Defra consults on wood waste landfill bans

Defra has issued a call for evidence asking for stakeholders' views on whether there should be a ban on wood waste sent to landfill.

As an economist I am instinctively against bans as these generally do not lead to efficient/least cost outcomes. In the case of wood waste, Defra's own analysis suggests that the net benefits of introducing a ban would be negative, i.e. the costs of introducing a ban would outweigh the benefits. Given that the amount of wood waste sent to landfill is expected to fall to only around 300,000 tonnes by circa 2020, it seems that this isn't a big issue which needs heavy handed intervention.

Landfill tax is the big driver of behaviour here and is already doing the work of diverting this material to other management routes. As more alternative infrastructure comes on stream, we will see less wood waste going to landfill, without requiring a ban, which might be costly and difficult to enforce.

There will be some who argue that the greenhouse gas emissions from landfill mean that we must ensure that this material is all kept out of landfill, but I would argue that landfill taxes already take more than full account of the environmental disbenefits of landfill (see e.g. here). We do not therefore need additional policy measures to tackle this particular problem.

EEF calls for coherence in environmental policy

The EEF has published a report which examines the current state of environmental legislation and its impact on the UK's manufacturing sector. In particular, it draws attention to the fact the manufacturers potentially have to report their carbon emisisons under four different schemes (EU ETS, CRC, CCAs, and GHG reporting) incurring four sets of administrative costs.

Overall I feel that the report is generally pretty sensible. We do need to consider least cost approaches to meeting our environmental objectives and it makes no sense to do things at higher cost than we need to (as I suspect we are with energy policy).

Of particular interest for me though, were some of the figures tucked away in annex 2 (focus on waste) on page 14. Here we find survey results that tell us that almost half of UK manufacturers have applied lean manufacturing processes and a further quarter intend to do so in the next year. On top of that, we find that over 40% of companies surveyed claim to have redesigned products to better manage materials and reduce waste.

This tells me that there is a lot of resource efficiency going on in the UK economy. As I noted previously, the material requirement of the UK economy (including from imported materials) is falling. This EEF survey gives us further evidence that markets, prices and competition will drive resource efficiency far more effectively than government intervention.

EIC calls for more resource efficiency

The Environmental Industries Commission has published a new report calling for the government to do more to improve resource efficiency.

Aside from the fact that this call is based on Defra's £23 billion estimate of potential resource efficiency savings - an estimate with which I disagree - it assumes that resource efficiency is something which will not happen without some form of regulatory intervention.

Personally, I feel that resource efficiency is something for which there are existing incentives in place for economic agents to act. There is a business imperative to improve efficiency over time. This is the basis of much economic growth and something which is likely to happen in the absence of government intervention.

The ONS publishes environmental accounts for the UK, which include official estimates of the total material requirement for the UK economy.

TMR peaked back in 2001 and has fallen by almost a quarter since. Not exactly the stuff of nightmares. In fact, the UK's TMR in 2010 was almost 10% lower than it was way back in 1970.

And when you consider resource productivity, by measuring the amount of materials required per unit of GDP/economic output, we find even more extraordinary gains made by the UK economy.

According to the World Bank, the UK's gross national income increased over 17 times during the period 1970-2010. This means that in 2010 the UK economy was using material resources more than 18 times more efficiently than it was back in 1970 (=TMR/GNI).

These achievements have been driven by markets, growth and technical progress, which will continue to work well into the future. I am therefore less convinced than ever that we need more government intervention to drive resource efficiency.

How to deliver a circular economy

The Dame Ellen MacArthur Foundation is leading the charge on how to move the economy from a linear to a circular model. They cite case studies to demonstrate how a more circular approach can be a reality for businesses now and suggest that price signals alone may not be sufficient to deliver a transition to the new approach.

The underpinning rationale for why we need a circular economy is, of course, the old environmentalists' fallacy about resource scarcity: the classic fear that we are going to run out of stuff. But, as I have argued before, we have more stuff now than at any time in history, despite increasing pressures.

