Memorandum submitted by Biffa Waste Services
Ltd
Biffa Waste Services is the largest waste management
company operating in the UK—it is the largest wholly British
owned waste management company 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 around £550 million at a current annualised rate and is
also in the top three waste management companies operating in
Belgium. We are owned wholly by 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 an extensive customer base exceeding 65,000 in the public,
commercial and industrial sectors.
SYNOPSIS
2.1 The structure of our response hinges
around the need for an objectives driven framework of policies
which in turn comprises an orchestrated interaction between issues
of technology, political policies (regulatory and organisational)
economics, and public dissemination/education. The orchestration
of these four interacting dynamics in turn relies on the development
of a more robust framework for communication and ownership between
Government (central and local), industry and commerce and non
governmental organisations (NGOs). Our current difficulties are
in large part attributable to an absence of long term direction
on the delivery of improved resource efficiency in the economy
coupled to a lack of clarity on the rights and responsibilities
of the principle players in the process.
2.2 As a reflection of our corporate frustration
at the lack of progress in this area we released, in October 2002,
the publication "Future Perfect" which encapsulates
possible approaches to improving these methodologies and additionally
provides a comprehensive set of reference sources on which we
base our proposals. This submission forms a condensed précis
of those ideas. Three copies are attached—please request
additional copies should you wish to distribute them to individual
members of your Committee.
2.3 Overall, central government must act
as the central "ringmaster" to this process by defining
an overall structure within which industry can invest and deliver
outcomes based on appropriate standards of political and electoral
acceptability within a transparent framework defined by the regulator.
In developing that central framework, central government must
be cognisant of the capacity offered by technology and the appropriate
balance between the use of market and regulatory enforcement measures.
Considering these . . .
TECHNOLOGY
3.1 In essence there are no technological
blockages to achieving greater resource efficiency and moving
our economy up the waste hierarchy. The key restraint on the provision
of technology solutions is economics (q.v.). In broad terms, companies
in our sector can make an acceptable economic return for shareholders
whilst meeting the highest regulatory standards by using landfill
and pricing that asset at £10-£13 per tonne for non
inert waste. The attraction of landfill is driven by the gap between
this acceptable rate of return and similar rates for more resource
efficient technologies higher up the waste strategy—where
a gate fee of £45 per tonne or more is necessary. Because
the landfill market is competitive, no single operator is in a
position to price landfill at those levels because the equilibrium
competitive price will always operate between £10 and £14
per tonne. That is why a tax of at least £35 per tonne is
necessary on landfill to make these alternative technologies attractive
(assuming they are zero rated).
3.2 "Technology" implies both
logistics/transport, intermediate handling systems and end process
equipment. It is the combination of these three distinct steps
in handling end life material which need to be integrated and
considered as an entity. Some (mass burn incineration) involve
no increase in costs on current transport costs to landfill but
incur as much as five or six times the capital investment compared
to landfill in end processing. Others (recycling) involve a doubling
or trebling of current transport and intermediate handling costs
compared to landfill but have relatively low investment impacts
in terms of additional capacity in the remanufacturing phase (glass
for example) because the investment has been made historically.
3.3 There is an abundance of physical, chemical,
thermal solutions capable of driving improved resource efficiency
but these vary in different parts of the country depending on
the transport impacts. There is thus a requirement for more standardised
and sophisticated approaches to life cycle impact assessment measurement
of different options. Such methodologies offer objective starting
points untainted by the economics of particular circumstances.
3.4 Generally the level of sophistication
in the debate needs to be improved. The waste hierarchy in its
current form is quite crude insofar as "composting"
can comprise everything from crude and economically worthless
systems aimed at providing daily landfill cover through to sophisticated
enclosed process treatment systems with online continuous temperature,
moisture and atmospheric control to produce top quality batch
control product. Similarly, "energy from waste" can
comprise crude mass burn systems with simple heat recovery through
to sophisticated, enclosed non direct ignition gas, pressure and
temperature controlled systems producing combined heat and power.
For this reason the simplistic banding in the conventional hierarchy
can sometimes be proven wrong through life cycle analysis—as
in the case of advanced gasification systems compared to long
distance recycling of high volume, lightweight materials (for
instance).
3.5 It is important for Government or other
appropriate bodies to decide key priority areas for maximisation
or minimisation of impacts—depending on whether these are
individually or a combination of (for instance) renewable energy,
CO2, carbon, oxides of nitrogen, heavy metals or any other similar
measures.
The outcomes for different solutions can be
dramatically different. As with any journey it is decisions relating
to speed, comfort, absence of risk, convenience or combinations
of all four which result in the same sample of people making dramatically
different decisions on how they move between two fixed points.
