Chicago should seriously consider replacing its $9.50-a-month garbage collection fee with a volume-based rate to give homeowners a financial “incentive” to recycle — and boost a dismal 9 percent recycling rate, a Northwest Side alderman said Thursday.

Ald. John Arena (45th) pointed to Chicago’s 7-cents-a-bag tax on paper and plastic bags and the success it has had in driving consumers to reduce bag use and landfill costs.

“Create an incentive. Like we did with the plastic bags. When we banned them, it didn’t work. When we created a financial incentive or disincentive from taking one of those single-use bags, there was an 80 percent drop in single-use bags,” Arena said.

“Let’s create a financial incentive for a resident to divert and participate in the recycling program. … We’ve already implemented a $10 per household fee for garbage. We just increased their costs. What if we tagged that to the number of black carts you had vs. the number of blue carts. We need to look at that.”

Arena also joined the Illinois Environmental Council in demanding a review of managed competition, which has allowed Waste Management to mark blue recycling carts as contaminated — even though that company has a “financial incentive to divert” the contents of those recycling bins to “landfills that they own.”

When recycling carts are slapped with “contaminated” stickers, Waste Management bypasses the carts, but is still paid recycling fees while city crews pick up the contaminated bins. That forces Chicago taxpayers to pay twice.

The Better Government Association recently disclosed that 514,239 of the recycling bins branded as “grossly contaminated” — 90 percent of the contaminated total over a multi-year period — were tagged by Waste Management.

Recycling contracts with Waste Management and SIMS Metal Management already have been extended for one year.

Arena said the City Council needs more information to determine whether managed competition is working, or whether the contracts should be “re-negotiated” or canceled.

“Waste Management, which covers my area, has been systematically diverting recyclables to the landfill, which we end up paying for,” Arena said.

“I have to know why entire blocks of my ward have been tagged as contaminated when these are dedicated people who recycle and do it effectively. What is a level of contamination that is acceptable? There’s no standard. We don’t know what quantifies contaminated.”

On the hot seat Thursday at City Council budget hearings, Streets and Sanitation Commissioner John Tully continued to emphasize education over financial incentives.

Tully told aldermen he has reassigned four laborers to ride herd over private recycling contractors and keep a close eye on contaminated carts. Hand-held computers will help them and private contractors compile specific information about the nature of that contamination.

“There was enough blame to go around on the way even the city was handling this. Was it uniform? We want everything handled consistently. We would have that information. We’d make sure that we’re not just getting stickers slapped on `em. We’re gonna make sure that, in fact, there’s contamination,” the commissioner said.

He added that he discussed this issue with the private contractors, “but in their defense, they had been talking to us for months about, `We’re still getting this level of contamination messing up our machines.’ “

Tully said he is also planning to improve the tagging system to let homeowners know why their bins were contaminated. And he has every intention of crafting new contract language to confront Waste Management’s potential conflict.

All of this occurs against the backdrop of a worldwide decline in the market for recyclables.

It started in late 2017 and has been exacerbated by what Deputy Commissioner Chris Sauve calls the “Green fence in China” and, more recently, by the tariffs imposed by President Donald Trump in his trade war with China.

“It’s not just a local concern. It’s a national and international concern,” Sauve told aldermen Thursday.

“Every municipality is dealing with it. The material we collected generated revenue last year. This year, for four quarters, won’t generate any revenue.”

The $9.50-a-month garbage fee tacked on to water bills was the most controversial element of Mayor Rahm Emanuel’s tax-laden 2016 budget. During that heated debate, several aldermen made the case for a volume-based fee.

Ald. Proco Joe Moreno (1st) subsequently suggested that volume-based approach could bankroll a citywide property tax rebate.

Emanuel ended up using the $20 million tax windfall from the sale of the Chicago Skyway to bankroll that rebate — but it was so widely-ignored, most of the money went unclaimed.

He also cracked the door open to a volume-based garbage collection fee that many aldermen view as more fair.

Inspector General Joe Ferguson has estimated that a volume-based, annual fee of $100 for every 96-gallon cart used could generate as much as $125 million a year — even if the fee triggers a 17 percent reduction in the volume of household refuse and, therefore, reduces the number of carts used.