Mr Jonathan Davies, Mr Gareth Stace, Mr Merlin Hyman and Professor Mike Gregory

22 JANUARY 2008

  Q220  Chairman: Is that the experience of any of the other bodies?

  Mr Davies: I would certainly echo my colleagues. I am based in Shrewsbury and there are a couple of fairly large manufacturing organisations there, one which makes structural pressings in the motor industry. We went to talk to them and they are well connected through supply chain pressure in the motor industry so although ISO 14001 is very important that is embodied within the motor industry's own requirements. An example which was given to me by the chairman there at the time was that they have three pressing machines, two of which sort automatically the offcuts of the materials, but for the other they have to be collected by hand. Their profitability at that time, a couple of years ago, was dependent on how they managed those waste offcuts. They were well aware partly through the supply chain—they manufacture in aluminium, stainless steel, galvanised and so forth—that if those were jumbled together they had to be disposed of at cost, but if they were recovered they could be sold at a profit. Their awareness seemed to come through the supply chain more than regulation itself.

  Mr Hyman: On your point about sticks and carrots, a key point here is that even where there are clear financial savings to be made businesses will obviously weigh up the opportunity cost. There are other things that they could do with their limited resources. Although this is a valuable and good thing to do, there are other things they could use their resources for more effectively. That comes back to the drivers to make people engage. One fairly blunt driver but an effective one nonetheless is the landfill tax. The increase in the landfill tax has been a very good thing and that has an impact. There is a potential stick for bigger companies. The pollution prevention and control regulations require in theory resource efficiency. That regulation tends to still focus on what comes out at the end of the pipe rather than the process but I know the Environment Agency are heading in that direction. That could happen quicker. Indeed, there is something called the Eco Management and Audit Scheme, EMAS, which Europe promoted which has never really taken off. When that originally came up, it was proposed to be a mandatory scheme so that all big companies would have to do eco management and audit and identify this. That got chucked as too regulatory. There is a number of potential measures that would make companies think about this. We were talking about supply chains. One very important supply chain of course is the public sector. Public sector procurement is a potential major driver in this area and has a pretty patchy record, as a polite way of putting it, as to how it is applied.

  Q221  Lord Lewis of Newnham: There was about ten years ago quite an effort made in waste minimisation programmes. These were the "in" words that were being used within the waste industry. I thought at that particular stage there was quite a degree of success with the SMEs in recognising the sorts of problems. There were breakfast groups, if I remember correctly, that used to meet to discuss this. There seemed to be a degree of success but it seems to have evaporated as a procedure now, or is that still being used?

  Mr Davies: I spoke to one of my colleagues, Keith Webster, in anticipation of such a question because he ran those very programmes. The answer appears to be that if you were able to take assistance to those companies at no charge then they were glad to accept it, but as soon as the support fell away—we tried every different means of recompense, a share of reduced wastage and all of these things—but effectively people were not willing to make those changes for their own sake. The reasons for that are several. Firstly, the difficulty with SMEs is there is a lack of internal resource to drive those changes through. That same lack of internal resource may mean that they cannot manage an external programme either, so if somebody comes in, the SME may say, "That is all very well. You are going to do it for us but I have to find the time to manage it", there is also frequently a belief that "I do not really need you because I can do it all myself." However you cannot do it if you do not have the time so it does not happen. Lastly, to make really significant changes which perhaps need new infrastructure will take longer to get a payback than two years, which is typically the requirement. All of this is a great pity because many of the changes require no significant investment. They just require a different approach. One of the support mechanisms that has been mentioned already is NISP, the National Industrial Symbiosis Programme, working together with Envirowise and WRAP providing information. The key difference perhaps is that NISP goes out to businesses and is required to make those changes happen. It is perhaps early days but I live in hope that that will return us to those days of ten years ago.

