Options for Financial Arrangements
Across District and County
Hertfordshire Waste Partnership
Authors:
Dominic Hogg
James Fulford
25/07/06
Report for:
Hertfordshire Waste Partnership
Prepared by:
Dr Dominic Hogg
Web: www.eunomia.co.uk
Disclaimer
Eunomia Research & Consulting has taken due care in the preparation of this report to
ensure that all facts and analysis presented are as accurate as possible within the scope of
the project. However no guarantee is provided in respect of the information presented, and
Eunomia Research & Consulting is not responsible for decisions or actions taken on the basis
of the content of this report.
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Contents
1.0
1.1
2.0
Introduction........................................................................................................................ 1
Changes to the System of Recycling Credits ..................................................................... 3
Key Issues Framing the Discussion ................................................................................... 4
2.1 Levels of Recycling Credits Under The Environmental Protection (Waste Recycling
Payments) Regulations 2006 ...................................................................................................... 4
2.2 Incentives for Waste Prevention ........................................................................................ 5
2.3 Dealing with Trade Waste Collections ............................................................................... 5
2.4 Third Parties ........................................................................................................................ 7
3.0
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
Desirable Features ............................................................................................................ 7
Acceptable Level of Certainty ............................................................................................. 7
Strengthen the Business Case for All ................................................................................ 7
Encourage Waste Prevention ............................................................................................. 7
Match Reward with Cost (maximising the value of spend) .............................................. 8
Winners and Losers / Transitional Arrangements ............................................................ 9
Equal Treatment of WCAs .................................................................................................10
Support an Environmental Case ......................................................................................10
Summary............................................................................................................................10
4.0
VALUE OF WCA ACTIONS TO THE WDA ............................................................................ 11
5.0
OPTIONS PROPOSED ....................................................................................................... 18
5.1 Option 1: Existing System .................................................................................................18
5.2 Option 2: Adapted Recycling Credit – Increasing Payments ..........................................20
5.3 Option 3: Adapted Recycling Credit – Payments for Above-Target Recycling ...............22
5.3.1 Option 3a: Payments for ‘Above Lowest Target’ Recycling with Existing Recycling
Credit for ‘Below Lowest Target’.............................................................................................22
5.3.2 Option 3b: Payments for ‘Above Lowest Target’ Recycling, Phased Introduction .22
5.4 Option 4: Adapted Recycling Credit – Increasing Marginal Rewards ............................23
5.5 Option 5: Adapted Recycling Credit – Payments by Material Type ................................23
5.6 Option 6: Pay for Specific Service Configuration (all-or-nothing Lancs Model).............25
5.7 Option 7: Tiered Payments in Relation to Service (payments related to service level) 25
5.8 Option 8: Residual Waste Incentive .................................................................................26
5.9 Option 9: Payments in Line with WDA Benefits ..............................................................28
5.10 Option 10: Hybrid Environmental / Financial System .................................................28
1.0 Introduction
Partnership working between authorities, specifically, between and across tiers of local
government in waste management, is being encouraged by Government. In the past,
Government has considered – but has always shied away from – bringing responsibilities
for collection and ‘disposal’ together under a single tier of local Government. The
separation of responsibilities is generally regarded as being ‘less than optimal’, and is
regarded as being quite peculiar by most European neighbours. Government has
threatened, in the past, that if joint working did not become a reality, it would re-visit the
separation of responsibilities.
One of the reasons why the arrangement is regarded as less than optimal is that neither of
the two tiers of government ‘sees’ the whole system cost of collecting, treating and
disposing of waste. The costs of managing waste, understood in ‘whole system terms’,
consist of each of these functions. As the costs of managing residual waste increase, a
rational single authority would be expected to shift the balance of its investment in the
management of waste increasingly towards means other than disposal.
Districts, as waste collection authorities, have responsibility for the collection of waste. How
they choose to collect waste is largely left up to them, though two key factors affect, or may
affect, their decisions:
a) the WCAs are faced with statutory recycling targets, as well as stretches on these
targets resulting from an agreed LAA;
b) the WET Act gives, to WDAs, certain powers of direction, which the WDA may
exercise subject to certain constraints. Included within these is a requirement that,
should the WDA ask the WCA to collect waste in a specific way, then as long as the
WCA is achieving its statutory performance targets, the WDA would need to
compensate the WCA for the additional costs it would incur in changing its approach
to collection in the manner requested by the WDA.
Counties, as waste disposal authorities, are required to arrange for the disposal of waste.
They do this effectively independently of collection activity. However, in recent times, the
LATS has become a key driver in WDAs’ decision making.
There is no payment made from the WCA to the WDA in lieu of the quantity sent for
treatment / disposal. The only financial transfer made between the WCAs and the WDA is
through the recycling credit system.
The recycling credit has been seen as the key mechanism for encouraging recycling in twotier areas has been the mechanism of recycling credits. The recycling credit scheme was
introduced under the EPA 1990 (see Box 1) and was intended to provide an incentive for
recycling by waste collection authorities (WCAs) in two-tier areas, and by third parties.
Payments were designed to reflect the net saving a waste disposal authority (WDA), or
WCA, makes by not having to dispose of the tonnages that have been diverted for recycling.
The scheme was not designed to cover the additional collection costs associated with
recycling. However, insofar as the scheme affected WCAs, by reflecting the avoided cost of
disposal, it provided an incentive to WCAs to shift the balance of their investment in
collection systems towards separate collection and away from collection of residual waste
for treatment and / or disposal.
As Box 1 makes clear (see 52(6)), the value of a recycling credit must be equal to the net
saving made through not having to collect or dispose of the recycled material. In the case
of these credits for disposal, the saving must be based on the cost of the most expensive
form of disposal used.
Box 1: Extract from the Environmental Protection Act 1990
52.—(1) Where, under section 48(2) above, a waste collection authority retains for recycling waste collected
by it under section 45 above, the waste disposal authority for the area which includes the area of the waste
collection authority shall make to that authority payments, in respect of the waste so retained, of such
amounts representing its net saving of expenditure on the disposal of the waste as the authority determines.
(2) Where, by reason of the discharge by a waste disposal authority of its functions, waste arising in its area
does not fall to be collected by a waste collection authority under section 45 above, the waste collection
authority shall make to the waste disposal authority payments, in respect of the waste not falling to be so
collected, of such amounts representing its net saving of expenditure on the collection of the waste as the
authority determines.
(3) Where a person other than a waste collection authority, for the purpose of recycling it, collects waste
arising in the area of a waste disposal authority which would fall to be collected under section 45 above, the
waste disposal authority may make to that person payments, in respect of the waste so collected, of such
amounts representing its net saving of expenditure on the disposal of the waste as the authority determines.
(4) Where a person other than a waste collection authority, for the purpose of recycling it, collects waste
which would fall to be collected under section 45 above, the waste collection authority may make to that
person payments, in respect of the waste so collected, of such amounts representing its net saving of
expenditure on the collection of the waste as the authority determines.
(5) The Secretary of State may, by regulations, impose on waste disposal authorities a duty to make
payments corresponding to the payments which are authorised by subsection (3) above to such persons in
such circumstances and in respect of such descriptions or quantities of waste as are specified in the
regulations.
(6) For the purposes of subsections (1), (3) and (5) above the net saving of expenditure of a waste disposal
authority on the disposal of any waste retained or collected for recycling is the amount of the expenditure
which the authority would, but for the retention or collection, have incurred in having it disposed of less any
amount payable by the authority to any person in consequence of the retention or collection for recycling
(instead of the disposal) of the waste.
(7) For the purposes of subsections (2) and (4) above the net saving of expenditure of a waste collection
authority on the collection of any waste not falling to be collected by it is the amount of the expenditure which
the authority would, if it had had to collect the waste, have incurred in collecting it .
