Waste Policy MBIs misguided environmentalism Economic

Waste Policy, MBIs & misguided environmentalism Economic & Environment Network Seminar 3 November 2005 Drew Collins BDA Group Economics and Environment BDA Group

Historic policy focus on waste collection & disposal n Governments were primarily responsible for waste collection & disposal q n 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 BDA Group

Reforms have reduced landfill impacts n Landfill regulation, technological developments & new management practices have significantly reduced environmental impacts of landfilling n Amenity impacts also reduced with fewer (larger) landfills, bigger buffer zones & often remote location n Budget positions also improved through privatisation of parts of waste collection & disposal systems and through pricing reforms BDA Group

European landfill externalities ($A/t waste) BDA Group

But communities continue to call for reductions in waste volumes n Communities seeking to embrace ‘sustainability’ and waste volumes explicit indicator of level of resource use n Waste reduction seen as a material way everyone can contribute q q n 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 BDA Group

Waste policy goals have now shifted ‘upstream’ n Upstream benefits associated with reductions in waste volumes can include; q q n 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 q A prominent Australian study was undertaken in 2001 by Nolan. ITU investigating the benefits of kerbside recycling BDA Group

Environmental benefits of kerbside recycling $/t recyclate (Nolan-ITU 2001) Traffic $300 Landfill $200 Greenhouse Water emissions $100 Resources $0 Air emissions BDA Group

The life-cycle studies confirm benefits are upstream ! n The Nolan-ITU findings were extended by SKM in 2003 for Eco. Recycle Victoria to consider benefits across all waste streams q q n Despite significant uncertainties surrounding estimated benefits, the orders of magnitude are instructive Downstream impacts are now very small q n Estimated impacts significantly lower but relativities between impact categories consistent … although ignore illegal disposal impacts from new policies Upstream impacts dominated by emission externalities BDA Group

New policy positions n Most State & Territory Governments have now adopted waste minimisation as a policy goal &: q q q 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 BDA Group

The waste hierarchy n The hierarchy ranks waste management methods in a strictly descending order of preference: q source reduction q reuse q materials recycling & energy recovery q landfilling of waste (the last resort) n Reflects a technical goal of waste minimisation rather than economic efficiency n Obvious end point is zero waste q Yet nowhere else (eg; health, safety, crime, water quality, etc) do we ignore cost & benefit tradeoffs if determining policy goals BDA Group

Market instruments n Market instruments include advance disposal fees, deposit-refund schemes, performance bonds, landfill levies & variable user collection fees q n 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 BDA Group

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

Rationale for levy increases reflects policy shift For example; n The NSW levy was originally introduced to ‘internalise the environmental impacts associated with disposal to landfill’ (NSW EPA 1996) n 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) BDA Group

Similar use of landfill levies internationally Professor Mc. Glade, 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. BDA Group

So what’s wrong with the policy approach? (1) The likelihood of net benefits is taken on faith: ‘icecream 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 BDA Group

(1) Ice-cream is good, more is better n 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 q n 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 q This would fundamentally change waste management strategies being pursued in Australia BDA Group

(2) Tonnes of waste to landfill is a blunt policy metric n Benefits associated with deduced waste disposal are poorly correlated to weight. Factors influencing likely benefits include: q q 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 BDA Group

(3) Landfill levies are being poorly targeted n Poor alignment of levies with potential benefits q q q n 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) ‘benefitgap’ Size of cost-gap not discouraging levy increases q q Eg: estimated that introduction of UK levy at ₤ 7 led to economic loss (costs of changing waste disposal practices) of ₤ 366 m (~0. 1 % GDP) … and usually no account of spillover costs, such as illegal dumping BDA Group

… Landfill levies n Not directly related to environmental damages or seeking to equate marginal benefits & marginal costs n Rather are being applied as financial instruments directed at revenue raising or driving a reduction in general waste volumes disposed q q 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 n Policy instruments will be most effective when applied at the point of incidence of environmental impact (externality) in supply chains q n 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 q 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. BDA Group

(5) The community is directing its enthusiasm to areas of low social payoff n In many instances, considerable subsidies & community altruism are propping up uneconomic recycling & other waste minimisation programs q n These resources could be better directed for higher payoff It is also influencing other policy areas q q 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

Thank you BDA Group