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.