  Mr Stace: In terms of the programmes where we are now, we have heard of Envirowise, WRAP and NISP and the others. What we found with our members is that historically a few years ago they used the services offered by these government funded organisations. They have not quite worked. The people who come in to do the audits do not really understand the process and so the report really is the idea that they are telling them the time on their own watch. They know those issues. What has changed with these organisations recently is that they are better understanding those sectors and they are sending in more specialists, helping them achieve what they are setting out to do. We are working very closely with Envirowise, the Carbon Trust and NISP and the Manufacturers' Advisory Service to effect that change.

  Q222  Lord Crickhowell: Can I go back to supply chains? There is a good deal of evidence we are getting about the complexity of supply chains and the EEF and your evidence referred to the international aspect of supply chains, some of them coming from countries where the standards dealing with these matters are perhaps less effective than they are here. What advice would you have about how you affect supply chains? How does an individual company hope to influence a complex and international supply chain?

  Mr Stace: It is a very difficult situation because that supply chain can be very long and you could be a very small part of that. Another barrier to realising resource efficiency within your own process in your part of that supply chain is the customer requirements. Often what we find with our members is their customer is saying, "We want this product and we want it made in this way." You have to follow that criterion. It is very difficult for these companies to change their process because of the customer requirements. The customer requirements are king, so if they can even see resource efficiency opportunities they might not be able to effect that change. That is what we are finding.

  Q223  Lord Howie of Troon: Mr Stace, you hinted rather than stated that sometimes the people operating these programmes come into a firm and they are not really competent to do it. What is the point in the programme if the people operating it are not up to the job?

  Mr Stace: That is what often happened in the past, although not always. I think these organisations are now working with organisations such as ours to understand what our members really need. This has changed from just jumping in as a one day audit, walking round and not really understanding what they are looking at and not tackling the big issues. The lighting and the dripping taps are not the big issues. That is where we are moving with organisations such as Envirowise, looking at resource efficiency within their process and looking at the big wins that might not be easy wins but they are wins that need to be tackled.

  Q224  Lord Howie of Troon: When I used to publish engineering magazines at one time and we were investigated by people who were aiming to improve our efficiency, the chap who came in had a nervous breakdown and left the profession.

  Mr Stace: The wins are often not where you think they are going to be. Can I give you an example? I was at a galvaniser's last Thursday and we went round the site and they were telling me what they were doing. It was only when he was driving me back to the train station that he mentioned that they dip the steel into a hot bath of zinc and get lots of fumes. Under the Environmental Protection Act since 1990, they had to collect those fumes with extractors. Those extractors are very energy intensive and a very significant part of their electricity usage. The fumes come from the flux that they use before they dip the item into the molten zinc bath. They have discovered that they can use low fume flux and they do not need extractors now. There are no fumes that come off so they do not need extractors and their energy usage has gone down significantly, but not in terms of an efficient motor or something. It is something else.

  Professor Gregory: I want to come back briefly on the international supply chain matter because I think that is best seen as a set of opportunities and threats. Perhaps it is a carrot and stick. If you can plug yourself into a supply chain, very few companies can influence but if you understand what its demands and characteristics are you might be able to plug yourself into some serious, international business. That is quite a big incentive and might be rather more fun for a small company than worrying about shaving a penny off its waste, so I think there is a positive incentive there. The downside of course is, if you are not aware of what is happening, you are probably going to lose the business anyway.

  Q225  Baroness Sharp of Guildford: In relation to the public sector, you talked about the public sector as purchasers and the effect that they can have as purchasers but for many SMEs presumably the public sector and in this sense the local authority is the waste disposal authority. Has there been any link-up there, that they have been putting pressure on SMEs to reduce their waste? Do either they or the local RDA help them at all in these processes? Secondly, what if anything differentiates companies that are excellent at reducing waste. Do strategies such as lean manufacturing or the six sigma approach play a very significant part in helping companies reduce waste?

