Select Committee on Environment, Food and Rural Affairs Appendices to the Minutes of Evidence


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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