Also at the APSRG debate, the £23 billion Oakdene-Hollins estimates of the benefits of resource efficiency were raised again. (http://randd.defra.gov.uk/Document.aspx?Document=EV0441_10072_FRP.pdf)
These often seem to be used as justification for forcing businesses to do something different, as they are clearly failing to spot money saving opportunities which have instead been grasped by policymakers in Whitehall.
But the report itself recognised that businesses face opportunity costs (referred to in the report as "hidden costs" I think) when implementing resource efficiency measures, in terms of productive investment opportunities foregone. These were not estimated in the report, due to methodological difficulties, but could significantly reduce the actual net benefits realisable to firms.
My personal starting point for an estimate of these hidden costs would be £23 billion. I am sceptical of the superior ability of civil servants to identify savings to businesses and think that if there were significant savings to be found, then they would be realised long before being spotted by bureaucrats.
Friday 29 June 2012
APSRG debate: the waste sector and the green economy
The Associate Parliamentary Sustainable Resource Group (APSRG) held a debate in Portcullis House on Wednesday on the role of the waste sector in the green economy.
There was the usual mix of unsubstantiated assertion about resource scarcity and the imperative of changing our profligate ways, interspersed with some genuinely interesting examples of resource efficiency in practice. One of the main messages from the panel seemed to be that higher resource prices were changing business models. The waste sector is already being driven by recyclate markets/prices and as these increase over time we will see this effect rise higher up the hierarchy into the delivery of goods as services
I just can't help thinking though that it isn't economics that will determine the waste sector's role in the green economy in the medium term but legislation. We have just been through the biggest commodity boom in history (notwithstanding the fact that the relative prices of resources are still low by historic standards), and although this has undoubtedly driven some resource efficiency measures throughout the economy, it is the landfill tax escalator which has actually delivered the large increases in domestic recycling rates over the past decade.
Economic fundamentals are likely to continue to lead to lower resource costs relative to labour costs throughout the global economy. Resource prices on their own are never likely to drive the sorts of fundamental shift in consumption and production patterns which environmental policy protagonists think will be necessary.
Instead, a more interesting question for the long term might be whether global factor price equalisation will lead to the future repatriation of more manufacturing activity. If so, then we may in the future find that domestic industry is able to provide output destinations for the recyclate which currently has to be exported overseas.
I find this a more likely route to a circular economy than the more commonly presented alternative, but it is one which is likely to be quite a few decades away, which no doubt is not the sort of pace of change felt necessary in environmental circles.
There was the usual mix of unsubstantiated assertion about resource scarcity and the imperative of changing our profligate ways, interspersed with some genuinely interesting examples of resource efficiency in practice. One of the main messages from the panel seemed to be that higher resource prices were changing business models. The waste sector is already being driven by recyclate markets/prices and as these increase over time we will see this effect rise higher up the hierarchy into the delivery of goods as services
I just can't help thinking though that it isn't economics that will determine the waste sector's role in the green economy in the medium term but legislation. We have just been through the biggest commodity boom in history (notwithstanding the fact that the relative prices of resources are still low by historic standards), and although this has undoubtedly driven some resource efficiency measures throughout the economy, it is the landfill tax escalator which has actually delivered the large increases in domestic recycling rates over the past decade.
Economic fundamentals are likely to continue to lead to lower resource costs relative to labour costs throughout the global economy. Resource prices on their own are never likely to drive the sorts of fundamental shift in consumption and production patterns which environmental policy protagonists think will be necessary.
Instead, a more interesting question for the long term might be whether global factor price equalisation will lead to the future repatriation of more manufacturing activity. If so, then we may in the future find that domestic industry is able to provide output destinations for the recyclate which currently has to be exported overseas.
I find this a more likely route to a circular economy than the more commonly presented alternative, but it is one which is likely to be quite a few decades away, which no doubt is not the sort of pace of change felt necessary in environmental circles.
