Select Committee on Environmental Audit Second Report


APPENDIX 9

Memorandum from Biffa Waste Services Ltd

  As the UK's largest end life resource/waste management company we are actively involved in identifying a range of blockages and opportunities with regard to improving resource efficiency, delivering the waste strategy and communicating best practicable environmental and sustainable practice to UK Plc. We would like to offer to the Committee the following observations relating to budgetary and fiscal aspects of the current Treasury initiatives in the context of this year's Pre-Budget Statement. With a turnover of £550m per annum we handle around 12 million tonnes of material—approximately 12 per cent of the UK's controlled waste throughput.

  In our submission we wish to draw a distinction between the macro and micro aspects of questions which we have raised from time to time with the Government in general and the Treasury in particular. We believe that some of these ideas may be of interest to your members in the course of their current enquiries.

1.  INTEGRATING THE MONETARY AND RESOURCE ECONOMIES

  The last 30 years have seen substantive improvements in the numeric understanding of the financial flows in the economy and the breakdown of those financial flows into dozens of subcategories which are indicators of varying liquidity and debt levels. As a consequence Government has been able to achieve far greater finesse in terms of controlling the twin spectres of unemployment and inflation associated with the financial economy. In the resource economy, however, those two spectres exist in the form of pollution (inflation) and unemployment (resource inefficiency). The challenge in coming decades is to achieve as much control of these latter spectres via the financial economy in the context of free market mechanisms as much as is feasible or possible.

  If this process is to be developed with minimum disruption it is essential to establish the necessary mix of fiscal, budgetary and regulatory instruments appropriate to specific materials handled by specific sectors in the economy. As a prelude to that process we are not aware of any Government initiative which has sought to "price" the cost of delivering reduced resource unemployment and inflation (pollution/resource efficiency) in—say—2020 against existing benchmarks defined in existing or planned waste strategies, EC Directives and other environmental targets. Has the Treasury developed any such blue sky estimates for delivering extant and proposed targets by 2020 for UK Plc? We and our trade association are on record in suggesting that the incremental cost of delivering substantive improvements in the end life management of domestic, industrial and commercial waste streams in the context of the Government waste strategy is likely to be between £4bn and £8bn per annum in addition to the existing £4bn-£5bn turnover for the waste sector in the UK today. Has the Treasury undertaken other costings to assess the supply chain impacts of delivering improved emissions from processes under IPPC, product redesign and capital write-offs for process equipment not compliant with extant or planned European pollution/Producer Responsibility directives? We would suggest that such costs are unlikely to exceed £50bn per annum, will probably be in the region of £20bn-£30bn per annum and are unlikely to be less than £10bn per annum to UK Plc as a whole suggesting that a transformed environmental economy operating with far higher levels of resource efficiency and lower pollution could be achieved for around 2 to 3 per cent of GDP. Is work underway or planned in this area?

II

  We suggest that if it isn't, such work should be undertaken in the context of a round-tabling process and developed on a sector by sector for industry sectors contributing say £3bn or more to annual GDP. The importance of undertaking such work on a sectional basis (including the public sector areas such as education, health as well as more conventional industrial sectors such as construction, food retailing, etc) will be to introduce higher levels of finesse into understanding the relationship between environmental externality costs (which can be expected in the coming two decades) and existing internality sales values in the context of the financial GDP. Such work can then form the prelude to developing a proactive agenda across all aspects of society and identify relative priorities in terms of resource efficiency, pollution or wider issues of sustainability in a better macro-economic policy framework.

III

  Such work would form a longer term strategic route map which could form the basis of a partnership between Government and business to translate the implications of those priorities in terms of the following key areas:

    —  The likely pattern of future technology/research and development solutions required (in the context of Foresight, etc).

    —  The necessary industrial process investment implications (for instance in terms of using higher levels of recovered rather than non renewable material).

    —  Implications for product specifications and redesign via Producer Responsibility and Integrated Product Policy.

    —  Agreed messages which can be transmitted to the general public in terms of the timing and extent of price implications for certain types of product.

    —  The implications for the City in evaluating pension fund investment strategies in businesses or sectors which can demonstrate a cohesive long term strategy to achieve environmental transformation.

    —  Last, but by no means least (and of key significant to your enquiry), the most likely mix of regulatory, budgetary and fiscal instruments needed to trigger change without threats in terms of short term inflationary shocks (as prices are raised to offset environmental costs and taxes) or unemployment (as industrial production has to shut down in the UK and move overseas or cease production entirely if it cannot comply with rising environmental standards). Such an approach would also provide a more transparent framework in which to develop the concept of the "double dividend" whereby genuine environmental taxation is used to kick-start initiatives for change, rather than (largely as now) as a transfer tax from industrial to the public sector, transfers from resource intensive to labour extensive sectors or transfers from one industry sector to another.

