Examination of Witnesses (Questions 60-78)
MR PETER
LAYBOURNE AND
MR PETER
JONES
23 JANUARY 2007
Q60 Joan Walley: You are not saying
that what is in your economic interests is just going to be solely
determined by the rate and speed of the new formulas which may
apply to the Landfill Tax credit, are you?
Mr Jones: Yes, in a way, because
if Biffa went out and invested in these new technologies on the
basis of our own balance sheet they would be uneconomic. Therefore,
if we have got stranded assets that are uneconomic our dividends
would fall, our share price would fall and then we would be taken
over. The only reason that these new plants are being bought is
that there is a subsidy on capital charge on those plants through
the PFI process; and also the promise of a 30-year guaranteed
contract and therefore those plants are being built. I do not
know of any waste companies that are voluntarily on their own
balance sheet investing in these new technologies, because landfill
is still the cheapest kid on the block.
Q61 Joan Walley: Just in terms of
where we get from where we are now to where we need to be, what
is the mechanism you have got for, if you like, discussing this
both with the Treasury and with the DTI in terms of a competitiveness
agenda for UK companies, and in terms of shaping and influencing
a new formula or a step change or an accelerated use of the escalator?
Mr Jones: Every year for the last
five years I have written to the Chancellor and to the incumbent
Permanent Secretary pointing out these facts and, indeed, even
when the tax came in at £7 10 years ago we indicated to the
Government that, although that was arrived at through a process
of cost benefit analysis, it did not in fact fit with the realities
of the economic world. I have continued to do that on a regular
basis. As far as the DTI are concerned, I think it takes us into
the realm of how this debate should really be conducted, which
is that we are effectively tackling the carbon agenda. All we
have to do is to place the waste industry (which is currently
disposing of around 40 million tonnes of carbon material in the
scrap economy each year), in the context of our fight against
global warming and the whole resource efficiency debate; that
impacts on air, ground and water (but waste is primarily involved
with ground issues). Then as a subset of that we ought to establish
what the options in terms of the CO2 impacts might be, of moving
from disposal by burial to disposal through these new technologies.
Once we understand the carbon dioxide release implications of
those new technologies, (in terms of incineration, gasification,
anaerobic digestion, composting and, indeed, recycling and transport
logistics), then we are in a position to see where the pricing
systems are at variance with the true CO2 impact; and then taxes,
subsidies, stimulants like NISP and so on, can interact to move
behaviour towards improved carbon efficiency. We lack that knowledge
at the moment. We do not have a cohesive data capture framework
for the movement of these materials through the economy and, as
a result, we are getting spontaneous, shoot-from-the-hip, reactions
that are in no way coordinated.
Q62 Joan Walley: Would you say that
you have a sponsoring angel or guardian angel, or somebody inside
Government who is actually at the focal point to bring together
all the different bits to put the waste industry into that driving
seat in terms of the climate change agenda?
Mr Jones: Yes, I think all ministers
in Defra have been on board with this message—Elliot Morley,
and Michael Meacher indeed. Elliot Morley and Michael Meacher
when they were ministers were on board with this message.
Q63 Joan Walley: Ian Pearson?
Mr Jones: The current Minister
is indeed onboard with that message, and David Miliband has made
public statements to that effect. I believe progressively as they
warm the seat, so to speak, they realise that their actions are
severely proscribed by the economics of this issue, rather than
the technology or the public acceptance issues. The guts of this
process is the need to stimulate the industrial investment in
carbon and resource efficiency. You can do that by supply side
factors through producer responsibility on the automotive, electronics
and various other industries supply chains in the economy; and
you can do it through demand side or, if you like, the waste side
of the equation through the drivers that influence our thinking
about rates of return on investment.
Q64 Joan Walley: Mr Laybourne, would
you like to comment on that?