Wednesday 27 June 2012
World Bank MSW report
The World Bank recently published an update to its 1999 report "What a waste", which is a review of (urban) municipal solid waste (MSW) practices across the world: http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTURBANDEVELOPMENT/0,,contentMDK:23172887~pagePK:210058~piPK:210062~theSitePK:337178,00.html
At first glance, the version of the waste hierarchy used in the report differs slightly from that enshrined in EU legislation in that incineration with energy generation is included in the disposal category, thereby failing to recognise the environmental benefits of energy recovery in a modern efw facility, and anaerobic digestion is for some reason paired with compost in the recovery category just below recycling.
The definition of MSW used in the report seems to be wider than that commonly used in the UK/Europe (it includes some elements of construction and demolition waste). At first glance it was unclear to me whether these elements are included only if collected by municipalities, or more widely if they are of similar composition to municipal collected waste.
It is always difficult to know how accurate the data are in these types of reports and a lot of work has clearly gone into collating all the information. A quick review of the UK data shows that it is a few years out of date. Unless they have used a different definition of MSW, they seem to have taken 2005 figures. (I didn't immediately spot any reference to whether this is meant to be a 2005 snapshot; as far as I can tell, it is meant to be 'current'.) In the report therefore it suggests that circa 35m tonnes of MSW is/was produced of which 64% was landfilled with only 26% recycled + composted. The picture has of course changed dramatically in the past seven years.
It would be interesting to know how they arrived at their estimate of UK MSW generation in 2025 being over 40m tonnes. I think most in the industry would suspect that this is very optimistic (or pessimistic, depending on your viewpoint).
At first glance, the version of the waste hierarchy used in the report differs slightly from that enshrined in EU legislation in that incineration with energy generation is included in the disposal category, thereby failing to recognise the environmental benefits of energy recovery in a modern efw facility, and anaerobic digestion is for some reason paired with compost in the recovery category just below recycling.
The definition of MSW used in the report seems to be wider than that commonly used in the UK/Europe (it includes some elements of construction and demolition waste). At first glance it was unclear to me whether these elements are included only if collected by municipalities, or more widely if they are of similar composition to municipal collected waste.
It is always difficult to know how accurate the data are in these types of reports and a lot of work has clearly gone into collating all the information. A quick review of the UK data shows that it is a few years out of date. Unless they have used a different definition of MSW, they seem to have taken 2005 figures. (I didn't immediately spot any reference to whether this is meant to be a 2005 snapshot; as far as I can tell, it is meant to be 'current'.) In the report therefore it suggests that circa 35m tonnes of MSW is/was produced of which 64% was landfilled with only 26% recycled + composted. The picture has of course changed dramatically in the past seven years.
It would be interesting to know how they arrived at their estimate of UK MSW generation in 2025 being over 40m tonnes. I think most in the industry would suspect that this is very optimistic (or pessimistic, depending on your viewpoint).
Friday 22 June 2012
Base London: converting London's waste inputs into valuable outputs
The afternoon saw an interesting session for me, which might have been better attended. The main messages which grabbed my personal attention were that recyclates are traded on global markets and will go to the destination where they can command the highest price, and that the export of RDF is undermining the case for investment in UK infrastructure.
Recyclate markets which currently command the highest price are in Asia. For me, this is the fundamental issue around the recyclate quality debate. It shouldn't really be framed as a 'quality' issue at all but as a 'price' issue. The simple (and possibly sad) fact is that domestic reprocessors can't afford to pay the same prices for material of equivalent quality that their overseas competitors can. This can largely be attributed to the fact that domestic reprocessors have a much higher cost base, particularly for energy. Given that it is government policy to push up future energy prices, this is an issue which won't go away for reprocessors. Their best hope (in a competition for recyclate feedstock context) is to push an increasing proportion of recyclate sorting/processing costs back onto waste producers to offset their lack of international competitiveness in other areas. This is of course basically what their demands for material of higher 'quality' are all about.
The other concern which came across in the session was that the export of RDF is undermining investment in UK infrastructure. From a UK perspective, open markets and competition are generally always a good thing. For a waste producer, the presence of an export option will help to keep residual waste management costs down in a context where the landfill tax escalator is otherwise driving costs ever upwards.
