Landfill Levies and Other

LANDFILL LEVIES AND OTHER

ECOLOGICAL TRUTHS

WARWICK GIBLIN

WASTE MANAGEMENT NZ LTD

FOURTH GLOBAL CONFERENCE ON ENVIRONMENTAL TAXATION SYDNEY

5 – 7 JUNE 2003

1.INTRODUCTION

Daily human activity involves the direct and indirect consumption of natural resources, for example fresh food, water, fuels for transport and heating, packaging, plastics, metals and fibres. With this consumption comes ‘waste’ – used materials that are unwanted, deemed to be of no value and simply thrown away.

Generally, the signals sent by the economic system tell us that waste is cheap and inexpensive to deal with – we can simply bury it or tip it down the drain. Besides, we’ve been educated by the longstanding economic messages that its cheaper and more economically efficient to go and harvest more virgin natural resources.

Tragically however, whilst global Gross Domestic Product (GDP) doubled in the twenty five years to 1995, the Earth lost one third of its natural capital as measured by the health of its forests, freshwater and marine eco-systems over the same period. In the OECD, a 40% increase in GDP since 1980 has been matched by an identical increase in municipal solid waste (MSW).

This paper asserts that the traditional ‘economic wealth’ measures are no longer appropriate because they encourage unsustainable human behaviour and that the time has come to redesign our economic system. The redesign needs to focus on the Earth’s ‘natural capital’ and human impact on it. Clearly this will have implications for how society perceives and manages waste.

This paper canvasses the following matters:

1. Some ways and means to redesign our economic system to refocus on the Earth’s natural capital;

1. The merits of introducing a landfill tax or levy;

1. Experiences elsewhere in the world regarding the use of landfill and waste-related taxes;
2. A recommended landfill levy for New Zealand; and

1. Additional non-economic elements required in the overall strategy to minimise waste and resource use.

2.HUMAN ACTIVITY

The wealth of a country is measured by the traditional economic indicator called GDP. This is a measure of the economic value of the volume of goods and services produced. All countries aspire to increase their GDP as this indicates that economic wealth is growing and this is equated, rightly or wrongly, with increased quality of life.

New Zealand (NZ) has a current population of 3.994 million people. Its GDP per capita grew from $23,600 in 2000 to $27,400 in 2001. Meanwhile New Zealanders disposed of approximately 3.5 million tonnes of waste to landfill in each of those years. In Auckland alone, the quantity of waste landfilled for every person has increased by 75% in the last 20 years.

The reality is that society is caught up in an economic myth seemingly based on the belief that human welfare can be equated with ever increasing material consumption, that everyone on Earth can enjoy the consumer lifestyles of the already wealthy, and that there are no ecological constraints on economic production/consumption.

Somehow we must find ways to decouple economic activity and wealth generation from the ever increasing consumption of natural resources. At current average levels of consumption, humanity can no longer survive on the sustainable ‘interest’ generated by the Earth’s ‘natural capital’. We are eroding this capital base on which we depend.

3. THE ECONOMY

3.1Traditional Approach

Traditional economic theory says that ‘the economy’ is the total system and Nature, to the extent that it is considered at all, is a sector of the economy (eg extractive industries – mining, forestry, fisheries, agriculture). Further, if the product or resource becomes scarce then the economy will overcome the scarcity by substituting the products or inventing technologies.

The typical economic measures used do not value and price ‘ecosystem services’. We buy and pay taxes on land but not on air or the assimilative capacity of the environment [NZ Parliamentary Commissioner for the Environment (PCE), 2002].

For example, the market price for a litre of diesel reflects the cost of exploration, drilling, extracting, refining, transporting and marketing the oil. It also includes government revenue – raising charges and taxes. However, the market price does not account for the air pollution produced by burning fuel, nor its contribution to climate change. The environment carries that cost.

Raising taxes on environmentally harmful products and activities would help to more closely align the market prices with their actual long term costs. By shifting the tax regime onto polluting and environmental unsustainable activities, taxes on productive human endeavour, for instance labour and employment, could be reduced.