The prevailing reality, therefore, has been one where:

WCAs fund the collection of waste – whatever the approach – through Council Tax
and Revenue Support Grant;

WDAs fund treatment and disposal through Council Tax and Revenue Support Grant;

WCAs receive, from WDAs, payments in lieu of avoided disposal for all materials
collected for recycling.
Questions arise as to whether this system of funding is likely to lead to an outcome which:
 reflects Best Value for citizens; and
 creates the proper incentive structure for the development of a quality waste
management system.
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1.1 Changes to the System of Recycling Credits
Until recently, the system of recycling credits was one in which WDAs were required to
make payments to WCAs in accordance with principles set out in the EPA 1990.
A review and consultation were carried out in 2004 and proposals for changes to the
scheme were included in section 49 of the Clean Neighbourhoods and Environment Act
2005 (CNEA 2005) alongside a commitment to developing guidance on the scheme. These
key changes were:

to increase flexibility of payments from waste disposal to waste collection
authorities in two-tier areas by giving authorities the option to agree alternative
arrangements;

to give the Secretary of State powers to set the calculation of recycling credits
through secondary legislation; and

to clarify that credits can be paid for re-use.
Defra then consulted again on proposals for change to the scheme.
Most recently, Government issued the The Environmental Protection (Waste Recycling
Payments) Regulations 2006,1 and accompanying Guidance.2 In line with proposals in
CNEA 2005, this actually opens up the possibilities for WDAs and WCAs to agree new
mechanisms for financial transfers, including those that might actually incentivise waste
prevention on the part of the WCAs (through recognising the implications for system costs
of their actions in the sphere of waste collection), as of early April 2006. The Regulations
have also led to a revision of the relevant paragraphs in the Environmental Protection Act
1990 as set out in Box 1.
Importantly, the new text allows for arrangements to be concluded between a WCA and a
WDA such that the existing mechanism – which has been replaced by a default approach
that caps the level of the recycling credit (even as disposal costs increase) – can be
jettisoned if the WCA and WDA agree to do so. Hence para. 52(1B) of the EPA, as
amended, now reads:
(1B) A waste disposal authority is not required to make payments to a waste
collection authority under subsection (1) above where, on the basis of
arrangements involving the two authorities, the waste collection authority has
agreed that such payments need not be made.
Furthermore, the new legislation allows for payment of re-use credits. Para 52(12) reads:
(12) In this section, references to recycling waste include re-using it (whether or not
the waste is subjected to any process).
This measure has been welcomed by the Furniture Recycling Network, the umbrella
organization which includes, among its members, furniture and WEEE re-use organizations.
Hitherto, very few Councils have paid any credit to incentivise re-use. Now, it is likely that
more will do so.
This is a potentially important change in the law, since it paves the way for a change in the
way WCAs and WDAs relate to each other in the financial sense. It is important to stress
that new arrangements do not have to be related to the amount of material recycled.
1
http://www.opsi.gov.uk/si/si2006/20060743.htm
Defra (2006) Guidance on the Recycling Credit Scheme, Defra, April 2006,
http://www.defra.gov.uk/environment/waste/localauth/pdf/recyclingcreditscheme-guidance.pdf
2
Essentially, WCAs and a WDA are free to discuss the nature of financial transfers between
them so as to align their interests, and help achieve joint objectives, whilst seeking to
deliver Best Value for their residents.
This paper is intended to open discussion of these issues in seeking a way forward for
Hertfordshire to agree a financial arrangement which might replace the existing system of
recycling credits.
2.0 Key Issues Framing the Discussion
A number of key issues are relevant in discussing possible changes to the existing recycling
credits arrangement:
2.1 Levels of Recycling Credits Under The Environmental Protection
(Waste Recycling Payments) Regulations 2006
Prior to the new law entering into force, the WCAs might have expected that recycling
credits would increase as the landfill tax increased. They might further have anticipated
that the level of credits would reach even higher levels as the County sought to deploy
treatments other than landfill for residual waste.
The default mechanism for payment under the new legislation actually caps the level of
payment, albeit that a 3% annual increase (to allow for inflation) is allowed for each year.
The WDA’s ‘net saving of expenditure’ will be calculated for the year 2006/7 in line with
Section 3 of The Environmental Protection (Waste Recycling Payments) Regulations 2006,
and be subject to the 3% inflator thereafter.
From the WCA perspective, this is possibly disappointing – it implies a reduction in the
payment for recycled material, and a diminished incentive to enhance investment in
recycling, certainly any level exceeding statutory target levels. A recycling credit paid at the
level of avoided disposal which the County is likely to be paying in future would almost
certainly make the picture appear very different indeed for the WCA, and indeed, recycling
would almost certainly appear a most attractive option.
From the perspective of the WDA, the change in the system is:
a) good to the extent that it reduces outlays below levels that would otherwise prevail;
and
b) not so good to the extent that the WDA may be keen to see WCAs continue to
increase recycling rates, partly so as to avoid the possibility of exposure to the
landfill allowances market. A higher recycling credit may have been one way of
conveying an incentive to the WCAs, though there are clearly issues regarding how
high this would have to be set to encourage recycling.
Under the default system, therefore, which essentially keeps recycling credits constant in
real terms, one of the key objectives of the MWMS – to increase recycling rates for the
foreseeable future – is compromised by the low level of reward that WCAs might receive for
additional efforts and investments in collection. In the absence of higher statutory recycling
targets, there is no real incentive for WCAs to increase investment in services for the
separate collection of different materials.
A revised mechanism ought to ensure that WCAs have an incentive to make those
investments which the WDA would like them to make. At the same time, from the
perspective of the WDA (and residents generally), the incentive should not be so great as to
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4
‘over-reward’ the WCAs (and so, generate less value per unit of spend than might otherwise
be the case).
2.2 Incentives for Waste Prevention
Currently, WCAs can collect as much material as they like and deliver it to the WDA for
disposal with no financial implications for themselves. Because there is no mechanism
which links the quantity of waste delivered by the WCA, the WCA has no incentive to engage
in waste prevention activities, other than to the extent that they save – at the margin – on
waste collection costs.
Considered as a waste management system, the savings in respect of waste prevention
include some savings on waste collection – which are likely to be a proportion of refuse
collection costs (some £25 per tonne) – and savings on waste treatment / disposal. The
‘shadow cost’ of landfill disposal, estimated for a fifteen year contract period, is shown in
Figure 1. It is clear from comparing the savings on collection, and those which result from
disposal, that the major savings from waste prevention relate to those of treatment /
disposal, and these accrue to the WDA. Yet responsibility for measures which affect
collected waste quantities rest largely with the WCA.
Figure 1: Estimated Shadow Cost of Avoided Disposal (landfill gate fee plus tax plus landfill
allowance value of 1 tonne residual waste)
Estimated Shadow Value of Avoided Disposal Over Contract Period
£90.00
£80.00
£70.00
£60.00
£50.00
£40.00
£30.00
£20.00
£10.00
£0.00
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Year of Contract Commencement
If a measure is to be implemented which is intended to deliver best value to residents, and
to align the interests of the WCA with those of the WDA, then the WCAs ought to ‘see’ the
costs of disposal in some way.
2.3 Dealing with Trade Waste Collections
Trade waste collections are being reviewed by the WCAs. There are competing influences
on WCAs where trade waste is concerned. Some of these are summarized in brief in Table
1. Generally, there are good reasons to provide a commercial waste collection service,
related to keeping streets clean, and ensuring that a service is available to commercial
entities. On the other hand, the provision of commercial waste services is open to
competition from the private sector. Consequently, market risks clearly exist. In addition,
the fact that, by virtue of being collected by, or on behalf of, the local authority, the waste
becomes part of the municipal stream means that each tonne of commercial waste
collected implies a worsening of the county’s balance of landfill allowances (by 0.68 tonnes
BMW for every tonne collected). For the WDA, therefore, the shadow cost of having this
material collected is not simply the cost of landfill disposal, but is given by the cost of
landfilling plus either the cost of acquiring, or the foregone revenue from selling, 0.68
tonnes of landfill allowances.
