Waste collection

The proposed reform of waste collection policy was again in the news today.

The Examiner has a funny story. The proposed reform would cut costs (5,000 people less on the payroll) and increase charges at the same time. The Times is more thoughtful, although it is still curious. In our textbooks, regulators fight against market power. Here, the regulator wants to establish private monopolies and the companies that would likely obtain those are dead against.

Mr Kells issues an implicit threat of court action. Presumably, the companies would argue that they have a customary right and reasonable expectation to compete in any waste collection market.

A lot of the fuss is due to poor communication. As far as I know, the department wants to sell waste collection concessions to the highest bidder, rather than take waste collection back into the public sector (as the private waste companies seem to think).

Here is one way to get around this. Instead of auctioning concessions, they could be grandfathered.

AFAIK, there are four private waste collection companies in DLR. Counting bins on my way to work, I guess that one company has 50% of the market, two have 20%, and one has 10%. DLR should thus be carved into 10 concessions, with 5 going to company A, 2 to companies B and C, and 1 to company D. In two years time, the first concession should be auctioned, the second one two months later, and so on.

Waste policy

My op-ed in yesterday’s Sunday Times (behind pay wall) expands on last week’s post. Here’s my version of the text:

The proposed reform of waste collection is a step in the right direction. Incineration is needed to meet our EU obligations. A few waste companies will lose money, but other companies and households will be better off.

The Department of the Environment is now moving to change the regulation of waste collection from “competition in the market” to “competition for the market”. Competition in the market does little for lower fees as few households shop around for the cheapest waste collector. Economies of density is another other reason to welcome this move. In my street, we have three bins (black, green, brown) and four companies collecting bins. Every fourth Monday, no less than 12 waste trucks drive up our road to the delight of the children and the annoyance of drivers. Three trucks (one company) could do the same work for a fraction of the cost, as they would spend less time driving and more time collecting waste.

That company would have a local monopoly. Monopolies charge more than competitive companies, but there would be cost savings for households too. Monopoly power is easily checked in this case. Waste collection concessions should be tendered, and granted to the company that guarantees the lowest fees for households. Such concessions should be renewed regularly, say every two years, to keep up competitive pressure.

The proposed change in regulation is a change for the good, therefore. It follows the recommendations in a number of reports, including the International Review of Waste Management Policy, commissioned by the previous Minister, and the Gorecki report of the ESRI.

A level-headed change in waste management is welcome in itself. The previous Minister openly campaigned against government waste policy, but did not change it. This was a source of much confusion and agitation. Investment and renewal in the waste sector ground to a halt. It can now start again.

The most urgent problem is that the European Union has put a cap on the amount of waste that can be landfilled. That cap has been in force for over a year now, but the government has yet to formulate a coherent plan on how to meet the target.

Incineration will be part of the solution. The proposed change in the rules for waste collection has been interpreted as a move to favour incineration. That is nonsense. The markets for waste collection and waste disposal are separate. Some people seem to think that waste collection and disposal must be done by the same company, but there is neither a legal nor an economic reason for this.

A number of Irish waste collectors have diversified into waste disposal, focusing on methods that curried political favour before the last election. Returns in waste collection are not great. Waste disposal looked more lucrative with the EU cap on landfill. That changed with the prospect of a large incinerator in Poolbeg. Incineration is, after landfill, the cheapest way to (legally) dispose of waste. Irish waste disposal companies have complained loudly about incineration – because they know they cannot compete. Waste collectors would be fools not to send their waste for incineration.

The Poolbeg incinerator is not without its faults. There would be few environmental or health concerns if it is properly run, but it is not sure that the Environmental Protection Agency has sharp enough teeth to stand up to a large, multinational company. The incinerator is financed through a mechanism that is, as far as I know, unique to Ireland. If the incinerator turns a profit, the spoils go to the shareholders. If it turns a loss, the taxpayer makes good the difference. The Poolbeg incinerator shares this peculiar model of privatizing gains and socializing losses with, among others, toll roads, renewable energy, and of course banks.

This does mean that the incinerator can charge lower fees if it needs to increase its market share. The Minister decided not to impose a levy on incineration. As there are small external costs from incineration, this is an implicit subsidy. The incinerator will therefore be a fierce competitor in the waste disposal market. Irish waste companies are right to be worried.

