The landfill allowance trading scheme forms the centrepiece of the Government's strategy to meet demanding EU targets to reduce landfilling of biodegradable municipal waste (BMW). Under the EU landfill Directive, the UK must reduce BMW landfilling to 75% of 1995 levels by 2010, 50% by 2013 and 35% by 2020.
Later this year, the Environment Secretary will allocate BMW allowances to each English waste disposal authority covering each "scheme year" from 2005/06 to 2019/20. Wales and Scotland intend to implement schemes this financial year (ENDS Report 348, pp 35-36 ), but Ministers have decided to delay implementation in England until next year.
Scotland is planning to allow councils to engage in cross-border allowance trading with England, but Wales and Northern Ireland are not.
England's 12-month delay allowed the Treasury to shave £10 million from local government spending assessments this year. Responses to the Government's consultation paper confirm that the delay was also broadly welcomed by local authorities - on grounds including that many of the details of the scheme had yet to be finalised and that councils needed time to prepare their trading strategies.
The new paper, issued by the Environment Department (DEFRA) in May, sets out the conclusions to last October's consultation (ENDS Report 344, pp 49-51 ). It confirms that the scheme will commence in April 2005.
The Local Government Association has persuaded Whitehall to abandon wacky plans to adopt scheme years running from July to June. In Parliament, Ministers had argued that working to conventional April-March years would mean having to meet the EU landfill targets three months early - anathema to those who believe that the UK should not apply standards higher than those stipulated under EU law. However, councils have now won the argument that the scheme will be easier to manage if it aligns with the public sector's normal April-March year.
But a more important measure designed to avoid unnecessarily early compliance with the EU targets has survived the consultation process. Some 58% of respondents - dominated by local government - supported DEFRA's proposal for a "back-end loaded trajectory" rather than a straight line.
Between 2004/05 and 2009/10, BMW landfilling must reduce by some 3.1 million tonnes in England. A straight-line trajectory would have meant reducing landfill in five equal steps of around 600,000 tonnes per annum over the five years. The alternative, back-end loaded trajectory that has now been adopted involves a reduction of only 310,000 tonnes in the first year, rising to a challenging 930,000 tonnes for the final year (see table).
DEFRA estimates that the back-end loaded trajectory will reduce the net present cost by £125 million over four years when compared with the straight-line approach. It says that the big cuts in landfill in the final two years match waste disposal authority plans. "A number of WDAs have indicated that they are planning to bring new facilities on stream in 2008."
The LGA has been lobbying against the proposed penalties under the scheme, which it argues will have the effect of sucking cash from the waste management budgets of struggling WDAs. However, in its new paper DEFRA sticks to its guns on the matter. "Without penalties there is no incentive for participants to meet their required reductions," it says.
DEFRA intends to set a fixed-rate penalty of £200 per tonne for any WDAs which landfill in excess of their allowances. "This is around four times the average cost of landfill."
The Government is also holding firm on its definition of municipal waste. The Waste and Emissions Trading Act 2003 borrows the wording of the landfill Directive in defining municipal waste as "waste from households and other waste that, because of its nature or composition, is similar to waste from households".
In practice, however, DEFRA will implement the trading scheme using the alternative definition, not stated in the Act, that municipal waste is waste collected by local authorities. The scheme will therefore exclude millions of tonnes of commercial waste collected by private contractors (ENDS Report 334, pp 36-37 ).
The North London Waste Authority, along with several other WDAs, has warned DEFRA that the chosen definition will create an incentive for councils to avoid collecting commercial waste, in effect by pricing themselves out of the market. There could be knock-on effects on recycling services and small builders might be encouraged to indulge in more fly-tipping.
In its paper, DEFRA responds to these points by acknowledging that it is "possible" that some WDAs may choose to meet their landfill targets by reducing the amount of commercial waste they collect - "although this is not something DEFRA encourages".
"If the UK's municipal waste arisings were to fall significantly it is likely that the European Commission would look closely at the reasons for this," says DEFRA. "WDAs are compelled by law to offer a collection service to small businesses and there is no reason why this service should not continue to be provided when the trading scheme is in operation."
DEFRA goes on to argue unconvincingly that it is unlikely that landfill will remain the cheapest option in the long-term and so councils' requirement to divert biodegradable waste from landfill should not give private contractors a significant price advantage.
In any case, argues DEFRA, all EU countries interpret definitions differently - and "all industrial Member Sates report roughly the same amount of municipal waste per head of population."
Were the European Commission to require the UK to include privately collected commercial waste in its definition of municipal waste it would lead to a significant increase in the UK's baseline under the Directive - which would be administratively inconvenient since the Commission has already accepted the baseline as reported by the Government. Nonetheless, there remains a risk that the Government's flimsy legal position could at some date be challenged.
Last year, interestingly, the Welsh Assembly proposed a mechanism to reduce the incentive for councils to abandon non-household waste collections: it intends to allocate 10% of the total allowances in proportion to the amount of non-household municipal waste under the council's control (ENDS Report 344, pp 49-51 ). The approach is feasible in Wales thanks to the decision not to allow trading between councils, leaving the Assembly greater flexibility to adjust allowance allocations year by year.
The issue of non-household waste collections may well prove sensitive when DEFRA undertakes its scheduled review of the scheme in 2007.