy metals that add toxins to incinerator ash. But Du Pont and Dow have found ways to stop using heavy metals, and incinerator operators claim they know how to burn PVC cleanly. One incentive to incinerate is the high energy content of plastics. A pound of plastic produces around 16,000 BTU when burned, more than any other kind of garbage and nearly twice the energy in a pound of coal. But when outfitted with EPA-required emission controls, waste-to-energy plants are expensive to build: A typical plant might cost $300 million and handle 3,000 tons of garbage daily. Voter opposition makes siting the plants difficult except where garbage costs already are out of control. $ Environmentalists believe the plants contribute to the greenhouse effect, and disposing of the residual ash -- equal in volume to 10% of the waste burned and usually toxic -- is much more troubling and expensive than handling regular garbage. Still, Ogden Martin and Wheelabrator Technologies, which dominate the waste-to-energy business, expect their combined processing capacity to reach the EPA's target level by the 1992 deadline. That capacity will still not be nearly enough to handle all the plastic Americans will be throwing away. The plants are designed to burn a typical mix of garbage, in which plastic is still a relatively small part. Waste-to-energy plants capable of burning 20% of Americans' garbage probably could dispose of less than 10% of the plastic industry's ever-increasing annual production. Significantly boosting that percentage would require another expensive new generation of plants. So what about landfills, the subject of the EPA's fourth goal? Their usefulness is limited. Not only is capacity nearly exhausted where it is most in demand, but landfills aren't much good to begin with. Contrary to popular belief, modern landfills do not promote the hasty degradation of garbage. EPA rules designed to prevent the release of toxins perversely have eliminated most of the moisture and oxygen needed to promote biological decay. William Rathje, a University of Arizona anthropologist whose odd specialty is landfill digs, routinely finds perfectly legible newspapers and even whole carrots that were buried decades ago. Some degradation does occur in landfills, of course, but hardly enough to justify the laws passed in Iowa and other states mandating biodegradability for plastic products. In a landfill, they won't degrade much anyway. FOR SIGNIFICANT further progress on the plastic-waste problem, someone must figure out how to focus market forces on it. Here is a conundrum worthy of the best minds in economics: How do you transfer the cost of disposal to the users of the products that will be disposed? Until that occurs, buyers cannot differentiate among competing products, and markets can't do their good work. Subsidizing research on the question might help the plastics industry more than all its token recycling efforts combined. One idea, already under consideration in West Germany, may win favor in the U.S. Germany's cabinet minister for the environment has suggested that automakers be required to buy back products that have reached the end of their useful lives. This way of shifting disposal costs back to the producer, who would presumably figure them into the product's price, could work for many big-ticket items, including appliances and computers. In theory, such rules would foster changes in product design to ease disposal. GE, for example, has begun making bumpers for Ford's Taurus cars out of three plastics that retain a high value even when recycled together. Most plastic dashboards, by contrast, mix so many incompatible plastics that they can only be junked or burned. Whatever happens politically, the issue of solid-waste disposal is certain to haunt plastics for decades. After all, the inability to manage responsibly the fruits of our invention has come to seem a basic of the human condition. Yes, there's some progress, and a little more is on the way. But no solution is in sight. In all likelihood this is a problem, like the federal deficit and the risk of nuclear war, that Americans will pass unsolved to their grandchildren. Until it is solved, it will threaten one of the richest markets in world business.

CHART: NOT AVAILABLE CREDIT: SOURCE: INSTITUTE OF SCRAP RECYCLING INDUSTRIES INC. CAPTION: PLASTIC RECYCLING HAS A LONG WAY TO GO