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Reducing Landfill: A Landfill Allowance Scheme Consultation

2 OVERVIEW OF THE SCHEME

2.1 Under the WET Act, each country in the UK will be set targets for the level of BMW it may landfill (see Annex A). In the landfill allowance scheme, allowances will be allocated to each local authority at a level that will enable Scotland to meet its own target and contribute to achieving the EC targets.

2.2 Each local authority will be able to determine how to use its allocation of allowances. They will be able to save unused allowances for use in later years (banking), or use some of their future allocation of allowances in advance (borrowing). This will allow individual local authorities to make use of their allowances in the most effective way for them and according to their own integrated waste management plans.

2.3 Local authorities may also be able to trade allowances with each other. If trading is introduced, it will not be compulsory; a local authority could choose to landfill in line with its allowances without trading. The advantage of trading is that it overcomes the fact that different local authorities will face different diversion costs depending on their particular circumstances.

2.4 Local authorities with the lowest diversion costs are likely to landfill less than their allowances permit and sell the surplus to local authorities which face higher costs of diversion. Conversely, local authorities with higher costs of diversion may prefer to meet their obligations under the scheme by buying allowances at a lower cost than actually undertaking the diversion themselves. Through this flexibility the scheme will enable Scotland to meet its targets in the most cost effective way.

WHO WILL HOLD ALLOWANCES

2.5 Allowances will be allocated by the Scottish Executive to all local authorities in Scotland and only local authorities will be able to hold them in Scotland. The equivalent authorities in other parts of the UK will also hold them.

2.6 The WET Act does not allow private brokers to hold allowances. This is because the scheme is not intended to be speculative but is designed to use public funds in the most efficient manner. If private brokers were able to buy allowances they could decide to withhold them from the market to raise the price for local authority purchasers; this would not be good use of public funds.

WHAT ALLOWANCES WILL DO

2.7 Allowances will convey the right for a local authority to landfill a certain amount of BMW in a specified scheme year. Only BMW that has arisen in the area of a local authority and is landfilled will be counted against that local authority’s allowance. Waste from other local authorities which is landfilled in the area of a local authority will not be counted against the allowance of the receiving authority but will be counted against the allowance of the local authority in whose area it was produced.

2.8 Each unit of allowance will have a unique number and will give a local authority the right to landfill one tonne of BMW. Allowances will be allocated to a specific local authority for a specific year. An allowance can only be used by that local authority unless it is traded (see section 5) and in any case can only be used for the year in which it is allocated unless it is banked or borrowed (see section 4).

WHEN THE SCHEME WILL START

2.9 The Executive intends to launch the scheme at the earliest opportunity. The WET Act provides for the scheme to start in 2004, and the Executive is keen that a fully functioning market for allowances emerges ahead of the first Directive target year. However, it is important that the scheme recognises the time that it takes to put in place the facilities and practices to make the scheme work and that there are credible monitoring arrangements in place before the scheme starts. Effective trading cannot take place without arrangements to reconcile allowances and landfill activity.

2.10 The Executive proposes to start the scheme in July 2004 but to treat the first scheme year as a pilot year, with a formal start to the scheme in 2005/06. This would allow the full development and testing of monitoring arrangements. However, the Executive shall need to be reassured that treating this year as a pilot year shall not lead to delays in progress towards the 2006 target and the 2010 Landfill Directive target.

2.11 If 2004/05 is a pilot year, each local authority would be told what its allocation of allowances would have been for that year. Local authorities shall be expected to keep adequate records from the beginning of the year so that their performance can be assessed. During the year, SEPA’s monitoring arrangements (described in section 6) would be put in place. In this pilot year, there would be no opportunity to trade allowances, and no financial penalty would be imposed on local authorities who landfill more than their limit. However, given the lower limits for 2005/06, exceeding its limit for the year will clearly be of great concern to any local authority. As an added incentive, the Executive is considering allowing, on a discretionary basis, a degree of carry forward to 2005/06 for clear over-achievement of targets in 2004/05.

Q1: Would a pilot year in 2004/05 allow further time for monitoring arrangements to be tested without undermining the aims of the scheme and progress towards targets?

DEFINITION OF A SCHEME YEAR

2.12 The WET Act provides for a landfill allowance scheme that operates with a 17 July to 16 July scheme year, although this definition can be amended. This definition will coincide with the 17 July target dates set by the Directive, but local authorities might prefer it if scheme operated on a 1 July to 30 June year, so that the end of the scheme year coincides with the end of the first quarter of local authorities’ financial year.

Q2: Should the scheme year start on 1 or 17 July?

THE PERIOD ALLOWANCES SHALL BE ALLOCATED FOR BEFORE THE SCHEME STARTS

2.13 Taking account of views from previous consultation, the Executive proposes to allocate allowances to local authorities at the beginning of the scheme for the first 6 scheme years 2004/5 - 2009/10. This will allow local authorities to plan for the long term: both their future trading strategy and their investments in landfill diversion. It will give local authorities the chance to make use of the trading mechanism and allow the market to mature before the first EC target year. The Executive has considered giving nominal allocations for 2010/11-2019/20 at the start of the scheme, subject to the allocation being reviewed. However, it considers that this might lead to difficulties if local authorities are allocated a lower level of allowances after 2010 than expected.

Q3: Are local authorities content that allowances will be allocated from the beginning of the scheme through to 2009/10? Would local authorities prefer to be given nominal figures up to 2020 that might be changed from 2010?

REVIEW OF THE SCHEME

2.14 The Executive proposes to review the scheme ahead of the first EC target year (2009/10). The purpose of this would be to:

• Assess the effectiveness of the operational arrangements.
• Review the method of allocating allowances — for example, to reflect an improved understanding of the availability and cost of alternatives to landfill.

2.15 It will be important to review the system of allocation because it is likely that there will be significant changes to waste management and waste treatment technology. The scheme should be flexible enough to adjust to these developments.

2.16 The review will take place before scheme year 2009/10. Any changes arising from the review would take effect from the beginning of the following scheme year i.e. 2010/11. Delaying any potential changes until after the first EC target year would have the clear benefit that plans already made by local authorities for using their allocation in EC target year 2009/10 would not be affected. It would also allow them more time to plan for the effects of any future changes to their allocation.

Q4: Should there be a review?

Q5: Is the proposed timing for the review reasonable?

Q6: Should any changes arising from the review be made in 2010/11?

Q7: Should any further reviews take place, if so, when?

PARTIAL REGULATORY IMPACT ASSESSMENT

2.17 The attached Partial Regulatory Impact Assessment (Annex E) includes costs associated with the proposed scheme and with the other options of not introducing any scheme, only restricting landfill in EU target years and having a scheme with no trading, banking or borrowing.

Q8: Are the costs set out in the Partial Regulatory Impact Assessment an accurate representation of the likely costs of the four options?

Q9: What further information about costs do respondents have?

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