Memorandum submitted by Biffa Waste Services
Ltd
Thanks for the opportunity to respond to your
enquiry on the subject of fridges.
Biffa Waste Services is the largest waste management
company operating in the UK and can justifiably claim to be the
most diverse in terms of its spread of interest in industrial/commercial
and domestic collection, landfill, liquid waste stream and specialist
hazardous waste management systems. The company has a turnover
of £550 million at a current annualised rate. We are a wholly
owned subsidiary of Severn Trent Plc with over 110 operating centres
throughout the UK. We handle 12 million tonnes of material which
is treated, landfilled or recycled on behalf of our extensive
customer base exceeding 58,000 in the public, commercial and industrial
sectors. Biffa services 20 local authority contracts as their
appointed agency for waste collection contracts.
(A) An important aspect of our submission
is that, in our view, the current debacle is a product not so
much of the specifics of CFC legislation, fridges, fridge processing
technologies or the specifics of the electrical industry in particular.
Rather we are where we are because of a more deep rooted and fundamental
malaise in the way in which environmental regulation in the UK
is developed, introduced and regulated on a cross cutting basis.
This assertion is at the heart of our submission although we are
also qualified given our specific track record in relation to
the fridge question. Before moving to the former, therefore, I
will relate our particular experience in relation to fridges.
(B) Annexed to this submission is the chronology
of our correspondence with Government from 5 September 2000 through
to my correspondence with the Minister of State for the Environment
on 14 January 2002. This correspondence explains where we are
seeking or offering clarification and ideas which—we believe—could
have been acted upon on a consultative basis with our competitors
and others in the entire electricals supply chain to arrive at
a much better managed framework than we find ourselves in today.
The key points of that correspondence are:
5 September 2000: Letter
to DTI asking if foams in domestic as well as industrial fridges
are covered by appropriate European draft instruments on 1 January
2002. Not formally replied to.
19 March 2001: Letter
to Head of Waste Regulation at the Environment Agency. By this
stage we are convinced that the regulations will apply within
nine months and we point out that "fridges will thus inundate
civic amenity sites from January next year". At this stage
we were seeking clarification from both DTI and DETR and are trying
to involve the Agency in the hope that they will define a code
of conduct/operating standards for appropriate equipment to process
fridges. Without such assurances from the Agency we as a company
point out that we will not invest in the necessary infrastructure
since we have no guarantee that others would not undercut us with
inferior plant. An English translation of the German code of practice
was attached to the letter.[1]
No recorded reply.
August 2001: DETR representative
attended an Industry Council for Electrical & Electronic Recovery
(ICER) meeting and indicated that frameworks for enforcement and
standards would be developed once industry had invested in the
necessary equipment. We point out to the Agency that no company
will make any decision to invest in plant and equipment until
either the Agency or DETR confirm the operating standard and minimum
performance required for process equipment. No reply to the 19
March 2001 letter had been received so a further letter was sent
to the Agency on 24 May 2001 and the final paragraph says it all—"We
are desperate to make the necessary applications for planning
and licensing consent but we can't make a decision on the type
specification on the equipment until you tell us what the standards
are. Help!"
17 July 2001: In the absence
of replies from the Environment Agency we write to the Minister
of State, Michael Meacher, alerting him to the looming problem
on 1 January 2002, quantifying that 200,000 fridges per month
will cease to go through car fragmentation plants. For the first
time we put in our estimate of costs at around £30 per fridge.
We reiterate our interest in providing necessary capital infrastructure.
A copy of the above letter was sent to Paul Boateng
as Financial Secretary at the Treasury and this we followed up
on 30 July 2001 suggesting that local government will be asking
to a special precept to fund the expected £60 million to
£70 million incremental management cost. An alternative approach
is suggested whereby the Treasury and/or DEFRA might consider
tendering waste management companies and other interested parties
to collection fridges on a national or regional basis which is
then managed centrally. Conversely these costs could be offset
against landfill tax liabilities as part of an environmental bookkeeping
exercise by the Treasury. The Treasury responded to this indicating
that various options were under consideration but were a matter
for DEFRA/DTI.
