March 14th, 2014
We’ve been reading SITA’s recent report on waste arisings and infrastructure, which found that by 2025 the UK would have 5.7m tonnes more waste than treatment capacity. It’s a conclusion that we have issues with: we’re authors of Eunomia’s Residual Waste Infrastructure Review, which has consistently shown that the capacity of the incinerators, MBT plants and other residual treatment plant that we expect to be built in coming years risks exceeding the tonnage of waste which will need to be managed in future. But whilst it’s worth pausing to point out where we think SITA has erred, the report raises a more interesting issue: what is really holding up the infrastructure investment that SITA and others think is so urgently needed?
Asking for rubble
Let’s get the differences in the reports out of the way. As with last year’s headline grabbing report from Ricardo-AEA, there are many points on which we agree. We all start from similar assumptions about arisings and waste growth, and our expectations about the plant that will enter service don’t differ all that much. In fact, our analysis indicates that just two factors account for most of the gap between SITA’s estimate and ours:
- Expected recycling rates. Assuming that SITA has modelled on the basis that Wales, Scotland and Northern Ireland hit their challenging but achievable recycling targets, their figures assume that recycling in England for MSW and similar commercial and industrial (C&I) waste will only have reached 54% by 2025. The rate of increase may have slackened off lately, but projecting such slow progress in the next decade is a bit depressing. Eunomia models based on reaching 60% by 2020 – not outrageously optimistic, but enough to make a big difference to how much residual waste remains.
- Treatment of inert waste. SITA start from an assumption that over 30m tonnes of waste is currently being landfilled and is suitable for residual waste treatment – rather like Ricardo AEA did. But HMRC Landfill Tax returns show that there isn’t anywhere near this much ‘active’ waste. The projection requires that we believe one of the following:
- Either that we should try to incinerate large quantities of rubble, ash, fibreglass and the like; or
- That 75% of waste currently being landfilled as ‘inert’ is misclassified and that this widespread misclassification will all be dealt with by 2025.
We don’t believe either.
Removing these two factors from SITA’s analysis closes the capacity gap and brings their estimates broadly into line with ours.
While we may disagree with their figures, SITA’s recommendations are interesting, and rather more subtle than a straightforward call for more investment in incinerators. For one thing, they argue that underinvestment in treatment facilities is attributable to the poor quality of data on C&I waste, which is making it unduly difficult for financiers to undertake due diligence. Like Ricardo-AEA, they call for improvements to be made. So just how bad is the data?
WasteDataFlow, having steadily improved, is now deteriorating. We are aware of authorities that, having entered data correctly, have had it badly mangled by WasteDataFlow. Compared with the quality of C&I data, however, the information about household waste is enviable. Using Environment Agency Waste Statistics and Landfill Tax Returns alongside WasteDataFlow we can produce accurate estimates of the quantity of C&I residual waste that currently requires treatment. But, in attempting to estimate total C&I waste arisings, as well as the recycling rate, we have to rely on the questionable Defra C&I Survey of 2009 (and the similar studies for Scotland, Wales, and Northern Ireland). When we examine the numbers in any level of detail, they don’t stand up to the scrutiny. Defra has recently commissioned a fresh C&I study, which will include some new survey work. It will no doubt be helpful – although limited because of the uncertainties inherent in conclusions drawn from very limited samples.
There is, however, some continuously collected data that is of interest. The Environment Agency receives returns from every waste management site in England and Wales, although Natural Resources Wales is soon to take over responsibility for sites in their jurisdiction. SEPA does the same for Scotland, and DOENI for Northern Ireland. The data these contain is certainly problematic. It doesn’t allow differentiation between waste from household, commercial, industrial, and construction & demolition sources. When waste is moved from one site to another, it can turn up on multiple returns, giving rise to a risk of double counting. It’s hard enough to determine the total scale of arisings – although we can get a decent sense of the residual waste figures by looking at how much material goes to landfill or incineration. Understanding the waste’s composition and how it is treated – including (critically) the recycling rate – is as much a matter of art as of science.
We welcome SITA’s call for a new waste returns system that tackles these issues. It would allow the various agencies to paint a full and clear picture of the C&I waste management situation across the UK, which would certainly reduce the uncertainty that bedevils waste infrastructure planning at the moment. Would this be sufficient to unlock investment?
Factor and fiction
Major collectors of C&I waste like SITA control large amounts of material, as well as having significant amounts of treatment capacity. They should, at least, have good data on this material, and the ability to direct it to a new facility if they chose to build one. Why can’t they use that information to persuade themselves and lenders to back the construction of new treatment capacity, if it is so urgently needed? One issue is that lenders have habitually expected waste facility plans to be backed by long term (either PPP or PFI local authority) contracts. In the C&I sector, these simply aren’t available, and even a large collector may struggle to persuade a wary lender that they will be able to retain their market share over the lifetime of an incinerator.
Lenders attitudes may change as economic confidence grows, but three other, less widely acknowledged factors are in play.
First, the big seven waste management companies account for over 80% of the remaining landfill capacity in the UK. With landfill tax at £72 per tonne, and set to increase to £80 per tonne in April of this year, they look set to struggle to fill their remaining voids at the expected speed, which would mean losing out on recouping the investments they’ve made. Financially, it isn’t in their interest to move waste out of landfill too fast.
Secondly, cheap alternatives are available. Waste management companies are able to export waste for incineration overseas at relatively low cost. Even in the UK, cheap alternatives are available. There appears to have been no shortage of companies willing to sign contracts with new large-scale facilities, for example, those being developed at Teesside and Ferrybridge (by Air Products and SSE respectively), whose gate fees seem likely to provide the main contractors with a decent margin.
Thirdly, and perhaps most importantly, waste companies themselves have become used to the secure and substantial profitability that can be achieved through municipal incinerators. Many of these long-term contracts have resulted in local authorities paying gate fees of more than double the going rate for commercial waste. In comparison, the margins on merchant waste plants are much slimmer margins. Factor in the planning and permitting risks and the capital-intensive construction process, and the prospect of developing a new incinerator appears quite a perilous one, even if feedstock supply from the C&I market was guaranteed.
Major waste contractors have a lot to gain if they can convince the government of the urgent need for help to get more incinerators built.
Interestingly, calls for investment in new recycling facilities have been much more muted. Uncertainty about future recycling rates cuts both ways – if more C&I waste is recycled than we predict, there will be less available for incineration and more need for recycling facilities. Perhaps the lower capital costs of MRFs, MBT and AD plants make it harder to present a convincing case for help; or perhaps the profit margins aren’t big enough to be attractive to the major contractors. Nevertheless, such routes may present a more cost effective option than building large new residual treatment facilities without the premium gate fee from an ‘anchor’ local authority contract.
The bottom line is that it’s not bad data that is constraining development of residual waste capacity. Better data would be useful, but it isn’t the biggest factor. Much more significant are: the need to recoup landfill investments; the short term nature of C&I contracts; strong competition abroad and now starting at home; and the big margins that have been the norm. It’s not clear how these problems can be addressed in the short term, and for the long term we’d argue that much of the market is making a sensible decision: only a very limited amount of residual capacity is really required, and we should be focusing more on recycling facilities.