IV

  Turning to micro economic issues there appear to be a variety of examples of binocular vision which the Treasury could do much to broaden given its key role across the heart of funding for Government as a whole. Particular examples we have in mind of this are:

(a)   Binocular vision of departmental policy boundaries

  The old MAFF was a good example of a department which focused entirely on a particular segment of the population with little liaison with local authorities, the food supply chain or the food standards bodies with the result that there was significant carbon defoliation of UK soils and the end product was suspect in terms of nutritional or biological integrity. Does the Treasury have a view as to how the £15bn-£20bn of subsidy inputs to the farming sector might more creatively be adapted to fund carbon sequestration initiatives, particularly in relation to composting surplus bio-organic sourced carbon in the waste stream as well as avoided carbon sequestration by replacing non renewable fuel with energy crop bio diesel? Clearly it has commenced this debate but our impression is that it sees it purely in the context of agriculture—without evaluating the potential for agriculture to operate as a receptor of composted bio-organic material from the waste stream or as a producer of fuel feedstock in the form of renewable rape and linseed straw (which might be burnt in conjunction with materials in the waste stream—either as a supplement or calorific value dilutant).

(b)   Binocular vision on using wholly market based solutions

  The recent/looming fiasco on fridges arising as a result of the implementation of the Ozone Depletion Substances Regulations will result in incremental costs to the economy of between £50m and £70m to neutralise the current annual waste stream of fridges. The route the Treasury appears to have adopted implies that it will provide subsidy based funding from central taxation in the form of support grants to the 500 odd Waste Collection and Waste Disposal Authorities.

  In submissions over the years we have suggested that the overall cost of such initiatives might be better addressed by opening dialogue with the manufacturers in a Producer Responsibility framework which is underpinned in the early stages from central Treasury resources but progressively reduced by pre-agreed steps so that producer costs are transferred into the market based mechanism in a gradual way (until externality costs of end life management are fully incorporated in the purchasing price of the new product). This also avoids a transfer tax from those who don't dispose of fridges to those who do.

(c)   Binocular vision on developing internality/externality cost comparisons on a sectoral basis

  We have already referred above to the concept of a blue sky fully costed up approach to defining capital and operating cost externalities for the food/chemicals/minerals, etc sectors in a 2020 framework and comparing this with current retail sales values/GDP outputs for the relevant sectors. Such analysis provides startling variations—end life management for fridges is in the region of ten per cent of their current £700m retails sales value. Tyres would probably cost £70m on the £1bn market retail sales value. End life vehicles could be managed in a zero emissions end life framework for around £140m per annum (£70 per car) in a sector with a retail sales value of £23bn. End life management of fluorescent lamps at £40m per annum is 50 per cent of their retail sales value of £80m-£90m. If the Treasury is committed to developing a genuine transition economy with minimum disruption to the business environment, is it involving itself in forward dialogue to evaluate how these costs could be absorbed and over what sorts of period? Is it developing a view between outright bans via the regulatory agencies compared to virgin input taxes, Traded Pollution Permits, disposal taxes, climate change levies, aggregates taxation, pesticides taxes, etc? In short—is there a cohesive strategy on a sectoral basis which seeks to identify the current combined environmental taxation burden on an industry with a view to establishing the pace at which improved sustainability is driven through that sector? Is there a view as to whether offset mechanisms, whereby the so called double dividend could be achieved through the targeted refund of those taxation burdens back into the appropriate sectors from which they originated in the form of investment grants, R&D support, profits tax relief or other similar mechanisms?

(d)   Binocular vision on the implementation of market instruments

  It would be interesting to know to what extent the Treasury involves itself in market based instruments which emerge from other departments. Of particular note here is the emergence of Tradeable Permit regimes such as those applied in packaging. It is well known that the emergence of positive values to packaging Tradeable Permits came as something of a surprise to the non economists in DETR as was. One presumes that advisers in the Treasury would have mapped things out differently. As a result we now have DEFRA and the Environment Agency seeking to police a system where Tradeable Permits on glass seek to identify whether the glass came from bottles or television screens or timber came from timber boxes or pallets. This clearly creates something of a bureaucratic nightmare and is a difficult system to police. There is also the question of how Government sponsors Tradeable Permit regimes which appear to operate to different types of economic rules for different products in different market places. Tradeable Permits in packaging are issued by the end reprocessor of the products whereas Tradeable Permits for landfill inputs from Waste Disposal Authorities will be issued by the regulator whilst Tradeable Permits for carbon will be under the responsibility of a quango.

  This suggests the need for a clear framework strategy on Tradeable Permits so that industry is not faced with a complex range of mechanisms and systems when it encounters the need to meet targets for all the above waste streams.

