Environmental Audit CommitteeWritten evidence submitted by Dr Chris Edwards, External Research Associate at the University of East Anglia, Norwich

Summary

The Government should impose a tax on the incineration of household waste.

This should work alongside the existing landfill tax.

The two taxes could be referred to as waste disposal taxes.

In a written Ministerial statement of July 16 2012, Chloe Smith (Economic Secretary to the Treasury) stated that; “a simple, efficient and cost-effective policy framework will meet environmental objectives while supporting growth and maintaining a sound fiscal position. Market-based solutions to price carbon are at the heart of this approach, achieving objectives at the lowest possible cost” (Written Ministerial Statements, Column 95WS, Monday 16 July 2012). An incinerator tax would meet environmental objectives. The tax could be set to equal the cost of carbon dioxide and other harmful gases estimated to be emitted by incinerators. This would be a simple, efficient and cost-effective solution especially if the landfill tax were also to be set equal to the cost of harmful gases emitted.

An incinerator tax would meet the three objectives set out on July 16, 2012 by the Economic Secretary to the Treasury, namely:

(1)“the tax is explicitly linked to the Government’s environmental objectives”; an incinerator tax meets this objective by cutting greenhouse gas and other harmful emissions such as nitrogen oxides;

(2)“the primary objective of the tax is to encourage environmentally positive behaviour change”; an incinerator tax would deter incineration of household waste and thereby discourage a socially costly form of waste disposal; and

(3) “the tax is structured in relation to environmental objectives—for example the more polluting the behaviour, the greater the tax levied”; at a minimum, an incinerator tax should be levied, as should the landfill tax, to match the cost of carbon dioxide and other harmful gases emitted.

A tax on incineration would clearly meet the government’s environmental objectives. Furthermore if a tax on incinerators is not levied, there is a strong likelihood of Councils reducing their recycling efforts as they struggle to meet the tonnage guaranteed to be supplied by them in the incinerator contracts.

In addition, without a tax on incineration, the social cost of incineration will rise (compared to other disposal methods and over 25 years) by more than £300 million for every 1 million tonnes of additional incinerator capacity.

Finally, the imposition of an incinerator tax would not prevent the UK meeting the 1999 EU Directive on waste.

The Argument in More Detail

1. At present there is no tax in the UK on waste incineration. By contrast, in the current fiscal year (201213) there is a tax of £64 on every tonne of biodegradable waste dumped into landfill. So we have a difference of £64 per tonne in the taxes imposed on incineration as compared to landfill. In addition, the central government has paid PFI grants (in the form of a non-repayable “PFI credit”) for some incinerators. An example of the latter is the PFI grant (“credit”) provided in connection with the incinerator proposed for King’s Lynn in Norfolk. In this case, the PFI grant is equivalent to £40 per tonne of Municipal Solid Waste (MSW) incinerated over the 25 years of the contract.

2. As a result of the tax and PFI credits, the current subsidy for incinerating MSW is running at between £64 and £104 per tonne. This subsidy leads to a huge waste of resources for the national economy because of the higher cost of incineration compared to landfill. The cost is higher in both financial and social terms.

3. In financial terms, according to the latest gate fees report produced by WRAP in 2012, the median gate fee for an incinerator with a capacity of about 250,000 tonnes a year is £76 per tonne. This is more than three times as much as the median gate fee for landfill of £21 per tonne (see WRAP 2012). The excess financial cost is therefore £55 per tonne.

4. It follows that the extra annual financial cost of incineration compared to landfill for an incinerator with a capacity of 250,000 tonnes a year can be calculated as £55 times 250,000—£13.75 million. Over a 25 year life of an incinerator, this amounts to just under £334 million. Therefore, for every million tonnes of new incinerator capacity, the UK economy loses about £1.4 billion over 25 years. The estimates of new incinerator capacity by the year 2020—incinerators with planning consent—cover a wide range but a recent report by Eunomia put the figure at about 7 million tonnes (Eunomia 2012). The excess financial cost of this new capacity will be almost £10 billion over 25 years.