Mr Laybourne: I appreciate that
for some technologies there will be a tipping point in the Landfill
Tax that makes them economic, but I think there are encouraging
signs and I would just cite two examples: we did some work with
UK Coal where we managed to divert 10,000 tonnes in landfill;
as a result of the engagement programme they are now doing projects
on their own which are far greater than that. Another example
would be KP Foods who have saved some considerable landfill saving
in costs under the programme; and now United Biscuits are rolling
out that programme across the whole company. We are beginning
to see some evidence of culture change in industry and a strong
signal that Landfill Tax is heading in an upward direction and
will continue to push that programme.
Q65 Joan Walley: You believe that
reinforces the case for an enhanced escalator?
Mr Laybourne: I absolutely do,
and I go back to my previous comment that I think that does open
the door to bring in all the other environmental benefits as well.
Q66 Mr Caton: Carrying on with that
theme, you both argued that the UK would achieve a number of wider
benefits from a substantial increase in the Landfill Tax. Could
you tell us what the benefits are?
Mr Laybourn: We recently undertook
a study of the case studies that we have under the programme,
something like 125. Birmingham University did a study, which is
available, and in something like 70% of those case studies looking
at using best available technology about 20% involved some pure
research or technology update. I actually worked with Peter under
another guise as chairman of the Resource Efficiency Knowledge
Transfer Network and what we begin to get now is a framework whereby
we can get the new technology into the market quicker and more
efficiently by having an organisation on the ground working with
companies. There has always been this disconnect between what
is very good research in its own silo but if you get the practical
application by having people on the ground it is that much more
efficient.
Mr Jones: I would certainly echo
that comment. I was a keen proponent in the lobby for what eventually
became the NISP case for being established and accepting the landfill
taxes when management of those taxes was removed from waste companies,
in our case Biffa, and handled by Defra. I think the major benefit
would be simply through the wallet to impact on industrial and
commercial attitudes to resource efficiency. That is what would
come out of greater landfill taxes. The entire landfill industry,
with a turnover of about £7 billion for industrial, commerce
and domestic waste, is less than ½% of the entire UK economy.
It does not register on the radar for big companies but it is
beginning to register now. We see the need for that transition
because we do not foresee any technological blockages to delivering
improved resource efficiency or carbon efficiency as far as waste
is concerned; we see attitudinal blockages in the boards of major
companies. Clearly what you have seen coming out of America in
the course of the last week, and comments from British major plcs,
suggest that this attitude is changing and that a company stance,
through CSR and through its management of waste and through its
management of carbon, is now being seen as an important element
of industrial competitiveness. Organisations like NISP are going
to be very important to us because they will reinforce the case
that it is of worth to these companies through an independent
route.
Q67 Mr Caton: Mr Jones, you in Biffa
have called on the Government to commit very large sums, between
£80-100 billion by 2020, to create what you call a state-of-the-art
clean economy. How did you come to that figure? What sort of response
have you had from government?
Mr Jones: No formal response although,
in fact, what I was asking, and what I started asking about a
year ago, subsequently came out in the form of the Stern Review.
The basis of that £80 billion is that the turnover of the
waste industry to be transformed from where it is now, (with around
74 million tonnes of material going to landfill), to one where
maybe that figure drops to 10 to 15 million tonnes, will probably
move the turnover of the sector by another £10 billion a
year because these new technologies are more capital intensive
and more labour intensive and they require a lot more maintenance.
The other figures I drew from what was coming out of the water
industry in terms of the Regulatory Reviews and the end game in
terms of the Drinking Water Directive. Also figures that are published
by the electricity industry, to move from a situation where we
have the dirtiest coal-fired power stations in Europe to one where
we have clean coal and CO2 sequestration, where the costs are
generally reckoned to be, (the figure in the FT last week), about
30% to 50% increase in the embedded investment in the new energy
industry. If you look at delivering the full cost of IPPC regulations
for air emissions, in chemicals, cement, and the other big CO2
production industries, then I believe I mooted that figure of
£60-80 billion a year. That would be the annual cost to the
British economy. That is a lot more than the 1% that Stern advocates
but what Stern says is that this is also an economic opportunity.