In reality, the economy is a subset of society (that is, it only exists in the context of society) and that many important aspects of society do not involve economic activity. Similarly, human society and the economic activity within it are totally constrained by the natural systems of planet Earth. The economy may expand or contract, and society’s expectations and values may change over time, but to function in a sustainable way we must not exceed the capacity of the biosphere to absorb the effects of human activities (NZ PCE, 2002).

Growth becomes uneconomic when, at the margin, it increases environmental and social costs more than it increases production benefits. These include:

• the costs of depletion;

• pollution;

• disruption and degradation of ecological life-support services;

• sacrifice of leisure and family time; and

• social dislocation (NZ PCE, 2002).

3.2Eco - design

The time has come to redesign the measures used to assess the state of our economy. It’s time to see the marketplace as an important ally, a key component of the strategy to adopt sustainable development. In essence, it is time for the market to tell the ecological truth.

To date policy makers have relied mainly on non-economic instruments to achieve environmental goals. These have included the following:

• direct provision of environmental benefits (eg national parks);

• direct ‘command and control’ regulation of technology (eg licences to allow point source pollution);

• product/emissions standards; and

• education and suasion.

More and more countries, particularly the European Union (eg Sweden, Denmark, Netherlands, UK, Italy, Germany, Norway and Finland), have implemented environmental tax shifts in recent years, and most are now utilising Market Based Instruments (MBI’s) as a key strategy to achieving environmental goals. MBI’s attempt to ‘internalise’ non-market environmental values in private economic decision-making. Put another way, they harness market incentives in support of environmental objectives, by making environmental protection a more profitable or lower cost option for producers and/or consumers. They can have a dramatic effect on commercial activities, investment flows, and patterns of production and consumption. As a result they can also have major impact - for good or ill - on people’s livelihoods, as well as the state of the environment.

The benefits of MBI’s are that they:

• provide incentives to encourage reduced consumption and greater recovery of resources;
• provide disincentives which discourage behaviour that has adverse effects on the environment;
• recover the costs of environmental management;
• are more cost effective than conventional policies;
• stimulate innovation and adoption of environmentally preferred technologies; and
• allow more flexibility in how an environmental goal is reached.

MBI’s work by changing the incentives faced by market participants so that the best private choice is also the best public choice. However, they are not a quick fix and are not a solution in themselves. MBI’s need to be seen as part of the suite of strategies adopted.

Social equity issues also need to be addressed so that fiscal instruments do not unfairly penalise the poorer households.

There are four main types of MBI’s, as summarised below (Stavins, 1998):

A.Pollution charges/environmental taxes

These include a range of taxes and user fees designed to influence the behaviour of producers or consumers, such as taxes on industrial emissions, differential taxation of lead-free or diesel fuel, user pays charges for domestic or commercial waste, etc. The aim of such charges is to discourage environmentally damaging activities and/or strengthen incentives to reduce waste and pollution, while at the same time generating revenue which may be earmarked in certain instances for public environmental protection.

B.Tradeable permits

Rather than setting the ‘price’ of pollution through charges, this option fixes the total level of pollution considered acceptable and then allocates limited ‘rights to pollute’ among polluting firms, along with the right to trade pollution quotas. This approach can lead to very cost effective pollution control, as firms which can reduce pollution at relatively low cost have an incentive to reduce their emissions and sell surplus permits to other firms, with relatively high-cost pollution control, which in turn find it cheaper to buy permits than to reduce pollution. (eg salty water from coal mines discharged into the Hunter River, NSW).

C.Market barrier reductions

This involves the removal of legal, regulatory or other barriers to trade in natural resources and the internalisation of environmental costs. This may include, for instance, better labelling and reporting schemes which provide consumers with information on the environmental performance of the products they buy or of the companies that make them.

D.Government subsidy reform

Finally, significant environmental improvement can often be obtained simply by removing or reforming existing government subsidies on environmentally damaging activities. Reduction of energy, water or fertiliser subsidies, for example, can lead to more efficient use of resource inputs and reduced pollution (although at some cost to resource users).

