Waste Policy, MBIs & misguided environmentalism

Economic & Environment Network Seminar3 November 2005Drew Collins

BDA GroupEconomics and Environment

BDA Group

Historic policy focus on waste collection & disposal Governments were primarily responsible for waste

collection & disposal costs met through broader revenue collections (ie; no user pays)

Urban fringe landfills often had poor environmental controls resulting in environmental & amenity impacts

Budgetary pressure and landfill impacts led to policy approaches to reduce volumes to landfill & associated landfill impacts

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Reforms have reduced landfill impacts Landfill regulation, technological developments & new

management practices have significantly reduced environmental impacts of landfilling

Amenity impacts also reduced with fewer (larger) landfills, bigger buffer zones & often remote location

Budget positions also improved through privatisation of parts of waste collection & disposal systems and through pricing reforms

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European landfill externalities ($A/t waste)

-$10

-$5

$0

$5

$10

$15

$20

Modern

Old

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But communities continue to call for reductions in waste volumes Communities seeking to embrace ‘sustainability’ and

waste volumes explicit indicator of level of resource use

Waste reduction seen as a material way everyone can contribute 95% of Australian households recycle

19% of NSW people see waste management as one of the top 2 environmental issues for the State

Governments have been complicit in promoting a ‘waste crisis’ but have had to reinvent the underlying rationale

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Waste policy goals have now shifted ‘upstream’ Upstream benefits associated with reductions in waste

volumes can include; Lower emissions associated with the extraction, processing &

consumption of goods

Lower resource use

This has prompted various life-cycle analyses to demonstrate the extent of such benefits & efficacy of the new policy position A prominent Australian study was undertaken in 2001 by Nolan-

ITU investigating the benefits of kerbside recycling

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$0

$100

$200

$300

Traffic

Landfill

Greenhouse

Water emissions

Resources

Air emissions

Environmental benefits of kerbside recycling $/t recyclate (Nolan-ITU 2001)

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The life-cycle studies confirm benefits are upstream ! The Nolan-ITU findings were extended by SKM in 2003

for EcoRecycle Victoria to consider benefits across all waste streams Estimated impacts significantly lower but relativities between

impact categories consistent

Despite significant uncertainties surrounding estimated benefits, the orders of magnitude are instructive

Downstream impacts are now very small … although ignore illegal disposal impacts from new policies

Upstream impacts dominated by emission externalities

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New policy positions

Most State & Territory Governments have now adopted waste minimisation as a policy goal &:

Adopted a ‘hierarchy of waste’ ideology

Set aggressive targets for reductions in waste volumes to landfill, down to zero in some jurisdictions

Adopted a range of market instruments to promote waste minimisation

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The waste hierarchy The hierarchy ranks waste management methods in a strictly

descending order of preference: source reduction

reuse

materials recycling & energy recovery

landfilling of waste (the last resort)

Reflects a technical goal of waste minimisation rather than economic efficiency

Obvious end point is zero waste Yet nowhere else (eg; health, safety, crime, water quality, etc) do

we ignore cost & benefit tradeoffs if determining policy goals

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Market instruments

Market instruments include advance disposal fees, deposit-refund schemes, performance bonds, landfill levies & variable user collection fees Recent interest in tradeable certificate systems for a range of

product specific wastes (telephones, computers, whitegoods, etc)

Landfill levies have been extended to most jurisdictions & are being increased well beyond estimated (downstream) landfill damage costs

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Landfill levies by State - July 2003 ($/tonne)

State Metropolitan Rural / Provincial

Municipal Other waste Municipal Other waste

NSW 19.80 19.80 11.40 11.40

Victoria 5 7 (industrial)

3 5 (industrial)

Queensland 0 0 0 0

Western Australia 3 1 (inert)

0 0

South Australia 10.10 10.10 5.05 5.05

Tasmania 0 0 0 0

Notes: NSW - levy rates in both metropolitan and extended areas will rise to $25/tonne by 2012.