As an economy we can, by moving down that track, be creating a
basis for the next industrial revolution in the UK whereby we
will have value industries that will be supplying all forms of
services to developing economies in terms of know-how, IT, hardware
and so forth. It is less likely that it is hardware because the
manufacturing is now more appropriately done in cheaper wage cost
economies. Effectively the gross cost of delivering a world that
would meet the requirements of 2050—I will not be around
then—my guess is it will be not unlike £80 billion
investment at today's prices, of the order of 8% impact on our
annual GDP. That is where the debate needs to start with the Treasury.
I am not convinced that the Treasury have started with what the
perfect world will cost and then work back in terms of the economic,
attitudinal and technological implications.
Q68 Mr Caton: That ties in to my
next question. What both of you have been saying seems to resonate
very strongly with one of Stern's main themes, which is that there
are actually substantial economic benefits by taking early action
on the environment. As you indicated, Mr Jones, we have not yet
had any evidence that the Treasury really recognises the need
or the scale of radical action to actually deliver. What do you
think we need to do to get things happening?
Mr Laybourn: One quick answer
to that, I certainly believe the programme at the moment is actually
revenue positive to the Exchequer. These figures have been externally
verified. We calculate that we have saved the industry £145
million so far against a £6 million income. That goes straight
on to the bottom line of companies who will pay the relevant rate
of tax on that, and that is irrespective of the new company start-ups
and the jobs that have been created. We can actually demonstrate
through audited figures that particular programmes are revenue
positive to the Exchequer.
Mr Jones: I suspect they have
thought about it. I trained as an economist and the big issue
around environmental taxes is when they are successful they self-extinguish.
Unlike income tax, VAT, and so on, you have taxes that are predictable.
The big issue, and I think it is borne out by the yield that has
come from the Landfill Tax for the Treasury, is a successful tax
means you end up with no income. This is a major philosophical
challenge for the Treasury: what happens when we move into this
perfect environmental world and we have no income source because
the UK has metaphorically cleaned up. If you make the transfer
from direct and indirect tax structures that we have now, which
operate on consumption, to one that alters consumption in such
a way that it becomes self-extinguishing, that is quite a risky
source of action. We are in the bow wave of that appreciation
in the Western developed economies.
Q69 Dr Turner: Your letter to the
Treasury refers to different technologies. To call them new, I
think in consideration it is not exactly new, is it? It is the
principal technology which you and your competitors are locked
into at the moment, particularly through large municipal waste
incinerator contracts which seem to me to be a product of the
fiscal regulation structure at the moment. The Landfill Tax is
not high enough to make it prohibitively expensive to dispose
of the large volume of fly ash that is still left from incinerators.
Their capital cost is underwritten through the PFI contracts.
That is not the only downside of incinerators: they emit CO2,
they are not very efficient at electrical generation, and very
unpopular with people. What would it take to get you to move over
to newer technologies like plasma technology which leaves very,
very small residues for landfill and is much more efficient at
energy recovery and so on?
Mr Jones: I most certainly rebut
in Biffa's case we are wedded to incineration. We are being asked
to tender contracts that involve incineration but as a company
we set ourselves apart from the rest of our competitors. It would
be invidious to name those competitors and their attitudes. As
far as we are concerned, mass burn incineration is not technologically
or economically sensible on the grounds that it has low efficiency.
As you mentioned, the ash factor is about one third of the residue
that goes through and they generally need to be very large. Our
approach tends to favour the biological gasification and we are
looking at plasma as well. As you go through these other technologies,
with the exception of plasma in terms of operating and capital
costs, they are not seriously different from those for high temperature
incineration. The other weakness of mass burn incineration without
steam recovery, ie non-CHP systems, is that they generate, we
believe, far more CO2 than these alternative enclosed systems.
I need to declare an interest because I am involved with the Defra
New Technologies Working Group and we are involved in looking
at, with a number of Universities, the CO2 footprints of these
different technologies. It is our belief that within the next
10 years, and indeed it is more than probable, the waste industry,
and industry in general, will be taxed on the basis of carbon
emissions as part of the general approach to improved carbon and
resource efficiency. If that is the case, then saddling ourselves
alongside mass burn incineration could expose us to substantial
need to purchase European tradeable permits. I am lobbying Defra
and the Government that the waste industry should be brought into
the European carbon trading framework because carbon emissions
do need to be considered by local authorities and by us when considering
these new technologies. In short, we are strong proponents not
only of these alternative technologies to mass burn incineration
but they need to be installed on a combined heat and power basis
where you capture both the steam and the electricity. They need
to be of a scale that is in keeping with the transport movements
that can be accepted by local people.
