Although the City Council has approved a measure eliminating a sizable city subsidy aimed at encouraging private companies and nonprofits to recycle, lawmakers now appear ready to restore the incentive at a lower rate.

Bill 47 did away with an 80 percent fee discount to companies that recycle materials and dispose of the nonrecyclable residue at the Waimanalo Gulch landfill. The discount was applied to the "tipping fees" charged per ton to the company or nonprofit delivering the waste material. Mayor Peter Carlisle has until Tuesday to sign, veto or let the bill become law without his signature.

The decades-old tipping fee subsidy was brought to the attention of lawmakers by the city Department of Environmental Services, which was seeking ways to increase revenues in the face of tightening budgets. The subsidy has cost the city more than $26 million since 1998, including $2.3 million last year.

Additionally, community activists had criticized the discount as "corporate welfare" primarily benefiting a single, profitable company.

But while crafting the bill to eliminate the subsidy, Council members said they wanted to take steps to continue to encourage recycling.

Bill 36, which comes up before the Council Friday at its regular monthly meeting, would reinstate the tipping fee discount at 60 percent for the next fiscal year, 40 percent the year after that and 20 percent in subsequent years.

Nonprofit organizations would continue to be exempt from paying any tipping fees. The proposal also exempts from fees any one-day, noncommercial cleanup event.

City administration officials testified against Bill 36.

"This was one of those hard decisions that we made," Environmental Services Director Tim Steinberger said of the proposal to do away with the discounts. The discount was enacted in 1991 and revised in 2001 as a means to encourage recycling, but today may no longer be needed because the recycling industry is a vibrant, money-making industry, Steinberger said at a recent Budget Committee hearing.

Activists have focused attention on a single company, Schnitzer Steel Hawaii, in calling for an end to the subsidy. Since 1998, Schnitzer has received about $19 million in tipping fee discounts, including $1.9 million last year.

Critics and competitors argue Schnitzer should be compelled to open its books and demonstrate a need to continue receiving the subsidy. Company officials have refused, saying it would place them at a disadvantage in a globally competitive industry.

Schnitzer argues that the discount is available equally to all recyclers, and that Schnitzer recoups more because of the scale of its operation. Schnitzer recycles more than 100,000 tons of metal a year from automobiles, appliances and other bulky metal items.

The company supported Bill 36 as a compromise, stating in testimony, "This would give our company time to make adjustments to our operations that might ease the impact on our suppliers and the public."

Those steps include reducing the amount of non-recyclable residue that is processed through its industrial shredder at Campbell Industrial Park.

Hanni Hartmann, owner of Paragon Metals, a competitor in the scrap metal market that has faced off against Schnitzer in court, argues that companies should simply demonstrate a financial need for the subsidy.

"Everyone agrees the money could be used better elsewhere, especially with the proposed increase in fees and cutbacks in city services," Hartmann told Council members in an email. "Not one Council member has offered justification, or taxpayer benefit, for giving this money away in any amount."

The meeting of the full Council is scheduled for 9 a.m. Friday at Honolulu Hale.