The economic recession, with its associated decline in global commodity prices, has created an unexpected byproduct: Demand for recyclables has all but dried up. As a result, communities across America are reevaluating whether they can justify continuing their recycling programs.

There is no question that recycling is good for the environment. Even though the process itself generates a large carbon footprint, recent studies show that it almost always beats landfilling or incineration. Making a soda can out of recycled aluminum, for example, can reduce net energy consumption by as much as 95%.

One of the most common landfill gases, methane, acts like carbon dioxide on juice, with 23 times the global-warming potential.

But if recycling makes environmental sense, why isn’t it making economic sense?

The recession, it seems, is laying bare the myth that recycling has something to do with saving the environment. In fact, it’s about money. When commodity prices rise, waste companies can sell recyclables to faraway markets and turn a profit. When commodity prices fall, the cost of recycling looks ominous compared with the best alternative, landfilling. Commodities are priced fluidly, rapidly integrating the latest market supply and demand signals. Landfilling costs, known as “tipping fees,” have barely risen over the past decade, despite the growing threat of climate change. "What we need are incentives and disincentives to encourage better behavior," says Steven Cohen, executive director of Columbia University's Earth Institute. "Activities that wreck the environment should cost more money."

Let’s be clear: Landfills are an environmental hazard. One of the most common landfill gases, methane, acts like carbon dioxide on juice, with 23 times the global-warming potential. In the United States, landfill pricing depends mostly on the availability of space, not environmental impact. As a result, tipping fees are far lower here than in Europe, where there are more stringent standards for hazardous waste, transportation of waste, and pollution control. In countries like France, for example, environmental regulations have pushed average tipping fees to almost $96 a ton—a sharp contrast to the average of $35 a ton in the United States. If the cost of landfilling is higher, green alternatives like recycling look better, even when commodity prices are low.

What’s needed is a policy similar to Obama’s cap-and-trade bill, which passed in the House of Representatives a week ago. Assigning emission-reduction credits to recyclers would encourage waste companies to pursue greener behavior. Emission reductions from recycling are not massive, but they are still significant. DSM Environmental Services, an independent environmental consultancy, estimates that New York City's current recycling program has roughly the same impact as taking 344,000 cars off the road.

Lower processing costs, driven by technological innovation, would also make recycling more competitive. Consider, for example, the impact of “single-stream recycling” in recent years, which avoids the need to manually sort paper, aluminum, and glass into separate recycling bins. With single-stream recycling, anything remotely recyclable can be thrown into a single bin. When these bins reach a recovery facility, their contents are spilled onto conveyor belts that whiz through a series of giant magnets, electric currents and optical lasers (attached to blow dryers)—each gadget forces a targeted material to literally jump off the conveyor belt and land in a neat and organized pile. This allows for higher volumes and lets recyclers scale down their costs. In addition, there is less labor required and shorter overall processing times. "Anytime you can more efficiently separate waste streams," says Cohen, "the potential value of your secondary materials is higher."

But for now, if recycling is to really work, several issues need to be straightened out: Landfilling must become more expensive, recycling must involve cheaper processes, and recycling credits should be traded. Those three things could make this crucial industry recession-proof.

Ken Lee, a New York-based writer, is a former investment banker.