Economic Logic of Landfill Levy in Encouraging Recycling in Perth - Essay Example

Student’s Name: Course Code: Lecture’s Name: Date of presentation Economic Logic of Landfill Levy in Encouraging Recycling in Perth Abstract The key objective of the Landfill levy in Western Australia is to set the cost of landfill such that options such a recycling and incineration appear to be more affordable. Ideally, the cost of the Landfill Levy should be basically equal to the costs associated with the landfill operations i.e. landfill externalities. In its research paper, “Towards a thematic strategy on the recycling and prevention of waste” the European Commission concludes that, the main challenge to further recycle waste is the cost disadvantage in comparison with other waste management practices. The adoption of market and economic based instruments are indeed the most promising methods of promoting recycling of wastes (Schollum & Paul, 2010). Among these instruments and practices suggested by the commission is the role of the landfill taxes in the context of the thematic policy strategies, notwithstanding the political sensitivity accompanied with the fiscal measures. The only possible solution is the realization of a building conscious regarding the effectiveness of the landfill taxes and also the effectiveness of a closer criterion aimed at aligning the taxes adopted at the local and federal government levels. Introduction In Western Australia, landfill is one of the most common methods of waste disposal methods. however according to the WA state government policy objectives, dumping waste material in landfills should be not be preferred due to the environmental concerns associated with it. According to (Baron & Shecter, 2005) initially, household and industrial business has been paying the private expenses of utilizing the landfill and there has been little consideration of the environmental consequences associated with the action. However, in the recent decades, the local government of Western Australia has embarked on a process of giving incentives for the utilization of substitute waste disposal alternatives such as recycling. When the cost of landfill is pushed to a level that comprises the private and environmental prices, the wastes disposal market creates a size of landfill utilization that is optimum in society’s view point. Background The increase in population and the rise in economic influence have generally led to a rise in the quantities of waste generated. According to the 2008 report provided by the Cardno (WA) Ltd, the existing waste treatment infrastructure within Perth area can serve the rising landfill and recycled material up to 2020. After that, the existing infrastructure will be highly strained unless there is a reduction in the portion of waste taken into the landfill (BDA Group & MMA, 2007). An estimated 2.8million tonnes of solid wastes are disposed in landfills in Perth Metropolitan area. Over half of this waste material can be categorised as Building and Demolition Waste material, with estimated 20 percent being industrial and commercial waste, the rest is basically municipal wastes, as shown in figure below Figure 1: Waste disposed to landfill in Perth by source (Baron & Shecter, 2005) From the above pie charts it is evident that the largest component of waste in the landfill comes from Building and Demolition. The largest portion of waste recycled in Western Australia is also Building and Demolition material. This is followed by steel from vehicle bodies, industrial sources etc. Majority of this recycling is done locally with a large proportion of the remainder being processed internationally mainly in Asia. The Waste management Board did a study and concluded that about 970,000 tonnes of waste annually is recovered for re Other that using up the little open space available, waste within the landfill also leads to several environmental externalities. These environmental externalities are basically the unintended benefits and costs of an activity that incurred by individuals or organizations other than those involved directly with the particular activity. For instance if a company pollutes a river and then fails to compensate the water users downstream.In a landfill, the externalities include water and soil emissions, greenhouse gas emissions, disamenity impacts such as windblown litter, smells and odours, traffic, visual intrusion and noise (MMA, 2009). These environmental costs form part of the externalities since they do not form part of the landfill market price. In some cases dumping these wastes in landfills is undesirable since several items can be recycled or reused. Recycling materials to manufacture new products can help in offsetting the energy intensive mining and primary mineral production processes. The Department of Environment and Conservation (DEC) has developed a strategy for waste management in conjunction with the Western Australia Waste Authority. These efforts are shored up by the legal backing established as Waste Avoidance and Resource Recovery Act 2007. The act seeks to develop a long term waste strategy for Western Australia based on the below hierarchy: i. Averting of unnecessary consumption ii. Resource recovery (including reprocessing, recycling, reuse, energy recovery) iii. Finally disposal Since disposal is lowest preferred option of dealing with wastes, the Waste Authority seeks to make the prices of residual wastes to reflect then environmental and social costs associated with the disposal thus making it to be an unfair means with resource recovery. The Western Australia Landfill Levy was set up in 1998 and it deals with waste material disposed to landfill sites in Metropolitan Perth. There are two functions of Landfill; 1. To boost the relative prices of landfill and make recycling comparatively more cost competitive 2. To offer resources for the state government to intentionally invest in recycling initiatives When the Landfill Levy was introduced in 1998, it was initially $3 per ton for putrescible (readily decomposable) waste material such as domestic food waste and $1 per ton of the inert (indecomposable) waste material such as concrete, glass, etc. However, in 2006 the local Government of Western Australia progressively increased the landfill Levy to $9 per ton for both putrescible waste and inert waste. The rate further increased to $28 and $12 per ton for the putrescible waste and inert waste respectively. The rise in the Landfill Levy increases the operating costs incurred by the landfill owners, who then transfer the cost to the individual customers in terms of higher damping charges (Covec, 2007). Factors that influence the diversion of the waste generation from landfill Generally, the scale and composition of waste material influences the choice of waste management system selected. This also has the vital implications of the efficiency and effectiveness of the landfill policy and is also driven by the social and economic variables. A mixture of economic, regulatory and voluntary instruments can be designed to help in fulfilling the set targets of a landfill directive: such great combination of the policy instruments is needed in the effective diversion of waste material from the landfills. The Economics of Waste management Market and Externalities Markets are pervasive feature of modern