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Reducing Landfill: A Landfill Allowance Scheme Consultation

7 THE PENALTY SYSTEM

7.1 As well as having an accurate monitoring system it will be vital for the scheme to have a clear and effective penalty regime. Section 9 of the WET Act provides for a system of financial penalties and offences to act as an incentive for local authorities and landfill operators to comply with the requirements of the landfill allowance scheme. It also provides for criminal sanctions for certain serious breaches. The three main purposes of the penalty system are:

• To provide a disincentive to local authorities to landfill a greater quantity of waste than they are permitted to by the allowances they hold.
• To pass down at least a proportion of any fines imposed on the UK by the European Court of Justice (ECJ) to the local authorities that are responsible for the UK as a whole breaching its targets.
• To provide a disincentive to landfill operators and local authorities to breach other requirements of the landfill allowance scheme which are necessary to ensure the effective operation of the scheme.

7.2 The main principles of the system are:

• Prevention: Penalties should act as a disincentive. Local authorities should not see exceeding their allowances and paying the penalties as an alternative to reducing the amount of biodegradable municipal waste they send to landfill.
• Simple: A simple system should be quicker and easier to operate.
• Transparent: A transparent system will be seen to be fairer and easier to understand.
• Proportionate: Any penalty should be reasonable and proportionate to the level of the offence.

PENALTIES FOR BREACHING LANDFILL ALLOWANCE LIMITS

7.3 The WET Act provides for a penalty to be imposed on local authorities that fail to comply with their obligation not to send more BMW to landfill than they are permitted to by the allowances that they hold (section 9(2)).

7.4 The Executive proposes that the penalty for breaching allowances should be:

• For each tonne of waste which a local authority landfills in excess of its allowances it will have to pay twice the cost per tonne of the most costly established method of diversion from landfill.

7.5 We will undertake further analysis of the most costly established method of diversion from landfill and will publish the results prior to the start of the scheme. It is likely to be a waste management option such as in-vessel composting of kitchen waste.

Q26: Does the level of the penalty reflect the principles?

Q27: Will this level of penalty act as a sufficient disincentive to prevent local authorities from breaching allowances?

SUPPLEMENTARY PENALTIES FOR BREACHING ALLOWANCES WHEN THE UK EXCEEDS EC TARGETS

7.6 Section 9 of the WET Act also provides for local authorities to be liable to a supplementary penalty where:

• in an EC target year, a local authority fails to comply with its obligation not to send more BMW to landfill than it is permitted by its allowances and the UK exceeds its target (section 9(3));
• in scheme years after the first EC target year in 2010, a local authority fails to comply with its obligation not to send more BMW to landfill than it is permitted by its allowances and the UK exceeds its target for the previous EC target year.

7.7 The percentage reduction targets set out in paragraph 1.4 are to be made by the time of the target years and maintained beyond them. Therefore, in scheme years after the first EC target year in 2010, the UK cannot exceed its target for the previous EC target year.

7.8 It is the Executive’s view that local authorities must be given a strong incentive not to landfill more than the level of allowances they hold. In a target year, even if only a few authorities breach their allowances, the UK is likely to exceed its target under the Landfill Directive and may be liable to fines from the ECJ under Article 228 of the EC Treaty for breach of European Community law. Although the level of penalty is a matter for the ECJ, it is likely to take into account the European Commission’s own guidance in terms of which the level of penalty is calculated using a flat rate formula which is adjusted according to the seriousness of the infringement, its duration and the size of the Member State which is in breach¹². In the case of the UK, this could amount to a significant sum of up to approximately ¤0.5m per day.

7.9 The Executive suggests that the most effective disincentive to ensure that limits are not exceeded would be for the entire fine received by Scotland to be passed on to the local authorities responsible for any breach. Individual local authorities would receive a fine which is proportionate to their contribution to the breach as measured by the number of tonnes of BMW by which the UK fails to meet its target. On this basis, fines could be very substantial where an authority has significantly exceeded its allowances.

Q28: Should the whole of any EU fine for breach of targets be passed on to the authorities responsible for the breach, or only a proportion of the fine?

Q29: What would be the justification for not passing on the whole of a local authority’s share of the fine?