How can this be so? The stuff of nightmares never materialises because people consistently underestimate the capacity of technological progress, coupled with the price mechanism, to increase the supply of recoverable resources. Scarcity just isn't an issue.

That doesn't necessarily mean that a movement towards a circular economy would be a bad thing. If cost savings and environmental benefits can be found then it could still be the right thing to do.

I am personally unconvinced by the large unrealised savings which the report estimates could result from a shift to a circular economy. I haven't gone through the analysis in detail but suspect that they fail properly to account for the opportunity costs involved in implementing resource efficiency/circular economy measures (as previously argued here). Let us assume however that there are large benefits to be found. Moving to a circular economy would be a good thing to do.

So how best could we get there? The answer, as you would expect from an economist, is markets. Markets allocate resources more efficiently than central planners. The EMF worries that prices won't respond quickly enough to effect the transition which they think is necessary. But you can rest assured that markets and prices will do a better job than policy makers and bureaucrats.

The existence of the EMF's case studies for me show that we don't need intervention. On the contrary, where there are opportunties to make a profit from the circular economy then economic actors step in and exploit them. The report claims that the concept is economically viable and scalable. In that case, I reckon that the authors should go out and make a pile from actually doing a circular economy, rather than talking about it.

Global MSW to double by 2025

Edie news reports that the Worldwatch Institute is predicting (with horror) that MSW will double by 2025.

I must confess that I haven't read the original report, but from the article I am unable to conclude whether this is terrible or not.

Waste is not produced as an end in itself. Like other forms of pollution, it is a by-product of useful economic activity. If the benefits of that economic activity outweigh the costs, including those of managing the associated waste appropriately, then on balance the state of the world has improved.

I cannot infer from the article whether the benefits of higher economic output outweigh the costs of higher MSW generation.

HMT projects landfill tax revenues to reach £1.6 billion

The Treasury has published projections for landfill tax revenues through to 2015/16. They expect these to remain fairly flat for the next couple of years before rebounding strongly. This is presumably as they expect a strong post-recession rebound in output as the economy tries to catch up back to its long run trend rate of growth, and expect this to lead to an increase in total volumes of waste.

Notwithstanding the fact that any form of economic forecasting is essentially complete guesswork, I personally don't think we will see this strong rebound effect in output in the next few years. I think that through the boom we experienced an overallocation of resoures towards certain sectors, such as housing, and that the current correction will lead to a permanent loss of output. This is because I tend to think that the economy will follow a "random walk with drift" model, rather than a "trend growth" model.

The implications for the economy are that we are unlikely to witness a strong period of catch-up growth as we come out of the recession, and the implications for landfill tax revenues are that they probably won't reach the peaks predicted by the Treasury.

WRAP calls for longer lived clothes

WRAP has published new research into the environmental impacts of clothing and expressed concerns that people are purchasing too many items which are too short lived. They lament the fact that people's wardrobes contain garments which haven't been worn for at least a year and suggest that people should try to extend the lives of their clothing.

Their research tells them that consumers would be willing to explore new options for repair, buying pre-owned clothes, and other ways of extending their clothing lives. This same research though tells them that the main reason people stop wearing clothes is that they no longer fit. Presumably WRAP believes that these clothes should be altered, rather than replacements purchased.

This however runs into the modern resource conundrum: while resources are supposedly running out and are apparently incredibly expensive/valuable, in reality their relative prices are low (despite the biggest commodity boom in history), particularly when compared to labour. Clothes are cheap and so the average person can afford plenty of them.

WRAP estimates that the global carbon footprint of UK clothing consumption is 1.5 tonnes per household per year. Even if we make consumers pay these carbon costs, that would only amount to around £45/household/year (using government assumptions). This is around 2.5% of what WRAP suggests UK households spend on clothing. Not enough in my view to make much of a difference to consumption patterns, even if fully internalised.

WRAP seems to think that if consumers are given better information about the environmental footprint of their clothing, their consumption patterns could change. I am not convinced. WRAP's research may indicate that people aren't interested in fashion and updating their wardrobes constantly, but consumers' revealed preferences - from their actual consumption behaviour - tell us a different story.