At the same time, the reform of waste collection is good news for them. Profit margins should be better if local monopolies are sold through a competitive tendering process.

The tender process should be well organized. That would be a task for the county councils. A number of county councils still run their own waste collection business. It is hard to see that tenders of private companies would get a fair hearing. The tendering should therefore be outsourced to an independent body or the public waste collection businesses should be privatized. The Commission for Utilities Regulation should oversee the tendering.

[UPDATE: See new CEPR paper; h/t Constantin Gurdgiev]

But if the new regulations are properly implemented, households and small companies should benefit. The government is working to reduce the costs of waste collection and waste disposal. Many things can still go wrong, but there is movement in the right direction.

Waste collection

The Dept Environment is now moving to change the regulation of waste collection from “competition in the market” to “competition for the market”. The reason is simple: Economies of density. In my street, we have three bins (black, green, brown) and four companies collecting bins. Every fourth Monday, no less than 12 waste trucks drive up our road, to the delight of the children and the annoyance of drivers. Three trucks (one company) could do the same work for a little more than a quarter of the cost. Even after allowing for monopoly mark-ups, there would be cost savings for households. Market power would be limited if tendering is competitive and concessions are short (waste trucks are mobile).

A perfectly sensible move by the Department so.

In today’s Irish Times, this is spun (and again) as a way to promote incineration. This is nonsense. At the surface, “competition for the market” was a recommendation in the International Review commissioned by the previous minister, and in the Gorecki report of the ESRI.

The markets for waste collection and waste disposal are largely separated; economies of vertical integration are small. Nonetheless, Irish waste collectors have vertically integrated with waste disposal. The competition in waste collection is such that hardly any money is made. The market for waste disposal would be lucrative with the EU cap on landfill and without additional incineration, but the Poolbeg incinerator would undercut the price of any other disposal technology except landfill. If waste collection would be run as a profit center, waste would be sent for incineration.

Competition for the market will allow waste collectors to make money in their core business again.

Waste bill published

Irish legislators have a habit of amending bills but not consolidate. The Environment (Miscellaneous Provisions) Bill 2011 has been published. It’s a tough read but would allow the Minister for the Environment to put punitive levies on landfill and incineration. Strikingly, the bill was published even though the results of the consultation on the bill are still not public (UPDATE: See first comment).

I’ve posted on this before, and my opinion has not changed.

UPDATE: Submissions to the consultations are public at last. I’ve browsed through them. There is a range of opinions, as one would expect. I was reminded, however, that waste policy is so much broader than imposing levies on landfill and incineration. As it stands, the legacy of the current government may be:

  1. the right to impose punitive levies on incineration — a right that the next Minister may choose not to exercise;
  2. the right to impose punitive levies on landfill — whereas a system of tradable permits would be more appropriate given that the EU put a cap on the amount; and
  3. the need to reform waste policy.

Poolbeg again

In the Netherlands, if a government falls, it continues on as a caretaker government until the new government is formed. Any member of parliament can declare as controversial a particular piece of legislation and regulation, and the caretaker government cannot make any decisions on these subjects. If it tries nonetheless, the senate will block this — and if it doesn’t, the queen will.

Ireland is different. Just prior to electoral defeat, a number of initiatives are being rushed through. There should be checks and balances to prevent this sort of thing. I’ll return to the climate bill later this week.

Poolbeg is back in the news. Although the public consultation on waste policy is still so recent that the department has yet to publish the submissions (at least one of which raised fairly fundamental concerns), if the Irish Times is to believed, new legislation will be introduced this month that would give the Minister of the Environment the power to set punitive levies on incineration and landfill.

Instead, waste levies should reflect the externalities of waste disposal. The maximum incineration levy is much higher than the two available estimates of the external cost of incineration.

The draft waste policy was far from ready. Instead of rushing through immature legislation, the government should have the grace to pass this dossier to the next government. ATMs will continue to work.

UPDATE: The story heats up again. See Times, Independent, and Independent again (with a reference to the EER2010).

UPDATE2: The Times claims that the bill will be published today (Jan 7). At 8.44 am, the submissions to the public consultation are still not online.

Household waste management, episode N

The US Ambassador has again intervened in public in the row over the Poolbeg incinerator. Covanta flew some journalists to Copenhagen and they report enthusiastically about incineration there.