PENALTIES FOR FAILING TO PROVIDE MONITORING INFORMATION TO SEPA

7.10 Section 12(3) of the WET Act provides for penalties to be imposed on local authorities that fail to comply with obligations under regulations made under section 12 to maintain certain records, gather prescribed information, make prescribed returns to the monitoring authority and produce records for inspection.

7.11 The Executive proposes to impose a fine on local authorities that fail to provide SEPA with the necessary monitoring information outlined in chapter 7. The proposed level of the fine is £1000.

Q30: Is this level of penalty appropriate?

PENALTIES FOR FAILING TO PROVIDE INFORMATION ON BORROWING, BANKING AND TRADING

7.12 The WET Act also enables regulations to provide for a penalty to be imposed on local authorities that fail to comply with a requirement under regulations to provide information about their:

• inter-year use of allowances (section 6(3)(g)).
• acquisition and disposal of allowances (section 7(3)(i)).

7.13 The Executive’s view is that it should not be necessary to make use of this power. Local authorities will have to provide SEPA with information about borrowing and trading before any transfer of allowances across accounts and across years takes place. It will, therefore, be in a local authority’s interest to provide SEPA with this information and it is not considered necessary to provide for an additional penalty.

Q31: Should the Executive make use of the power in the WET Act to impose penalties on local authorities which fail to provide information in relation to banking or borrowing?

PENALTIES FOR BREACHING OTHER SCHEME REGULATIONS

7.14 The WET Act also enables regulations to provide for penalties to be imposed on local authorities that fail to comply with any requirement of the scheme regulations (section 11 (3)).

7.15 The Executive’s view is that it should not be necessary to make use of this power. Local authorities should already have sufficient incentives to comply with regulations made under this clause of the Act.

HOW PENALTIES WILL BE APPLIED

7.16 Where it appears to SEPA that a local authority is or may be liable to a penalty, SEPA is required to notify Scottish Ministers without delay (clause 10(2)(d) of the WET Act).

7.17 Where a local authority has failed to comply with the regulations for which a penalty is provided, it will be automatically liable to a penalty which will become due one month after the end of the reconciliation period for each scheme year.

7.18 However, under section 26(1)(c) Scottish Ministers may extend the time for paying the penalty or relieve the authority, wholly or partially, from liability to the penalty. Such relief may be subject to conditions (section 26(2)). The Executive proposes that this power should only be used where a local authority can prove that exceptional and unforeseen circumstances caused it to breach its allowances.

7.19 A local authority will have a further month after the imposition of a penalty either to pay the fine or make a case to Scottish Ministers for it to be waived or delayed. After this interest will accrue and be calculated on a daily basis at 1% above base rate.

Q32: Under what circumstances should Scottish Ministers consider extending the time for paying penalties or relieving local authorities from liability to penalties?

Q33: How can a local authority prove that exceptional and unforeseen circumstances caused it to breach its allowances?

CRIMINAL PENALTIES

7.20 The WET Act makes it a criminal offence for a person concerned in the operation of a landfill site to fail to comply with requirements to keep records and provide information and access as prescribed under section 13(1) or 13(3) or intentionally to obstruct a person exercising a power of inspection under section 13(3). The maximum penalty for this offence on summary conviction is a fine not exceeding the statutory maximum and on indictment, imprisonment for a term not exceeding 2 years, a fine, or both (section 13(5)).

7.21 The WET Act also permits regulations to create a criminal offence for breaches of:

• the provisions of regulations providing for the borrowing and banking of allowances (section 6(3)(j));
• the provisions of regulations providing for the trading of allowances (section 7(3)(l)); or
• a broker’s licence (section 7(3)(l)).

7.22 The Executive considers that the method of registering borrowing, banking and trading will make it unnecessary to create criminal penalties in the first two cases. However, it is proposed to create an offence where an individual acts as a broker without holding a broker’s licence from SEPA.

7.23 As the scheme is implementing an EC obligation, the maximum level of penalties which may be provided for offences related to the borrowing, banking and trading of allowances (sections 6 and 7 of the WET Act) reflect those that are permitted under the European Communities Act 1972 (section 8).

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