It is likely that the costs of clothing as a proportion of consumer expenditure will remain small over time, which in turn means that we are unlikely to see a dramatic reduction in consumption. Unless WRAP advocates punitive taxes on clothes or wardrobe rationing, I think this is unlikely to change much and WRAP's focus should instead be on production processes (which to be fair are also examined in the report).

Defra updates on AD strategy

Defra has published its latest progress report on the AD strategy and action plan: http://www.defra.gov.uk/publications/files/pb13788-ad-2012-progress.pdf

The conclusion I can't help drawing from this is that AD is not a terribly efficient way to do things. It needs double ROC subsidies to help projects get off the ground and yet banks still don't want to go anywhere near it. So instead the government ploughs in yet more money through a loan fun (admittedly for fairly trivial amounts).

Welsh plan unveiled

The Welsh Government has unveiled its 'Collections, infrastructure and markets sector plan', which sets out its vision for waste and recycling in Wales: http://wales.gov.uk/topics/environmentcountryside/epq/waste_recycling/publication/cimsectorplan/?lang=en&status=closed.


Aside from the usual rhetoric about one planet living and living within the Earth's capacity, whatever that might be (now or in the future), there seems to be a focus in this report on developing Welsh markets for recyclate and supporting a Welsh reprocessing sector. This may sound laudable, but will only actually benefit Wales if the additional economic resources, which are devoted to reprocessing under such a scenario, would not have been better employed elsewhere in the economy.

It isn't apparent to me that Wales has a particularly strong comparative advantage in reprocessing and Welsh Government attempts to 'serve local markets' through the development of 'appropriate specifications' seem only likely to push up costs for Welsh waste producers.

The evidence we have is that MRF economics are driven by throughput as opposed to material quality, i.e. when recyclate prices are high, MRFs send material through more quickly, and slow this down (perhaps by putting up gate fees) when prices are lower. This tells us that the costs of additional processing to raise quality (by lowering contamination levels) are in fact greater than any price premium which might be gained by higher quality material. Imposing arbitrary standards on recyclers will therefore raise their costs by more than any additional revenues they might be able to make by selling their material on world markets. These additional costs will be passed on to waste producers.

Perhaps the Welsh Government thinks this is a good thing. After all, they want Wales to live within its ecological limits and raising waste costs could be part of their strategy (although this was not the central message from the accompanying WRAP analysis). Certainly using this hidden subsidy to prop up a Welsh reprocessing sector does seem to be part of their strategy. It is one though which is wrong-headed from an economic perspective as it effectively amounts to a form of protectionism which reduces gains from trade and thereby makes the Welsh worse off.

The report recognises that economies of scale mean that it may not be appropriate for all of Wales's recyclate to be reprocessed within Wales's boundaries and it may therefore make sense for it to travel across the border into England. But why don't they extend that logic to further afield?

MRF gate fees down in latest survey

WRAP has published its latest annual survey of gate fees: http://www.wrap.org.uk/content/wrap-gate-fees-report-2012

The main message being picked up is that gate fees at MRFs are down 40% (£15/tonne down to £9/tonne). This of course reflects the fact that the survey was conducted towards the back end of 2011 after a strong period for recyclate prices, which were up on the previous year.

Recycling is a cyclical industry. Recyclate prices are taken from world markets and when these are high, recycling firms can in the short run enjoy what economists refer to as 'super-normal profits'. In competitive recycling markets, entry and exit lead to these super-normal profits being competed away. After a commodity boom though, a higher proportion of recycling firms' total revenues are drawn from recyclate sales than from gate fees at MRFs.

If prices subsequently fall, then some firms may get caught out if they find themselves in a position where their gate fees are 'sticky' relative to recyclate prices. In other words, they are unable to adjust their gate fees (possibly due to contractual arrangements) as rapidly as they need to in order to offset falls in recyclate prices. This could lead to losses and exit from the industry for those firms which haven't managed their price risk as effectively as others.

