The Waste Levy pros and cons from a business perspective

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The Waste Levy pros and cons from a business
perspective

• John Pask
• Business NZ

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About Business NZ
76,000 MEMBERS
Affiliated Industry Groups (67)
www.businessnz.org.nz
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Proposed waste levy

• Is it necessary?
• Implications for business

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Is waste a problem in NZ?

• NZIER Waste or Rationality? Economic
  perspectives on waste management and policies in
  NZ
• Waste viewed as problem
• Perceived harm to environment, human health
• Perceived scarcity of space for landfills
• Concern over availability and conservation of raw
  materials
• Moral distaste at perceptions of over-consumption

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Main contributors to waste

• Organic wastes, rubble, timber, paper 2/3 of
  volume in landfills
• Some wastes that have recently captured public
  attention make up only a small part of landfill
  volume disposable nappies, glass, plastic

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How big is NZs waste problem?

• NZIER report found
• Comprehensive, up-to-date data for NZ not
  available, international comparisons difficult
  because of differing definitions
• NZs waste disposal per head lower than in
  Australia, but higher than in OECD (mostly EU)
  countries
• EU high population densities and tighter land
  constraints than NZ, so more pressure to divert
  wastes from landfills to recycling or
  incineration with energy recovery

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NZs special challenges

• NZ long, skinny mountainous high transport
  costs
• Low pop. density, wastes generated over large
  areas
• High cost of waste collection, hard to get
  economies of scale, often uneconomic to recycle
• Few plants able to use recovered material, not
  centrally located e.g. Auckland for glass
• Fluctuating commodity prices and exchange rates,
  hard to export recovered material

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Problems in the past

• Old, poorly managed, unregulated landfills, poor
  pricing signals
• Contamination of surface waters and aquifers from
  leachates seeping from unlined landfills
• Fires, explosions, toxic emissions from mixed
  wastes in landfills
• Neighbourhood nuisance - noise, smell, vermin
• Methane emissions - potent greenhouse gas

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However, since RMA 1991

• Higher consent standards, non-compliant landfills
  closed
• Landfills 327 ? 95 during 1995-2005
• Fewer price distortions, fees reflect the
  Landfill Full Costings Guide
• Many councils charge per throw instead of rate-
  funding household collection
• More private waste mgmt firms, commercial
  approach

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Is a waste levy necessary?

• Waste levies proposed to help pay for waste
  minimisation (reclaim, reuse, recycle etc)
• BUT
• Is there sound justification for non-targeted
  waste levies (i.e. levies over and above the cost
  of disposal at landfill)?

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Optimal amount of waste

• It pays to invest in reducing waste up to the
  point where costs benefit of taking action
• This is the same with many other so-called public
  bads e.g. crime
• Waste cannot be completely eliminated without
  great cost
• Zero waste well intentioned but ultimately a
  nonsense

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Aust Productivity Commission Report (Oct 2006)

• ..challenges the notion of waste being
  inherently bad and recycling being inherently
  good. Policies that minimise waste are not
  costless and more recycling is not always a
  better thing.
• Waste management policy should be refocused on
  the environmental and social impacts of waste
  collection and disposal, and supported by more
  rigorous cost-benefit analysis, if it is to best
  serve the community.

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Hidden costs of resource use

• Just as the average Kiwi household would struggle
  to produce no waste - same for business
• Hidden costs of time, energy, money
• In seeking to reduce physical waste we shouldnt
  waste these non-physical resources by diverting
  them from other more valuable uses

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Questions to ask first

• Are there market failures that would justify
  waste levy?
• What are the benefits costs (including
  unintended costs, opportunity costs) of imposing
  waste levies?
• Are there alternatives e.g. better information to
  business and consumers, or ensuring prices
  reflect the real costs of disposal?

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Market failure

• Few market failures relate to waste
• One possibility where externalities (effects)
  are more costly to the community than to the
  company/individual producing or using the product

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Internalising costs important

• Individuals and firms should bear the full cost
  of their behaviour
• But firms shouldnt have to pay more than the
  costs they are responsible for
• NZ international literature landfill
  externalities dont justify levies over and above
  landfill gate costs

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Evidence of significant externalities?

