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Landfill Escalator flaws could result in UK missing EU targets

Overly simplistic with a blindspot is how authors of a recent Impact Assessment of the Landfill Tax (LfT) Escalator have described the policy.

The report by consultants Eunomia revealed flaws that could lead to the UK missing its EU Landfill Directive targets. But they said a straight forward change could rectify this.

The analysis found that a blanket LfT rate is unlikely to achieve the best outcome for local government, businesses or climate change. Report authors said the tax fails to reward people that biostabilise waste using mechanical biological treatment (MBT). Yet this methane reducing approach is recognised when local authorities are assessed under the Landfill Allowance scheme.

Report project director Dominic Hogg said: We are effectively not recognising the environmental benefit that biostabilisation derives even though under the Landfill Directive accounting process, that benefit is clearly recognised. Its an inconsistency, its a failure and its a problem that arises because the tax is too simply structured.

Hogg explained: If I stabilise waste and send it to landfill and pay a lower rate of tax, for example £2 a tonne, the total cost of my process might be about £55/£60 a tonne. But if all the outputs from my process are taxed at a standard rate, its going to cost more because that tax is going up to £48 a tonne.

He said this cost would put people off developing methane reducing MBTs.

Another report author Adam Baddeley said: The LfT escalator should be used to encourage positive environmental change, but where stabilising waste is concerned, the Treasury has a blind-spot.

Hogg added that there is also a strategic problem with the current policy.

If youve got a tax that is going up and up, and people dont know where its going to stop, they will say: We dont want to use the biostabilisation process because it has a significant exposure to landfill tax.

People will say: We need treatments that dont require as much landfill, like thermal treatment, incineration.

The problem with this, he says, is that incinerators take longer to build than MBT plants. While MBTs could be in place by 2010/11, incinerators could take until 2015, which might be too late.

Im not an apologist for landfill, Hogg said, Wed like to see less residual waste of any form and the good thing about stabilisation processes is that because it doesnt use large amounts of capital theyre not the types of facility that have to be feed. So they are more flexible for waste strategy design. People can send varying amounts of material into the process without such a penalty in costs. This has benefits if people want higher recycling strategies.

But he asks: Why, when time seems to be an issue for meeting Landfill Directive targets, are we sending the message to people that we dont want them to do the thing (MBT) that could be the cheapest and quickest way to meet these targets?

Another concern highlighted by the report is that promises by the Government to keep the tax revenue neutral are weakening. It said that costs burdens do matter to local authorities, who have no assurances from the Treasury that any tax paid will find its way back to them for future infrastructure investment. Authors said that these results highlight the point that while there is an entirely legitimate revenue-raising role for environmental taxes, such taxes should seek to retain their environmental credentials.

Finally, researchers set up models to predict how different tax structures could affect the likelihood that the UK would meet Landfill Directive targets. The outcomes were measured in monetary terms.

According to the results, under the LfT Escalator, announced in the 2008 Budget, for the period 2008 to 2020 local authorities will pay an additional £1 billion in LfT and an additional £0.5 billion for
treatment facilities developed to avoid the tax ("pre-tax outlays").

However, climate change benefits are only £0.3 billion and Landfill Directive targets in 20012/13 will be missed. Business will pay nearly £3 billion in additional Landfill Tax, while pre-tax outlays will fall by only £0.1 billion and climate change benefits are again only £0.3 billion.

However, the report suggests that if lower rates of LfT are implemented for the same period local authorities would pay an additional £0.4 billion in pre-tax outlays, yet this would deliver increased climate change benefits of £2.8 - 3.2 billion. In addition to this, the Landfill Directive targets would be met and LfT payments to the Treasury would be reduced by £1 - 1.4 billion. Business would pay an additional £1.2 - 1.6 billion in pre-tax outlays, yet this would deliver climate change benefits of £2.3 - 3.2 billion, and LfT payments to the Treasury would be reduced by £2.2 3.6 billion.

Hogg adds: The modelling weve done might not be perfect. But it demonstrates that unless we look at the possible alternatives for landfill tax structures, then we can end up designing policy that isnt necessarily the best thing for all concerned.

Image caption: Tax increases will discourage waste going to landfill but may result in strategies with little flexibility and missed targets

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