Covanta is concerned about the proposed (but unspecified) levies on incineration, though. They seem to accept the levies proposed by Gorecki et al and endorsed by Forfas. These levies reflect the estimated externalities of incineration, but are lower than the estimates by Eunomia. Minister Gormley, however, has proposed that levies should be unrelated to the damage caused, but should rather be set at punitive levels for undesirable technologies.

The public consultation on this has now been closed for two weeks, but the submissions have yet to be uploaded.

The Village on Poolbeg

James Nix, master’s in real estate, barrister, and unsuccessful candidate for the Green Party, has a piece in the Village: “Incinerating money: the economics of Poolbeg”.

The summary is interesting: An overwhelming success story of private sector dynamism in recycling is set to be undone by an oversized incinerator at Poolbeg – at massive cost to Dublin’s businesses. This was told to me in confidence, but it is good to see it confirmed in print. IWMA is not against incineration. Rather, they know they cannot compete. Nix champions the local companies who are fighting to maintain their grip on an undersupplied market.

Nix claims (as are others) that the Poolbeg incinerator is vertically integrated with waste collection. It is not. The incinerator will burn waste from any collector.

Michael Smith, Village editor, has a companion piece: “The Poolbeg incinerator: an essay in cynical lobbying”, in which he argues that Minister “Gormley has faced an insidious onslaught from multiple quarters” — a cabinet member victimised by the powers that be.

This was published yesterday. Smith write: “[t]he most blatantly inaccurate presumption was that emissions from the Poolbeg incinerator would be included under the EU Emissions Trading Scheme. This resulted in a significant underestimate of the costs of the facility.” This is disingenuous. After inclusion of CO2 emissions, incineration externalities are still far below the Eunomia estimates.

Smith also writes that “John Gormley is […] sitting on the foreshore licence” something that the Minister has repeatedly denied (see latest example).

Poolbeg and drinking water

While I am still waiting for someone to explain to me why you do not need a foreshore license if you own land, An Bord Pleanala has cleared the Compulsory Purchase Order and construction of the Poolbeg seems set to continue (according to the Irish Times).

UPDATE: JD DUG UP THE PERTINENT LEGISLATION

While a lot of effort was spent (in vain, it appears) to stop incineration in one particular constituency, there is a warning about the quality of drinking water. We said roughly the same thing over a year ago and the EPA issued warnings before that. Although there is an investment deficit, it is not likely that drinking water quality can be improved without institutional reform. There is no sign of that.

Submission to waste consultation

We made a submission to the public consultations on waste policy. It refers back to our earlier work.

The proposed waste policy is roughly equal to the Eunomia report (available on the consultation site), ignoring all the critique raised. Our submission therefore just repeats points made earlier. We also emphasize the procedural lapses in policy formulation.

Here’s our conclusion:

Waste policy development in Ireland is essentially on hold. In the past three years there have been a number of consultations, but, by and large, no definitive decisions by government. The development of waste policy in Ireland appears to have imposed costs with no discernable benefits in terms of policy development. It is a
case study in how not to go about consultation. Instead of being driven by a desire to set and meet environmental goals in a cost-effective manner, the proposals are to a considerable extent based on a predetermined view that incineration, especially large incinerators, should be discouraged but with no coherent economic or environmental rationale as to why policy should have as its goal this technology-specific bias. It is not supported by the government’s own international review.

Submissions received by the DoEHLG in this area have neither been published nor responded to, even where there has been ample opportunity and time to do so. There is no sign that this paralysis will come to an end shortly. The Draft Waste Statement promises that there will be an RIA undertaken as part of “further significant consultation and engagement”. This is likely to defer any decisions until 2011 and beyond. The reputational damage to Ireland, which is likely to spread to sectors of the economy beyond waste, as well as the likely failure to reach landfill targets in 2013 and 2016, is something that should not be contemplated lightly. It is somewhat ironic that a Draft Waste Statement that talks about sustainability and moving away from landfill may well end producing a less sustainable policy and more extensive use of landfill than anticipated.

Waste policy

One of the themes in the discussion about the Poolbeg incinerator is that it is perfectly in line with the official waste policy of the Department of the Environment while being firmly opposed by the Minister of the Environment. The Minister has now submitted a new Statement of Waste Policy for consultation.

