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Lack of available land, EU legislation and increased taxes on local authorities for sending waste to landfill are driving efforts to find alternatives.

As a result, local authorities (and businesses) are partnering with waste management companies that specialise in recycling, giving medium to long-term contracts to them.

There are also efforts to utilise waste-to-energy technologies, such as anaerobic digestion, which will become more attractive to investors as the cost of sending waste to landfill increases.

Drivers of change

The three factors that are driving efforts to reduce landfill and recycle waste are:

• EU legislation -- under the EU Landfill Directive, the UK's level of biodegradable waste sent to landfill must reduce from 75% of 1995 levels now, to 35% of those levels by 2020.
• Government taxes -- the Budget said that the standard rate of landfill tax would rise by £8 per tonne on 1 April each year until 2013. As a result, the tax will rise to £48 for each tonne of waste sent to landfill from 1 April next year, then climb to £56 in 2011, £64 in 2012 and £72 in 2013.
• Lack of available land -- according to 2007 estimates by the Environment Agency, London will run out of landfill space by the end of next year, while the south-east, east of England and the north-west will reach capacity by the end of 2012

Here are three quoted companies with exposure to waste management that could benefit from these trends...

Shanks Group (LSE: SKS.L - news)

Shanks Group (LSE: SKS) is a waste and resource management company that operates in Belgium, Holland and the UK. It offers a wide range of waste disposal solutions including waste collection, recycling, treatment and other disposal services. The group also generates electricity from its landfills.

For the year ending 31 March 2009 it delivered pre-tax profits of £34m on revenues of £697m. However, in order to reduce its net debt, which stood at £424m, it cut its dividend and announced a £71m rights issue at 45p each.

In April 2009 Shanks announced the successful refinancing of its £250m medium-term bank facility. This was replaced on 7 April 2009 by a 360m multi-currency term loan and revolving credit facility expiring in April 2012. At first drawing on 9 April 2009, this facility was approximately 79% utilised. Shanks therefore looks secure in the short term but its debts are a concern.

Its shares are just under 70p and consensus estimates are that it will make around £42 million for the year ending 31 March 2010.

It's certainly worth researching this one further and seeing how its net debt position looks when its interim results come out later this year.

Augean (LSE: AUG.L - news)

Aim-listed Augean (LSE: AUG) specialises in treating and recycling hazardous waste, which includes everything from batteries to contaminated soil.

In 2008, revenues were £40m, up from £26m, while pre-tax profits were £3m. In 2007 it made a £24m loss.

However, it has already revealed that for the first half of 2009, the treatment division downturn which began in the latter part last year is still ongoing.

The shares are tightly held with only 26% of its shares free for ordinary retail customers to buy and sell. One-Fifty One, an Irish investment company, holds 26.9% of Augean's shares. However, no bid has been forthcoming and it remains to be seen how this will pan out.

Augean trades at 41p, valuing the company at approximately £27m. It's worthy of closer inspection but it has disappointed investors in the past.

Pennon

Pennon (LSE: PNN) operates two key subsidiaries: South West Water, a provider of water and sewerage services to Devon, Cornwall and parts of Dorset and Somerset; and Viridor, a waste treatment and disposal business.

Pennon's preliminary results for the year ended 31 March 2009 showed profit before tax up 6% to £159m. Sales were up 9% at £953m.

Viridor is one of the leading waste management and renewable energy businesses in the United Kingdom, specialising in landfill disposal, recycling and generation of electricity from landfill gas. Its compound annual growth rate in profits before tax since 2001 has been 17%.

Revenue at Viridor was up 15% to £523m, although acquisitions accounted for most of the increase. Pre-tax profits of £41m were up 15% on the previous year. Pennon's share price is 486p and the prospective dividend yield is a healthy 4.5%.