House of Commons - Environment, Transport and Regional Affairs

Select Committee on Environment, Transport and Regional Affairs Fifth Report

DELIVERING SUSTAINABLE WASTE MANAGEMENT

THE CASE FOR AN INCINERATION TAX

123. Indeed, having dealt with the subsidies to incineration, a case can be made that it should be subject to a levy. Firstly, there is considerable evidence that incineration has significant 'external costs' or costs to the environment and community which are not currently being met. Certainly, although different studies have produced different results, the external costs of landfill and incineration can be considered to be of a roughly similar magnitude. In 1998, we concluded that "The Government should consult on the likely effectiveness and impact of an incineration tax with a view to introducing the tax before the end of this Parliament. Consideration should be given to means whereby the tax might encourage the development of small, locally situated Combined Heat and Power plants in preference to large regional plants which do not provide direct community benefits."[206] During this inquiry, the Capel Action Group told us that an incineration tax was "absolutely vital to kick-start the rest of the hierarchy, including minimisation."[207]

124. Beyond the purely technical case, it is important to remember that landfill is now subject to a tax which will rise progressively in the future. As a result it can be argued that, without a tax on incineration, we risk swapping a landfill-based waste management system for an incineration-based one. For hazardous waste, it is of course critical that the choice of technique to treat this waste is a decision which is made on purely technical grounds and is not subject to the influence of fiscal instruments. We recommend that the Government introduce a tax on incineration. This tax would ensure that waste management did not simply shift from being a landfill-dominated system to an incineration-centred one. It would help shift strategic thinking from end-of-pipe solutions to materials recovery. Hazardous waste should be exempt from the tax. In the first instance, the incineration tax should be set at the same level as the landfill tax and the revenues from this tax should be hypothecated along with landfill tax revenues to help transform waste management.

THE ROLE OF INCINERATION

125. What, then, should be the role of incineration in waste management? For those looking in the Waste Strategy 2000 for guidance, it is rather blurred, not least by the "toning down" of the Government's warmth towards incineration between the draft strategy and the final document. Witnesses argued that, even if the Strategy does not explicitly back a large-scale increase in the amount of waste incinerated, it does still leave the way open for such an expansion, particularly by defining such a large gap between the recycling and recovery targets. The Government has dodged difficult questions on incineration and has failed to offer a sufficiently detailed vision of the way in which incineration should play its role. It has changed its tone between draft and final strategy, and seems to be avoiding the issue of how many incinerators will need to be built, what scale they should be or indeed any other characteristic of their use. The Government has also failed to rise to the challenge of analysing and communicating the risks from incinerators.

126. Our preference is not only for smaller scale incinerators, consistent with the proximity principle, but also for incineration on a smaller scale to that implied by Waste Strategy 2000, to protect and promote the opportunities for options higher up the waste hierarchy. Incinerators must not only meet environmental criteria by meeting strict emission standards, but environmental benefits claimed for them should not be entirely cancelled out by their being a blot on the landscape and providing no wider benefit to the local community.

127. The energy case for these plants should be based on generating the maximum energy and gaining the maximum usage of that energy from the waste burnt. The desire for plants both to be energy efficient and good neighbours seems to lead naturally to a conclusion that incineration should be carried out within a system of Combined Heat and Power.

128. Incinerating waste will only ever play a limited role in a system which aims for efficient resource use and sustainable waste management. Nevertheless, we accept that some increase in the amount of waste incinerated is inevitable. We are extremely concerned that the facilities which are being planned are, on the whole, large-scale mass-burn facilities for which it will be very difficult, if not impossible, to gain public acceptance, and which risk undermining efforts to increase reduction, reuse and recycling. Government should make clear that:

smaller incinerators are preferred and that these must be used to provide Combined Heat and Power wherever possible;

incineration is only acceptable where it is used to burn sorted, post-recycled waste, not mixed household waste.

129. A further point can be made in relation to the future role of incineration. Witnesses noted with disappointment the limited development of options other than incineration to recover energy from waste.[208] The development of techniques such as pyrolysis, gasification and anaerobic digestion appear to be very slow. Although pilot schemes are running for these techniques we recommend that the number of pilot schemes for new techniques such as pyrolysis, gasification and anaerobic digestion be expanded. The aim of these schemes should be to assess the environmental credentials of the different techniques against those of incineration.

Landfill

130. Landfill has dominated waste disposal in the UK to date. Although the technique has become more refined in recent times with efforts to recover energy and control leachate, it remains a relatively unsophisticated approach. Depositing our waste in holes in the ground (or spreading it on land to raise the overall profile) means that no additional value can be gained from the waste and, for this reason, landfill is at the bottom of the waste hierarchy.