Subsidy reform can also be a means of encouraging producers to adopt environmentally desirable practices, e.g. incentives for organic farming, on-farm conservation of wildlife habitat, or soil and water conservation on farms. In some cases, subsidies may be justified to encourage activities characterised by significant non-market environmental benefits, e.g. recycling of waste or sustainable forestry.

4. WASTE MANAGEMENT AND ENVIRONMENTAL LEVIES/TAXES

Waste is only a waste and not a resource because we deem it more profitable to throw away than to recover. Because waste is seen as a low price item, excessive quantities are generated via inefficient production processes, low durability of goods, and wasteful consumption patterns.

For example in 1998 in the UK, for every tonne of useful products made, about 10 tonnes of other resources were consumed or wasted. Waste therefore represents an enormous loss of resources, both in the form of materials and energy. A study by Yale University in 1992 found a US$170 (NZ$359) environmental benefit for each tonne of waste eliminated from the production system, and avoided disposal costs of US$100 (NZ$211)/tonne.

Outlined below are a number of case studies where MBI’s have been applied to the management of waste.

4.1UK Landfill Tax

As part of the move towards environmentally focused taxation in the UK, a landfill tax of £7 (NZ$23)/tonne for active waste and £2 (NZ$6.50)/tonne for inactive waste was introduced in 1996. The tax rate was set to capture or internalise the estimated external environmental impacts associated with landfilling waste. These costs were considered to be £3-4 (NZ$10-13)/tonne landfilled.

In 1999 the standard rate was raised to £10 (NZ$32.75)/tonne, whilst the lower rate for inactive waste was frozen at £2 (NZ$6.50)/tonne. The standard rate was then also given a yearly increase of £1 (NZ$3.30)/tonne for a period of 5 years [culminating in a rate of £15 (NZ$49)/tonne in 2004/5]. The rate currently stands at £12 (NZ$39)/tonne. Inert wastes used in the restoration of landfill sites and quarries are to be exempt.

When added to the average gate rate of say £15 (NZ$49)/tonne for MSW, the total cost at the weighbridge is £27 (NZ$88.40)/tonne. The average landfill price for hazardous industrial waste is £20 (NZ$65.50)/tonne. It is worth noting that landfill rates in the UK remain amongst the lowest in Europe.

Much of the income from the tax helps to pay for reductions in employers’ labour costs, by funding a reduction in the main rate of employers’ national insurance contributions. As such, the landfill tax is a good example of ‘green’ taxation, in that it shifts the burden of tax from labour onto the consumption of resources.

For environmental organisations, a potential bonus is provided by the landfill tax. Landfill operators are able to claim a credit for up to 20% of their tax liability, if it is voluntarily donated to approved environmental bodies through the Landfill Tax Credit Scheme.

In the first four years of the Scheme, £224 (NZ$733) million [representing 73% of the maximum potential credits of £305 (NZ$999) million] was claimed for investment in community environment activities.

A recent review of the tax has concluded that the tax rate is too low to stimulate the behavioural change required to reduce the amount of waste going to landfill. Landfilling still remains low-priced relative to reuse/recycling/recovery alternatives. The UK recycles just 11% of household waste, well below the 50% achieved in Switzerland and Austria and the 43% recorded in Germany. The review recommends:

a)the tax rate be increased by £15 (NZ$49) to £20 (NZ$65.50) over and above the current level. If implemented today, this would mean that a tonne of MSW would cost £42-47 (NZ$137.50-154) to dispose at a landfill. (That is £15/tonne landfill gate rate plus a tax of £27-32).

It foreshadows that such an increase will significantly increase the amount of recycling that is occurring;

b)the increased tax burden should be revenue neutral through increased funds which will compensate for the increased cost of recycling and the managed cost of residual waste disposal to landfill; and

c)differentiation between the tax rates for MSW and other waste types.

