Marsden Jacob Associates
Financial & Economic Consultants
ABN 66 663 324 657
ACN 072 233 204
Internet: http://www.marsdenjacob.com.au
E-mail:
Melbourne office:
Postal address: Level 3, 683 Burke Road, Camberwell
Victoria 3124 AUSTRALIA
Telephone: +61 3 9882 1600
Facsimile: +61 3 9882 1300
Brisbane office:
Level 14, 127 Creek Street, Brisbane
Queensland, 4000 AUSTRALIA
Telephone: +61 7 3229 7701
Facsimile: +61 7 3229 7944
Perth office:
Level 1, 220 St Georges Terrace, Perth
Western Australia, 6000 AUSTRALIA
Telephone: +61 8 9324 1785
Facsimile: +61 8 9322 7936
Sydney office:
119 Willoughby Road Crows Nest Sydney
NSW 2065 AUSTRALIA
Telephone: +61 418 765 393
Copyright © Marsden Jacob Associates Pty Ltd 2013
Table of Contents
Page
1. Introduction and overview 4
1.1 Introduction 4
1.2 Overview of data assumptions review 4
2. Background and general assumptions 9
2.1 Options development and timing 9
2.2 Infrastructure requirements 10
2.3 General assumptions 13
3. Consumption, recycling and litter projections 14
3.1 Packaging consumption 14
3.2 Recycling projections 16
3.3 Litter projections 26
4. Cost assumptions 40
4.1 Scheme design and implementation 40
4.2 Scheme administration, industry PSOs or equivalent 45
4.3 Household participation costs 48
4.4 Business participation costs 54
4.5 Collection and transport costs 57
4.6 Processing costs at MRF facilities 60
4.7 Infrastructure and operating costs 61
4.8 Business compliance costs 75
4.9 Loss of producer surplus 77
5. Benefit assumptions 82
5.1 Value of recovered resources 82
5.2 Avoided landfill costs 86
5.3 Avoided costs of litter 92
6. Distributional analysis assumptions 94
References 95
1. Introduction and overview
1.1 Introduction
Australian environment ministers, through the Standing Council on Environment and Water, have agreed to develop a Decision Regulation Impact Statement (DRIS) in 2013 on a range of national options to increase packaging resource recovery rates and decrease packaging litter. The Packaging Impacts Decision RIS will continue a process progressed through the ‘Packaging Impacts Consultation RIS’. A ‘Distributional and Cost Benefit Analysis’, entailing financial and economic analysis of the options, will provide an important input to development of the Decision RIS. In general terms, the Distributional and Cost Benefit Analysis (CBA) will involve:
§ a comprehensive review of the methods and assumptions employed for the Consultation Regulatory Impact Statement (CRIS) analysis, especially in light of stakeholder feedback received through the consultation process;
§ expanded and more in-depth analysis to meet the requirements for a DRIS, especially of the distributional (financial) impacts; and
§ consideration of an expanded number of options.
The project team has undertaken a review of data assumptions contained in the CRIS. The aim of this review was to identify assumptions that need updating due either to:
§ a greater level of detail being required to facilitate the distributional analysis (detail which was not required in the CRIS) and therefore varying assumptions by state or territory, by metropolitan (metro) or non-metropolitan (non-metro) region and/or by stakeholder; or
§ the project team’s assessment (informed by additional research and consideration of stakeholder input) that an alternative assumption or methodology used to derive that assumption is required.
This document presents outcomes of the review.
1.2 Overview of data assumptions review
The data assumptions review has been structured in line with the classification of assumptions as presented in the cost benefit analysis report for the CRIS (PWC & WCS 2011 at Attachment C in the CRIS). Assumptions in that report are presented in four broad categories:
§ background general assumptions relating to the base year, structure and timing of options and the discount rate applied to future revenues and costs;
§ consumption, recycling, landfill and litter projections for the base case and options;
§ cost assumptions – incremental costs to businesses, households, the packaging industry and governments associated with the options; and
§ benefit assumptions – benefits and avoided costs associated with the options.
Additional data assumptions required for the DRIS but not estimated in the CRIS are also identified and discussed.
There are also assumptions relevant to financial impacts on stakeholder groups examined through the distributional analysis. These are discussed briefly in a separate distributional analysis assumptions section.
In summary, outcomes from the review have been classified as follows:
§ the project team agrees with the CRIS assumption and recommends its use in the DRIS; or
§ the project team recommends revising the assumption as identified, noting that revisions to assumptions could include:
- changes to the totality of the assumption as presented in the CRIS;
- changes to a part but not all of the assumption; and
- changes to how the assumption is applied - over time, with changes to rates of recycling, or between jurisdictions and regions.