131. Although efforts are now being made to reduce the amount of landfill, we still put 85% of our waste in landfills each year. This cannot go on, not least because the EU Landfill Directive sets the following targets:

by 2010 to reduce biodegradable municipal waste landfilled to 75% of that produced in 1995;

by 2013 to reduce biodegradable municipal waste landfilled to 50% of that produced in 1995;

by 2020 to reduce biodegradable municipal waste landfilled to 35% of that produced in 1995;

To ensure that these targets are met, the Government has established the following targets:

to recover value from 40% of municipal waste by 2005;

to recover value from 45% of municipal waste by 2010;

to recover value from 67% of municipal waste by 2015;

132. The evidence we took on landfill focussed almost exclusively on the Landfill Tax and the Landfill Tax Credit Scheme and we discuss these below. The Government also plan to introduce a system of tradeable credits to limit the amount of waste which local authorities can send to landfill[209] but the details of this scheme have not yet been made clear and we did not consider it further.

THE LANDFILL TAX

133. The Landfill Tax was introduced in 1996 and lays claim to being the first environmental tax introduced in the UK. The current rate of the tax is £11per tonne for active wastes and £2 per tonne for inactive waste. The Government has announced that the rate will be increased by £1 per tonne per annum with a review in 2004. We conducted an inquiry into the Landfill Tax in 1999 and made many recommendations about the way the tax should be changed.

134. If one accepts that the primary purpose of the landfill tax is to reduce the amount of waste being landfilled, then it is currently failing. Many witnesses argued that, even with the £1 escalator in place, these tax levels were too low to divert waste away from landfill and that the tax would continue to fail until the rate of the tax was increased.[210] Eighty per cent of the waste management industry believe it should be increased [211] and several witnesses suggested that the tax needed to double before it would start to have a meaningful effect.[212] The Government argues that it is too early to tell what effect the tax is having and that the introduction of a much higher rate of tax would be inappropriate until it has established itself.[213] But without a higher rate of tax, landfill remains cheap: the average gate fee for landfill in the UK is markedly lower than is found in many other European countries.[214]

135. There are two very good arguments for the landfill tax not being increased to a much higher level without other changes taking place. Firstly, the impact that the landfill tax has on local authorities, which currently contribute around 60% of the gross tax yield.[215] By the nature of the tax, local authorities end up paying out relatively large sums in landfill tax but are unable to access any of the Landfill Tax Credits to change their waste management systems to avoid paying such high amounts of tax.[216] Further, because there is no direct charging to households for waste, the tax is not faced directly by the public. This is not the way that such a tax should work: those who pay it (and particularly those who pay large amounts) must be able to take action to reduce their liability, at least in the long-term. We deal with this matter in the section on the Landfill Tax Credit Scheme below. The other main argument against a higher tax is that in the current climate it would simply act as an additional incentive for the construction of incinerators.[217] We agree that this is likely to be the case but we have made recommendations above which should ensure that the role which incineration plays is a moderate and appropriate one, even in a system which involves a much higher landfill tax. Neither of these arguments against a higher landfill tax is particularly convincing when used by Government, which has power to change the system to ensure that a higher landfill tax has only positive effects.

136. The landfill tax at its present level is too small an incentive to change established behaviour significantly: it is little more than an irritant to those making provision for waste management. We are disappointed that the Government are using the 'wait and see' argument before acting to raise the landfill tax to an effective level. The Government should have the courage of its convictions and use the landfill tax to provide a strong incentive to move away from a landfill-based system of waste disposal. We recommend that the landfill tax be increased to at least £25 per tonne over the next 5 years with all funds from the increased tax rate going into the Landfill Tax Credit Scheme. This recommendation cannot be seen in isolation and must be implemented together with those we make for the Landfill Tax Credit Scheme and our proposal for an incineration tax.

THE LANDFILL TAX CREDIT SCHEME

137. Under the Landfill Tax Credit Scheme, landfill operators can claim up to 90% tax credit against donations they make to approved environmental bodies. These environmental bodies may carry out various activities of general environmental merit as defined by the regulations. Eligible projects include reclamation of contaminated land (category A), the pursuit of more sustainable waste management activities (category C/CC) and the provision of public amenities (category D).

138. Our Report of 1999 made a number of criticisms of the Credit scheme including that it could not be demonstrated that the maximum possible environmental benefit was being gained. Many of the criticisms we made then were echoed in the evidence we received on this inquiry. In particular, witnesses complained that the scheme fails to divert sufficient funds towards sustainable waste management, and lacks co-ordination to achieve this objective, as funding decisions are entirely controlled by landfill operators. To date, £135 million worth of credits has been distributed but only one-third of this has gone into developing a more sustainable waste management system whilst more than half have been spent on the community-based, category D projects.

139. Indeed, there was a strong and almost unbroken consensus that more of the landfill tax credits should be used to promote truly sustainable waste management and the aims of the Waste Strategy 2000.[218] Waste Watch suggested that the credits should be focused on two areas: market development initiatives and education and communication programmes.[219] WyeCycle suggest that a set, high percentage of the credit funds go into category C/CC projects. The LGA summed the problem up rather well when they wrote that:

220

140. In January 2000, the Government broadened the categories of project eligible for funding to encourage more funds into sustainable waste management. However, Mr Timms, the Minister of Trade and Industry, acknowledged that this had not taken place, indeed that "if anything, the proportion of the funds going on sustainable waste management projects has fallen rather than risen."[221] The South West England Environmental Trust told us:

222

Mr Meacher summed the problem up:

223

In line with our recommendation of last year,[224] the Government has announced that it will produce indicative guidelines for the proportion of funding that they would like to see going into the different categories of project. However, there is no mechanism (other than exhortation) to change the proportion of credits going to the different categories. Although we originally hoped that guidelines would be sufficient in themselves to shift credits towards C/CC projects, we are no longer convinced that this will have a significant effect. It is now difficult to avoid the conclusion that the landfill firms are operating with too great a sense of self-interest in the choice of projects they fund.

