The inability of Sydneysiders to follow guidelines when recycling is having an impact in a regional New South Wales town, and may result in job losses.

Up to 20 per cent of paper waste sent from Sydney to paper maker Visy in the southern NSW town of Tumut is ending up in landfill because of contamination.

Visy's pulp and paper mill in the town sends thousands of tonnes of waste to landfill each year, mostly to a tip at nearby Gundagai.

The tip is licensed to take 150,000 tonnes of Visy's waste over a five-year period.

But the Gundagai landfill is almost full and the operator, MH Earthmoving, lost a recent appeal in the NSW Land and Environment Court seeking to expand the tip's life and size.

This means Visy would need to truck its waste further to Jugiong or Goulburn for disposal.

The NSW Government's Southern Regional Planning Panel has previously rejected two applications by MH Earthmoving to expand its Gundagai landfill to take 730,000 tonnes of Visy waste over 15 years.

Visy told the Land and Environment Court during the appeal that refusal of the development had the potential to jeopardise the operation of the billion-dollar mill at Tumut, which employed 300 people.

The court's commissioner heard Visy's recycling program was best practice, but last month the Land and Environment Court found the dump site at Gundagai, near the Murrumbidgee River, was unsuitable.

More recycling education needed

Visy received planning approval in 2017 to increase production at its Tumut mill to 800,000 tonnes per year and its waste output to 80,000 tonnes per year.

People are dumping contaminated paper at Visy depots like this and adding to landfill. ( ABC News: Chris Le Page )

Committee chairman James Hayes, who is also the Snowy Valleys Council mayor, said the waste problem needed to be tackled at the source — in Sydney — where waste paper for recycling was gathered but was mixed with other recyclable material, making it useless.

"The tragedy of the whole thing is that it is waste that should have been recycled in the first place," Mr Hayes said.

"It comes from co-mingled recyclables and the problem for Visy, or the problem for everybody, is that 20 per cent of what goes into those yellow-lidded bins is not recyclable, and it has to end up somewhere."

Mr Hayes said more needed to be done to educate consumers and businesses about clean paper recycling.

A shortage of pine trees means Visy has to use more recyclable content in the cardboard it produces. ( ABC Rural: Keva Gocher )

Pine shortage adds to waste problem

Mr Hayes said a shortage of pine trees was also behind the growing waste problem at the Tumut mill.

"The Tumut mill produces basically brown cardboard and there's not enough pulpwood available for that, so they're supplementing about 20–25 per cent of the product with recycled paper," Mr Hayes said.

Gundagai Environmental Impact Group representative Jenny Hawthorne said Visy should do more to deal with the issue.

"They are advocates for environmental protection, but I think they should not allow profit to come before the environment," she said.

"It is more expensive for them to send this waste to other places, but I think that's a small price to pay for the protection of our environment in the future."

In a statement, Michael O'Regan, from Visy parent company Pratt Industries, said Visy would not be commenting on the issue.

The Gundagai landfill for Visy waste is expected to close late this year or early next year, unless the owner takes further court action and wins.

Visy Industries executive chairman Anthony Pratt (L) and former prime minister Malcolm Turnbull at the Visy paper manufacturing facility in August last year. ( AAP: Mick Tsikas )

Mayor concerned at loss of Visy business

Cootamundra Gundagai Regional Council mayor Abb McAlister said he worried that nearby tips may also reject the dumping of Visy waste, which could jeopardise the Tumut business.

Cr McAlister is most concerned with the impact on Gundagai.

"It's going to have a big effect on the local economy," he said.

"Over the next 15 years we'd have brought in $70–80 million into the Gundagai economy, but straight up directly from the landfill there's eight jobs and there's probably another four that are associated that will go in time."

Cr McAlister said a large amount of Visy waste was already in the Gundagai tip with no signs of environmental damage.

EPA welcomes court ruling

The NSW Environment Protection Authority (EPA) said in a statement it welcomed the recent Land and Environment Court decision on the expansion proposal.

New South Wales Planning required Visy to produce an updated solid waste management plan for the Tumut mill as part of the approval of expanded processing last year, and it is still being finalised.

Visy previously said it was investigating possible reuses for material currently going to landfill, but has not said if there had been any progress in recent years.