HERTFORDSHIRE COUNTY COUNCIL
WASTE MANAGEMENT PANEL
THURSDAY 29 JUNE 2006 AT 2.00 P.M.
LANDFILL ALLOWANCE TRADING SCHEME – TRADING PROTOCOL
Report of the Director of Environment
Author: Ray Greenall, Head of Waste Management Tel: 01992 556160
Executive Member: Derrick Ashley
1. Purpose of report
To seek the Panel’s views on a possible protocol to deal with the management of allowances under the Landfill Allowance and Trading Scheme (LATS).
2. Summary
2.1 The Landfill Allowance and Trading Scheme (England) Regulations 2004 and 2005 (LATS) were introduced by the Government in April 2005, as a means of ensuring England’s compliance with the European Landfill Directive (1999/31/EC), which aims to reduce the quantity of biodegradable municipal waste being disposed of to landfill.
2.2 Under the scheme, each English Waste Disposal Authority is allocated Landfill Allowances for the three target years identified in the Directive, namely the financial years 2009/10, 2012/13 and 2019/20. It also allocates allowances for the all the intervening non-target years.
2.3 The main purpose of LATS is to achieve England’s overall compliance with the Directive, through a system of banking, borrowing and trading, set against a penalty of £150 for each tonne of biodegradable waste landfilled in excess of the levels allocated.
3. Conclusion
3.1 The County Council should agree and adopt a protocol for dealing with the banking, borrowing and trading of landfill allowances. The Panel is asked to advise the Executive Member of its views on the need, or otherwise, of a protocol, as well as any particular aspects of LATS that it feels such a protocol should address.
4. Background
4.1 The Landfill Directive (1999/31/EC) has been transposed into UK legislation through inter alia the Waste and Emissions Trading (WET) Act 2003. The legislation has set the following national landfill diversion targets:
· By 2010 biodegradable municipal waste (BMW) must be reduced to 75% of the total BMW (by weight) landfilled in 1995.
· By 2013 BMW must be reduced to 50% of the total BMW (by weight) landfilled in 1995.
· By 2020 BMW must be reduced to 35% of the total BMW (by weight) landfilled in 1995.
4.2 The WET Act devolved the responsibility for meeting the targets to the Waste Disposal Authorities (WDAs) and conferred powers on the Secretary of State to introduce the Landfill Allowances and Trading Scheme (England) Regulations 2004 and 2005. The scheme identifies the quantity of biodegradable waste that a WDA can dispose to landfill within any given year (from 2005 to 2020) based on the quantity of waste disposed in a base year (financial year 2001/02).
4.3 Allowances, each corresponding to one tonne of biodegradable waste, have been allocated to each of the disposal authorities. The total number of allowances has been calculated so that England as a whole meets the diversion targets required by the Landfill Directive in the each of the targets (financial years 2009/10, 2012/13 and 2019/20). The number of allowances allocated reduces uniformly during the intervening years between the target years.
4.4 Should a disposal authority use less than their full allocation in a year, it can trade or bank surplus allowances. Trading brings an immediate financial benefit, whereas banking mitigates the potential liability in the following year. Should a disposal authority use more than its full allocation in a year, it can borrow from future years or trade for additional allowances at the best price that it can receive. Borrowing is limited to 5% of the following year’s allowance. Banking and borrowing are not allowed during target years.
4.5 There will be financial penalties for non-compliance. The fine has been set at £150 for each tonne of landfilled biodegradable waste by which a WDA exceeds its allocated allowance. In addition, any fines levied on England by the European Union for failing to meet the overall national diversion requirements for the target years will be divided between those WDAs that are subject to fines. Therefore, fines may be substantially higher than the initial figure of £150 a tonne.
4.6 Prior to the commencement of the scheme and for the purposes of trading, each WDA was asked by Defra to nominate a LATS Trading Officer. Ray Greenall was nominated as the Trading Officer for Hertfordshire County Council.
4.7 To assist with the process of trading, Defra have set up a website that includes a LATS Register which consists of, or enables:
· The landfill allowance accounts, transaction logs, and the total price paid for the transfer of landfill allowances under regulation 16 of the Landfill Allowance and Trading Scheme (England) Regulations 2004.
· The penalties register under regulation 17.
· Banking in accordance with regulation 6.
· The submission of web-based borrowing requests to the Environment Agency under regulation 7.
· The submission of web-based borrowing requests to the Environment Agency under regulation 8.
4.8 The website also includes a bulletin board which allows WDAs to inform other WDAs that they wish to trade allowances – either as a buyer or a seller. Bulletin posts can be submitted by a WDA, which will be visible to other once they have been approved by Defra. Users of the website can also view the most recent transactions to gain information about the landfill allowance market.
5. Analysis
5.1 There are clearly a number of substantial risks associated with the banking, borrowing and trading of landfill allowances under the LATS and it is evident that they will need to be managed carefully. Among the priorities would be:
· The development of a ‘LATS trading protocol’ to ensure that the County Council’s officers trade in a manner that is accountable and capable of undergoing rigorous audit.