Table 1: Pros and Cons of Trade Waste Service Provision
Urban
Rural
Provision of service to local
businesses - ensures businesses
keep within the law
Reduced congestion (from
competing firms)
Potential for ‘revenue generation’
Pros
Possibilities for provision of
environmentally-oriented service
Improved street cleanliness
Less likelihood of street-scene
services being ‘abused’ (especially
in Zone 1 areas)
Improved efficiencies in collection
logistics
Provision of service to local
businesses - ensures businesses keep
within the law (often provider of last
resort)
Potential for ‘revenue generation’
Possibilities for provision of
environmentally-oriented service
Less likelihood of tipping in areas of
the countryside
Improved efficiencies in collection
logistics
LATS liabilities
Cons
Deflects attention from ‘main job’
LATS liabilities
Issues of service delivery and
contractual arrangements
Deflects attention from ‘main job’
Issues of service delivery and
contractual arrangements
Costs not always recovered
Market risk issues (competition
from private sector)
Costs not always recovered
How to deal with commercial waste in future is clearly a problematic issue. Different WCAs
in the County have different views as to what type of policy should be pursued, whilst
several authorities are due to review their policies in this regard. What seems clear,
however, is that the WDA will find it difficult – particularly in respect of trade waste – to
resist ensuring that the full costs of treatment / disposal are passed on to WCAs,
irrespective of the exact nature of the mechanism discussed in this paper.
More important, perhaps, is the fact that from the perspective of the WDA, whether waste
delivered to it for treatment / disposal is from commercial’ or ‘household’ sources does not
really matter a great deal. The LATS does not apply in a different way to waste collected
from commercial sources. As long as commercial customers pay sufficient to cover the cost
of treatment / disposal, including the appropriate LATS-related costs, arguably, the WDA
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6
should be indifferent to the decisions of the WCA. What matters – for both commercial and
household wastes – is that WCAs are faced with cost structures which are compatible with
those facing the WDA in respect of treatment and disposal and landfill allowances.
2.4 Third Parties
The existing system of recycling credits allows payments to be made – by both WDA and
WCA – in respect of avoided costs of disposal and collection, respectively. The
Environmental Protection (Waste Recycling Payments) Regulations 2006,3 and
accompanying Guidance4 also make provision for the payment of re-use credits. Whilst
these may apply to bulky waste contractors collecting on behalf of the council, equally, they
may apply to furniture groups and re-furbishers of waste electrical and electronic
equipment (WEEE).
Ideally, third parties would not to be excluded or treated differently under any new system
devised. This principle would ensure equivalent incentives remain in place for third parties
as well as those acting on behalf of the Council.
3.0 Desirable Features
In the following section, and partly reflecting the above discussion, what are likely to be
considered as desirable features of any revised scheme, and the process leading to it, are
considered.
3.1 Acceptable Level of Certainty
Any new system should give an acceptable level of certainty to WCAs. WCAs need to have
some clarity as to what revenue they can expect from any new system so as to be able to
plan their investments with some confidence. The existing system is quite transparent and
offers a fairly high level of certainty, though the actual level of payment still depends upon
performance. Any new system needs to strike an acceptable balance between incentivising
positive behaviour, and giving sufficient certainty of outcome to enable WCAs to budget
with some certainty (for investment in initiatives, improvements in systems and
performance).
3.2 Strengthen the Business Case for All
Ideally, the system of financial transfers:
 Makes it likely that WCAs will undertake actions which the WDA would like them to
undertake; and
 Does so in a way which implies cost savings – relative to what would otherwise
happen – to the WDA.
This implies the need for some delicate ‘balancing’ of the WDA-inspired reward against the
value of the expected change in outcome.
3.3 Encourage Waste Prevention
In line with the discussion in Section 2.2, any new mechanism ought to incorporate an
incentive for WCAs to engage in waste prevention. WCAs have – rightly – long-lamented the
3
http://www.opsi.gov.uk/si/si2006/20060743.htm
Defra (2006) Guidance on the Recycling Credit Scheme, Defra, April 2006,
http://www.defra.gov.uk/environment/waste/localauth/pdf/recyclingcreditscheme-guidance.pdf
4
fact that Best Value targets for recycling and composting do not reward waste prevention. It
makes sense, from the WDA’s point of view, and from the perspective of delivering value
for money in service provision, to ensure some incentive for waste prevention is in place.
3.4 Match Reward with Cost (maximising the value of spend)
The consultation document issued prior to the issuing of The Environmental Protection
(Waste Recycling Payments) Regulations 2006 made it clear that WDAs were often paying
an escalating amount for actions – notably green waste composting and paper recycling –
which cost far less than the cost of refuse collection and disposal. Effectively, WDAs were
transferring revenue to WCAs – and a growing quantity each year – for activities which were
viable at much lower levels of recycling credit.
This principle is demonstrated in Figure 2. At a level of recycling credit equal to C1, then it is
financially viable to recycle up to the point where the recycling credit plus avoided refuse
collection cost is equal to the marginal cost of collecting recyclables and compostables (up
to a level R1). At the higher level of recycling credit C2, it becomes viable to recycle up to a
level R2.
At the level of recycling R2, the WDA is effectively paying, in recycling credits, a total sum
equal to the rectangle C2BR2O. However, the cost to the WCA is effectively the area under
the curve equal to ABR2O. There is, effectively, an overpayment from the WDA equivalent to
the area AC2B.
This is before one considers the potential impact of offering collections which may increase
the quantity of waste collected. Arguably, to the extent that a recycling credit is intended to
convey a benefit to WCAs in lieu of ‘avoided disposal’, then if the recycled material is
material which was not previously collected at all, or if the material being collected by
WCAs would otherwise be collected at HWRCs by the WDA, then it might be argued that no
‘disposal’ is being avoided.
Finally, the WDA ought to be seeking to incentivise waste prevention. This clearly leads to
the avoidance of disposal costs.
Consequently, the WDA ought to be seeking to:
 Align the payments for the additional actions of the WCA with the costs of those
specific actions (in other words, it might try to make its payments to the WCA reflect
the shape of the marginal cost curve);
 Ensure that payments are not made for material which is recycled by WCAs which
either a) was already being recycled, or b) was not previously being collected; and
 Incentivise waste prevention.
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Figure 2: Level of Recycling Credit
Level of
Recycling
Credit plus
Avoided
Refuse
Collection
Marginal Cost
Curve for
Collection of
Recyclables and
Compostables
B
C2
C1
A
O
R1
R2
Recycling Rate
The Consultation around recycling credits stated:5
Furthermore, the cost of recycling some materials, e.g. green waste and paper, can
in some circumstances now be lower than the most expensive cost of disposal. This
creates a situation where WCAs could make a net gain at the expense of WDAs,
which was not the original intention of the scheme. Moreover, because credits are
not ring-fenced, as the income to WCAs from credits increases disproportionately to
the cost of recycling, there is an increased risk that the money might be used to fund
non-waste activities.
3.5 Winners and Losers / Transitional Arrangements
To the extent that a new system departs from the existing one (and one option is for it not
to do so), there are likely to be some WCAs who fare better, and some who fare worse than
others. In line with the previous principle of giving certainty, and so as to ensure existing
investments are not undermined, it will make sense, as far as possible, to ensure either:
a) that no authority is worse off under the new system than it would be under the
current one; or
b) if this is unavoidable, that a period of transition is planned for so that authorities
can adjust to a new regime.
Defra (2005) Consultation Paper On Changes To The Recycling Credit Scheme, Department For
Environment, Food And Rural Affairs, October 2005
5
The latter would allow for adaptation of services, and introduction of new initiatives in the
transition period. If the system was to change radically, then the principle of allowing time
for transition could only really be respected if the transition period allowed for complete
changes in the services on offer. This would almost certainly imply a need for a lengthy
adjustment period, which would significantly reduce the value of the new initiative (and
might leads to the desired changes occurring later than the time when they would most
usefully occur).
