Market failures in waste prevention

Defra has today published a call for evidence for its waste prevention programme. I haven't yet read the whole document but one thing which immediately raised my hackles was spotting a section on "market failures". I personally think that policy makers are all too quick to refer to market failure when actually these either don't exist or are preferable to the far more prevalent alternative of government failure.

The first one Defra refers to is the case of "environmental externalities" - fair enough at first glance. It then says this is manifested through the full cost of waste not being paid by producers. On the contrary, businesses do pay for the waste they produce (and pay prices which are higher than the externalities would actually suggest). In the household sector this incentive is of course missing but I don't suppose for one minute Defra is proposing the politically unpalatable introduction of pay-as-you-throw.

"Split incentives" are another policy makers' favourite. The example used here is of a manufacturer designing out waste to the benefit of consumers or local authorities (presumably packaging). But the manufacturer benefits from not having to pay for avoided material inputs. The landfill tax escalator and the commodity boom of the past decade have both shown that manufacturers respond to price signals and reduce waste.

"Information failures". This is where policy makers expose their belief that they are better placed to spot bottom-line savings than actual businesses themselves. Not true in my book.

"Behavioural barriers". Here Defra seems to think that firms/individuals discount the future too heavily and so are unwilling to take longer term actions. However, individuals must take decisions under conditions of extreme uncertainty and their choice of discount rate may actually lead to far more rational choices than Defra officials could come up with.

"Financial barriers". Businesses/individuals may be credit constrained. For me, this is just the real world where financial choices have to be made between competing priorities and, to the horror of Defra officials, waste prevention may not be at the top of the list.

Overall, I think that Defra (and its various consultants) tend to underestimate the opportunity costs associated with waste prevention measures. Implementing waste prevention often has a positive financial return. But so does investment in productive business activity/output. It is not necessarily irrational for businesses to choose to invest in production rather than waste prevention, but policy makers often seem to miss this point.

Romanian municipal waste performance better than Germany

Via @Defrawaste I see that Eurostat has published the latest EU figures for municipal waste management.

Poor old Romania (as well as other Eastern Member States) often gets singled out for its poor performance as it landfills 99% of its municipal waste. Terrible, I'm sure we'd all agree. But another, often overlooked factor, is that waste generation per person is much lower there than in some of the richer Member States with more sophisticated approaches to waste management.

In fact, if we were to include the avoided production emissions from lower waste generation in Romania we would find that net emissions from its municipal waste would be lower than for Germany, which only sends 1% of its municipal waste to landfill. (I have cheekily used Defra emission assumptions for the UK when checking these figures, which would lead to the assumption that Romanian landfills are managed in accordance with Landfill Directive requirements for capping/gas management which may or may not be accurate.)

As anyone au fait with the waste hierarchy knows this is because the environmental gains from waste minimisation dwarf any emission savings from switching between different forms of waste management once that waste has been generated. The sector awaits Defra's National Waste Prevention Plan due in December with interest.