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Rationale for levy increases reflects policy shift

For example;

The NSW levy was originally introduced to

‘internalise the environmental impacts associated with disposal to landfill’ (NSW EPA 1996)

More recently the NSW Governmnet has indicated that the purpose of the levy is to

‘promote the diversion of waste from disposal to other uses and to generate funds for waste management programs’ (NSW EPA 2001)

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Similar use of landfill levies internationally

Professor McGlade, Executive Director, European Environment Agency

Market instruments have been employed in the EU to get actors to comply with waste reduction & recycling targets, rather than to ‘internalise environmental costs’ per se.

If targets are not met, instruments should be strengthened.

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So what’s wrong with the policy approach?

(1) The likelihood of net benefits is taken on faith: ‘ice-cream is good, more is better’

(2) The policy metric – tonnes of waste to landfill – is very blunt

(3) Market instruments, such as landfill levies, are being poorly targeted

(4) Upsteam impacts will most effectively be addressed through upstream policies

(5) The community is directing its enthusiasm to areas of low social payoff

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(1) Ice-cream is good, more is better There is no genuine attempt to balance social costs &

benefits, rather the religion of waste policy decrees that any reduction in waste disposal is beneficial Waste minimisation objectives rather than welfare optimisation is

seeing arbitrary disposal goals being followed by the inevitable end-point of Zero Waste targets

As in other areas of public policy, goals should be directed at optimising social welfare in seeking to balance the marginal benefits and costs of change This would fundamentally change waste management strategies

being pursued in Australia

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(2) Tonnes of waste to landfill is a blunt policy metric Benefits associated with deduced waste disposal are

poorly correlated to weight. Factors influencing likely benefits include: Downstream - organic or inert, whether it contains toxic

substances, the technology and management practices at receiving landfills, etc

Upstream – the component resources, their source, production processes & costs with virgin versus recycled inputs, cost structures waste versus recyclate collection, etc

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(3) Landfill levies are being poorly targeted Poor alignment of levies with potential benefits

Generally based on the ‘tonnes’ metric with little differentiation between waste types

.. yet sometimes a ‘receiving location’ (urban v regional) differentiation inconsistent with rationale of upstream benefits

Common for levy rates to be reflective of (financial) ‘cost-gap’ between raw materials and recyclate processing rather than (externality) ‘benefit-gap’

Size of cost-gap not discouraging levy increases Eg: estimated that introduction of UK levy at ₤7 led to economic loss

(costs of changing waste disposal practices) of ₤366m (~0.1 % GDP)

… and usually no account of spillover costs, such as illegal dumping

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… Landfill levies

Not directly related to environmental damages or seeking to equate marginal benefits & marginal costs

Rather are being applied as financial instruments directed at revenue raising or driving a reduction in general waste volumes disposed

Unfortunately often touted as economic or market instruments with the implication that they are welfare promoting

Use of these instruments deserves greater scrutiny!

BDA Group

(4) Upsteam impacts require upstream policies Policy instruments will be most effective when applied at the

point of incidence of environmental impact (externality) in supply chains As instruments become more broadly applied, the link between

behavioural response sought & environmental benefits becomes more tenuous

Resource conservation is best pursued through natural resources policy, industrial pollution through industry policy and only post-consumer environmental impacts through waste policy In these circumstances life-cycle analyses would be superfluous as

market prices would guide welfare maximising consumption patterns & resulting waste volumes would be of no particular policy relevance.

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(5) The community is directing its enthusiasm to areas of low social payoff In many instances, considerable subsidies & community

altruism are propping up uneconomic recycling & other waste minimisation programs These resources could be better directed for higher payoff

It is also influencing other policy areas For example, water policy is increasingly focussing on

minimisation of water use rather than optimal allocation between sectors and its overall use

So water ‘saving’ initiatives are variously being pursued at costs in excess of the opportunity value of water saved

BDA Group

BDA GroupEconomics and Environment

Thank you