Q70 Dr Turner: You clearly agree
that large scale incineration is something of a dinosaur and it
would be desirable to accomplish its extinction as rapidly as
possible. At the moment government policy actually encourages
the continued life of the dinosaur. What would you suggest, in
terms of government policy change, both fiscally or by regulation,
that would encourage infinitely more environmentally friendly
policies?
Mr Jones: The issue around incineration
is about the questions of CO2 emissions. Our challenge on incineration
is nothing to do with emissions or the reasons against it that
have been put forward, by and large, in terms of their toxic impacts.
We are completely satisfied that as a technology it is as good
as the others in terms of dangers to human health and so on. That
debate has been well and truly run. Our concerns are around the
issues of how fiscal instruments might impact on them differently
to the alternative technologies that are well proven in Europe
and that Defra is now considering. It is really about bottom line
exposure to future tax increases. It is highly likely that if
carbon dioxide emerges as a rampant threat (and the next ten years
should show that one way or the other) then it is in our economic
and shareholder interests to make sure that we are associated
with logistics and technological combinations that minimise that
carbon or CO2 footprint.
Q71 Dr Turner: When you describe
CO2 as potentially a rampant threat, you mean a rampant financial
threat?
Mr Jones: No, I mean a rampant
societal threat in terms of global warming, changes in weather
patterns and human migration. We are talking here about a process
that represents a major species threat if all that is suggested
transpires. We are almost in limbo at the moment in the sense
that if we recognise that threat then it is in all our interests,
not just in the waste industry, to get moving with this. Usually
technology is not the problem. The long fuses are around altering
economic frameworks, which you are now considering, and the even
longer fuse is then explaining that to the great British public
as to how they change their attitudes.
Q72 Dr Turner: Most of us on this
side of the table would think that the rampant threat is clearly
established already beyond argument and the question is how do
we get the right fiscal and policy framework to tackle it particularly
as far as your industry is concerned.
Mr Jones: The Government has commented,
in its response to your findings, in terms of a Green Tax Commission.
This is almost like 1940 I guess. We need to be considering air,
ground and water on an integrated basis. Below that I have had
discussions just this week with Sir Ben Gill on the issue of the
need for a combination of a group of experts to be working for
government around the interaction between the energy debate, the
waste debate and the agricultural debate. Waste is linked to energy.
I can let you have other papers I have done suggesting that maximising
the energy retrieval from waste with a low CO2 footprint could
reduce the need for two or three nuclear power plants. That is
a submission to the DTI that went in last year. We do need a consensus
on how the technological, economic and societal frameworks for
air, ground and water issues need to be developed. That then needs
to go back into government to be considered between the principal
departments impacting on it, whether it is DTI, ODPM, Treasury
or Defra, and out of that we then need to achieve some sort of
integrated policy response. What we are doing at the moment is
tackling these things from a bottom up process and we are now
beginning to see the dysfunctionality between Producer Responsibility,
waste definitions and planning policy. We are not going to solve
it—or we will but it will take a lot longer.[2]
We need some form of consensus from within government and within
the Cabinet as to how we are going to drive the ship of State
through these turbulent waters.
Q73 Joan Walley: Could I ask you, in
terms of the discussions you are having, what input the local
authorities are having on that? I can think of many local authorities
with incinerators who, through PFI or through investment, are
already locked into a long-term facility which in itself would
perhaps make them less than enthusiastic for the kind of green
thinking that you are thinking about taking this whole policy
initiative further forward.
Mr Jones: Hampshire is a classic
example of that. They have three medium-sized incinerators and
that is an excellent setup. The Hampshire example is a tremendous
operation but it is not all about incineration but about resource
efficiency as an entity. What we have done is put guillotine dates
down and there are markers in the sand. We have left ourselves
five years where we are dealing retrospectively with that guillotine.