3.6 Equal Treatment of WCAs
Possibly trivially, all WCAs should be treated equally. In some situations, there might be
arguments for stating that all WCAs should be treated ‘fairly’, and this might not be the
same as being treated equally (for example, if a given WCA had a very large number of
tourists each year whilst all others had none, there might be reason to propose some form
of adjustment mechanism to account for this. It is not clear that a strong case can be made
in any of the Herts Districts for ‘unequal’ treatment. All WCAs can probably make a case for
‘being different’, but the starting point must be to assume equality of treatment.
3.7 Support an Environmental Case
Not all recycling may be ‘good’. It may be important to look at the environmental benefits of
the action being undertaken and to align reward with the environmental benefits so
derived. Various measures could be used for this but one which is used later in the report
is performance in respect of greenhouse gas emissions (GHGs).
3.8 Summary
These principles are proposed as a basis for the evaluation of the different options set out
in the next Section. The principles are:
 Give an Acceptable Level of Certainty to WCAs
 Strengthen the Business Case for Action Across All Authorities
 Encourage Waste Prevention
 Match Reward with Cost
 Minimise Losers
 Transition for Winners and Losers
 Equal Treatment of WCAs
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10
4.0 VALUE OF WCA ACTIONS TO THE WDA
The payment which a WDA might wish to make to the WCA depends upon what the WCA
does to which materials, and what would otherwise have happened to that material. The
following sets this out in some detail for the main materials being collected for recycling
and for generic material types which are the subject of waste prevention actions. Trade
waste actions are also covered. The Figures are shown for low disposal costs and low
landfill allowance values, and for high disposal costs and high landfill allowance values.
Figure 3: Value of WCA Collections at Landfill Allowance Values of £150 per tonne
ASSUMPTIONS
Disposal Costs (£/tonne)
Value of Landfill Allowances (£/tonne)
Average Tipping Away (£/tonne)
Additional Waste Factor (garden waste), tonnes per tonne collected
Waste moved off HWRC (garden waste only), tonnes per tonne collected
Open air windrow composting costs (£/tonne)
Enclosed composting costs (combined garden and food) (£/tonne)
Proportion garden in co-collected kitchen and garden waste collections
Enclosed composting costs (food added to garden) (£/tonne)
Enclosed composting costs (food only) (£/tonne)
Unit Cost Bulking and Haulage, HRC (£/tonne)
(from business case)
£50.00
£150.00
£1.20
0.5
0.25
£19.00
£40.00 Quantities Collected /hhld/yr, free k and g collection
80% Garden (hg/hhld/yr)
200
£124.00 Kitchen (kg/hhld/yr)
50
£50.00
£5.00
(from Herts totals)
(estimate based on WRAP study)
Avoided Costs to WDA
Avoided Disposal
Costs
Tipping Away
Fees
Additional WDA
Processing
Avoided WDA
Haulage and
Bulking
Landfill
Alllowances
Household Recycling
Paper
Card
Glass
Textiles
Steel cans
Aluminium cans
Plastic bottles
Plastic film
Batteries
Garden Waste
Kitchen Waste (added to garden waste)
Kitchen Waste (separately collected)
Oil
WEEE
Refuse / Other
£50.00
£50.00
£50.00
£50.00
£50.00
£50.00
£50.00
£50.00
£50.00
£12.50
£50.00
£35.00
£50.00
£50.00
n/a
£1.20
£1.20
£1.20
£1.20
£1.20
£1.20
£1.20
£1.20
£1.20
£1.20
£1.20
£5.00
£1.20
£1.20
n/a
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£19.00
£124.00
£50.00
£0.00
£0.00
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
£1.25
n/a
n/a
n/a
n/a
n/a
£150.00
£150.00
£0.00
£75.00
£0.00
£0.00
£0.00
£0.00
£0.00
£150.00
£150.00
£150.00
£0.00
£0.00
n/a
£201.20
£201.20
£51.20
£126.20
£51.20
£51.20
£51.20
£51.20
£51.20
£145.95
£77.20
£140.00
£51.20
£51.20
Increase in Recycling of Existing Trade Waste
Paper and card
Compostable
Non-biodegradable
£50.00
£50.00
£50.00
£1.20
£1.20
£1.20
£0.00
£50.00
£0.00
£0.00
£0.00
£0.00
£150.00
£150.00
£0.00
£201.20
£151.20
£51.20
Prevention
Paper and card, otherwise recycled
Paper and card, otherwise not recycled
Biowaste, otherwise composted
Biowaste, otherwise not composted
Nappies
Non-biodegradable, otherwise recycled
Non-biodegradable, otherwise not recycled
Trade Refuse Elimination
£0.00
£50.00
£40.00
£50.00
£50.00
£50.00
£50.00
£50.00
£0.00
£1.20
£1.20
£1.20
£1.20
£0.00
£1.20
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
-£48.00
£102.00
-£48.00
£102.00
£51.00
£102.00
£102.00
£102.00
-£48.00
£153.20
-£6.80
£153.20
£102.20
£152.00
£153.20
£152.00
Actions With Additional Trade Waste
Additional Trade Collection, Disposal
Additional Trade Collection, Biodegradable Recycling
Additional Trade Collection, Biowaste Composting
Additional Trade Collection, Non-biodegradable Recycling
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£50.00
£0.00
£40.00
£0.00
n/a
n/a
n/a
n/a
-£102.00
£48.00
£48.00
-£102.00
-£152.00
£48.00
£8.00
-£102.00
Net WDA Saving
Figure 4: Value of WCA Collections at Landfill Allowance Values of £50 per tonne
ASSUMPTIONS
Disposal Costs (£/tonne)
Value of Landfill Allowances (£/tonne)
Average Tipping Away (£/tonne)
Additional Waste Factor (garden waste), tonnes per tonne collected
Waste moved off HWRC (garden waste only), tonnes per tonne collected
Open air windrow composting costs (£/tonne)
Enclosed composting costs (combined garden and food) (£/tonne)
Proportion garden in co-collected kitchen and garden waste collections
Enclosed composting costs (food added to garden) (£/tonne)
Enclosed composting costs (food only) (£/tonne)
Unit Cost Bulking and Haulage, HRC (£/tonne)
(from business case)
£50.00
£50.00
£1.20
0.5
0.25
£19.00
£40.00 Quantities Collected /hhld/yr, free k and g collection
80% Garden (hg/hhld/yr)
200
£124.00 Kitchen (kg/hhld/yr)
50
£50.00
£5.00
(from Herts totals)
(estimate based on WRAP study)
Avoided Costs to WDA
Avoided Disposal
Costs
Tipping Away
Fees
Additional WDA
Processing
Avoided WDA
Haulage and
Bulking
Landfill
Alllowances
Household Recycling
Paper
Card
Glass
Textiles
Steel cans
Aluminium cans
Plastic bottles
Plastic film
Batteries
Garden Waste
Kitchen Waste (added to garden waste)
Kitchen Waste (separately collected)
Oil
WEEE
Refuse / Other
£50.00
£50.00
£50.00
£50.00
£50.00
£50.00
£50.00
£50.00
£50.00
£12.50
£50.00
£35.00
£50.00
£50.00
n/a
£1.20
£1.20
£1.20
£1.20
£1.20
£1.20
£1.20
£1.20
£1.20
£1.20
£1.20
£5.00
£1.20
£1.20
n/a
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£19.00
£124.00
£50.00
£0.00
£0.00
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
£1.25
n/a
n/a
n/a
n/a
n/a
£50.00
£50.00
£0.00
£25.00
£0.00
£0.00
£0.00
£0.00
£0.00
£50.00
£50.00
£50.00
£0.00
£0.00
n/a
£101.20
£101.20
£51.20
£76.20
£51.20
£51.20
£51.20
£51.20
£51.20
£45.95
-£22.80
£40.00
£51.20
£51.20
Increase in Recycling of Existing Trade Waste
Paper and card
Compostable
Non-biodegradable