The Statement is rather short, 26 pages (with only 13 pages devoted to policy measures), and not very specific in most places and often ambiguous if not muddled. Presumably, this means that the new waste policy is still some years into the future, and may not be ready during the term of the 30th Dail Eireann.

The Statement is firmly based on the Eunomia report, and does not even acknowledge the existence of the Gorecki report.

The first four policy measures aim to strengthen the role of the state, the counties, and the private sector (at whose expense, one wonders); to decrease costs and increase quality (always a great plan); and to achieve cost-efficacy by imposing additional constraints (a mathematical nonsense).

There is a proposal for the separate collection of six, perhaps seven streams of household waste: clothes and perhaps glass would collected at the kerbside (in lieu of the current bring banks); paper, aluminum, and plastic would be separated at sources (instead of mixed); and brown bins (for food waste) would be rolled out nationwide.

There is to be an arbitrary cap on residual waste (black bins), with financial penalties for counties that do not meet these targets (on average). County councils may respond by tacitly encouraging people to stuff their waste in green, brown, yellow, red, blue and purple bins instead. (There will be a tax credit cq supplemental benefit for the colourblind.)

The Statement reiterates the plan to raise landfill levies by 150% between now and 2012. As there is an EU-imposed cap on landfill, a system of tradeable permits would have been a better choice of instrument.

The Statement invokes the polluter pays principle and calls for an (unspecified) incineration levy that is unrelated to its emissions. There will be another attempt to declare incineration ash to be hazardous waste (it is not). In a separate proposal, there will be an arbitrary cap on incineration.

There will be arbitrary targets for recycling, but no policies to ensure that these are met.

Producers will carry a greater share of the cost of waste management. Newspapers and magazines are mentioned as an example.

There will be an awareness campaign to convince people to waste less.

And plenty of jobs will be created, innovation stimulated, and we will all become terribly rich.

On the one hand, the proposal is an improvement as the Minister now follows the proper procedures of a parliamentary democracy, and some of the hare-brained ideas in the international review have been dropped. On the other hand, the Statement itself is weak. Little thought has gone into costs, incentives and practicalities. The Statement strictly follows the green dogma of the waste hierarchy, a lexicographic ordering of options for waste disposal.

There is also an opportunity missed. The current Irish waste policy is sound (at least on paper). The main exception is household waste collection, with duplication of services and private operators competing with public operators-cum-regulators. The International Review recommended that this be replaced with a system of auctioned concessions, one of the few recommendations that it shared with the Gorecki report. The Statement did not adopt this recommendation, offering only vague language.

Incineration (N+2)

The Competition Authority has rejected complaints that the contract between Dublin City Council and Covanta/Dong is in breach of competition law. See Examiner, Indo, Times and RTE. The last two articles give substantial space to the IWMA’s view that is not really what the Competition Authority said, but it did. The Poolbeg incinerator affects the market for waste disposal directly and the market for waste collection indirectly, but not in an illegal or unfair way. The Competition Authority ruled correctly.

RTE also reports that Minister Gormley wants a word with the Competition Authority, which is peculiar as the CA does not answer to DEHLG.

The IWMA is now pursuing a complaint with the EU that the take-or-pay contract between DCC and C/D constitutes an unfair state subsidy. The evidence is again against the IWMA. Long-term contracts are perfectly legal. The IWMA will have to show that the DCC overpaid, and deliberately so.

The press also report estimates of the cost of abandoning the Poolbeg incinerator at this stage: Hundreds of millions of euro. See Indo and Herald. That number corresponds to my own back of the envelope calculations for the total of landfill fines, money already spent on Poolbeg, contract buy-out, and the extra cost of the alternative disposal methods.

Commentators are increasingly worked up. See, for example, Hogan, Indo, and today’s Sunday Times.

UPDATE: More in the Irish Times of today. Minister Gormley reiterates the misconceptions that the Poolbeg incinerator will only burn waste that is collected by public operators; and that the proposed landfill levy will guarantee that the landfill target will be me (Curtis et al. disagree). Minister Gormley also seems to say that Ireland would not face EU fines if it does not meet its landfill targets — which would be untrue — but perhaps he thinks that there are alternative ways to meet the target — which is unlikely: A double-dip depression and accelerated emigration might do it.

Incineration (part N+1)

More on PoolBeg in today’s Indo.