PwC revisits sustainable packaging

PwC recently published a report looking at 'sustainable packaging': http://www.pwc.co.uk/forest-paper-packaging/publications/sustainable-packaging-myth-or-reality.jhtml.

I personally struggle to get too excited about packaging. It is obviously a high profile issue for consumers but the Packaging Regulations have made a huge difference to the managing of packaging in the UK. The UK generates around 11m tonnes of packaging waste (out of circa 80m tonnes of municipal, commercial and industrial waste), of which around 2/3 is recycled. New targets will push these recycling rates even higher.

One surprise in the report for me is that they don't identify regulation as a principal driver of improved packaging 'sustainability'. Lightweighting to reduce tonnages to landfill and also improved recyclability of packaging are both driven by waste legislation and this, for me, seems a bit of an omission.

Global growth is (weakly) sustainable

An interesting piece in The Economist (http://www.economist.com/blogs/freeexchange/2012/07/national-balance-sheets) last week about research into global wealth:  ihdp.unu.edu/article/iwr

This looked at all types of wealth (or capital) in different countries: environmental/natural capital; human capital; man-made capital; and social capital and estimated that the stock of capital had increased in all countries except Russia.

Environmental economists define sustainable growth using a 'constant capital rule'. This states that if the total stock of capital is non-declining then growth is sustainable. What this latest research tells us is that the current growth models around the world are indeed sustainable (except in Russia) according to this definition. We are not therefore destroying our kids' inheritance and we can sleep easily at night.

This approach is, needless to say, not without its controversy. My hazy memory of studying this subject is that 'ecological economists' offer an alternative definition whereby the stock of natural capital must be non-declining as well as that of total capital for growth to be sustainable. They call this strong sustainability, as opposed to weak sustainability, and argue that natural capital is non-substitutable with other types of capital.

There are criticisms of both approaches and it seems inherently difficult if not impossible to measure the exact nature of substitutability between different forms of capital. I instinctively come down on the side of weak sustainability as a theoretical approach to sustainable development. Converting natural capital into man-made capital seems to me to be a fundamental pillar for development of any kind, particularly at lower income levels.

CBI proposes help for infrastructure investment

The CBI seems to have been very active lately and has published a report on what needs to be done to attract investment in infrastructure. (http://www.cbi.org.uk/media/1507874/cbi_-_an_offer_they_shouldn_t_refuse_-_attracting_investment_to_uk_infrastructure.pdf).

For me, this is all very sensible, and much of it has already been recognised in the waste sector judging by some of the noises coming out of UK Green Investments, the precursor to the Green Investment Bank.

The CBI recommends a split finance model which might take the form of some sort of post-construction refinancing guarantees that would enable banks to finance the construction phase and institutional investors to then come in on the (lower risk) operational phase. Personally I think this sort of approach seems quite sensible but some infrastructure operators who corporately finance their projects might consider this an unfair intervention in financial markets if done using government backing.

The other issue for waste infrastructure assets is that, in the greater scheme of things, they aren't very big. For institutional investors they just don't have the scale to be attractive and would therefore have to be packaged up and aggregated in some way.

The other big issue for me in the report is 'credit enhancing', i.e. some form of government first-loss guarantee/debt. But the government (in the form of the GIB) doesn't want to be idiot in the room taking more of the risk without a commensurate reward.

Overall, there are big macroeconomic problems coming from the capital adequacy regulations being placed on the banking sector. These are forcing it to retrench and are a significant cause of ongoing depressed economic conditions. In this context, I can't see a simple solution which the government could take without putting public funds at risk and losing the advantages of privately financing new infrastructure projects.

CBI supports landfill tax escalator

The CBI recently published a report looking at the case for environmental taxes (http://www.cbi.org.uk/media/1529404/cbi_-_solving_a_taxing_puzzle.pdf), which sets out some principles which it feels environmental taxes should follow.

The report rightly suggests that the landfill tax escalator is an example of an environmental tax which has been implemented well, but it doesn't delve into some of the more interesting questions I would have about whether the tax is set at the right levels.