26 July 2001: The Head
of Waste Regulation Policy at the Environment Agency is copied
on the correspondence to the Ministers at the Treasury and DEFRA
as well as to Sir John Harman. Still no response has been received
from the Agency with regard to our English translation of the
German operating specification. Week commencing 20 July 2001,
civil servants in DEFRA respond and ask for our suggestions amplifying
some of the ideas contained in our letter of 17 July 2001. Specifically
we clarified our thinking on the cost per unit (where the £15
to £20 per unit range in Germany was identified as one applying
in a mature market framework using outdated technology and reaffirming
our belief that £25 to £30 per unit is a realistic long
term planning figure.
Various options were proposed in terms of Tradeable
Permits and hard data provided in the context of avoided CO2 equivalent
from the 1,200 tonnes of CFC material likely to be recovered.
The advantages of the Treasury managing the funding and reclamation
process centrally—either directly or via DEFRA—is
reiterated. At this stage it was becoming evident that cheaper,
outdated European technologies were being considered. These latter
technologies have a lower CFC agent recovery level and are thus
less expensive on capital terms. The manufacturers were also keen
to dispose of such technologies into the UK to fund second and
third generation equipment needed in the European market according
to our intelligence from the offers we were receiving as potential
purchasers of such equipment. The key phrase is "either Government
wants the best available technology or it wants to fudge the issue
by raising the pollution permitted for inefficient plants. If
you wish to go down this route tell us now." The message
then becomes quite simple—"invest in the cheapest technology
without regard to real environmental impact".
21 August 2001: DEFRA/DTI/Environment
Agency organise a round-table session of all interested parties
in the supply chain at the DTI Conference Centre.
23 August 2001: We follow
up with a letter to Anna Stacey of DTI summarising the essential
pre-requisites for companies to invest on a speculative basis
in tackling the fridge problem. Those pre-requisites are:
(a) Clear undertakings with regard to
the specification of acceptable processing equipment.
(b) Clear understanding of which party
has liability long term for paying.
(c) Clear assurances on a level playing
field with regard to enforcement.
In the course of November DEFRA circulated Draft
Standards for foams and storage.
10 December 2001: We ask
for clarification on the recommendations for PCB comparators in
fridges.
10 December 2001: Referred
to Jane Stratford (who is copied)—no further responses.
As of 25 February 2002, none of these basic requirements
have yet been responded to. The Annex to our letter offered seven
different funding options ranging from full Producer Responsibility
brand by brand through to DEFRA/Environment Agency or Government
negotiating a national rate with reprocessors and collectors bypassing
multiple involvement from local authorities. Follow up e-mail
to DTI referred to DEFRA.
14 January 2002: We point
out to Michael Meacher that we are now no longer interested in
becoming involved (at least in the short term) in investing in
the necessary equipment. Nevertheless we write to express our
extreme concern at the potential damage which will accrue to our
industry by allowing disreputable companies to enter this market
place. This letter followed from market intelligence to us that
a number of companies with no transparent or long term trading
history are now stockpiling fridges in much the same way that
others have done for clinical waste and tyres in past years.
We reiterate the three basic requirements for strategic
investment to take place in a sensible way. As at the date of
presenting our evidence no response has been received to this
letter from the Minister although Baroness Young has responded.
This then is the factual relation of our experience
as part of this saga.
(C) STRUCTURAL
ISSUES
We would suggest that although these difficulties
occurred in the context of fridges it could equally as well apply
to many products which are the subject of extant or forthcoming
European Directives in the context of Integrated Product Policy
(IPP). Four key strands need improved focus if we are not to repeat
this saga with other consumer capital or consumption goods in
the waste stream. These are:
(a) Single point authority and responsibility.
