EMF report assumes policy is optimal

Further to the discussion in the previous two posts, I am sorry to say that I still disagree with McKinsey's analysis, in that the whole purpose of the circular economy is to realise real benefits to society as a whole. The McKinsey riposte on this scale seems to be based on an assumption that landfill taxes and renewable subsidies are 'optimal' in that they internalise environmental costs. I couldn't disagree more. In reality the taxes and subsidies are far from optimal levels and are instead set with the explicit intention of meeting (arbitrary) government targets for landfill diversion and renewable energy penetration.

My personal view is that optimal landfill tax levels should be in the order of £30/t. I haven't done a similar analysis for renewable subsidies but Decc's stated policy is to levelise costs between different technologies, rather than set an optimal support regime for low carbon generation. It is widely acknowledged that meeting EU carbon reduction targets through very high renewable generation is in fact an expensive way of meeting our environmental goals and is therefore sub-optimal policy.

Going back to my original post: This was a brief attempt to look at the issue from the perspective of the 'public authorities' (using the boundary set out below). McKinsey suggest that if the cost of landfilling in this scenario is $24/t or more then society has made a profit. My post looked at the figures in the report which showed landfill costs of $105/t (including taxes). I took away the taxes (currently $100/t) and came to the conclusion from their numbers that society was making a loss, based on landfill costs of $5/t. (I am of course willing to be corrected if I have misread their figures.)

In reality (non-tax) landfill costs may be closer to $30/t (but could easily be not be far off, or below, $24/t in various regions). This to me doesn't lead to the conclusion that large benefits are realisable from the switch to AD at a wider level (and not just from landfill but from energy from waste too - another point would be whether their analysis includes consideration of energy revenues from efw or landfill gas). And this is before my challenge to their assumption that government intervention is optimal.

I would also note that McKinsey refer to an 'advanced scenario' which is presumably based on improved AD efficiency. As efficiency improves over time though, Decc policy will be to correspondingly reduce renewable support. Scope for additional 'benefits' here may therefore be constrained.