· Identification of how the LATS Trading Officer would be protected in the event that:
- following a trade at a certain price, the LATS market price reduced substantially below that certain price
- landfill allowances which have been transferred out of HCC, are subsequently found to be not surplus to requirements, with the possibility of penalties being incurred
- landfill allowances which have been transferred in to HCC, are subsequently found to be not required. (This would be a lesser problem as the allowances could be transferred out or carried forward, unless in a target or preceding year.
5.2 Appendix C shows a summary of the LATS allowances that have been allocated to HCC, alongside an actual quantity of biodegradable waste that was landfilled in 2005/06, together with some estimates of what is expected to be landfilled in the years leading up to the first target year of 2009/10.
6. Recommendations
6.1 That a ‘LATS trading protocol’ be drawn up to include the following principles:
· Trading – either buying or selling – should be carried out in accordance with the Environment Department’s Scheme of Delegations to Officers.
· The trade should be based on a LATS Business Case in order that the rationale for the decision to trade is justified and fully documented.
· A standard format LATS Business Case should be developed.
· An audit checklist should be developed to ensure that there is compliance with corporate governance and that controls are properly documented.
· A pro-forma contract for use in LATS trading should be drawn up using the standard contract template that is soon to be published by Defra.
· The Environment Department’s Scheme of Delegations to Officers recognises the Head of Waste Management’s role as the LATS Trading Officer for the County Council.
6.2 The following documents are attached as appendices:
· Draft LATS Protocol (Appendix A)
· Draft LATS Audit Checklist (Appendix B)
7. Financial Implications
7.1 The adoption of a LATS Trading Protocol will not, in itself, have any financial implications. The decisions that are taken as a result will, however, have very significant financial implications. In 2005/06, more than 285,000 allowances were traded nationally at an average value of £20.20. On this basis, the 65,000 or so, allowances that were surplus to HCC’s requirements in that year, have a book value of around £1.3m.
Background Papers
The Landfill Directive (1999/31/EC)
Waste and Emissions Trading (WET) Act 2003
Landfill Allowances and Trading Scheme (England) Regulations 2004 and 2005
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APPENDIX A
HERTFORDSHIRE COUNTY COUNCIL
ENVIRONMENT DEPARTMENT
LATS TRADING PROTOCOL
1. The County Council should ensure that it always has a properly appointed and authorised LATS Trading Officer with the appropriate delegated authority.
2. The Trading Officer should lead on the analysis of the LATS market.
3. Before any transaction (banking, borrowing or trading), the Trading Officer should prepare a Business Case in an approved format to support the chosen course of action.
4. The Trading Officer should then consult the relevant Executive Member(s) on the chosen course of action.
5. The recommended course of action should then be conducted in accordance with the approved audit checklist and properly recorded.
6. If the action is a trade, it should be conducted in accordance with the County Council’s approved pro-forma contract.
7. A LATS Position Statement should be prepared by the Trading Officer at the end of each annual reconciliation period and submitted to Waste Management Panel for information.
8. In the event that penalties have been incurred, the Waste Management Panel should additionally receive a paper identifying the causes and detailing any remedial actions proposed.
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APPENDIX B
LANDFILL ALLOWANCES AND TRADING SCHEME
AUDIT CHECKLIST TO BE COMPLETED BY THE LATS TRADING OFFICER
1. Has the need to bank, borrow or trade been established and written up in the standard format business case?2. Has the optimum solution been identified in the business case?
3. Are the calculations supporting the business case correct?
4. Have the calculations supporting the business case been checked by a second party?
5. Is the proposed transaction allowable under the County Council’s scheme of delegations?
6. Is the proposed transaction affordable?
7. Has the transaction been approved by the Waste Management Unit budget holder?
8. Has the transaction been approved by the Assistant Director – Resources?
9. Has the proposed transaction been approved by the relevant Executive Member(s)?
10. In the case of a trade, has the pro-forma contract been completed been completed properly? / YES/NO
YES/NO
YES/NO
YES/NO
YES/NO
YES/NO
YES/NO
YES/NO
YES/NO
YES/NO
YES/NO
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APPENDIX C
LATS ALLOWANCE SUMMARY
YEAR / LATS ALLOWANCES (tonnes) / BMW LANDFILLED (tonnes) / BALANCE(tonnes)
2005/06 / 290,472 / 225,139 (prov) / + 65,333 (est.)
2006/07 / 278,572 / 231,506 (est.) / + 47,000 (est.)
2007/08 / 262,706 / 237,544 (est.) / + 25,000 (est.)
2008/09 / 242,873 / 242,591 (est.) / 0 (est.)
2009/10 / 219,073 / ? / ?
2010/11 / 194,688 / ? / ?
2011/12 / 170,303 / ?
2012/13 / 145,918 / ? / ?
2013/14 / 139,659 / ? / ?
2014/15 / 133,400 / ? / ?
2015/16 / 127,140 / ? / ?
2016/17 / 120,881 / ? / ?
2017/18 / 114,622 / ? / ?
2018/19 / 108,363 / ? / ?
2019/20 / 102,103 / ? / ?
The estimates shown in the years 2006/07 to 2008/09 are based on annual growth of 1.5% and the current levels of recycling activity.
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