This is a story of everyday magic, about a carnival procession of birds and butterflies, clowns and puppets, giant flowers and fantastic animals that emerge from a scruffy warehouse under a railway bridge in south London. It takes a little imagination, a rub of Aladdin’s tarnished lamp, to see the treasure trove, but transformation is what the South London Children’s Scrap Scheme in Peckham is all about.

The scheme is part of an informal, UK-wide network of centres for the collection and distribution of “waste” materials for use in art and craft projects. The scrap schemes provide basics such as paper and wood, as well as unusual and exciting materials not otherwise available. Best of all, everything is free, once the annual subscription has been paid.

These extraordinary centres should be the first stop for any art or technology teacher looking for supplies, or ideas. They are also landmarks of local, environment-friendly cooperation between education and industry. So how do they work?

Let us begin in a factory that produces, let’s say, print cartridges for electric typewriters - flat plastic boxes with a ribbon stretched between two extended arms. Each one is streamlined black plastic, filled with tiny blue and yellow cogs and springs - a lot of technology for a component that will be thrown away as soon as the ribbon runs out.

One day there is a problem with a batch of cartridges - they are past their sell by date, and the ribbon isn’t inky enough. Two dozen boxes are about to hit the local tip, when someone mentions the scrap scheme.

Dave Cooper duly arrives in a van, and magics the unsaleable stock away to Peckham, at no cost to the factory. Here in the warehouse, he picks up one of the cartridges, turning it over and over, squinting along its length. Something could be done with this. The shape reminds him of something on television last night. What was it? Motor racing?

A few weeks later, a racing track has been laid down in the office above the warehouse, the back-room where prototypes are tested. It’s made of reclaimed plastic held together with those awkward triangular document binders. A car whizzes around the track. Speedy and elegant, it is powered by the motor from a broken personal stereo and the chassis is made of - you guessed it - an old typewriter cartridge.

Dave has grand plans. He sees ribbon-racers being built in play schemes and youth clubs across south London, being cus- tomised to children’s own designs, entered into a Re-use and Recycle Grand Prix.

The South London Children’s Scrap Scheme can offer teachers standard supplies such as paper and wood, but it is perhaps the unusual oddments (such as brilliantly-coloured plastic components in mysterious shapes) that have the greatest potential for provoking the imagination.

The warehouse, “a scruffy version of B Q”, is full of potential - shimmering velvets, silks and car-upholstery, good lengths of fresh timber, gold foil with the sequins stamped out, odd containers and boxes, colourful acetates and reams of clean, unused paper.

Scrap doesn’t mean rubbish, but material that cannot be sold commercially. This includes offcuts, trimmings, samples and rejects, collected from more than 200 companies in Greater London. It means leftover materials that would usually be burned or buried - paper, card, wood, leather, foil, fabrics, plastics, Perspex, buttons, beads, wallpaper and paint. In one case, a firm that filled six skips a month with huge pieces of sound timber was persuaded to let the scrap scheme relieve it of the waste, benefiting local schools which collect the wood they cannot afford to buy. Dave Cooper emphasises: “Before it’s scrap it’s surplus.”

While recycling has become a familiar concept in classrooms, this kind of re-use is still little-known among those who stand to benefit most - teachers. There is no conflict between the two operations, no question of recycling bins being deprived of their paper and plastic. Re-use is cheaper, and should be the first green step to take. Mike Childs of Friends of the Earth points out that recycling has costs - reprocessing glass, metal and paper uses energy and causes air and water pollution. And re-use materials can always be recycled once they have reached the end of their second life as a butterfly or dragon.

The scrap schemes are registered charities, redistributing materials through a membership scheme. Schools and other non profit-making organisations pay an annual fee (on a sliding scale from Pounds 10 upwards, depending on the size of the group). They can then collect the materials they need from the workshop at no further cost. One teacher, forced to defend the renewal of her school’s subscription, calculated that, thanks to the scrap scheme, she had not needed to buy any new art paper for three years, saving several thousand pounds.

Ian Simons, a local artist, uses the scrap scheme to find materials for his “Otherworld Arts” workshops at fetes and festivals such as WOMAD and Glastonbury, as well as for arts projects geared to the national curriculum in schools and libraries, for playschemes and council events. His studio at the scrap scheme, open to members as a source of ideas, is filled with colourful masks and giant puppets, like a carnival in waiting.

Besides saving money, re-used materials can tell an important story, raising awareness of environmental issues. Environmentalists want us to look at whole life-cycles, not just picking an item off a supermarket shelf and throwing it in the bin when we’re finished, but thinking about the energy and resource costs involved in production, transport and disposal.

The triumph of the scrap scheme is that it shows being “green” involves imaginative work and play, not deprivation. We spend money according to manufacturers’ cycles of obsolescence, unable to fix things ourselves, feeling helpless when faced with technology sealed in neat boxes. Children who handle household and industrial “rubbish” learn about fixing, mending, remaking, repainting and creatively transforming objects. These skills offer an alternative to the endless consuming and dumping of ready-made goods.

At the South London Children’s Scrap Scheme, the two full-time staff members attempt to pull off the magic trick of being in several places at once, collecting materials in the van, fundraising, carrying out day-to-day administration and keeping in touch with members and suppliers. Then there is cleaning, unloading, sorting and organising, meeting and advising teachers, providing ideas, worksheets and health and safety advice along with the materials, showing the models in the exhibition space and selling cheap art supplies in the shop next door. It’s proving an impossible trick.

Funding has been at a standstill for three years. A three-year grant from the London Boroughs’ Grants Scheme (up for renewal this year) has provided a degree of stability, but the scheme is always looking for volunteers, corporate supporters to provide long-term help, and for new suppliers of scrap. Most of all, they want new members, to step into the cavern and rub the magic lamp that turns scrap into art.

* The South London Children’s Scrap Scheme is at 39B Consort Road, London SE15 2PR. Tel: 0171 277 5953. Staff can also provide information on the scrap scheme closest to you