MoreThanWaste.com - Understanding Landfill Targets and the Landfill Allowance Trading Scheme (16/01/2007)

The UK needs to reduce the amount of waste it sends to landfill, to tackle climate change and to meet challenging EU targets set by the Landfill Directive, which fall in 2010,2013 and 2020. The UK as a whole faces significant penalties if it fails to meet these targets. Local authorities have no fixed targets to divert biodegradable municipal waste (BMW) from landfill. Instead Governement has introduced the Landfill Allowances Trading Scheme (LATS).

This review was provided by Defra as part of its approach to a briefing given by the Mayor of London on the Greater London Authority Bill.

1. Why was the Landfill Allowances Trading Scheme introduced?

Article 5(2) of the EC Landfill Directive requires the UK to reduce the amount of biodegradable municipal waste (BMW) it sends to landfill, in order to prevent or reduce as far as possible the negative effects of landfilling waste on the environment and human health. Government consulted twice on how to meet this obligation and the option preferred by respondents was a tradable landfill permit scheme (now known as allowances).

LATS is a means to achieve the Directive targets rather than the instrument that imposes those targets.

LATS is an innovative tool to enable local authorities in England to reduce the amount of BMW sent to landfill in the most cost effective way, whilst reassuring Government that necessary progress towards the targets in the Landfill Directive is being made.

The scheme offers an alternative to a system of inflexible targets, by offering local authorities the opportunity to tailor the required reductions to their specific strategy through the flexibilities of banking, borrowing and trading.

Defra’s economic modelling indicates that LATS offers compliance costs savings of over £200 million in 2010, compared to an inflexible, target-based mechanism.

Click here for graph of landfill allowances.

2. How does LATS work?

LATS is similar in concept to carbon trading, but is the first of scheme of its kind involving waste.

The Government has allocated free allowances to each authority at a level that will enable England to meet its targets, as a contribution to the UK targets, under the Landfill Directive.

Allowances convey the right for an authority to landfill a certain amount of BMW in a specified year. Each allowance gives an authority the right to landfill one tonne of BMW.

Each WDA can determine how to use its allocation of allowances in the most cost-effective way. They can save unused allowances for use in later years (banking), or use a proportion of their future allocation of allowances in advance (borrowing). This will allow individual WDAs to use their allowances in accordance with their investment strategy.

WDAs have an incentive to trade allowances with other WDAs depending on the relative costs to that WDA of diverting waste from landfill. Trading is not compulsory – a WDA can choose to landfill in line with its allowances without trading.

Different WDAs face different landfill diversion costs depending on their particular circumstances. Trading allows local authorities facing high landfill diversion costs to purchase allowances more cheaply from authorities with relatively lower landfill diversion costs.

LATS imposes no targets on WDAs. They have a duty to hold sufficient allowances for the amount of BMW they landfill in each scheme year. They can choose to meet their duty by diverting BMW from landfill, use the flexibilities of LATS to ensure that they hold sufficient allowances, or a combination of these. Individual circumstances will influence the strategy each local authority chooses to meet its duty.

3. Why are there penalties?

The Secretary of State has the power to impose financial penalties on local authorities that break the rules of LATS. This is to ensure the scheme operates effectively. Without financial penalties, there would be no incentive for authorities to comply and the trading mechanism would not operate effectively.

The financial penalty is £150 per tonne of BMW landfilled in excess of that permitted by allowances held. For a trading scheme to operate effectively, the penalty needs to be the most expensive option compared to the costs of landfill diversion.

The flexibilities included in the scheme, including the Secretary of State’s power to waive or suspend penalties in given circumstances means that no authority should face penalties unless it takes the conscious decision to do so.

4. Why are there supplementary penalties for breaching allowances in target years?

In landfill directive target years, 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 financial penalties from the European Court of Justice.

LATS provides for the Secretary of State to impose supplementary penalties on WDAs for breaking the rules in landfill directive target years. These would be imposed according to a formula based on the amount of any financial penalties imposed by the European Court of Justice on the UK and an individual local authorities contribution to the breach of the national target.

WDAs must be given a strong incentive to keep the rules. Also, it would not be fair on those WDAs that had done what was required (e.g. by a reduction in the overall rate support grant) to suffer because of the inaction of others.

Progress

England is making good progress towards meeting the first Landfill directive target in 2010.

LATS was launched on 1 April 2005. The first year of the scheme met its objectives. All 121 waste disposal authorities held sufficient allowances. No penalties were imposed.

The Environment Agency monitors compliance with the scheme. It calculates that waste disposal authorities landfilled 12.4 million tonnes of BMW in 2005/06. This compares to an allocation of 15.2 million tonnes of allowances in 2005/06.

Local authorities in total used only 82 per cent of the allowances available to them. The remaining allowances have been banked and are available to local authorities until the first target year (2009/10). This will mitigate compliance costs. Allowances cannot however be banked into target years, or the UK would not comply with the landfill directive targets.