141. One of the fundamental problems of the Landfill Tax Credit Scheme is that it was designed such that the funding it releases for environmental projects is classified as private sector expenditure, not public expenditure. It is a direct result of this feature that it is not possible for Government - or even the private sector regulator of the Scheme, Entrust - to control where funds released under the scheme are spent. The Financial Secretary noted that "we will need to consider whether that [keeping it as public spending] remains an objective that we will want to stick with or whether the time has come to make some change on that front."[225] The National Audit Office recently concluded that this feature of the scheme "makes external examination of the value-for-money achieved by the scheme difficult to assess."[226] The Landfill Tax Credit Scheme is hamstrung by the need to be classified as private spending: it is de facto public spending, which is (or should be) aimed at furthering the aims of the Waste Strategy 2000. The Community Recycling Network note their conclusion that "the LTCS should be reformed such that the money is in publicly accountable hands ... Sooner or later, for this or another environmental tax or instrument, the bullet of hypothecation must be properly bitten by the Treasury."[227]

142. The Government announced plans to tinker with the credit scheme in the Waste Strategy 2000 and listed possible options for further changes which include reviewing the types of approved projects to see if they can better reflect the Government's priority to deliver more sustainable waste management, increasing the proportion of contributions going to sustainable waste management activities and using the scheme to help local authorities raise recycling levels.[228] Local authorities are currently debarred from receiving any financial benefit from the credit scheme, chiefly to avoid any conflict of interest that may arise as a result of local authorities receiving money from landfill operators who would be competing for waste management companies from those same local authorities. Many local authorities that submitted evidence to the inquiry suggested that, given that local authorities were often having to divert money away from waste management schemes such as recycling projects in order to pay Landfill Tax, they should be able to bid for funds to offset this extra expenditure.[229] One way round this could be to set aside the credits raised as a result of increases in the tax to provide a parallel, separate fund, for which local authorities could make bids.

143. There are other criticisms of the way the scheme works: one is that there is little or no information published about where the credits are spent or how to obtain them.[230] Another is that there has been no cost-effectiveness checking of the projects funded so far. In our Report on the Landfill Tax, we recommended that:

231

Witnesses to this inquiry echoed our previous conclusion[232] as did Entrust themselves who stated that:

233

It is also clear that the credits are not being distributed equitably across the country: there tends to be a bias towards those areas where the landfill companies operate.[234]

144. Witnesses suggested radical mechanisms to overcome the problems of the Credit Scheme. Amongst the ideas put forward were removing some of the categories of acceptable spending (specifically, category D, the 'community' projects), taking half of the credits at source and distributing them separately from the others, bringing a whole new regulator with powers to channel funding, channelling some (or all) of the credits to local authorities directly.[235] We understand that the Government is going to review the scheme although Mr Timms told us that "I do not think the scheme as it is currently constructed makes it impossible to achieve our aims."[236] This seems to be slightly in conflict with the views of the Environment Minister, Mr Meacher, who was asked whether it was possible to change the Landfill Tax sufficiently with its current structure and replied that he was "doubtful of that."[237]

145. The Landfill Tax Credit Scheme provides a convoluted and, to date, ineffective method of funding sustainable waste management. Rather than attempt reform of the existing system whilst protecting its status as 'private expenditure', we recommend that this charade be abandoned. The new system should consist of a fund which takes a given percentage of the revenues from the Landfill Tax (and the incineration tax which we propose) and is bid for by those wishing to undertake work. The landfill operators would no longer control the destination of any of the funding. Community schemes and general environmental projects (categories D and E) should be restricted to a smaller portion of the credits than they receive at present, and we expect all the additional credits raised by the increased landfill tax and the new incineration tax to be put directly towards minimising, re-using and recycling waste. There would be no bar on those wishing to apply for funding and the eligibility of local authorities should be related to their ambition and performance in meeting targets for improving recycling and composting. The fund should be seen, in particular, as a way of covering the transitional costs, for example, of setting up a kerbside recycling scheme. The revenue should also be the source of funds for WRAP to meet its essential task in establishing markets for recycled products.

206 Sustainable Waste Management, Environment, Transport and Regional Affairs Committee, HC 484-I (1997-98), paragraph 122 Back

207 Q143 Back

208 Ev p128, p141 (HC 903-II) Back

209 Ev p27 (HC 903-II) Back

210 Ev p15, p 21, p42, p56, p61, p131, p187 (HC 903-II) Back

211 Ev p38 (HC 903-II) Back

212 See, for example, Q31 Back

213 Q974 Back

214 Ev p162 (HC 36-II) Back

215 Ev p162 (HC 36-II) Back

216 See, for example, Ev p27, p42, p46, p187 (HC 903-II); Q567 Back

217 Q601 Back