5. The response of those promoting incinerators is likely to be; “but this is not the whole picture”. They might claim that incinerators are cleaner and a better alternative than dumping the waste in landfill. They might further argue that if the environmental costs of landfill can be shown to be very much higher than those of incinerators, the enormous subsidy for incineration of between £64 and £104 per tonne might be justified by these externalities. But this is not the case. Quite the contrary.

6. The DEFRA, June 2011 paper on The Economics of Waste and Waste Policy made this clear when, on page 14, it admitted that; “the performance of some of the technologies is not much better than landfill”. It went on to say; “Moreover, as the assumed biodegradability of wastes falls in the future, landfilling may actually become more GHG-friendly than some other forms of residual waste treatment, according to these figures” (DEFRA, June 2011).

7. In the same paper, DEFRA admitted that incineration is not paying its proper price in emission terms. On page 25, DEFRA said; “The emissions from waste combustion of non-biogenic material (via any technology including mass-burn incineration) are also not comprehensively reflected in the price of disposal”.

8. This is an implicit call for a tax on incineration and it should be noted that DEFRA’s conclusion was reached after looking at GHG emissions only. The DEFRA June 2011 paper did not look in detail at the likely impact on health of emissions (in the form of nitrogen oxides and other pollutants) and of hazardous bottom ash from incinerators (for more on these, see Watson 2009). Therefore once we take account of all the externalities, the difference between the social cost of incineration and that of landfill may well be even greater than the financial excess of £55 per tonne resulting from the difference in the gate fees.

9. Note that a higher social cost of incineration is not unique to the UK. It was also highlighted for the Dutch economy in 2004 in a paper written by Dijkgraaf and Vollebergh. They found that the social cost of landfill was 40% lower than that of incineration and they argued that the strong emphasis on incineration in Dutch waste policy was not supported by the evidence on relative costs.

10. DEFRA’s paper on “The Economics of Waste Policy” states that it is desirable that waste is allocated to the various management options such that the social marginal cost of each option is equalised. It is obvious that this is far from the case at the moment.

11. An objection to a tax on incineration might be that the UK is less likely to meet its landfill targets as required by the EU Directive of 1999. In fact the EU Directive is now much less of a threat than it was ten years ago. In 19992000, the UK recycled only about 10% of its 24.8 million tonnes of household waste. Ten years on, in 200910, it recycled 40% of 23.7 million tonnes (DEFRA, May 2011, 17). How does this latest figure compare with the EU Waste Framework Directive? The answer is; reasonably well. The EU Directive requires the UK to recycle, compost or re-use 40% of waste from households in 2010 and 50% by 2020 (DEFRA, May 2011, 29).

12. In tonnage terms, the landfill target for biodegradable municipal waste (BMW) required by the Directive for 2013 is 14.5 million. This was already being met 200910. The target for 2020 is 10.1 million tonnes. Surely a continued push towards waste reduction combined with much higher recycling as a result of separate food collection from every urban household would enable this target to be met, without more incinerators coming into operation?

13. Finally, incinerators are not only more expensive but are likely to push Councils into reducing their recycling efforts. This is because in their contracts for incinerators, Councils are normally expected to guarantee a certain tonnage of MSW but they will find this difficult because of falling levels of waste and rising recycling ratios. As a result, there are already examples of Councils discouraging recycling as they worry about there being a shortage of MSW to feed the incinerators. This is alleged to have happened in East Sussex and Hampshire.

14. There is a strong likelihood of overcapacity in waste treatment facilities. The Eunomia 2012 report forecasts an excess of treatment capacity in Great Britain of more than 9 million tonnes by 2020. This is almost a third of the current residual waste. Note that, in addition, Eunomia predicts that the total residual waste is itself likely to decline by 5% of the 2009–10 level by 2020.

References

DEFRA, June 2011; The Economics of Waste and Waste Policy

Eunomia May 2012; Residual Waste infrastructure Review; high-level analysis—issue 2

Watson A 2009; Modernisation of Landfill Tax Legislation, a paper submitted to the HMRC, Salford

WRAP 2012; Comparing the Cost of Alternative Waste Treatment Options

Written Ministerial Statements, Column 95WS, Monday 16 July 2012

16 October 2012