  Mr Davies: In answer to your first question about pressure on SMEs to reduce waste, although the local authority is the waste disposal authority, they may collect commercial waste if they are requested to do so but many companies contract with the private sector to remove their waste independently. I will not name names but the major waste management companies will all run waste reduction programmes, much as the electricity companies do with leaflets. It is not in their immediate interest but apparently they will run programmes to indicate how efficiencies can be obtained. It comes back to the same problem. If you are an SME you are trying to run on 20 different fronts at the same time and this is just one of many where you maybe could make a saving.

  Q226  Baroness Sharp of Guildford: Where I come from, Guildford in Surrey is the main waste disposal authority although they have a long term contract and SITA does it all, but there is a lot of pressure to minimise waste.

  Mr Davies: Yes. The landfill tax itself and the announced increase which will take it to £48 a tonne has been a tremendous success. It is a blunt instrument but it is a really good start. That means that when you add on the cost of landfill as well it will take us to well over £60—probably £70—a tonne. At the moment the problem is we have a considerable increase in construction costs but at least it puts it into the realm of alternative treatment methods. This means that SITA and the other companies are now beginning to look at the prospect of providing merchant waste management facilities which for example use biodegradable waste as a biofuel. That is going further down the pipe than waste reduction. It is producing a resource of a sort. More directly, those extra costs are making people aware of the direct cost of the waste management. What I hope is that, once they start to look at the waste management costs, they will realise then that the real cost is in the materials that they have bought and then thrown away, which is probably ten times the cost of the disposal of it. On the differentiation, it is size really. The large companies may have dedicated staff to examine this. They are probably also registered on a variety of EMAS schemes. They probably have a corporate social responsibility report and so forth. All of these draw attention to what they are doing and are a driver to improve them.

  Q227  Lord Sutherland of Houndwood: As you will be aware from all that we have said and asked about, in addition to waste at the end of the process we are very interested in production processes. I wonder if you have advice to give us on the ways in which production processes might be altered to improve the waste reduction outcome?

  Professor Gregory: The two parts to this are existing and new processes. If you have existing processes, it is much more difficult to mess about with them. The earlier point about lean is very appropriate here. It works well within factories and it comes from the Japanese worrying about waste rather than efficiency. It tends to be operational and those thought processes can perhaps be extended either end up to the design and outside the factory as well. There is a worry that lean approaches are just seen as operational and not changing the rules of the game. The other bit is new processes. That is a whole new world and depends on the individual technologies that people here are better placed to speak about than I.

  Mr Stace: In terms of changing that process, the question is almost what are the regulatory barriers to stopping companies making that change in their process. Fundamentally at European level what we see is the definition of "waste" and the issue of by-products and end of waste criteria. Our members—I am thinking in terms of our steel manufacturing members—produce a lot of steel slags from blast furnaces that, without further processing, can be used as good quality aggregates. Theoretically these could be thought of as waste. What we want to see is better use of by-products within the Waste Framework Directive but also beyond that we also have steel slags which do need further processes in order to become aggregates at the very high specification standards. We have worked with the Environment Agency and WRAP in developing waste protocols for steel slags. These are not considered waste now; they are brought out of waste. They might not have been waste in the first place and they are now a commodity of intrinsic value, both to the person who created those waste materials and the person using them as a resource in their process.

  Q228  Lord Sutherland of Houndwood: This brings us to one of the key points. Who decides what is waste and what is not? Is the legal definition one of those barriers in regulation that you find? If so, are there representations you want to make?

  Mr Hyman: Looking at the environmental industry over many years, probably the single greatest regulatory barrier—most of the environment industry is driven by high environmental standards through regulation, fiscal instruments and the like—has been the definition of waste. Similarly with EEF, we sit on the advisory panel of the Waste Protocol Project. It is amazing how it affects almost every part of the environment industry which is usually about taking something that perhaps there was not a great deal of use for and finding some beneficial use for it. Contaminated land would be a good example which is a huge producer where one can process contaminated soils on the site which can save millions of tonnes of waste. More than half of the hazardous wastes in the country at the last count were contaminated soils. There are technologies to treat those on site and those have been made very difficult by that regulatory regime. There are lots of processes trying to resolve that. The Waste Protocol is an important part of that but certainly any representations urging greater attention and a head of steam towards that would be very valuable.