£50.00
£50.00
£50.00
£1.20
£1.20
£1.20
£0.00
£50.00
£0.00
£0.00
£0.00
£0.00
£50.00
£50.00
£0.00
£101.20
£51.20
£51.20
Prevention
Paper and card, otherwise recycled
Paper and card, otherwise not recycled
Biowaste, otherwise composted
Biowaste, otherwise composted
Nappies
Non-biodegradable, otherwise recycled
Non-biodegradable, otherwise not recycled
Trade Elimination
£0.00
£50.00
£40.00
£50.00
£50.00
£50.00
£50.00
£50.00
£0.00
£1.20
£1.20
£1.20
£1.20
£0.00
£1.20
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
-£16.00
£34.00
-£16.00
£34.00
£17.00
-£16.00
£34.00
£34.00
-£16.00
£85.20
£25.20
£85.20
£68.20
£34.00
£85.20
£84.00
Actions With Additional Trade Waste
Additional Trade Collection, Disposal
Additional Trade Collection, Biodegradable Recycling
Additional Trade Collection, Biowaste Composting
Additional Trade Collection, Non-biodegradable Recycling
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£50.00
£0.00
£40.00
£0.00
n/a
n/a
n/a
n/a
-£34.00
£16.00
£16.00
-£34.00
-£84.00
£16.00
-£24.00
-£34.00
13/07/2017
12
Net WDA Saving
Figure 5: Value of WCA Collections at Landfill Allowance Values of £20 per tonne
ASSUMPTIONS
Disposal Costs (£/tonne)
Value of Landfill Allowances (£/tonne)
Average Tipping Away (£/tonne)
Additional Waste Factor (garden waste), tonnes per tonne collected
Waste moved off HWRC (garden waste only), tonnes per tonne collected
Open air windrow composting costs (£/tonne)
Enclosed composting costs (combined garden and food) (£/tonne)
Proportion garden in co-collected kitchen and garden waste collections
Enclosed composting costs (food added to garden) (£/tonne)
Enclosed composting costs (food only) (£/tonne)
Unit Cost Bulking and Haulage, HRC (£/tonne)
(from business case)
£50.00
£20.00
£1.20
0.5
0.25
£19.00
£40.00 Quantities Collected /hhld/yr, free k and g collection
80% Garden (hg/hhld/yr)
200
£124.00 Kitchen (kg/hhld/yr)
50
£50.00
£5.00
(from Herts totals)
(estimate based on WRAP study)
Avoided Costs to WDA
Avoided Disposal
Costs
Tipping Away
Fees
Additional WDA
Processing
Avoided WDA
Haulage and
Bulking
Landfill
Alllowances
Household Recycling
Paper
Card
Glass
Textiles
Steel cans
Aluminium cans
Plastic bottles
Plastic film
Batteries
Garden Waste
Kitchen Waste (added to garden waste)
Kitchen Waste (separately collected)
Oil
WEEE
Refuse / Other
£50.00
£50.00
£50.00
£50.00
£50.00
£50.00
£50.00
£50.00
£50.00
£12.50
£50.00
£35.00
£50.00
£50.00
n/a
£1.20
£1.20
£1.20
£1.20
£1.20
£1.20
£1.20
£1.20
£1.20
£1.20
£1.20
£5.00
£1.20
£1.20
n/a
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£19.00
£124.00
£50.00
£0.00
£0.00
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
£1.25
n/a
n/a
n/a
n/a
n/a
£20.00
£20.00
£0.00
£10.00
£0.00
£0.00
£0.00
£0.00
£0.00
£20.00
£20.00
£20.00
£0.00
£0.00
n/a
£71.20
£71.20
£51.20
£61.20
£51.20
£51.20
£51.20
£51.20
£51.20
£15.95
-£52.80
£10.00
£51.20
£51.20
Increase in Recycling of Existing Trade Waste
Paper and card
Compostable
Non-biodegradable
£50.00
£50.00
£50.00
£1.20
£1.20
£1.20
£0.00
£50.00
£0.00
£0.00
£0.00
£0.00
£20.00
£20.00
£0.00
£71.20
£21.20
£51.20
Prevention
Paper and card, otherwise recycled
Paper and card, otherwise not recycled
Biowaste, otherwise composted
Biowaste, otherwise composted
Nappies
Non-biodegradable, otherwise recycled
Non-biodegradable, otherwise not recycled
Trade Elimination
£0.00
£50.00
£40.00
£50.00
£50.00
£50.00
£50.00
£50.00
£0.00
£1.20
£1.20
£1.20
£1.20
£0.00
£1.20
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
-£6.40
£13.60
-£6.40
£13.60
£6.80
-£6.40
£13.60
£13.60
-£6.40
£64.80
£34.80
£64.80
£58.00
£43.60
£64.80
£63.60
Actions With Additional Trade Waste
Additional Trade Collection, Disposal
Additional Trade Collection, Biodegradable Recycling
Additional Trade Collection, Biowaste Composting
Additional Trade Collection, Non-biodegradable Recycling
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£50.00
£0.00
£40.00
£0.00
n/a
n/a
n/a
n/a
-£13.60
£6.40
£6.40
-£13.60
-£63.60
£6.40
-£33.60
-£13.60
Net WDA Saving
This shows quite clearly that different WCA actions targeting different materials have
different financial implications for the WDA. Of particular note are the following
observations:
Unsurprisingly, the magnitude of the savings or costs of different activities increases as the
value of landfill allowances increases;
The following actions are always the most beneficial to the WDA:
 Household Recycling of Paper
 Household Recycling of Card
 Increase in Recycling of Existing Trade Waste, Paper and card
 Increase in Recycling of Existing Trade Waste, Non-biodegradable
The following set of actions are always in the second tier;
 Prevention, Paper and card, otherwise not recycled
 Prevention, Biowaste, otherwise not composted
 Prevention, Nappies
 Prevention, Non-biodegradable, otherwise not recycled
The following set of actions are always the third tier
 Prevention, Trade Elimination
Following from this, the ranking of options changes. However, the following option is always
worst:
 Additional Trade Collection, Disposal
At low allowance values, the value attaching to diverting biodegradable material from
landfill is less significant in determining net costs or benefits to the WDA than the
treatment costs incurred or avoided. At high allowance values, the opposite is true. The
following activities are affected significantly:
 The benefit to the WDA is much higher where the value of allowances is much
higher:
o Household Recycling of Garden Waste
o Household Recycling of Kitchen Waste (separately collected)
 What otherwise has cost implications for the authority can imply savings once
landfill allowance values reach high levels for:
o Household Recycling of Kitchen Waste (added to garden waste)
One of the most interesting features of this discussion is how actions in respect of trade
waste affect the WDA. From the WDA perspective, the worst thing that WCAs can do is
collect additional trade waste and deliver it for disposal. The next worst thing it can do is
collect additional non-biodegradable trade waste for recycling. On the other hand, if new
material is collected for recycling, if this material is biodegradable, there is always a benefit
to the WDA as long as allowance values are greater than zero (equal to 0.32 times the
allowance value). This, however, is not as beneficial as reducing trade waste altogether.
Best of all, better even than eliminating a tonne of trade waste, is the recycling of
biodegradable material which is already being collected.
What this implies is that the anticipated value of allowances is likely to have implications
for whether the WDA should seek to incentivise an activity or not where it seeks to
minimize costs to itself. In order to ensure that net costs to taxpayers are minimized
(subject to other strategic objectives) then arguably, these savings and costs to the WDA
ought to be reflected in financial transfers to the WCAs.