Unless the parameters are set, there is a strong probability that
each individual "traveller" will maximise their personal
objectives regardless of external impact.
ECONOMICS
4.1 If technology provides an open choice
it is financial economics which acts as the first brake to individual
action. At the heart of our current malaise is the absence of
any definitive statement from Government as to where the balance
lies between a market driven price framework for waste management
and a subsidy driven framework. Central to an understanding of
the economics of moving up the waste hierarchy is the need to
explain to the British public that specific improvements in resource
efficiency and/or abatement of emissions by specific amounts come
at a cost. The technology can do it—but only if the technology
providers can make an acceptable rate of return. At a national
level a substantive improvement acceptable to green NGOs in the
management of 30 million tonnes of domestic waste will come at
a cost of around £1 billionn per annum—that is based
on the incremental £35 per tonne needed to achieve an acceptable
rate of return on more sophisticated collection and processing
technologies. That cost can be charged to society through the
purchase price of products (if Producer Responsibility initiatives
are developed) or charged to society through direct and indirect
taxation (and remitted in the form of subsidies to local authorities
in the form of around £650 million per annum DEFRA announced
schemes, National Insurance Contribution rebates, etc). On an
intermediate basis are the quasi government reallocations of the
funds raised in a regulated framework (Environment Agency charges
and the New Opportunities Fund/National Lottery).
4.2 Our corporate preference is for market
based solutions driven through the price of the product with industry
supply chains in packaging, end life vehicles, automotive components,
household hazardous goods, insecticides and pesticides and pharmaceuticals,
etc, all managed in the waste phase by limited numbers of companies
operating in their individual supply chains. This is more efficient
that devolving that task to around 600 points of local government
or centralised government bureaucracies in the major departments.
It will also accelerate real improvements in product design to
remove polluting materials which are expensive when decontaminating
the product at the end life its life cycle. It will also drive
weight minimisation and material efficiency in construction. In
time, Producer Responsibility will also contribute to extended
product life warranties, component inter-changeability between
new and old product models and, in some cases, encourage manufacturers
to deliver services (transport, refrigeration, warmth, etc) in
the context of product leasing services. Those approaches will
in turn be conditioned by whole life cycle assessments.
4.3 The balance of current government thinking
is heavily weighted towards subsidy driven cultures on municipal
waste. This is unfortunate. Instead it should establish a balance
between cost push and demand pull initiatives. Cost push measures
are those which force market behaviour up the hierarchy by using
taxes or regulations to alter behaviour. Clear examples are the
Landfill Tax, increased regulatory fines and Tradeable Permit
systems, etc.
4.4 Demand pull systems operate in ways
to make by-product outputs from recovered materials more attractive
and are represented in the form of recycled content targets, subsidies
which overcome competitive pricing structures in raw material
supply, virgin input taxes and product bans to landfill (which
expand the supply of surplus materials, drive down the price and
make them more cost competitive). As we have indicated, however,
subsidy systems need to be treated with caution. Subsidies to
local authorities amounting to circa £50 million for fridges,
£140 million for abandoned cars and £140 million for
kerbside recycling schemes, do nothing to stimulate end market
demand, tend to be inefficiently managed, are rarely benchmarked
to identify best value or best practice and are dissipated across
a wide range of recipients so that potential economics of scale
disappear.
4.5 Regulation and enforcement is the third
element to the trinity, requiring a financially secure agency
which expends its resources on the highest 20% areas of risk (based
on sound data management) backed by higher levels of fines from
magistrates).
The fridges experience is cited as an exemplar
in many ways—although we were the first company to alert
government to the potential problems looming on fridges (two and
a half years before the event) we ended up not investing in the
process technology because three fundamental pillars were missing:
(i) There was no clear statement on operating
standards for the technology.
(ii) There were no clear long term assurances
on who was going to fund the recovery initiative.
(iii) There were no clear undertakings given
that a level playing field would be applied on enforcement.
History has vindicated our insistence on these
three elements being in place. Most glaringly, companies which
invested several millions in the best available technology find
that utilisation levels on their plant (the most expensive gate
fees in the sector) are undercut by exporters able to ship fridges
out at a third of the cost to first generation technologies operating
at marginal cost in Germany. It is quite feasible the same sequent
of events will recur for waste electronic equipment and other
products.
THE POLITICAL
FRAMEWORK
5.1 The political framework is not joined
up at the centre. The recent Cabinet Office Strategy Unit report
highlighted the weaknesses insofar as:
(i) Over 95% of the report pagination related
to municipal (household) waste arisings although this represents
8% or less of total solid waste UK arisings.