  Q229  Lord Lewis of Newnham: Who defines what is waste?

  Mr Hyman: The legal definition of waste is in the 1979 EU Waste Framework Directive.

  Q230  Lord Lewis of Newnham: That is ambiguous.

  Mr Hyman: That has never been clarified by case law. The problem about the case law is that it always says that it depends on the specific circumstances, so it never provides enough certainty for anyone to make business plans and that is where the problem has been.

  Q231  Lord Sutherland of Houndwood: On a related point, do any of your organisations or organisations of which you know keep an eye on unintended consequences, because clearly the definitions cause unintended consequences and you suddenly find it worth trucking loads of material across the country at considerable cost to the environment? Do your organisations feel a responsibility?

  Mr Hyman: Where they affect our members, absolutely. The initial Directive was made for sensible reasons about protecting the public. No one thought through the complex consequences that this would have where, for example, if you took it to its logical conclusion, shoe banks collected by Scouts for recycling would be impossible. The recycled paper you use would be waste until you actually started writing on it. You would need a waste transfer permit to buy it from a shop. Those kinds of consequences, as you say, were not thought through. There is a considerable amount of effort going in to trying to produce a more rational regulatory approach to the reuse of by-products or materials or waste.

  Mr Davies: It sounds like a very detailed point that will have major ramifications; the common position which will probably be negotiated away further but that has been agreed so far on the Waste Framework Directive refers to materials being recoverable or recovered if there is a market for them. We are making representations to say that that should read, "If there is a potential market for them" because you can get into a nasty little loop where there is not a market because the material did not previously exist and, because there is not a market, it continues to be waste and therefore there will not be a market. You see the complexity and you think that does seem to be a very nit picking point but it is on those sorts of details that these things turn. As Merlin says, the original definition was based on COPA, a British definition, which was material which has been disposed—this has since been translated into "discarded"—for environmental protection reasons and has since then become separated from environmental contamination with discards. You can discard this bottle and it would not degrade. It would just sit there as a bottle, but it is waste and therefore you cannot use it again unless it has gone through a recovery protocol.

  Q232  Lord Howie of Troon: As a civil engineer, I was surprised at an earlier meeting of the Committee to be told that on construction sites 30 per cent of the material is waste. Is that what seems to be a fairly high figure credible?

  Mr Davies: As the civil engineer here, I will answer that. The work that gave that figure was house building sites. You will be aware that the practice varies very considerably across construction sites. I have been on sites where, looking back, there was probably a considerable amount of waste. Nowadays aggregates tend to come in individual bags, for example, or they are kept in silos and everything is very well controlled but things used to be loose tipped and, at the end of the day, they would be spread out and so forth. That was high quality material just being wasted through lack of care and perhaps lack of space. I am sure the figure was correct for the study that was done.

  Q233  Earl of Selborne: On that subject, perhaps my memory plays tricks on me but I thought our evidence told us it was a higher figure than 30 per cent. I will look it up later. What I wanted to return to was the question of the plethora of organisations which seek to help businesses deliver and improve waste efficiency. We have had evidence from the Waste and Resources Action Programme, WRAP, which was set up after the government White Paper reported in 2000 to implement a number of actions set out in the White Paper. You referred to the National Industrial Symbiosis Programme. We have also heard from NISP. It was Mr Stace I think who said that business did not need advice so much on the leaking taps but on the big wins that need to be identified. What needs to be done to the structure of these different programmes to be able to deliver a more effective service to industry or is it an effective service?