(e)   Binocular vision on feeding funding into the market place

  Clearly there is a double dividend in terms of producing offsets but most of these appear—in the environmental area—to be fed into the public sector rather than industry. Examples include the Prime Minister's indication that £130m will be returned to local authorities to assist in expanding recycling initiatives as part of their obligations under the waste strategy. Yet this £130m bears a startlingly close similarity to the extra £140m plus we estimate that local authorities have been subjected to as a result of increases to the Landfill Tax. Similarly there is a suggestion that around £60m of lottery funding flows will be made available to local authorities to support their initiatives toward the waste strategy in terms of introducing kerbside collections. We have already raised with DEFRA the legitimacy of using funding flows of money which could be said to originate significantly with C, D and E income groups to support environmental funding initiatives which generally only operate in A/B/C neighbourhoods. The £1.3bn support programme from DEFRA to assist recycling and other environmental community initiatives which was confirmed several years ago still does not appear to have been spent—or if it has there does not appear to be any transparent system of obtaining a breakdown as to how it is being distributed. SRB funding to Greater London alone appeared to amount to around £330m (1999-2001 over two years) according to a Parliamentary written answer to Mr Peter Ainsworth on 9th November 2001. (This £330m appears to have been passed out to 241 waste management schemes in the Greater London area—which equates roughly to the original regulatory impact assessment for the delivery of the whole waste strategy to the entire UK.) This multiplicity of entry and exit routes for environmental funding flows really does need to be treated more transparently in the pre and post budget reports and we endorse your Committee's request that an Environmental Tax Commission be established so that public and private sectors alike can gain a better appreciation of the scale, extent and focus of these input/output streams.

(f)   Binocular vision on timing

  Apart from quantifying the absolute flows of such taxes and dividends there is recurring evidence that the timing of output returns is dysfunctional with the abstraction of the tax in both public and private sectors. We have already referred to the lag effect generated by the abstraction of Landfill Tax from local authorities relative to the return of that money to accelerate the objectives of the waste strategy. Similar examples include the Climate Change Levy and the lag effect in the creation of the Carbon Trust, the way in which fuel prices rose yet the support for rationalising an inefficient element of the road haulage sector came much later, if at all. We have also already referred to the £50m-£70m charge on local authorities which will start from February 2002 in relation to fridges—the funding flow support for that has yet to be clarified (in common with the offsets to local authorities for the substantial sums that they are incurring as a result of sharp increase in the dumping of abandoned cars).

  In closing we thus contend:

    —  There is a need to develop a consensus on target aspirations for environmental performance by defined dates (2010/2020/2030) on a sectoral basis and identify a double dividend approach for those sectors which will enable them to achieve these targets with minimum inflationary and market impacts for society.

    —  There is a need to confirm the total GDP impact of these measures for UK Plc.

    —  Treasury has a key role to play in developing agreed kick-start mechanisms in the portfolio of sticks and carrots needed to shift societal behaviour in these areas, ranging from outright bans and regulations through to subsidies, Traded Pollution Permits and direct customer price pass throughs. It could do more to clarify which "mix" applies to which sectors and when.

    —  There needs to be comfort that this process will be developed on a round-table process, especially with interested parties such as DEFRA/DTI/OFT/ the Monopolies Commission/the Best Value/Audit Commission if the public are to be reassured on the transparency of future price, direct or indirect tax increases. At the end of the day it is the consumer who pays.

ANNEX: SEVERN TRENT PLC POSITION ON ENVIRONMENTAL TAXATION

  Taxes on virgin input ("front end taxes") work more effectively than those on outputs. This is because taxes on outputs can have unexpected and untoward environmental effects, such as the transfer of the environmental "bad" that the tax is intended to tackle to another media.

  Environmental taxation is not generally effective where the environmental problem that it is intended to target is very specific. For instance, environmental disbenefits of chemical use will depend on how, where, when and context of use. The environmental disbenefit of fossil fuel combustion (emission of carbon dioxide) is global and is migratory.

  Environmental taxes can only be effective where those subject to them have realistic opportunities to adopt sustainable alternatives that the tax is intended to encourage.

  Pass through of price increases due to tax should not be restricted. Governments should not use environmental taxes to raise general revenue or transfer money from the private to the public sector or even from one sector to another.

  Fiscal neutrality within given sectors requires that the costs of paying the environmental tax are fully offset by a reduction in other taxes and/or benefit to the sector as a result of activities funded by hypothecation.

  Government should not use environmental taxation as a means to avoid other actions or to obscure the need to take other, additional actions. It would be rare for environmental taxation to be the only and the best instrument for a given environmental problem.

November 2001


 
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