Table 1 summarises outcomes of the review of CRIS data assumptions, focussing on key revised assumptions, which can be defined as “assumptions that have the potential to significantly affect outcomes of the analysis”.
Full discussion of these key assumptions and all other assumptions is provided in the main report.
National Environment Protection CouncilDistributional and Cost Benefit Analysis for the Packaging Impacts Decision RIS: Data assumptions / 5.
Table 1: Overview of key assumptions
Data variable / CRIS assumption / Proposed DRIS assumption / Comment /Consumption recycling and litter
Base case consumption projections / Split of packaging consumption by packaging type:
- beverage 25%
- non-beverage 8%
- flexible 67% / Split of packaging consumption by packaging type:
- beverage 30%
- non-beverage 8%
- flexible 62% / Total packaging consumption estimates for base year and subsequent years remain unchanged.
Base case recycling projections / 79% overall recycling rate by 2030
70% beverage recycling rate by 2030 / 73% overall recycling rate by 2030
63% beverage recycling rate by 2030 / DRIS recycling rates are assumed to be significantly lower post 2020 than are assumed in the CRIS. This has implications for recycling rates under the options.
Litter rates / 6% littered as a proportion of total packaging available to be littered / Propensity to litter (base case):
24% littered as a proportion of public place[1] packaging available to be littered, decreasing over time at different rates for different options (see comment)
1.3% littered as a proportion of all other packaging available to be littered, decreasing over time at different rates for different options (see comment) / Option 1: propensity rates decrease by 5% relative to base case reflecting impact of litter programs.
Options 2a-2e, 3: propensity rates decrease by approximately 5-15% over the period 2015-2020, reflecting impact of litter programs.
Options 4a, 4b, 4c: reduction in propensity rates of up to 37% over time reflecting significant impact of container refund on beverage container litter rates.
Costs
Government administration costs / Development costs < $1m for options
Ongoing admin. costs < $0.2m for options / Development costs $1m – 47 m for options
Ongoing admin. costs $1m – 43m for options / DRIS assumes substantially greater administration costs for all options.
Household participation costs / Value of time $13.01/ hour
Significant accumulation costs
4a, 4b, 4c are assumed to involve the same frequency and proportion of new trips / Value of time $7.67/ hour
Accumulation costs assumed to be zero
4a, 4b, 4c are assumed to involve different frequency and proportion of new trips / The value of time is assessed as non-business/ leisure time at 30% of the average Australian wage in 2011.
The number of trips per year and proportion of new trips have been altered to reflect an increased number of trips to RVMs (26/ year) compared to non-RVM infrastructure (3.55/ year), but a lower proportion of new (purpose-specific) trips.
Collection and transport costs / Household kerbside: $187/ tonne
Commercial and industrial: $26/ tonne
Load to MRF: 10 tonnes/ truck / Recyclables: (metro) $ 97/ tonne; (non-metro) $173/ tonne
Garbage: (metro) $132/ tonne; (non-metro)
$177/ tonne
Load to MRF: 5 tonnes/ truck / The key distinction in cost of kerbside waste collection is not between household and commercial but between metro areas and non-metro areas.
Changes to collection and transport tonnages under options are ‘discounted’ by 15% to reflect fixed costs.
Processing costs at MRF facilities / Cost to landfill residual waste: $200/ tonne / Cost to landfill residual waste: variable / Variable between jurisdictions and regions but generally lower than $200/ tonne
Infrastructure and operating costs: Options 2a-2e, 3 / Predetermined costs/ investments, not linked to recycling levels / Costs determined by recycling targets and type of recyclate
‘Premium’ applied to reduce risk of options not meeting beverage container recycling targets / Costs derived through application of ‘Marginal recycling cost curves’.
Premium applied to fund an extensive and ongoing education & information campaign to complement infrastructure & service investments. Applied exponentially in proportion to beverage container recycling targets (i.e. greatest premium applied to Options 2b, 2c/3 and 2d).