13/07/2017
14
-£200.00
Activity
Additional Trade Collection, Disposal
Household Recycling of Kitchen
Waste (added to garden waste)
Additional Trade Collection,
Biowaste Composting
Additional Trade Collection, Nonbiodegradable Recycling
Prevention, Paper and card,
otherwise recycled
Additional Trade Collection,
Biodegradable Recycling
Household Recycling of Kitchen
Waste (separately collected)
Household Recycling of Garden
Waste
Increase in Recycling of Existing
Trade Waste, Compostable
Prevention, Biowaste, otherwise
composted
Prevention, Non-biodegradable,
otherwise recycled
Household Recycling of WEEE
Household Recycling of Oil
Household Recycling of Batteries
Household Recycling of Plastic film
Household Recycling of Plastic
bottles
Household Recycling of Aluminium
cans
Household Recycling of Steel cans
Household Recycling of Glass
Increase in Recycling of Existing
Trade Waste, Paper and card
Prevention, Nappies
Household Recycling of Textiles
Prevention, Trade Elimination
Prevention, Non-biodegradable,
otherwise not recycled
Prevention, Biowaste, otherwise
composted
Prevention, Paper and card,
otherwise not recycled
Increase in Recycling of Existing
Trade Waste, Non-biodegradable
Household Recycling of Card
Household Recycling of Paper
Value to WDA per tonne Material
Figure 6: Benefit to WDA of Different WCA Activities (£ per tonne of material, negative figures imply costs, landfill allowances £20/t)
£250.00
£200.00
£150.00
£100.00
£50.00
£0.00
-£50.00
-£100.00
-£150.00
-£200.00
13/07/2017
16
Activity
Additional Trade Collection, Disposal
Additional Trade Collection, Nonbiodegradable Recycling
Additional Trade Collection,
Biowaste Composting
Household Recycling of Kitchen
Waste (added to garden waste)
Prevention, Paper and card,
otherwise recycled
Additional Trade Collection,
Biodegradable Recycling
Prevention, Biowaste, otherwise
composted
Prevention, Non-biodegradable,
otherwise recycled
Household Recycling of Kitchen
Waste (separately collected)
Household Recycling of Garden
Waste
Increase in Recycling of Existing
Trade Waste, Compostable
Household Recycling of WEEE
Household Recycling of Oil
Household Recycling of Batteries
Household Recycling of Plastic film
Household Recycling of Plastic
bottles
Household Recycling of Aluminium
cans
Household Recycling of Steel cans
Household Recycling of Glass
Prevention, Nappies
Household Recycling of Textiles
Prevention, Trade Elimination
Prevention, Non-biodegradable,
otherwise not recycled
Prevention, Biowaste, otherwise
composted
Prevention, Paper and card,
otherwise not recycled
Increase in Recycling of Existing
Trade Waste, Non-biodegradable
Increase in Recycling of Existing
Trade Waste, Paper and card
Household Recycling of Card
Household Recycling of Paper
Value to WDA per tonne Material
Figure 7: Benefit to WDA of Different WCA Activities (£ per tonne of material, negative figures imply costs, landfill allowances £50/t)
£250.00
£200.00
£150.00
£100.00
£50.00
£0.00
-£50.00
-£100.00
-£150.00
-200
Activity
Additional Trade Collection, Disposal
Additional Trade Collection, Nonbiodegradable Recycling
Prevention, Paper and card,
otherwise recycled
Prevention, Biowaste, otherwise
composted
Prevention, Non-biodegradable,
otherwise recycled
Additional Trade Collection,
Biowaste Composting
Additional Trade Collection,
Biodegradable Recycling
Household Recycling of WEEE
Household Recycling of Oil
Household Recycling of Batteries
Household Recycling of Plastic film
Household Recycling of Plastic
bottles
Household Recycling of Aluminium
cans
Household Recycling of Steel cans
Household Recycling of Glass
Household Recycling of Kitchen
Waste (added to garden waste)
Prevention, Nappies
Household Recycling of Textiles
Household Recycling of Kitchen
Waste (separately collected)
Household Recycling of Garden
Waste
Increase in Recycling of Existing
Trade Waste, Compostable
Prevention, Trade Elimination
Prevention, Non-biodegradable,
otherwise not recycled
Prevention, Biowaste, otherwise not
composted
Prevention, Paper and card,
otherwise not recycled
Increase in Recycling of Existing
Trade Waste, Non-biodegradable
Increase in Recycling of Existing
Trade Waste, Paper and card
Household Recycling of Card
Household Recycling of Paper
Value to WDA per tonne Material
Figure 8: Benefit to WDA of Different WCA Activities (£ per tonne of material, negative figures imply costs, landfill allowances £150/t)
250
200
150
100
50
0
-50
-100
-150
5.0 OPTIONS PROPOSED
We have selected 8 options to evaluate. These are:
 Option 1: Existing System
 Option 2: Adapted Recycling Credit – Increasing Payments
 Option 3: Adapted Recycling Credit – Payments Over Target
 Option 4: Adapted Recycling Credit – Increasing Marginal Rewards
 Option 5: Adapted Recycling Credit – Payments by Material Type
 Option 6: Pay for Specific Service Configuration (all-or-nothing Lancs Model)
 Option 7: Tiered Payments in Relation to Service (payments related to service level)
 Option 8: Residual Waste Incentive
 Option 9: Payments in Line with WDA Benefits
 Option 10: Hybrid Environmental / Financial System
The evaluation effectively takes place relative to Option 1.
5.1 Option 1: Existing System
The first option would be to continue to pay the credits in the existing form and following
Government Guidance as set out in Box 2.
Box 2: Extracts from The Environmental Protection (Waste Recycling Payments)
Regulations 2006
(2) Subject to paragraph (4), the authority's amount of expenditure shall be the amount resulting from—
(a) calculating separately the amounts of expenditure which it would have incurred in disposing of
the waste at the relevant date in each of the relevant areas;
(b) calculating the average of the amounts of expenditure calculated pursuant to the previous subparagraph; and
(c) increasing that figure by 3% on 1st April of 2007, with subsequent increases by 3% of the
compounded figure on 1st April every year.
(3) For the purposes of paragraph (2)(a) the amounts of expenditure shall be calculated at a cost per tonne
equal to the waste disposal authority's average cost per tonne for the disposal of similar waste at the relevant
date in each of the relevant areas using the authority's most expensive disposal method for waste collected
in each of those areas.
(4) For the period beginning on 6th April 2006 and ending on 31st March 2007—
(a) the authority's amount of expenditure for the purposes of paragraph (1) shall be calculated at a
cost per tonne equal to the authority's average cost per tonne for the disposal of similar waste at the
relevant date, using the authority's most expensive disposal method for waste collected in the
relevant recycling area; and
(b) "the relevant recycling area" means the waste collection authority area in which the waste in
question is collected or, where the waste in question is collected by a person other than a waste
collection authority in the area of more than one waste collection authority and it is not reasonably
practicable for that person to determine how much of that waste was collected in each of those
areas, the area consisting of the areas of all those waste collection authorities.
(5) In determining the waste disposal authority's cost per tonne of disposing of similar waste, no account
shall be taken of expenditure incurred by the waste disposal authority in determining the amount of, or in
making, any payment under section 52(1) or (3) of the 1990 Act.
(6) If a determination cannot be made under paragraphs (1) to (4) because sufficient accurate information is
not available or could only be obtained at a disproportionate cost, the waste disposal authority's net saving of
expenditure shall be determined by reference to the relevant figure shown in the Schedule to these
Regulations, which shall be increased by 3% on 1st April of 2007, with subsequent increases by 3% of the
compounded figure on 1st April every year.
Note: The Schedule states that this figure is, for authorities other than metropolitan Districts, those in
London and the Statutory Joint WDAs, £41.62 where the authority incurs any transport costs in disposing of
similar wastes, and £31.53 in other cases.
HMSO (2006) The Environmental Protection (Waste Recycling Payments) Regulations 2006, Statutory
Instrument 2006 No. 743
For 2006/07 the Districts will receive recycling credits as follows.