  Mr Stace: There is an overlap. There are potentially too many government funded organisations offering sometimes very similar services. However, we like them. There are certain ones that we think are doing very good work and we continue to work with them. What businesses need is long term certainty. At the moment they are building up relationships with people like Envirowise, NISP, the Carbon Trust and WRAP. With the BREW money coming from the landfill tax, the hypothecation now being used, the landfill tax is being used to fund the BREW family has ended or appears to have ended and we have very little understanding of what is going to happen in the future. There was no talk about it in the pre-Budget statement, in the Comprehensive Spending Review last year and at the moment we understand that BREW funded organisations still do not know if they are going to get funding for next year. Do our members really invest the time and effort into these organisations or do they invest their efforts somewhere else because the organisations they are working for might not carry on? We are very disappointed with the Government's actions and policy here. If the Government wants this to happen, they really need to invest in it.

  Q234  Earl of Selborne: What you are looking for is long term continuity of funding and an assurance that it will be in place in a few years' time?

  Mr Stace: Yes.

  Q235  Earl of Selborne: Which funding stream would you expect to fund it?

  Mr Stace: The landfill tax money is a very good example. We talked about carrots and sticks before. The landfill tax is a stick. It is a blunt instrument and potentially does not really reduce waste going to landfill. It is seen as an added cost that is unavoidable but the monies, if they are recycled directly back to the companies that are paying that tax, can do a lot of good. What we hear at the moment is that the landfill tax monies could go to fund flooding, fly-tipping and blue tongue. They are very good causes but the money is coming from somewhere else and we would like to see direct recycling back to the organisations who are paying the landfill tax into positive measures to help them increase their resource efficiency.

  Q236  Lord Crickhowell: How do you think UK industry compares with industry in other countries? Are there countries which are making a notable success of it which we should look to as an example?

  Mr Stace: We have very limited international data here. Our understanding from our members is that the UK is comparable or slightly better than other European countries, France, Germany or Italy, but they are all showing a downward trend in terms of reducing waste. What helps us along is ISO 14001 and the requirement for continuous improvement but that is not legislation. It is very difficult to find the data from international sources.

  Q237  Lord Crickhowell: We have been told that Japanese businesses decided to invest in sustainable products and processes after the Government had developed recycling laws and reassured businesses that they would continue to implement sustainable procurement strategies. You have already spoken of one aspect of lack of certainty about long term policy. Would it not be worth having a look at some other examples outside Europe like the Japanese experience in this field? I am slightly surprised when you say you do not have more knowledge about what is going on elsewhere. It seems to be only based on Europe. Surely there is a lot of the rest of the world that we might learn from?

  Mr Davies: Yes. I would echo the comment about Japan. I have researched this amongst colleagues. The main point I want to raise is that one of my colleagues was a commissioner on the Commission for Environmental Markets and Economic Performance and one of their recommendations is that we understand better what other countries are doing worldwide in this respect. It would appear that there is not a current understanding of this topic.

  Q238  Lord Crickhowell: I happen to have had quite a lot of experience of dealing with Japanese companies when I was in government and with parties over here and visiting them in Japan. I will not repeat the examples that I referred to in our evidence last week but, quite apart from any long term government measures, they always seem to me to have had a very high emphasis on getting their costs down, using their employees in little circles in the business to come up with suggestions and so on in a way which is rather unusual in British business. It is surprising to me, as there is profitability at the end of all this. One of the big incentives that the Japanese had in eliminating waste was to always have a high priority in increasing their profit margins. I repeat the comment I made to the representative of small businesses last week. It seemed to me rather odd that there was not more recognition that eliminating waste at every stage probably means improving your profit margins.

  Mr Davies: I absolutely agree with you. It is odd.

  Q239  Lord Crickhowell: Why is it not happening more in British industry than it appears to be in places like Japan?

  Mr Stace: In terms of talks with our members, we have not come across those examples but it is certainly something that we will be following up after this meeting.

Chairman: If you follow it up fairly quickly, we would be interested in receiving the reflections of your members on this.