The Waste Levy pros and cons from a business perspective

1. The Waste Levy � pros and cons from a business perspective John Pask Business NZ

2. About Business NZ

3. Proposed waste levy Is it necessary? Implications for business

4. Is waste a problem in NZ? NZIER: Waste or Rationality? Economic perspectives on waste management and policies in NZ Waste viewed as problem Perceived harm to environment, human health Perceived scarcity of space for landfills Concern over availability and conservation of raw materials Moral distaste at perceptions of over-consumption

5. Main contributors to waste Organic wastes, rubble, timber, paper = 2/3 of volume in landfills Some wastes that have recently captured public attention make up only a small part of landfill volume: disposable nappies, glass, plastic

6. How big is NZ�s waste problem? NZIER report found: Comprehensive, up-to-date data for NZ not available, international comparisons difficult because of differing definitions NZ�s waste disposal per head lower than in Australia, but higher than in OECD (mostly EU) countries EU high population densities and tighter land constraints than NZ, so more pressure to divert wastes from landfills to recycling or incineration with energy recovery

7. NZ�s special challenges NZ long, skinny & mountainous = high transport costs Low pop. density, wastes generated over large areas High cost of waste collection, hard to get economies of scale, often uneconomic to recycle Few plants able to use recovered material, not centrally located e.g. Auckland for glass Fluctuating commodity prices and exchange rates, hard to export recovered material

8. Problems in the past Old, poorly managed, unregulated landfills, poor pricing signals Contamination of surface waters and aquifers from leachates seeping from unlined landfills Fires, explosions, toxic emissions from mixed wastes in landfills Neighbourhood nuisance - noise, smell, vermin Methane emissions - potent greenhouse gas

9. However, since RMA 1991 Higher consent standards, non-compliant landfills closed Landfills 327 ? 95 during 1995-2005 Fewer price distortions, fees reflect the Landfill Full Costings Guide Many councils charge �per throw� instead of rate- funding household collection More private waste mgmt firms, commercial approach

10. Is a waste levy necessary? Waste levies proposed to help pay for waste minimisation (reclaim, reuse, recycle etc) BUT Is there sound justification for non-targeted waste levies (i.e. levies over and above the cost of disposal at landfill)?

11. Optimal amount of waste It pays to invest in reducing waste up to the point where costs = benefit of taking action This is the same with many other so-called public �bads� e.g. crime Waste cannot be completely eliminated without great cost �Zero waste� well intentioned but ultimately a nonsense

12. Aust Productivity Commission Report (Oct 2006) ��..challenges the notion of waste being inherently bad and recycling being inherently good. Policies that minimise waste are not costless and more recycling is not always a better thing.� �Waste management policy should be refocused on the environmental and social impacts of waste collection and disposal, and supported by more rigorous cost-benefit analysis, if it is to best serve the community.�

13. Hidden costs of resource use Just as the average Kiwi household would struggle to produce no waste - same for business Hidden costs of time, energy, money In seeking to reduce physical waste we shouldn�t waste these non-physical resources by diverting them from other more valuable uses

14. Questions to ask first� Are there market failures that would justify waste levy? What are the benefits & costs (including unintended costs, opportunity costs) of imposing waste levies? Are there alternatives e.g. better information to business and consumers, or ensuring prices reflect the real costs of disposal?

15. Market failure Few market failures relate to waste One possibility: where externalities (effects) are more costly to the community than to the company/individual producing or using the product

16. Internalising costs important Individuals and firms should bear the full cost of their behaviour But firms shouldn�t have to pay more than the costs they are responsible for NZ & international literature: landfill externalities don�t justify levies over and above landfill gate costs

17. Evidence of significant externalities? Martin Ward report for MfE (March 2006): Most landfills are charging at or above full cost level Many privately owned, by definition charge to cover costs & make profit Continuing trend to fewer, newer, larger landfills Aust. Productivity Commission report (Oct 2006): Externalities from modern landfills are minor Externalities like greenhouse gases best addressed through national initiatives

18. Cost of waste levy In original form Waste Minimisation (Solids) Bill would impose $25 per tonne on waste to landfills Different rates for different types of waste Cost approx $100m pa across economy Might start lower, $10 per tonne, increasing over time Upfront cost likely to underestimate the total costs (compliance, updating weigh stations, bureaucracy) apart from levy itself Resources diverted from more productive activity

19. Will it change behaviour? Given size of levy, unlikely to change behaviour May add $10-$20 pa to av. household rubbish bill Impact on business will vary, but likely to be marginal

20. Concerns National levies won�t reflect regional differences Incentive to dump waste illegally Local govt could use the funds inappropriately Levy could rise as vested interests seek subsidies for pet projects Revenue likely to be swallowed up in bureaucracy Bill allows Minister to increase the levy by at least 50% if it doesn�t decrease waste received at landfills Harm to NZ�s international competitiveness (NZ firms higher waste costs than overseas firms)

21. Risks Policy dominated by those with narrow interest in waste reduction Diverting business resources from productive activities Every $ diverted to waste abatement has opportunity cost in alternative uses forgone (other environmental remediation, education, health, business investment) may be more valuable to public than waste reduction Uncertainty over future changes = disincentive for investment

22. What can we do to reduce waste? Already market-led initiatives to reduce waste More could be done to get pricing right so individuals and businesses face actual costs of disposal rather than flat charging

23. Market-driven initiatives Fisher & Paykel take-back scheme Resene�s levy on paint to fund their take-back schemes for unwanted paint Cell phone take-back Vodafone, Telecom Dell accepts old computers Packaging Accord Foodstuffs reducing plastic bags in supermarkets

24. Outcomes Most of these schemes working satisfactorily Economically rational Good for the brand ? profits Business NZ supportive of voluntary schemes, responding to the concerns and wants of their client base i.e. market signals

25. Aust. Productivity Commission: �Getting prices for waste disposal right will help reduce waste generation and achieve an appropriate balance between disposal and recycling. Basic forms of �pay as you throw� pricing for municipal waste, such as charging for larger bins or more frequent services, should be more widely adopted.�

26. Aust. Productivity Commission: �Disposal fees should be based on the full social, environmental and financial costs involved. For landfills, this will require: Tightening regulatory compliance so that landfill gate fees include the costs of the regulatory measures needed to address disposal externalities; but Abolishing landfill levies (taxes) as these are not based on legitimate costs. Basic forms of pay-as-you-throw pricing for kerbside waste and recycling services, should be more widely adopted, with information on the actual costs for these services better communicated to households.�

27. Better pricing needed Some councils charge for waste collection through rates, no relation to individual waste generated (e.g. Auckland City Council) Others charge user-pays, payment per bag (e.g. Wellington) Private sector operate wheelie bins (generally flat charge per month, weekly collection

28. Conclusions on the Bill If the Bill is to proceed then: Needs independent cost/benefit analysis like Aust. Productivity Commission Consider alternatives to regulation e.g. education initiatives, web-based advice services Encourage market-driven, industry-led solutions e.g. voluntary product stewardship schemes with monitoring of outcomes. Any govt action to reduce waste below normal business practice e.g. through waste levies, should be funded via tax