If Australia treated recycling waste like iron ore or coal the nation could be $300 million better off each year.
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Instead, Australia makes just $4 million a year from recycling due to high levels of contamination in co-mingled recycling bins.
A new report from professional services company EY estimates Australia could generate up to $328 million worth of recyclable material each year if world-class recycling systems are implemented.
"We must start realising and treating our waste as a tradeable commodity, like iron ore or gold, rather than just waste," said EY Climate Change and Sustainability Partner, Terence Jeyaretnam
"The old way of sorting our waste is not the right fit for 21st century Australia.
"Not only does it lead to poor environmental outcomes, it's preventing us from grasping an opportunity worth hundreds of millions per year."
Australia's current co-mingled method of recycling is reducing the value from a typical kerbside bin to as low as $2 a tonne.
The report found Australia could get as much as $156 a tonne if the recycling was sorted better.
For example, a high-density polyethylene milk bottle collected as mixed plastic waste has a market value of $110 a tonne - well short of the market value for clean bottles at $500 a tonne.
"Contamination rates in Australia average between four and 16 per cent of collected recyclable material," the report says.
"These high contamination rates are a key reason why countries across Asia closed their doors to Australia's waste."
Australia's recycling industry is in crisis after several overseas countries stopped taking Aussie waste, and local processors were unable to keep up with demand.
Major player SKM Recycling collapsed owing millions of dollars after regulators shut down some of its processing plants and it was no longer able to send recycling overseas.
Victorian councils are currently paying to send recycling straight to landfill rather than getting it processed.
The EY report recommends better education about contamination, making it more convenient to recycle, improving sorting and developing new markets for recyclable materials.
Prime Minister Scott Morrison has vowed to do more to tackle plastic waste in the world's oceans, promising to ban the export of waste plastic, paper, glass and tyres.
Mr Morrison says only about 12 per cent of materials are properly recycled in Australia and he wants that to change.
Australian Associated Press