We do not have long to act. Generally I get the impression that
most local authorities are now confused. Their major difficulty
is there are 260-odd active landfills at the moment taking a third
of a million tonnes on average each. That may fall by about 200
to 230 so we will end up in 2012-15 with as few as 50 or 60 landfills.
To replace 200 landfills we are going to need between 800 and
3,000 new places to manage this waste differently. The land take
on that is substantial; for the whole UK it is around about 10%
of the entire land mass of Birmingham. Whether you go down the
incinerator route or composting or whatever. We are having to
do that in five years. London should be consenting to an incinerator
the size of Belvedere at the rate of one a week to meet its obligations
by 2011 but it has taken 12 years to consent to one. It is a joke.
They will be overwhelmed by this process. What NISP is doing on
the industrial and commercial side is a superb job preparing industrial
and commercial users for that process but the local authorities
are probably going to need some life boats.
Q74 Dr Turner: Can I ask you about
the current planning system? There are several dinosaur incinerators
going through the planning process right now. What effect do you
think the Barker Review will have on this? What changes do you
want to see in the planning system to facilitate proper waste
management?
Mr Jones: I am not a planning
expert but I believe the process would be accelerated if there
were a clear understanding from this top down process at the heart
of government as to exactly what it wants. Government has not
really said explicitly that the key driver on management of waste
in ten years time is the lowest carbon footprint as its first
objective. That, for me, should be a very clear message. If we
had that message we could communicate that to the City.
Q75 Dr Turner: You would want to
see that embedded into planning guidance.
Mr Jones: Yes. The same would
apply in terms of transport, in terms of health, in terms of schools.
We are building schools and hospitals and public buildings at
the moment with complete disregard to what another arm of the
Government is talking about in terms of building efficiency and
carbon efficiency. We are seeing from Mr Miliband indications
of that process but I believe it is, at the moment, an aspiration
rather than a mechanism whereby it is absolute. If carbon and
carbon dioxide is the major threat facing humanity, then it suggests
that maybe we ought to readjust our priorities a little.
Q76 Joan Walley: Can I follow that
up finally in terms of planning? Taking it right down to the bottom
level in terms of planning design and building design of new houses,
if we are going to increase recycling and all the other components
there is not much thought given to the layout of new homes and
where you put your waste while it is waiting for its fortnightly
collection. It is not really embedded in building regulations
and planning design, is it?
Mr Jones: No.
Q77 Joan Walley: Could it be?
Mr Jones: It could be but then
if you look at the supermarket debate, the packaging debate, and
the campaign being waged by The Independent at the moment,
there are other mechanisms to produce a responsibility that could
alter the profile and shape of the domestic dustbin. That is why
I use the word limbo. We are having to second guess, on the balance
of probability, how these trends might work through. That really
is a reason for us, in terms of our thinking around technologies,
not to go the Big Bang route with gigantic energy from waste plant
that deals with everything, which is very convenient for a local
authority, but to actually think in terms of flexible systems
because the plastic may not be there in 15 years in a 30 year
contract.
Q78 Joan Walley: Compost would be.
Mr Jones: Food might become a
lot more expensive if we are suddenly shutting great hectarage
in the world on a global sale to produce biofuels. The price of
wheat will rocket because the biomass of the world is largely
exploited at the moment in terms of its growing capacity. We are
switching grain from food to running our cars. These are the sort
of big macro issues that government is not thinking about it seems
to us. This is what this group ought to be considering and then
sending clear messages to the CBI and industry for a consensual
process with local government that (on the balance of probability)
we know where we want to be and we know where we are and how we
are going there rather than the way we are at the moment, [3]which
is think of a number.
Chairman: That takes us out of time.
Thank you very much for coming in. It has been a very useful session
from our point of view and I am sure we will reflect much of that
when we write the report.
2 Clarification inserted by witness 29.01.07: if we
carry on as we have been. Back
3
Clarification inserted by witness 29.01.07: (which is more based
on informed guesswork.) Back
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