• Martin Ward report for MfE (March 2006)
• Most landfills are charging at or above full cost
  level
• Many privately owned, by definition charge to
  cover costs make profit
• Continuing trend to fewer, newer, larger
  landfills
• Aust. Productivity Commission report (Oct 2006)
• Externalities from modern landfills are minor
• Externalities like greenhouse gases best
  addressed through national initiatives

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Cost of waste levy

• In original form Waste Minimisation (Solids) Bill
  would impose 25 per tonne on waste to landfills
• Different rates for different types of waste
• Cost approx 100m pa across economy
• Might start lower, 10 per tonne, increasing over
  time
• Upfront cost likely to underestimate the total
  costs (compliance, updating weigh stations,
  bureaucracy) apart from levy itself
• Resources diverted from more productive activity

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Will it change behaviour?

• Given size of levy, unlikely to change behaviour
• May add 10-20 pa to av. household rubbish bill
• Impact on business will vary, but likely to be
  marginal

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Concerns

• National levies wont reflect regional
  differences
• Incentive to dump waste illegally
• Local govt could use the funds inappropriately
• Levy could rise as vested interests seek
  subsidies for pet projects
• Revenue likely to be swallowed up in bureaucracy
• Bill allows Minister to increase the levy by at
  least 50 if it doesnt decrease waste received
  at landfills
• Harm to NZs international competitiveness (NZ
  firms higher waste costs than overseas firms)

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Risks

• Policy dominated by those with narrow interest in
  waste reduction
• Diverting business resources from productive
  activities
• Every diverted to waste abatement has
  opportunity cost in alternative uses forgone
  (other environmental remediation, education,
  health, business investment) may be more valuable
  to public than waste reduction
• Uncertainty over future changes disincentive
  for investment

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What can we do to reduce waste?

• Already market-led initiatives to reduce waste
• More could be done to get pricing right so
  individuals and businesses face actual costs of
  disposal rather than flat charging

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Market-driven initiatives

• Fisher Paykel take-back scheme
• Resenes levy on paint to fund their take-back
  schemes for unwanted paint
• Cell phone take-back Vodafone, Telecom
• Dell accepts old computers
• Packaging Accord
• Foodstuffs reducing plastic bags in supermarkets

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Outcomes

• Most of these schemes working satisfactorily
• Economically rational
• Good for the brand ? profits
• Business NZ supportive of voluntary schemes,
  responding to the concerns and wants of their
  client base i.e. market signals

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Aust. Productivity Commission

• Getting prices for waste disposal right will
  help reduce waste generation and achieve an
  appropriate balance between disposal and
  recycling. Basic forms of pay as you throw
  pricing for municipal waste, such as charging for
  larger bins or more frequent services, should be
  more widely adopted.

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Aust. Productivity Commission

• Disposal fees should be based on the full
  social, environmental and financial costs
  involved. For landfills, this will require
• Tightening regulatory compliance so that landfill
  gate fees include the costs of the regulatory
  measures needed to address disposal
  externalities but
• Abolishing landfill levies (taxes) as these are
  not based on legitimate costs.
• Basic forms of pay-as-you-throw pricing for
  kerbside waste and recycling services, should be
  more widely adopted, with information on the
  actual costs for these services better
  communicated to households.

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Better pricing needed

• Some councils charge for waste collection through
  rates, no relation to individual waste generated
  (e.g. Auckland City Council)
• Others charge user-pays, payment per bag (e.g.
  Wellington)
• Private sector operate wheelie bins (generally
  flat charge per month, weekly collection

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Conclusions on the Bill

• If the Bill is to proceed then
• Needs independent cost/benefit analysis like
  Aust. Productivity Commission
• Consider alternatives to regulation e.g.
  education initiatives, web-based advice services
• Encourage market-driven, industry-led solutions
  e.g. voluntary product stewardship schemes with
  monitoring of outcomes.
• Any govt action to reduce waste below normal
  business practice e.g. through waste levies,
  should be funded via tax