Reference:
"GLA Bill: Waste
Government Response to the Mayor of London’s Briefing" - Jan 2007


	Understanding Landfill Targets and the Landfill Allowance Trading Scheme (16/01/2007) The UK needs to reduce the amount of waste it sends to landfill, to tackle climate change and to meet challenging EU targets set by the Landfill Directive, which fall in 2010,2013 and 2020. The UK as a whole faces significant penalties if it fails to meet these targets. Local authorities have no fixed targets to divert biodegradable municipal waste (BMW) from landfill. Instead Governement has introduced the Landfill Allowances Trading Scheme (LATS). This review was provided by Defra as part of its approach to a briefing given by the Mayor of London on the Greater London Authority Bill. 1. Why was the Landfill Allowances Trading Scheme introduced? Article 5(2) of the EC Landfill Directive requires the UK to reduce the amount of biodegradable municipal waste (BMW) it sends to landfill, in order to prevent or reduce as far as possible the negative effects of landfilling waste on the environment and human health. Government consulted twice on how to meet this obligation and the option preferred by respondents was a tradable landfill permit scheme (now known as allowances). LATS is a means to achieve the Directive targets rather than the instrument that imposes those targets. LATS is an innovative tool to enable local authorities in England to reduce the amount of BMW sent to landfill in the most cost effective way, whilst reassuring Government that necessary progress towards the targets in the Landfill Directive is being made. The scheme offers an alternative to a system of inflexible targets, by offering local authorities the opportunity to tailor the required reductions to their specific strategy through the flexibilities of banking, borrowing and trading. Defra’s economic modelling indicates that LATS offers compliance costs savings of over £200 million in 2010, compared to an inflexible, target-based mechanism. Click here for graph of landfill allowances. 2. How does LATS work? LATS is similar in concept to carbon trading, but is the first of scheme of its kind involving waste. The Government has allocated free allowances to each authority at a level that will enable England to meet its targets, as a contribution to the UK targets, under the Landfill Directive. Allowances convey the right for an authority to landfill a certain amount of BMW in a specified year. Each allowance gives an authority the right to landfill one tonne of BMW. Each WDA can determine how to use its allocation of allowances in the most cost-effective way. They can save unused allowances for use in later years (banking), or use a proportion of their future allocation of allowances in advance (borrowing). This will allow individual WDAs to use their allowances in accordance with their investment strategy. WDAs have an incentive to trade allowances with other WDAs depending on the relative costs to that WDA of diverting waste from landfill. Trading is not compulsory – a WDA can choose to landfill in line with its allowances without trading. Different WDAs face different landfill diversion costs depending on their particular circumstances. Trading allows local authorities facing high landfill diversion costs to purchase allowances more cheaply from authorities with relatively lower landfill diversion costs. LATS imposes no targets on WDAs. They have a duty to hold sufficient allowances for the amount of BMW they landfill in each scheme year. They can choose to meet their duty by diverting BMW from landfill, use the flexibilities of LATS to ensure that they hold sufficient allowances, or a combination of these. Individual circumstances will influence the strategy each local authority chooses to meet its duty. 3. Why are there penalties? The Secretary of State has the power to impose financial penalties on local authorities that break the rules of LATS. This is to ensure the scheme operates effectively. Without financial penalties, there would be no incentive for authorities to comply and the trading mechanism would not operate effectively. The financial penalty is £150 per tonne of BMW landfilled in excess of that permitted by allowances held. For a trading scheme to operate effectively, the penalty needs to be the most expensive option compared to the costs of landfill diversion. The flexibilities included in the scheme, including the Secretary of State’s power to waive or suspend penalties in given circumstances means that no authority should face penalties unless it takes the conscious decision to do so. 4. Why are there supplementary penalties for breaching allowances in target years? In landfill directive target years, 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 financial penalties from the European Court of Justice. LATS provides for the Secretary of State to impose supplementary penalties on WDAs for breaking the rules in landfill directive target years. These would be imposed according to a formula based on the amount of any financial penalties imposed by the European Court of Justice on the UK and an individual local authorities contribution to the breach of the national target. WDAs must be given a strong incentive to keep the rules. Also, it would not be fair on those WDAs that had done what was required (e.g. by a reduction in the overall rate support grant) to suffer because of the inaction of others. Progress England is making good progress towards meeting the first Landfill directive target in 2010. LATS was launched on 1 April 2005. The first year of the scheme met its objectives. All 121 waste disposal authorities held sufficient allowances. No penalties were imposed. The Environment Agency monitors compliance with the scheme. It calculates that waste disposal authorities landfilled 12.4 million tonnes of BMW in 2005/06. This compares to an allocation of 15.2 million tonnes of allowances in 2005/06. Local authorities in total used only 82 per cent of the allowances available to them. The remaining allowances have been banked and are available to local authorities until the first target year (2009/10). This will mitigate compliance costs. Allowances cannot however be banked into target years, or the UK would not comply with the landfill directive targets. Reference: "GLA Bill: Waste Government Response to the Mayor of London’s Briefing" - Jan 2007 [Crown © 2007]