Recyclate markets which currently command the highest price are in Asia. For me, this is the fundamental issue around the recyclate quality debate. It shouldn't really be framed as a 'quality' issue at all but as a 'price' issue. The simple (and possibly sad) fact is that domestic reprocessors can't afford to pay the same prices for material of equivalent quality that their overseas competitors can. This can largely be attributed to the fact that domestic reprocessors have a much higher cost base, particularly for energy. Given that it is government policy to push up future energy prices, this is an issue which won't go away for reprocessors. Their best hope (in a competition for recyclate feedstock context) is to push an increasing proportion of recyclate sorting/processing costs back onto waste producers to offset their lack of international competitiveness in other areas. This is of course basically what their demands for material of higher 'quality' are all about.
The other concern which came across in the session was that the export of RDF is undermining investment in UK infrastructure. From a UK perspective, open markets and competition are generally always a good thing. For a waste producer, the presence of an export option will help to keep residual waste management costs down in a context where the landfill tax escalator is otherwise driving costs ever upwards.
Resource Forum fringe event
Also at Base London was a fringe event organised by The Resource Forum, which was billed as a look at the optimum way to handle a notional tonne of waste.
While we didn't get into too much detail, there was a Local Authority Waste Officer who pointed out one of the important trade-offs which is often forgotten in the waste debate: the more effort his council puts into moving waste up the waste hierarchy, the fewer social workers it can put out onto its streets.
While we didn't get into too much detail, there was a Local Authority Waste Officer who pointed out one of the important trade-offs which is often forgotten in the waste debate: the more effort his council puts into moving waste up the waste hierarchy, the fewer social workers it can put out onto its streets.
Report from Base London: the need for a circular economy
I was at the Base London sustainability event yesterday (http://www.basecities.com/london/the-event/programme), at which The Aldersgate Group launched its new "Resilience in the Round" report on the need for a circular economy: http://www.aldersgategroup.org.uk/reports.
At the conference there was some attempt to describe what this is and why we need it. Apparently a circular economy is where the value of resources is retained and not lost as those resources are transformed through different applications/uses throughout their lifecycle. But the value of a resource is not a static and invariate characteristic but changes according to how (and when and why) it is being used. When left out with the rubbish these materials have a negative value as waste managers must be paid to take them away. After being sorted/processed at cost, some residual value may be recovered. But this is not the same as retaining the value of the material throughout its lifecycle.
Where I really fell down though was on the justification for this new "paradigm". According to the report, we need to move to a circular economy due to scarcity and to higher resource costs. I however don't find the evidence for this particularly compelling.
Real input prices (according to the IMF's index for industrial inputs) have indeed doubled since 1980, which at first glance appears significant, and we are reminded that the commodity price savings of the 20th century have been eroded in recent years. But this should be taken in a context where real global GDP has increased by almost six times during the same period (1980-2010). This suggests that currently (i.e. in 2010) material costs as a proportion of output were actually less than 40% of what they were in 1980. So while the prices of material resources are close to all time highs in absolute terms, relative to other resources (in particular labour), they are actually not particularly high in historic terms.
This, to me, challenges the assumption that we should be worried about costs. We have just been through the biggest commodity boom in history and it is likely that this has incentivised improved resource efficiency in the economy. It has not however delivered the significant cultural and economic shift perceived as necessary by the proponents of a new circular economy. Given that commodity prices are now falling, it seems to me that in reality the costs of resources do not justify a significant shift in economic activity away from primary commodity extraction and usage.
This still leaves however the question of scarcity. Notwithstanding the fact that prices are an indicator of relative scarcity, perhaps there is a case for worrying about running out of stuff. But known reserves of commodities are at all times highs (in the case of oil: http://en.wikipedia.org/wiki/Oil_reserves#OPEC_countries) and commodity production is also at all time highs (in the case of copper: http://en.wikipedia.org/wiki/Copper#Production). So, on the face of it, it doesn't look as though we are running out of stuff. On the contrary, we have more stuff than ever, despite the demand for it.
