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.

Overcapacity concerns for AD?

I see via @ediewaste that there have been a few concerns about the state of the AD market voiced at the recent ADBA conference.

Basically this looks to me like an incumbent saying: look guys, this is a lot more difficult than you think; be careful as we don't want a situation where there are too many plants chasing too little feedstock (i.e. overcapacity). Overcapacity is of course an issue which tends to be associated in the trade press with efw (the recent Eunomia report being a key element stoking these concerns).

I suspect we're more likely to end up with overcapacity for a technology like AD where the plants are relatively smaller and less capital intensive to deliver than a large-scale residual waste plant. They are therefore less reliant on long-term debt funding which means operators may have greater flexibility to take a punt on a project without being constrained by having to satisfy risk-averse lenders.

AD is a technology which has explicit government backing and which enjoys some of the largest amounts of support under the Renewables Obligation. If operators can't get it to work under these circumstances then there really is something wrong.

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).

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?