Some of the difficulties which have emerged result from the DTI
having primary responsibility for negotiating technical regulatory
requirements in Europe and then passing this over to DEFRA without
realising the significance of the content of that to which they
have agreed. DEFRA probably connected with the significance of
acceptance of the regulations but appeared to blame the DTI and
left them to go back and renegotiate. Whatever happened we need
a single negotiating body with preparedness to take responsibility
for proactively driving European regulations through into operational
best practice in the UK. We would suggest that the lead body for
such initiatives would be the DTI given their technical excellence
and their linkage into specific product supply chains in the economy.
(b) Regulatory Impact Assessments—accounting
for environmental legislation. A broad range of products are
or are about to be impacted upon by IPP and Producer Responsibility
legislation emanating from Europe (electrical equipment, end life
vehicles, tyres, household hazardous wastes to name the more obvious)
yet it does not appear to us that sufficient round-tabling is
occurring to carry out realistic Regulatory Impact Assessments
in terms of logistics and process technologies to achieve the
desired recovery/landfill diversion objectives for these products.
More importantly once that round-tabled cost has been developed—based
on defined standards of plant and equipment operation—the
costs should be benchmarked against existing internality levels
of turnover for the appropriate product. In the case of fridges
the retail market in the UK currently stands at just over £700
million per annum whilst realistic assessments of BPEO solutions
to collect and process fridges are in the range of £50 million
to £70 million (7 per cent to 10 per cent of industry added
value). Similar calculations can be carried out for targeted recovery
percentages on insecticides/pesticides/other electrical equipment/end
life vehicles—all of which (as accrued average) will probably
point to an approximate on cost for the supply chain of around
3 per cent to 5 per cent. Fridges are above this average because
of the exceptional nature of the pollutant, the specialist nature
of the processing equipment and its relative specificity to the
product being processed. These calculations should be carried
out in advance of developing regulations in conjunction with manufacturers,
retailers, waste companies, local authorities and NGOs and subjected
to external consultant scrutiny from the OFT.
(c) Funding strategy: Contingent with
the absence of sensible RIA/costing estimates is an absence of
strategy with regard to who is going to fund these incremental
supply chain costs. It must be obvious that there are incremental
costs attached to improved sustainability otherwise such systems
would be implemented as a matter of course.
Government needs to pay far more attention
far earlier when defining how these costs are going to be passed
through to the consumer—will it be permissible to load them
through the supply chain as a transparent green management charge
or will they be recovered from direct and indirect taxation and
remitted via the Treasury and the local authority rate precept
system under the Barnett formula? Additionally it would be especially
efficient to develop alongside that direct funding strategy the
role of indirect instruments such as Tradeable Permits and regulatory
controls such as landfill bans, etc.
(d) Implementation and enforcement:
The fridges saga has taught us that the Agency has a key role
to play in defining what it is prepared to accept as minimum operating
standards for appropriate technology. It has consistently been
reluctant to confirm those standards in the case of fridges and
this matches our experience with other new technologies such as
gasification systems, anaerobic digestion and the like. We would
suggest that until the Environment Agency is in a position to
indicate minimum operational standards for such technology and
provide absolute guarantees that it can offer a level playing
field of enforcement in each of its geographic areas then industry
players with an interest in investing in such technologies will
hold back until the last possible moment. Instead the Agency will
encourage in chancers who will adopt cheap technology options
with less than acceptable operating standards. In turn this creates
significant communication difficulties with the public and leads
to a general loss of confidence—both in the strength of
the regulator and the efficacy of the waste sector in general.
This is clearly demonstrated as a result of the growing fridge
piles and mountains around the country (particularly those created
by companies which were not in existence three months before).
(D) SO WHAT
SHOULD HAPPEN?