 BBC:
£34.16
 DBC:
£32.46
 EHDC: £36.18
 HBC:
£32.46
 NHDC:
£35.73
 SADC: £32.46
 SBC:
£36.09
 TRDC: £32.46
 WBC:
£32.46
 WHDC:
£32.46
From 2007/08 all Districts will be paid the average cost of the most expensive form of
disposal i.e. landfill. Presumably, the default will be to increase these rates at 3% per
annum from 2007/08.
Example:
In this case the recycling credits simply increase at 3% per annum. For WCAs, this would be
somewhat similar to what happened when the landfill tax escalator was £1 per tonne. This
means that the average incentive provided by the WDA to the WCA is probably below what
is required to incentivise some activities (e.g. paper collection), but well below what would
be required to incentivise collection of materials such as plastics.
This approach suffers from some of the drawbacks mentioned earlier in that it pays the
same level of reward irrespective of:
 the marginal cost to the WCA of recycling the additional unit; and
 the value of the WCA actions to the WDA.
In this sense, it is not economically efficient, Furthermore, if the levels remain at the
current level and increase at only 3% per annum (so they are more or less constant in real
terms), then the measure is unlikely to improve the case for WCAs to invest in activities
over and above what they are already doing.
On the plus side, the measure gives a degree of certainty and it minimises the change
required from the current system.
5.2 Option 2: Adapted Recycling Credit – Increasing Payments
In this case, the WDA effectively takes the view that because it wishes local authorities to
continue increasing recycling, it will pay a higher level of recycling credit to incentivise this
activity. At one level, from the WDA’s point of view, this makes sense as long as the
payment does not exceed the value to the WDA of the activity being undertaken. On the
other hand, the drawback to this solution is that making a higher flat rate payment for all
materials being recycled implies that a relatively high level of payment is likely to be made
for a limited incremental benefit. Indeed, as has been shown, some activities may have
cost implications for the WDA (depending upon landfill allowance values).
The measure has potentially higher ‘deadweight losses’. This is shown by the fact that the
area above the curve – representing the amount on money ‘wasted’ – increases as the
level of the recycling credit increases from C1 to C2. It is, for this reason, a far from optimal
approach to spending WDA resources.
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Figure 9: Change in Deadweight Losses With Increase in Recycling Credit
Level of
Recycling
Credit plus
Avoided
Refuse
Collection
Marginal Cost
Curve for
Collection of
Recyclables and
Compostables
B
C2
C1
A
O
R1
R2
Recycling Rate
Its merit is that it does ensure that the avoided costs of disposal are ‘seen’ by the WCAs.
WCAs are thereby encouraged to take advantage of the potential benefits from avoiding
disposal through recycling. It might be possible to envisage a system in which the system
did not apply, or applied in a different way, to specific materials.
It still does not address the problem that some actions may be of negative value to the
WDA (where they increase the quantity of collected waste). There is clearly no link to
environmental issues.
Example:
In this case the recycling credits increase at a faster rate than the 3% per annum in the
previous option up to a level below the marginal benefit of avoided disposal. For WCAs, this
could be somewhat similar to what would happen with the landfill tax escalator at £3 per
tonne. Alternatively, the credit could increase more quickly to provide the incentive earlier.
This improves the incentive to recycle more material in line with avoided costs of disposal
seen by the WDA. It does not, however, account for different costs of extracting different
materials and for the differing benefits derived by the WDA in dealing with different
materials.
5.3 Option 3: Adapted Recycling Credit – Payments for Above-Target
Recycling
Here, the WDA seeks to improve the ‘value’ of the payment to the WCA by avoiding
payment for ‘statutory’ recycling, and paying credits only for the ‘above target’ recycling. In
essence, the WDA says that since all WCAs ought to recycle up to statutory target levels,
then the credit paid to WCAs should maximise the ‘above target’ element of recycling.
A difficulty here is that those with the highest targets – already having to work hardest to
meet those targets – would gain least credit for their efforts. Furthermore, if the system
was changed suddenly, all WCAs would suffer from a sudden loss in revenue which might
jeopardise existing service provision. Consequently, two sub-options are proposed.
5.3.1 Option 3a: Payments for ‘Above Lowest Target’ Recycling with Existing Recycling
Credit for ‘Below Lowest Target’
The Government has effectively established that the lowest recycling rate for 2005/6 is
20%. This might be construed as the minimum level of recycling for all WCAs. The WDA
could decide to:
 Freeze the credit for ‘below target’ recycling at the current level; and
Pay higher credits for above target recycling, so that WCAs have an incentive to maximise
the ‘above 20%’ performance.
For a given level of total revenue payout from the WDA to the WCAs, this has the advantage
that the marginal rate of payment can be higher than it could be if the WDA was required to
pay the same rate of credit for all tonnes recycled (as under Option 2). This would be
expected, in turn, to give a stronger incentive to WCAs to seek to improve the performance
of their recycling schemes.
It also implies a stable level of revenue based upon existing performance and minimal
disruption to budgets as a result.
Another version of this Option would see the ‘target’ level set at a higher rate, perhaps the
lowest recycling rate being achieved by any authority in 2005/6. This would allow the WDA
to consider further increases in the marginal rate for above target recycling.
Example:
In this case the recycling credits are fixed at current levels for recycling rates from 0% to a
figure to be determined (for example, 25%). Recycling above this level is rewarded at a
higher level, increasing with the perceived benefit of avoiding disposal. This would give
WCAs a progressively stronger incentive to move beyond the level of recycling for which
credits are fixed.
5.3.2 Option 3b: Payments for ‘Above Lowest Target’ Recycling, Phased Introduction
An adaptation of Option 3a would see the existing recycling credit phased out over time. As
the existing credit, for below target recycling, was phased out, so the marginal payment for
above target recycling could be increased. The intention would be not to reduce the total
sum of money paid, but to increase the marginal value of additional recycling so as to
maximise the incentive for additional recycling.
A danger of this would be that the incentive to take actions which are counterproductive for
the WDA becomes very strong. The phase in period also ought to be of the order of a seven
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years to enable adjustments to be made by those who wish to introduce new services in
response to the measure.
It would be important to pre-announce the schedule of credits several years in advance so
that WCAs could plan investments in collection systems on a rational basis.
5.4 Option 4: Adapted Recycling Credit – Increasing Marginal Rewards
In this approach, the WDA makes the assumption that WCAs increase their recycling rates
by choosing materials with lowest marginal cost. The WDA essentially seeks to help them
by paying a credit which increases, as far as possible, in line with escalating unit costs. In
essence, the payments try to mimic the assumed marginal cost curve. By way of example,
the following schedule might be used:
 From 0-10%
£10 per tonne
 From 10-20%
£15 per tonne
 From 20-30%
£20 per tonne
 From 30%-35%
£25 per tonne
 From 35-40%
£35 per tonne
 From 41-45%
£45 per tonne
 From 46-50%
£55 per tonne
 From 50-55%
£65 per tonne
 From 55-60%
£75 per tonne
 From 60-65%
£80 per tonne
The aim is to reward the recycling which costs most.
One problem with this is that some recycling activities are not beneficial to the WDA. Paying
WCAs rising marginal rates for the activity fails to account for the implications for the WDA
itself (so system costs could increase more than is desirable). Furthermore, it could be that
setting credits too low at the lower recycling rates does not reward authorities sufficiently to
move them to higher rates.
5.5 Option 5: Adapted Recycling Credit – Payments by Material Type
There may be a rationale for the local authority to consider making payments by material
type. Indeed, an environmentally informed recycling credit could make payments in line
with, for example, avoided greenhouse gas emissions. Technically, this is easier to agree
upon for dry recyclables than for compostables, though even for dry recyclables, a
‘technically correct’ solution is difficult to work up with a high level of certainty. The issue
here, however, is not to be ‘perfectly correct’, but to set a credit based around the
environmental benefits associated with recycling key materials.
