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Reducing Landfill: A Landfill Allowance Scheme Consultation

5 TRADING OF ALLOWANCES

5.1 This chapter describes how allowances could be traded between local authorities as provided for in regulations under section 7 of the WET Act. Allowing trading will enable authorities to achieve the required reductions in biodegradable municipal waste in the most flexible manner possible. Used in the right way, trading will facilitate long term waste management planning and allow local authorities that have made early investments in infrastructure to off-set some of the costs.

5.2 Trading will not be obligatory and local authorities may choose only to landfill as much of their BMW as they are permitted to by the allowances they are allocated for each year.

5.3 Only local authorities will be able to hold allowances and therefore trades can only take place between local authorities.

5.4 Subject to the rules of borrowing and banking outlined in chapter 4 local authorities will also be able to:

• bank allowances for trade in future years;
• buy allowances and then bank them for use in later years.

Q15: Should local authorities be able to trade allowances with other local authorities?

THE TRADING PROCESS

5.5 Local authorities would be able to negotiate directly between each other or through brokers to buy and sell allowances at an agreed price.

5.6 Once local authorities have agreed to trade allowances with each other, they will both be required to submit information to SEPA (see section 6). Until this has been done allowances will not be transferred between accounts. Local authorities will need to give details of:

• the amount of allowances bought or sold, including reference numbers;
• the local authority with which they are trading;
• the date of the trade;
• the amount paid for the allowances.

5.7 The WET Act provides for regulations to be made allowing Scottish Ministers to suspend the trading.

Q16: Under what circumstances should Scottish Ministers consider suspending trading for individual local authorities or for all local authorities?

5.8 Because allowances will be allocated at the beginning of the scheme up to 2010, a local authority will be able to agree to trade with another local authority in advance for any year up to 2010. This will help local authority long term planning; some of the uncertainties of buying allowances on the market will be overcome if a local authority makes an agreement to trade in advance for a certain price.

BROKERS

5.9 If it chooses to do so, a local authority will be able to use brokers to make the arrangements for trading its allowances.

5.10 As trading will take place using public money, the Executive proposes that any person wishing to act as a broker for the landfill allowance scheme should be required to hold a licence issued by SEPA. In order to gain a licence, potential brokers would be required to provide SEPA with their name, business name and address and the name of the local authorities for which they are working.

Q17: What information should brokers be required to pass on to SEPA?

THE PRICE OF ALLOWANCES

5.11 The Executive does not propose to restrict the price of allowances so there will be neither a price floor nor a price ceiling. The penalty which local authorities will receive for exceeding their allowances will effectively act as a price ceiling.

5.12 A price floor would preclude local authorities from trading on a non-monetary basis. Even for monetary trading, if the price floor is set at the wrong level it could discourage trading which would otherwise have taken place at a lower level.

5.13 The Executive seeks views on whether local authorities should be permitted to trade on a non-monetary basis. Allowing non-monetary trading would give local authorities as much flexibility as possible in the way they trade. However, in the unlikely event that significant levels of non-monetary trading occur, this could distort price signals in the market making it harder for local authorities to ascertain the market value of allowances.

5.14 The Executive will monitor the operation of the market and should it prove necessary to introduce price restrictions, the regulations establishing the landfill allowance scheme will be revised.

Q18: Should the Executive permit non-monetary trading?

Q19: Can respondents give legitimate reasons for allowing non-monetary trading?

MEASURES TO ENCOURAGE TRADING

5.15 The Executive recognises that landfill allowance trading will be a new activity for local authorities. We propose to produce guidance to ensure that officers from local authorities understand how the trading mechanism works and to encourage local authorities to trade to the optimum level throughout the scheme.

CROSS BORDER TRADING

5.16 In addition to allowing local authorities in Scotland to trade with one another, the Executive intends to allow local authorities in Scotland to trade with local authorities in other parts of the UK that have a trading scheme.

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