(ii) Waste strategy is not seen as a macro
issue in the context of renewable energy or agriculture strategy—despite
the fact that as a nation we dispose of over 100 million tonnes
of carbon based waste each year together with a similar amount
of material as inorganic aggregates which could be converted into
soils which sequester surplus carbon.
(iii) Having had to confine itself to around
30 million tonnes of domestic waste as its subject, the SU report
was then obliged to go the rounds between DEFRA, OPDM, DTI and
Treasury in a process by which each department emasculated the
final report by taking out what they perceived (entirely without
consultation) as contentious issues. Examples include the integration
of Waste Collection and Waste Disposal Authorities, hypothecation
of taxes, risks to corporate sector profitability due to Producer
Responsibility, the development of waste Standard Spending Assessments
(SSAs)—to name but a few.
This emasculation took place after 12 months
of study and produced a document which—through no fault
of its authors—leaves one with an overall impression of
lack of focus and prioritisation.
5.2 The failure to operate waste in an integrated
joined up way locally is also a major blockage. The political
distinctions between Waste Collection Authorities, Waste Disposal
Authorities and the potential role for regional government bodies
in England is not conducive to producing environmentally and cost
effective outcomes. An optimum structure for the latter requires
population levels of around 0.3 million to deliver acceptable
economies of scale and minimise contractor risk.
5.3 The integration of EU regulations and
directives causes considerable problems. DTI negotiates regulations
(fridges) but has little responsibility for discharging the consequences
of those responsibilities. This clearly does not make for good
government. Similar process apply with regard to electrical and
electronic goods and end life vehicles.
5.4 The reluctance of Treasury/ODPM to establish
SSAs in waste means that waste budgets are a lucky dip for local
authorities. Waste services cover 3% on average of local authority
budgets and we can only presume that there are significant political
sensitivities in making it widely known to the British public
that—at a time when the tax cost (direct and indirect) of
local government to a band D householder is of the order of £4,000
per house per year, far more sustainable systems can be delivered
to manage household waste outputs for a mere £30-£40
per house per year.
5.5 The planning system is probably going
to buckle when landfills have to close their doors progressively
from around 2005-2010 (either because they are not being replaced
or the Landfill Directive bites). All top rated Landfill Tax material
is now passing through around 365 landfill sites which on average
deal with 0.4 million tonnes of material each year. For each one
of those sites (often in isolated out of town rural areas) that
shuts it will need to be replaced by around 4-8 alternative technology
applications (whether for recycling, composting or energy). At
the moment we are highly cynical as to whether the local authority
planning system is going to be able to cope with the need for
around 2,000 of these sites which—environmentally and logically—need
to be located far closer to peoples domiciles.
5.6 Planning issues apart there is also
the question of compliance and regulation as an important pre-requisite
to mitigating investment risk in such technologies. If one accepts
that most of these plants will be running by 2010 we have seven
years to educate, train and induct a new generation of regulators
who currently have spent the last five years coming to terms with
landfill systems.
We have doubts whether DEFRA or the Treasury
recognise the significance of this process or its scale with regard
to the way in which the Environment Agency is funded and resourced.
DISSEMINATION AND
EDUCATION
6.1 Dissemination and education to the general
public had got off to a good start under the aegis of the Landfill
Tax Credit Scheme but is now in danger of floundering. In the
past five years millions of pounds have been committed to Objects
C/CC in the form of research and development on best practice,
schools education programmes, investigations into data management
and resource flow systems and trials of new technology. 12 months
ago landfill operators were criticised for not diverting sufficient
funding into this area and 2002 saw an acceleration of funding
flows to these initiatives—all of which will form a fundamental
foundation of work generated by independent academics and scholars,
NGOs and trade bodies outside the direct control of the waste
industry. We now have a Treasury announcement indicating that
between 65% and 100% of these funds will now be removed from the
control of the landfill industry and at least 65% will be diverted
back into the public purse, much of it in the form of subsidy
support systems for end market creation and/or the introduction
of kerbside recycling schemes. The basis on which this change
has been made is that landfill companies could not be trusted
with handling these funding flows on the basis of a few well publicised
but numerically tiny examples. (Indeed we as a company participated
in the exposure of some of those early examples right at the outset
of the scheme because we felt it important to set the tone with
regard to transparency and direction of the funding flows.) This
publicity also had the effect of generating a significant shock
to the regulator—Entrust—with regard to information
on funding flows and the auditing of accounting procedures by
funding bodies. It is ironic that the Treasury are now indicating
that a significant proportion of these funds are to be pulled
back and used to subsidise kerbside collection. The landfill operators
have been criticised for not supporting this initiative and yet—at
the time of the exposure of use of the funds for self interest—it
was pointed out by many in the industry that no landfill operator
involved in local authority waste management contracts could in
conscience use those funds to support kerbside recycling because
we would immediately be open to accusations of gerrymandering
and potential corruption. In our submission to the Environment
Committee on the Operation of the Landfill Tax (January 1999)
which can be accessed via the Committee's published evidence (HC150-II)
we pointed out that 100% of the Landfill Tax should have been
hypothecated with the balance of 80% split evenly (as a suggestion)
between a government controlled funding body for initiating household
recycling and an OFT/Audit Commission controlled body distributing
funds to industry supply chains in exchange for the acceptance
of Producer Responsibility.