4.2New South Wales Landfill Levy

Currently, for municipal solid waste (ie household waste) disposed to landfill within the Sydney region, there is a levy of A$18.20/tonne[1]. Outside the Sydney region the levy is A$9.60/tonne. The levy increases by A$1 plus CPI/tonne/year in Sydney and plans to be A$25 plus annual CPI/tonne in 2009. In country regions this peak will be reached in 2012. The typical gate rate for MSW is Sydney is approximately A$75/tonne (including levy). Approximately half the estimated A$86 mil raised each year by the levy goes into consolidated revenue and the balance is used to fund Resource NSW, the government body established to design and implement the State’s waste minimisation and management strategy.

4.3Victorian Landfill Levy

Victoria has a number of levies depending on the waste type. In metropolitan Melbourne the levies are:

-A$4/tonne for MSW;

-A$10/tonne for prescribed industrial waste; and

-A$5/tonne for construction and demolition waste

The levy for MSW in Melbourne is to increase to A$9 by 2007 and to A$30 for prescribed industrial waste. In country Victoria the levies are currently A$2.00 for MSW and $3.00 for C & D waste.

The levy raised A$12 mil in 1999/2000, of which A$9.6 mil was paid to Eco-Recycle Victoria (a government agency that actively promotes and supports resource recovery and waste minimisation initiatives) and regional waste management groups to implement waste management programmes within an agreed policy framework.

4.4South Australian Landfill Levy

In South Australia the levy is currently set at A$5.09/tonne in metropolitan areas and half that in non-metropolitan areas. Approximately 70% of the levy funds are allocated to the EPA.

From 1 July 2003 the levy will increase to A$10/tonne in Adelaide and A$5.00/tonne in country areas. Zero Waste SA will allocate most of the funds in a manner similar to Victoria’s Eco – Recycle.

4.5Other Waste Taxes

a)Another example of using a MBI to achieve environmental goals is in the Republic of Ireland where shoppers are charged a UK15c (NZ30c) levy on each plastic bag used.

The use of plastic bags has fallen dramatically by more than 90% since the levy was introduced in March 2002. By September 2002 the levy had raised 3.5M euros (NZ$7mil) which had been assigned to an Environment Fund for waste management and litter prevention projects.

b)The UK is also considering a plan to bill each household for the amount of MSW collected. The details of the plan are:

(i)one or two free sacks a week per household then £1 (NZ$3.30) levy on each extra sack; or

(ii)a flat charge of £5 (NZ$16.40)/month if a household fills more than two sacks a week; or

(iii)weighing wheelie bins with charges for excess weight.

Concurrently, a free kerbside recycling service would be provided (paper, metal, glass, plastics).

c)In Wales every tonne of primary (virgin) aggregate sold is subject to a £1.60 (NZ$5.24) tax. The monies go into a sustainable fund to stimulate and develop resource recovery markets. This economic measure is increasing demand for construction and demolition waste and slags.

4.6A Recommended Landfill Levy for New Zealand

Typically, the gate rate to dispose of MSW to landfill in NZ ranges from approx NZ$30 – 50/tonne plus GST in the South Island to approx NZ$45 – 65/tonne plus GST in the North Island. At Christchurch the council also applies a levy of approx $23/tonne. Rates for prescribed industrial wastes, for example asbestos, are typically double to three times the MSW rates throughout the country.

These charge rates are usually based on known operating and overhead costs. It is very rare indeed that the rates truly reflect true, full costings that take account of ongoing environmental management and post closure costs, facility replacement costs or local amenity costs. Often where local councils are involved the gate rates can be quite artificial, using either cross subsidy or transfer pricing methods. Many facilities practice poor environmental standards, hence there is no cost to the provider – but to the environment instead.

At the average level of landfill prices in NZ, disposal is usually ‘cheaper’ than using alternative waste technologies to recover and recycle. Waste Management NZ Ltd considers it is time to introduce a landfill levy designed to stimulate behavioural change towards waste minimisation and resource recovery. A levy of $20/tonne would be a good starting point, increasing by $1/tonne per annum for the foreseeable future. It recommends that the levy be applied to each tonne received over the landfill weighbridge and is administered by central government and applied uniformly throughout the country. The funds raised ought be allocated in a transparent, co-ordinated way to waste minimisation/resource recovery projects as determined by a panel representing government, community, industry and commerce.