The recent work accompanying the consultation on the English waste strategy suggests
benefits for dry recyclables as shown in Table 2, these being displayed in an indexed form
in Figure 10. According to this analysis, recycling credits for some materials could be far
higher than those for others. If ferrous metals received a credit of £10 per tonne, non
ferrous metals might be eligible for a credit of £268 per tonne, with textiles at £181 per
tonne, dense plastic at £53 per tonne, plastic film at £36.50 per tonne, glass at £17.60
per tonne and paper and card at £11 per tonne.
Table 2: GHG Benefits CO2 (equ) Saving per tonne Material Saved
Material
CO2 Saving (kg) per Tonne Material
Paper and card
-496
Textiles
-7,869
Ferrous metals
-434
Non-ferrous metals
-11,634
Glass
-762
Plastic, dense
-2,324
Plastic, film
-1,586
This option effectively rewards the WCAs for the actions they undertake in respect of
recycling and aligns the effort with environmental objectives.
The assessment for biowastes is, however, more problematic. Many LCAs show very low
GHG-related benefits associated with biowaste collection and treatment partly because of
the fact that the time profile of emissions is not taken into account (so that important
sequestration effects are overlooked).
Potential problems with this approach are:
 That it does not take account of all environmental impacts;
 That it does not take into account the financial costs and benefits of actions
undertaken;
 That it is likely to be difficult to agree actual figures; and
 That it is likely to understate the benefits for those materials which the WDA has
greatest interest in seeing recycled / reduced.
It would probably be another case where there would need to be some phasing in of the
approach so as to minimise disruption to revenue received.
Figure 10: Relative Greenhouse Gas Benefits from Recycling Different Materials
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30
Relative benefits (avoided GHGs from recycling)
25
20
15
10
5
0
Paper and card
Textiles
Ferrous metals
Non-ferrous metals
Glass
Plastic, dense
Plastic, film
Material
5.6 Option 6: Pay for Specific Service Configuration (all-or-nothing Lancs
Model)
In Lancashire, the County has agreed with the Districts to make a payment per household
to those authorities who achieve a particular level of service provision. Two options are
offered to the authorities, but in essence, all households must receive a service which:
 Has a minimum specified scope (materials) and collection frequency;
 Includes fortnightly refuse collection; and
 Includes garden waste collection.
This type of approach is somewhat awkward in that there is no link to actual service
performance. As a result, the WCAs would be best served financially by operating a service
with the required configuration but which performed rather poorly. Such a service would
have a low cost of delivery but would still qualify for maximum revenue payments from the
WDA. This seems to fall down on the value for money criterion. The system also has the
potential, as it is specified in Lancashire, to ossify the collection system. Unless it is
carefully specified, it narrows the options for WCAs in terms of collection strategies.
5.7 Option 7: Tiered Payments in Relation to Service (payments related
to service level)
A variant on the Lancashire model would be to have tiered payments in line with service
levels believed likely to relate to specific outcomes. This would be a way of the WDA
seeking to influence the services, and hence outcomes, of WCA actions. The intention
would be not to specify the system per se, but to specify minimum frequencies for the
collection of specific materials
5.8 Option 8: Residual Waste Incentive
This option essentially rewards WCAs for their performance in respect of reducing the
quantity of residual waste delivered to the WDA. Through this approach, the intention is to
reward performance in terms of both waste prevention and waste recycling. Because the
intention is to reward WCAs for their actions, and because the metric against which a
reward is to be made is the quantity of residual waste, the payment has to be made against
a specific baseline quantity of (residual) waste. This baseline could either be:
 A target figure for total waste per household, with the figure possibly changing from
one year to the next. Performance would measured as ‘reduction below the target
figure’; or
 The average waste per household across the WCAs. Performance would again be
measured as ‘reduction below the target figure).
The target could be set for household or for municipal waste. The advantage of the latter
would be that I effectively incorporates (from the WDA perspective) the relevant incentive
not to add new trade waste to collections.
The nature of payments could be on a flat rate basis. However, the more preferred option
would be to make payments on an increasing marginal basis, so that the incentive for
WCAs to reduce residual waste increases in line with the expected costs of their efforts.
This situation is shown diagramatically in Figure 11.
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Figure 11: Scheme of ‘Disposal Reduction Credits’ for WCAs
Level of Credit
Marginal Cost
Curve for
Reducing
Residual Waste
Quantity
Residual Waste /
hhld for WCA1
Average Quantity
of Waste / hhld
31-40%
41-50%
21-30%
11-20%
C5
0-10%
C4
C3
C2
C1
O
R
T
Waste
Quantity / hhld
The figure shows how different levels of credit are paid on the basis of a reduction in the
quantity of residual waste per household measured from an average quantity of waste per
household for all WCAs. The reduction from this average figure can arise from:
 The fact that other WCAs collect (on average) more waste because of their collection
system design. Household s collecting above average quantities of waste have to
undertake some activity before they receive any credit at all;
 Genuine attempts to prevent waste; and
 Performance in respect of recycling.
The credit increases as the performance improves, but WCAs collecting above average
quantities receive no credit for recycling ‘above average’ tonnage.
This system is attractive in that it sends a positive incentive for both recycling and waste
prevention. It strikes a balance between
 Reflecting the value to the WDA of specific actions; and
 Seeking to reflect WCA costs of these actions.
If the baseline figure is set on the basis of average total waste, it sets up a dynamic
incentive for all WCAs to consider waste prevention very seriously.
5.9 Option 9: Payments in Line with WDA Benefits
Under this option, the WDA seeks to make payments in line with the benefits to itself of the
WCA undertaking the activity. This is the most sensible option from the financial
perspective and most closely resembles the situation in which the authorities act as though
they have one unified budget. It would be important for the WDA to seek to pay at levels
below the actual benefit (say a margin of 10%) so that the actions generate genuine
savings.
Another issue would be how to deal with the background value of landfill allowances. The
authorities would need to take a view on this several years in advance. Even so, the
baseline payment would be a ‘no LATS’ payment, but using an avoided marginal cost of
disposal to be determined by the policy and infrastructure of the WDA in any given year.
The other advantage of this type of approach is that it incorporates the issue of trade waste
within the equation. However, it does potentially award assets to those authorities currently
collecting trade waste. Probably, a base year would have to be adopted in which actual
trade waste figures were used to determine the ‘quota’ for a given WCA (and logically, this
might be 2001/2, the year used to set annual quotas of allowances).
Credits would then be paid in line with the value of the activity to the WDA, subject to a
discount mentioned above.
The drawbacks of this approach might be:
 That it is more complex than some of the other approaches discussed; and
 That there may be a need for an adjustment period in which the existing approach is
changed over time to the one proposed; and
 The approach to dealing with LATS related benefits is subject to the same
uncertainties plaguing the future prediction of landfill allowance values.
It also fails to pick up any environmental rationale. Even so, it is the one approach which
does align the financial incentives of the WCA and the WDA.
5.10 Option 10: Hybrid Environmental / Financial System
A final option – a hybrid which highlights the potential to combine different elements – is to
combine the financial rationale of the WDA with the environmental benefit to society.
Evidently, for materials where there is no net benefit to the WDA, it would be difficult to
justify the financial rationale for ‘environment-related spend’. What is interesting, however,
is that where recycling is concerned, some of the materials which generate most
environmental benefits where GHGs are concerned are those which (because they are not
biodegradable) are not so valuable from the perspective of the WDA.
So, one could imagine a system in which the payments envisaged under Option 9 are made
slightly lower for all activities so as to accommodate some more of the environmental
rationale for the different WCA actions. This could be applied to waste prevention as well as
recycling. The extent that benefits from prevention are likely to be similar to those
associated with recycling (whether they are greater or smaller will depend upon the
average material content, virgin and recycled, of what it is that is being prevented).
This hybrid system effectively tries to account for existing market failures, as well as the
absence of relevant financial transfers between WCAs and the WDA.
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