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2. Allowances
2.1 Allocation
Under Section 4 of the Waste and Emissions Trading Act 2003 ( WETA), Ministers are obliged to make an allocation of allowances to local authorities in Scotland for each scheme year, within the total set for Scotland. The 'Scheme Year Regulations' (The Landfill (Scheme Year and Maximum Landfill Amount) Regulations 2004 S.I. No. 1936) set limits on total allocations in Scotland for each year, and were made with the agreement of Scottish Ministers.
Scottish Ministers have made allocations up to the first scheme year in 2009/10. These are presented in Annex B.
2.2 Banking
Banking is provided for in the Landfill Allowances Scheme (Scotland) Regulations (the Regulations) (regulation 6). Where a local authority is assessed to have landfilled a lower weight of BMW than their available allowances for that year, some allowances will remain unused. In most years, these allowances shall be banked and then become available for use in the following year. Unused allowances shall be banked, without limit, other than in target years and in a scheme year immediately preceding a target year. The reason that the Regulations do not allow banking into target years is that, in order to meet the targets nationally, it is crucial that only allowances allocated for target years are used in target years.
Following the end of scheme years other than target years or years preceding target years, unused allowances are automatically banked in the electronic register, and are available for use in the following scheme year. There is no need for local authorities to take any action to secure this banking.
2.3 Borrowing
Borrowing is provided for in Regulation 7. Landfill allowances can be brought forward from the following year, subject to limits of 10% in the first three years of the scheme (2005/6, 2006/7 and 2007/8), and 5% thereafter. Borrowing is not allowed in target years or in a scheme year immediately preceding a target year.
Local authorities can arrange to borrow within these limits through the electronic register. Information on how to operate the register is available in the User Guide. Borrowing requests within the limits can be made at any time until the end of the six month reconciliation period following the end of a scheme year.
2.4 Transfer
Regulation 8 which allows transfer of landfill allowances commences on 1 April 2008. This, in combination with the similar trading regime in place for England, will allow trading, across England and Scotland. If Wales and Northern Ireland decide to introduce trading provisions into their Regulations, their authorities would also be likely to be involved in a single trading market.
Transfer from 1 April 2008 will be arranged through the Electronic Register. Full information on the process is available in the User Guide for the Register. The Register is set up so that trading is possible for allowances issued for the 2008/09 and 2009/10 years. However, local authorities should not seek to trade for these years until the Executive issues specific guidance advising them that they can commence trading for these years.
Any surplus allowances held by local authorities in the years before target years (which, as provided for in section 23 of WETA are 2009/10, 2012/13 and 2019/20), such as 2008/09, or in target years, such as 2009/10 that are not transferred to another local authority will be cancelled at the year end as banking is not permitted in these years.
2.5 The electronic register
The regulations require SEPA to maintain a register of the landfill allowances allocated, banked, borrowed or transferred by all local authorities (regulation 16). This is fulfilled through the provision of an Electronic Register. This register also records how much biodegradable municipal waste local authorities actually send to landfill, following the final assessment made by SEPA under regulation 15, so that landfill allowances can be reconciled to this level of landfilling of BMW.
2.6 The suspension of banking, borrowing and transfer
Regulation 9 sets out the conditions in which the Scottish Ministers may suspend banking, borrowing and transferring allowances for any or all local authorities. These are:
- For years between target years, (ie 2011 and beyond), if there is a risk that Scotland will exceed its allowances for the year; or,
- If there is a need to suspend whilst allowances are reallocated.
It also sets out the conditions under which the Executive may suspend these activities for a particular local authority, if Ministers have reason to believe that the authority:
- is exceeding its allowance limit;
- is not complying with any of the requirements under the Regulations; or,
- if an unauthorised person attempts to make a transaction on behalf of the authority.
Regulation 9 also details the grounds and procedures for imposing or lifting a suspension.
If this action is taken by Ministers, the Scottish Executive will ensure that the reasons are given to the relevant council(s) within 5 working days so that the council(s) can consider whether they wish to dispute the information or grounds upon which the suspension has been made. If the local authority wishes to dispute such information / those grounds, the Executive shall aim to consider this within 4 weeks.
Where the Executive is considering suspension within a reconciliation period, careful consideration will be given to ensuring the suspension is justified, given the effect of such a suspension on the council's ability to mitigate any excess landfill through borrowing and transfer. If a council disputes the grounds for suspension in these circumstances, the Executive shall make every effort to give prompt consideration to the representation.
The Executive does not expect that it will use the powers to suspend banking, borrowing and transfer often.
The first set of reasons (see regulation 9(1))covers the suspension for all authorities. The first of these, namely, the risk of the total amount of BMW exceeding total allocated allowances for Scotland, concerns the years between target years, which cannot occur until 2011/12 at the earliest, and in any case should not happen because of the limits on borrowing. As regards the second, i.e. the need to suspend whilst a reallocation of allowances in made, the Executive shall aim to ensure that reallocations are made with adequate notice so that this measure is not necessary.
The second set of reasons (see regulation 9(2)) concerns the suspension for individual authorities. The suspension for excess landfill is not automatic, so as not to prevent an authority purchasing allowances and borrowing in order to correct the situation. However, if it appears that an authority is taking unjustified actions, such as selling allowances when clearly heading for excess landfill, Ministers will consider suspension. Suspension may also arise where there has been a failure to comply with requirements in the Regulations such as, for example, if a local authority failed to submit data to SEPA. In such an eventuality, it might be disruptive to allow them to continue to trade when their position with respect to the quantity of landfill was unknown. Finally, there is a provision relating to unauthorised transactions. This should not occur with good practice and the electronic register.
In practice, "reason to believe" is likely in most cases to mean that the Executive has been informed of the situation by SEPA, although it is also possible that the Executive will receive information from other sources, such as the individual local authority itself.
2.7 A trading system through reallocation
Prior to April 2008, the Executive shall consider any reasonable requests from local authorities to reallocate allowances. This request would have to come jointly from a local authority wishing to transfer allowances, and a local authority which had arranged with this first authority to receive the allowances. Such arrangements can only cover two Scottish local authorities. The Executive will only agree to such requests which comply with the conditions on transfer in the Regulations (regulation 8), and it is clear that the authority giving up allowances is able in all likelihood to function effectively without the allowances.
The arrangement would involve equal but opposite adjustments to the allocation of allowances of each authority in the scheme year for which the transfer is being made (for example one authority's allowance account falling by 1000 tonnes, and the others rising by 1000 tonnes). This adjustment would not affect any future allocations, and transferred allowances could be banked in a similar way to any other allowances. It would be for the two authorities to determine what arrangement they should enter into to compensate the authority that was giving up allowances, within their normal financial controls and duties. An additional option that pairs of authorities may consider is swapping allowances between years, through a request for a reallocation in favour of one authority in one scheme year, and a balancing reallocation in favour of the other authority in a different scheme years.
This arrangement covers allowances up to the 2007/08 scheme year, as beyond that date allowances will be freely tradable, and any such requests must be made at least by the end of July following the end of the scheme year to which the allowances relate. On granting such a request, the Executive shall write to both authorities, and at the same time formally notify the reallocation to SEPA and enter the change on the register. The local authorities shall have to inform SEPA of the price (if any) paid under the arrangement, so that it can fulfil its duty under regulation 16(3) to record the total of such payments at the end of the year.
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