The article repeats some of the arguments I have been making for a while.

Worryingly, Covanta’s shareholders have began to take notice that Ireland no longer seems so business-friendly. Presumably, Covanta’s shareholders also hold shares in other companies that consider investing in Ireland.

UPDATE: Minister’s behaviour to be investigated by SIPO

Brendan Keane on Municipal Waste Management

Brendan Keane of the Irish Waste Management Association takes issue with Scott Whitney’s piece of last week.

You can see for yourself who has the better arguments.

A lot of people in this debate (incl. IWMA and DCC) seem to believe in the virtues of vertical integration of waste collection and waste disposal. I do not understand that at all. A collector should deliver waste to the disposer with the lowest cost, regardless of ownership. There are no economies of scope or issues with information or contracts that would favour vertical integration.

(There is a coordination problem between waste separation at source and final disposal. For example, mechanical-biological treatment (MBT) is more valuable for aggregated waste streams than for disaggregated ones.)

Clifford on incineration

Michael Clifford is not impressed by the Minister of the Environment, arguing that a minister should follow or change government policy (rather than oppose it) and that a minister of the environment should seek what is best for the environment (which, in this case, is implementing government policy).

He might have added the damage to Ireland’s reputation as a place where contracts are upheld, but I agree otherwise. See here, here, here and here.

UPDATE: Scott Whitney (of Covanta) too agrees and adds some more information.

Progressive taxation of incineration

The Minister for the Environment has made another announcement on municipal waste policy.

There are two components. One is not new: There is to be a cap on incineration. There is no rationale for creating an artificial scarcity, as explained by Gorecki and Lyons. Using both price and quantity instruments is double regulation. Tinbergen (1952) shows that this is unnecessarily costly.

The new element in the latest announcement is that the incineration levy is not constant, but increases with the size of the incinerator. Both the ESRI and the Eunomia report recommend an incinerator levy, albeit at different levels. However, they recommend the same levy, per tonne, regardless of the size of the incinerator — although one could argue that larger incinerators burn cleaner and therefore should have a lower levy.

There is no economic or environmental rational for putting a higher levy on larger incinerators.

UPDATE: Story in the Irish Times

UPDATE2: PJ Rudden says the proposed levies may be illegal. I’ve heard say that it would be anti-competitive to put one levy on a small incinerator in Cork and another levy of a big incinerator in Dublin, but as inter-county trade in waste will be verboten too, I’m not convinced that that argument holds.

UPDATE3: RTE looked at the letters between the City Manager of Dublin and the Minister for the Environment; they are not particularly friendly to one another.

Municipal waste management (ctd)

In today’s Examiner, PJ Rudden estimates the costs of changing government waste policy (as opposed by the ESRI) at around 2.5 billion euro and warns that environmental quality may deteriorate too. As Rudden points out in Friday’s Times, his cost estimate omits the damage to Ireland’s reputation should the government decide not to honour the contract with Covanta, and indeed the cost of breaking the contract.

Municipal Waste Management Policy (ctd)

Olivia Kelly had a remarkable sense of precognition in yesterday’s Irish Times. The Independent, the Examiner and Irish Times report again today. See also FinFacts.

Paul Gorecki sums it up nicely: There was only one valid criticism of the report and it did not change the substance of the report or its conclusions.

Here’s the abstract:

The report sets out an economic approach to municipal waste management policy in Ireland and then applies that framework to two recent policy developments. First, the proposed Section 60 policy direction to cap incineration and other matters, and second, the international review of waste management policy. These complementary policy developments sponsored by the Department of the Environment, Heritage and Local Government are designed to provide a roadmap for a new municipal waste management policy. The report questions whether these developments provide a coherent and feasible basis on which to develop waste policy. Indeed, apart from some unexceptional lessons which are consistent with current waste management policy, implementation of these proposals and recommendations is likely to lower societal welfare and increase the chances that Ireland will miss important Landfill Directive targets with consequent EU fines. The report puts forward a number of suggestions consistent with raising societal welfare while at the same time meeting the Landfill Directive targets.

The report was previously discussed here.

Update: The IWMA still does not accept the ESRI waste projections (even though EPA and DEHLG do).

Update2: Dr Dominic Hogg of Eunomia continues to think that the ESRI is wrong.

Update3: Minister Gormley argues that the international review is flawless.