Infrastructure and operating costs: Options 4a, 4b, 4c / Infrastructure, coordination and handling costs/ tonne (averaged across all regions):
Option 4a: $689/ tonne
Option 4b: $749/ tonne / Infrastructure and handling (excluding co-ordination costs) costs/ tonne:
Option 4a: $537/ tonne (average all regions)
Option 4b: $557/ tonne (average all regions)
Option 4c: $648/ tonne (average all regions) / Lower costs for Option 4a relative to 4b and 4c reflect assumed lower operating and capital costs for RVMs compared with collection centres. Costs estimated to be approximately 17%, 16% and 14% higher in non-metro regions relative to metro regions for options 4a, 4b and 4c respectively, reflecting higher rental fees (for RVMs) and higher transport and operating costs in non-metro regions.
Business compliance costs / Annual costs < $1m for all options / Upfront costs of $25m Options 4a and 4b and $12.5m for Option 4c.
Annual costs of $2.25m, Options 2a-2c, 2e & 3; $3.0m Options 4a, 4b; $1.5m Option 4c.
Retailer compliance costs of $0.5m assumed for Option 4a / DRIS assumes substantially greater annual compliance costs for most options.
Option 4a retailer compliance costs are associated with a requirement on large retailers to establish convenience points in all stores over a certain size.
Loss of producer surplus / Not assessed / Assessed for beer, bottled water, fruit juice, milk, soft drink, spirit and wine manufacturers for Options 4a, 4b and 4c. Indicative impact - $148 m over the period of study (present value) for Option 4a / Estimates for Options 4b and 4c will be provided with the CBA report.
Estimates for other options will also be provided, but due to lack of data about product categories and industries affected these estimates will be order of magnitude.
Benefits
Value of materials / Glass: $30/ tonne general; $100/ tonne premium
Plastics: $560/ tonne beverage; $560/ tonne non-beverage
LPB: $150/tonne general / Glass: $0/ tonne general; $40/ tonne premium
Plastics: $676/ tonne beverage; $349/ tonne non-beverage
LPB: $150/tonne general; $220/tonne premium / Proposed changes reflect discussions with industry sources
Avoided costs of litter / Reduced litter clean-up costs in proportion with % reduction in packaging litter tonnes relative to base case and packaging litter as a proportion (37%) of all litter / $501/ tonne of all public place packaging litter reduced relative to base case / $501/ tonne represents a shadow price for the economic cost of litter
National Environment Protection Council
Distributional and Cost Benefit Analysis for the Packaging Impacts Decision RIS: Methodology / 8.
2. Background and general assumptions
The CRIS details a number of background and general assumptions relating to:
§ options development and timing;
§ infrastructure requirements for the options; and
§ general assumptions aimed at ensuring consistent assessment of the costs and benefits of options relative to the base case.
Each of these sub-categories is discussed in turn below.
2.1 Options development and timing
2.1.1 CRIS assumptions
The CRIS specifies development periods, a commencement year and indicative years of operation for each of the options in the model. It also specifies initiatives that will be implemented under Options 1, 2a, 2b, 2c and 3, in line with the years of operation.
2.1.2 Discussion
The length of time allowed in the CRIS for developing each of the options appears to be reasonable, as does the indicative years of operation.
The CRIS assumes however, that the DRIS will be completed in 2012, with development of options commencing after 30 June 2012. It is now apparent that development of options is unlikely to commence until after 30 June 2013 at the earliest. To maintain consistency with the CRIS and with description of policy options provided in the options paper, however, the development periods and commencement period have been left unchanged. The fact that an option, if selected, would not actually commence implementation until at least one year after the date indicated should not materially affect the outcomes of the analysis.
2.1.3 DRIS assumptions
Recommended development periods and commencement years are provided in Table 2. Development periods and commencement years are also provided for the new options, 2d, 2e and 4c. Indicative years of operation for each of the options are also in line with those presented in the CRIS.
Initiatives assumed in the CRIS for Option 1 will be maintained in the DRIS. The general nature of initiatives assumed in the CRIS will also be maintained in the DRIS. Specific aspects of these initiatives will be updated however, to reflect analysis of scheme infrastructure and operating costs undertaken for Options 2a, 2b, 2c, 2d, 2e and 3 using ‘Marginal recycling cost curves’. This approach is discussed in Section 4.7.
Table 2: Option development and commencement timing assumptions
Category / Application / CRIS assumption / DRIS assumptionDevelopment period / Commencement year / Development period / Commencement year
Options development and timing / Option 1 / 2012-2013 / 2014 / 2013-2014 / 2015
Option 2a / 2013-2014 / 2015 / 2013-2015 / 2016
Option 2b
Option 2c
Option 2d
Option 2e
Option 3
Option 4a / 2012-2015 / 2016 / 2013-2015 / 2016
Option 4b
Option 4c
2.2 Infrastructure requirements