6.2 This was not done and the Treasury sheltered
behind claims that funding flows from Landfill Taxes were offset
by reductions in National Insurance Contributions (which subsequently
became smaller increases in NIC costs than would otherwise have
been the case had the credits not been in place!) This Byzantine
accounting approach would be credible were it not for the fact
that (when preparing "Future Perfect") we could not
obtain an answer from the Treasury to the question of what each
industry sector's NIC payments bill is. We understand this information
exists—albeit for industry classification codes in the Treasury
(which do not correspond to the SIC code national system used
by the DTI and everybody else). Perhaps this is an issue your
Committee might wish to raise with them direct.
On page 22 of our publication we confirm this
fact—our intention was to provide an economic balance sheet
of payments into and out of different supply chains between them
and the government at central and local level.
The scale of those "balances of payments"
is important in understanding how the inflationary and employment
impacts of sustainability are to be introduced within a cohesive
and structured framework.
6.3 That is water under the bridge but Treasury
have yet to indicate how the Landfill Tax Credit Scheme role in
dissemination and education is to be replaced. One presumes they
will announce a consultation period in the New Year that may finish
around April/May which will result in the design of a new system
by September which will invite bids to be awarded around January
2004. As a consequence around £140 million private sector
funding flows will cease into the NGO area in general. This will
have substantial employment, cash flow and communications repercussions.
6.4 By taking at least 66% of funding flows
back under the control of the public purse, the UK will lose out
on the opportunity for EU match funding flows. Estimates of this
precise amount vary between £400 million and £1 billion
since the start of the scheme. Biffaward should be in a position
to confirm a precise figure for its own cumulative spend of around
£60 million by the time your Committee calls for verbal evidence.
6.5 Additionally, the Treasury cannot be
informed on the number of projects where landfill operators have
offered support for year two and year three programmes based on
research/deliverables from year one. In Biffaward's case such
commitments were given subject to the LTCS being substantively
in place. Now that is no longer the case a number of university
based three year research contract programmes will now have to
be aborted. The probability of those types of studies securing
support from market creation or local authority kerbside collection
focused programmes is negligible—and even if they were not,
many require decisions within a very short timeframe with no clear
indication from Treasury on what it is doing to replace the existing
structures. Is it going to honour commitments to those three year
programmes, confirmed by Landfill Tax donors in the past?
WALKING THE
TALK
7.1 Consistently over the last seven years
Biffa has put its money where its mouth is. Future Perfect demonstrates
in far greater detail the framework of our thoughts in this area,
backed by the appropriate reference sources for our assumptions.
7.2 Around £10 million cumulatively
has been committed to the development of around 40-50 resource
flow studies which form the basis for developing a national integrated
data collection network.
7.3 We are prepared to commit a further
£1 million to the development of an integrated domestic waste
reporting infrastructure capable of meeting the transparency requirements
of e-government and the Audit Commission as an essential pre-requisite
to best practice measurement and benchmarking.
7.4 In the death throes of the Landfill
Tax Credit Scheme we are contemplating committing further funding
to a similar relational database capable of confirming electronic
compliance to EA approved standards for products subject to EU
Producer Responsibility Directives (packaging, electrical and
electronic goods, tyres, household hazardous wastes, etc).
7.5 Last, but by no means least, we intend
to be the first UK contractor to offer up to 80% landfill diversion
of household waste for the City of Leicester, a unitary authority
with a population of around 0.3 million which has had the boldness
to recognise the capability of the technology to deliver the waste
hierarchy in ways which will put it at the forefront of any other
public body in the UK. We are proud of our association with Leicester
and applaud them for their commitment to state of the art systems
which do not involve direct combustion, do involve a participative
approach in sharing both the pain and the gain and also involves
the integration of logistics and end life reprocessing solutions.
Leicester will be a living example in 2004 of what could be achievable
throughout the entire UK by 2010. From our perspective—and
from this submission—you will no doubt gather where we believe
the key obstacles operate.
Biffa Waste Services Ltd
23 December 2002
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