Landfill tax was originally conceived as a 'pigouvian' tax which corrected for the environmental damage caused by landfill and was set at a rate of £7/tonne back in 1995. It now stands at £64/tonne and will rise to £80/t in 2014.

My personal back of an envelope estimate of an optimal landfill tax would be in the range of £30/tonne. This is based on CO2 emissions from mixed waste at landfill of less than 500g CO2e/tonne processed combined with a carbon price of around £30/tonne (I can't remember the exact government policy assumptions but they are in this sort of range) + disamenity impacts, for which I have taken the original HM Treasury estimate of £7/tonne and inflated it based on a doubling of property prices in real terms since 1995.

We are obviously in a world which has moved well away from these sorts of optimal figures. This is because we must conform to European waste legislation, which doesn't recognise the low cost advantages of landfill in the UK. An optimal waste management portfolio for the UK would have higher levels of landfill than in other EU Member States, but this is not allowed under the command and control target-driven approach to reducing landfill in Europe.

Should we have a big push on AD?

The CentreForum think tank has published a report entitled 'Hit the gas', which argues for greater support for anaerobic digestion.http://www.centreforum.org/index.php/mainpublications/370-hit-the-gas

It's interesting that this study - which is funded by the Anaerobic Digestion and Biogas Association (ADBA) - makes little reference to the potential costs of developing such a huge increase in AD. They are keen for more government support, but AD already receives double ROCs which is quite a substantial subsidy to make them viable.

The report notes that AD is a risky and difficult to finance process, particularly for waste feedstocks where pre-treatment will often be required. Intuitively, there seems less scope for driving efficiencies out of the process (I could of course be wrong) and they will always tend to be small-scale and localised, which seems to conflict with the needs of a financially constrained world.

AD will continue to be pushed as the government has committed to it. This report does raise some interesting questions. It notes that if an AD plant is located too far from its feedstock then the transport emissions can outweigh the carbon benefits of using AD. I wonder what assumptions the Committee on Climate Change made about transport distances when it recently recommended again that the government look into expanding opportunities for food waste AD.

CCC finds good progress from waste sector

The Committee on Climate Change (CCC) published its latest progress report at the end of last week: http://hmccc.s3.amazonaws.com/2012%20Progress/CCC_Progress%20Rep%202012_Chapter-7-Waste.pdf

The huge (and hugely expensive) government commitments to de-carbonise the economy mean that every last drop of emission savings have to be squeezed out of every sector. The waste sector has already done a tremendous job at reducing its emissions and will continue to do so as more material is diverted from landfill. The focus should be on ensuring high levels of effective front-end recycling coupled with incentives to drive improved efficiency for energy recovery processes for that residual waste which cannot be recycled.

The CCC recognises the good work of the waste sector, and I think tries to draw attention to some of the (significant) uncertainties around emission savings from waste. As you'd expect, they call for more to be done and think that there is scope for further cost-effective savings to be made from sending increased amounts of food waste to anaerobic digestion.

I personally don't find the analysis on AD costs to be credible. These plants are generally small-scale and localised and rely on double ROC subsidies to make a return. Digestate markets continue to be limited, and large increases in quantities of this material could end up with nowhere to go.

The government however has clearly picked AD as a winning technology and is probably unlikely to deviate from its course.


It is never completely clear to me what role the CCC envisages energy from waste playing in the de-carbonised power sector of the future. Efw may have high emissions relative to the proposed grid average of the future (the CCC reckons it will have to be 50g/kWh by 2050 I think), but of course has a significant carbon benefit relative to landfill. Does this count as part of the power sector, or the waste sector?

Monbiot gets resource economics?

George Monbiot has an interesting piece in the Guardian today: http://www.guardian.co.uk/commentisfree/2012/jul/02/peak-oil-we-we-wrong.

In it he seems to recognise one of the basic principles of resource economics: higher prices stimulate higher supplies. Unlike him, I don't see this necessarily as an issue of grave concern.

What is true for peak oil is also true for other commodities. Resource scarcity isn't a problem for today's society.