It is easy to be destructive of the process
with the benefit of hindsight. It is particularly galling for
us to find the UK in the current position given that the warning
signs were flagged up nine months or more ahead of what has come
to pass. Nevertheless we offer the following as a constructive
framework for moving forward in the development of product centred
waste strategies in future:
(i) There needs to be a proper econometric
Regulatory Impact Assessment of each directive drilled down to
specific product classes as defined by the appropriate supply
chains. These discussions should be developed on a round-table
basis involving NGOs, manufacturers, retailers, local government
and the waste sector/end life material reprocessors. At the moment
considerable exaggeration occurs in estimates of the costs of
introducing various European directives. In part this is because
particular supply chains (in electricals and electronics or cars)
assume that the infrastructure for logistics and processing will
need to be introduced specific to their range of products. Clearly
this is not the case—much of the transport logistics infrastructure
for recovering electrical brown goods from households is no different
from that utilised for collecting scrap glass or household hazardous
waste in years to come, for instance.
(ii) Having arrived at ballpark externality
prices those costs should be benchmarked against different
levels of target achievement based on percentage recovery rates,
levels of pollution or operating standards. Those options should
then be related to current internality turnover profiles in
the industry to define the relative impact on supply chain
and national inflationary pressures.
(iii) The round-tabling process should be
tasked with identifying preferred cost transfer mechanisms onto
the customer supply chain—whether this be in the form of
transparent green surcharges, direct subsidies to manufacturers
which are reduced year on year on a descending basis or by direct
subsidies from Treasury onto local authorities. Either way society
as a whole in the UK will pay.
(iv) The sectoral management and enforcement
strategies should be backed by agreements between supply chains,
the waste sector and the Environment Agency and translated through
into a cohesive framework, if necessary down to necessary regional
and planning infrastructure impacts. The timing and nature of
implementation of these regulations for many supply chains has
implications in terms of national and international competitiveness
and it would be wrong if the manufacture of certain products were
withdrawn from the UK on the basis of poorly implemented environmental
legislation.
(v) Such supply chain/product specific recommendations
need to be coordinated within the framework of some form of Environmental
Tax Commission so that there is transparency on funding flows
and operational standards which can be communicated easily through
all ministries to the general public and to the appropriate planning/regulatory
specialists. Specifically the objectives of such an Environmental
Tax Commission should be to ensure that:
(a) In the economic dimension
the process whereby price increases for environmental stabilisation
are passed through are transparent and acceptable to the Office
of Fair Trading and the appropriate regulatory competitive bodies.
(b) In the planning framework
these initiatives need to feed through the regional offices given
that capital investment in process plant requires scale, supported
by markets of one million households. These regional initiatives
need to interlink with Agency assessments on the scale, effectiveness
and risks of available technology.
(E) CONCLUSION
Treasury reassurance is needed on their calculations
on the costs of extant IPP initiatives in the economy. We believe
these are likely to lead to increased environmental costs in a
variety of supply chains of the order of £4 billion to £6
billion per annum. The timing and focus of those incremental costs
will vary in specific product supply chains but it is important
that the Treasury has reassurance as to how those funding flows
are to be managed and administered. In the case of fridges, for
instance, it is possible that the incremental cost to target levels
of emission improvement are agreed at £50 million to £60
million. The Treasury might prefer to offer implementation cost
support via a reduction in VAT (if such an arrangement were possible
within the EU rules—which they are not at the moment). This
would represent a reduction of around 50 per cent on current VAT
levels on fridges, a rate reduction which could be cut back progressively
over a eight to 10 year cycle period so that at the end of that
period the environmental externality costs are fully absorbed
in the retail selling price of the product. (Current VAT take
on the sale of fridges is around £130 millin per annum.)
The ETC role would be to ensure that no unfair
competitive advantage or market distortion occurs as a result
of imbalance in negotiating strengths within supply chains (between
manufacturers, retailers, waste sector operators or end life reprocessors)—in
short to supply the transparency that is sadly lacking today and
resulted in the current difficulties. Unless these structural
frameworks are developed we will repeat the saga with TVs, electronics
tyres, clinical waste and a host of other products.
Peter T Jones
Director, Development & External Relations
1 March 2002
1 Not printed. Back
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