Defra recently looked at this issue in its Resource Security Action Plan (http://www.defra.gov.uk/publications/2012/03/16/pb13719-resource-security-action-plan/). This explicitly stated that "supplies of most resources are not expected to run out". This is why the report focused on resource "security" rather than scarcity. This newly invented resource security problem essentially boils down to concerns about potentially unfriendly regimes having dominant market positions in certain commodities. Some might say this is a slightly static and short-termist view as it doesn't recognise the dynamic market response to resource supply issues, in terms of both finding new sources of supply (see e.g. Vietnamese and Japan working together now to open up new supplies of rare earth metals: http://www.theregister.co.uk/2012/06/18/japan_vietnam_rare_earth_minerals/) and also of finding substitutes to the use of particular materials.
The concept of a circular economy could be potentially interesting. But not in this guise. It seems like the latest fad for those who would like to see a return to local production, but aren't quite willing to shout explicitly for the protection of domestic industries. And when it focuses its attention on the pretend issues of scarcity and resource crunches, it fails to address more fundamental problems associated with a lack of domestic competitiveness: high costs, particularly for energy. When government policy is deliberately driving energy costs up, this seems a particularly glaring omission.
At the conference there was some attempt to describe what this is and why we need it. Apparently a circular economy is where the value of resources is retained and not lost as those resources are transformed through different applications/uses throughout their lifecycle. But the value of a resource is not a static and invariate characteristic but changes according to how (and when and why) it is being used. When left out with the rubbish these materials have a negative value as waste managers must be paid to take them away. After being sorted/processed at cost, some residual value may be recovered. But this is not the same as retaining the value of the material throughout its lifecycle.
Where I really fell down though was on the justification for this new "paradigm". According to the report, we need to move to a circular economy due to scarcity and to higher resource costs. I however don't find the evidence for this particularly compelling.
Real input prices (according to the IMF's index for industrial inputs) have indeed doubled since 1980, which at first glance appears significant, and we are reminded that the commodity price savings of the 20th century have been eroded in recent years. But this should be taken in a context where real global GDP has increased by almost six times during the same period (1980-2010). This suggests that currently (i.e. in 2010) material costs as a proportion of output were actually less than 40% of what they were in 1980. So while the prices of material resources are close to all time highs in absolute terms, relative to other resources (in particular labour), they are actually not particularly high in historic terms.
This, to me, challenges the assumption that we should be worried about costs. We have just been through the biggest commodity boom in history and it is likely that this has incentivised improved resource efficiency in the economy. It has not however delivered the significant cultural and economic shift perceived as necessary by the proponents of a new circular economy. Given that commodity prices are now falling, it seems to me that in reality the costs of resources do not justify a significant shift in economic activity away from primary commodity extraction and usage.
This still leaves however the question of scarcity. Notwithstanding the fact that prices are an indicator of relative scarcity, perhaps there is a case for worrying about running out of stuff. But known reserves of commodities are at all times highs (in the case of oil: http://en.wikipedia.org/wiki/Oil_reserves#OPEC_countries) and commodity production is also at all time highs (in the case of copper: http://en.wikipedia.org/wiki/Copper#Production). So, on the face of it, it doesn't look as though we are running out of stuff. On the contrary, we have more stuff than ever, despite the demand for it.
Defra recently looked at this issue in its Resource Security Action Plan (http://www.defra.gov.uk/publications/2012/03/16/pb13719-resource-security-action-plan/). This explicitly stated that "supplies of most resources are not expected to run out". This is why the report focused on resource "security" rather than scarcity. This newly invented resource security problem essentially boils down to concerns about potentially unfriendly regimes having dominant market positions in certain commodities. Some might say this is a slightly static and short-termist view as it doesn't recognise the dynamic market response to resource supply issues, in terms of both finding new sources of supply (see e.g. Vietnamese and Japan working together now to open up new supplies of rare earth metals: http://www.theregister.co.uk/2012/06/18/japan_vietnam_rare_earth_minerals/) and also of finding substitutes to the use of particular materials.
The concept of a circular economy could be potentially interesting. But not in this guise. It seems like the latest fad for those who would like to see a return to local production, but aren't quite willing to shout explicitly for the protection of domestic industries. And when it focuses its attention on the pretend issues of scarcity and resource crunches, it fails to address more fundamental problems associated with a lack of domestic competitiveness: high costs, particularly for energy. When government policy is deliberately driving energy costs up, this seems a particularly glaring omission.
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