economies. Ideally markets should operate to the mutual advantage of both sellers and buyers. In a market with many sellers and traders, prices offer the best mechanism that balances the supply and demand of goods. For instance if the demand of a particular commodity exceeds the supply, the sellers are forced to increase their price. On the other hand, is supply is higher than the supply; the sellers have no option other that lowering their prices. Therefore, in a competitive market, the buyers get the goods and services that they require, for a price that they are willing and able to pay at the least cost that the suppliers can profitably offer the goods for sale. Perth is one of the states which have introduced the landfill taxes in Australia. It was introduced in 1998 and was basically targeted to bridge the gap between the landfill and incineration costs. Consequently, the choice for this practice and the effective rates are in Perth State is based on decisions arising from administrative and political considerations. The study purposes at investigating the effectiveness of landfill tax as a waste management policy structure, in terms of costs and benefits, environment benefits and costs, and to make a comparison with other forms of waste management instruments and practices such as recycling (Eshst, Ayalon, & Shechter, 2005) The study seeks to address the following key questions: 1) To what extent does the Perth state landfill tax offer the right incentives to the suitable market parties, and are the waste management programs functioning sufficiently in a manner as to achieve the policy objectives through means of market incentives? 2) To what extent does the tax on landfill cover the external landfilling costs? 3) Does instituting the landfill tax amount to the least costly option of decreasing landfilling, or are there more cost- effective instruments? 4) Has the landfill tax boosted the relative rise in waste management through incineration and recycling, and has it minimized the waste supply into the landfill? In answering the above raised questions, a number of diverse approaches will be utilized: a literature survey review will be carried on the existing empirical and theoretical insights on the effectiveness of the landfill taxes in Perth, as well as countries within European Union. This will be followed by the analysis of the external benefits and costs of landfilling relating to incineration and recycling were approximated and compared with the internal benefits and costs associated with the rate of landfill tax (Freebairn, 2010). Conclusions on the research questions raised above are drawn, as well as based on the analysis of the literature review of preceding papers. Effectiveness of Landfill tax: Evidence from Literature In many countries around the globe, the waste management programs have popularly assumed the following hierarchy as shown in figure 1 below. Especially in Australia and Europe, the waste management pyramid has been extensively applied as a guiding principle. The hierarchy is founded on environmental principles and guidelines, and simplify implies that waste, based on its characteristics, must be handled through diverse methods. For instance, a certain quantity should be minimized or effectively prevented through either minimizing the waste content or by reusing the waste. Another portion of the waste needs to be converted into secondary waste (raw) materials, while some may be subjected to decomposition and used to generate energy, and the remaining portion of the particular waste taken for land filling (Ecoresearch, 2004). Price Sensitivity of Waste Supply Benefits and Drawbacks of the unit based pricing Systems In order for the landfill tax to be effective in the provision of an incentive in producing lower landfilled waste, as well as boosting the recycling capacity; the tax must be converted into an incentive for the producers and processer of the waste, for instance the household and industrial waste producers. Ideally, each of the producers needs to understand the exact marginal costs of each unit of waste supplied to the waste collection service. Such ‘unit based’ rate system has a number of advantages as well as drawbacks (Baron & Shecter, 2005). One of the benefits of the unit based pricing method is that it is based on the level of the polluter thus establishing a framework directive which rules that the cost and charges associated with the wastes are borne by the waste generator/ producer. This principle is accepted as a tool of justice in that it only imposes costs ion the polluter for the administrative and environmental charges arising from their behaviours, but it also encourages the waste producer / polluter to fix his ways (Baron & Shecter, 2005). The other benefit of unit based pricing principle is that it makes sure that an efficient an efficient allocation of resources with no other tax and subsidy instruments. For instance in such a unit based costing scenario, the households and industrial waste producers begins to consume, generate, recycle, and dispose in such a manner that the marginal costs of disposal is equivalent to the marginal benefits of recycling and consumption (Eshst, Ayalon, & Shechter, 2005). According to (Ecoresearch, 2004)Among the drawbacks of the unit based pricing system is the pertinent question raised on who is the actual polluter. Is it the consumer who after consuming the product has generated the waste? Or is it the producer who has manufactured a product that leads to too much waste or is not recyclable or is it the designer who designer who disregards the reduction of waste content in his product. This basically implies that introducing a unit- based costing of waste disposal charges and the adoption of subsidy on the utilization of recycled material is not only inefficient but it essentially subsidizes twice the utilization of the recycled material. Several research studies have concluded that unit- based pricing method producers may cause a significant increase in the transaction costs, thus rendering it an inefficient pricing system. For instance, the administrative costs associated with the unit- based pricing may go beyond the social advantages of minimizing the waste generation. (Kinnaman & Fullerton, 2005; Ecoresearch, 2004), approximates that the administrative costs associated with the unit- based pricing on the 3USD per capita social benefits. (Linderhof, 2001)Reveal that the cost associated with the collection and disposal did not rise after the beginning of the weight- based price for collection of waste. In addition, he also showed that the costs The Externalities of landfill The use of landfills for disposing of waste material may lead to a number of externalities. For instance the use of landfills can generate anaerobic gas which can contribute to global warming and greenhouse gases. , Leachate resulting from the landfills can contaminate groundwater, surface water and soil, as discussed earlier, landfills can lead to disamenity impacts such as odours and noise (BDA Group & MMA, 2007). In addition to the above negative externalities, landfill can positively generate energy from harnessing of methane, thus positive externality. A number of factors influence the extent of externality costs related with a landfill. This includes: a. The composition of the waste material b. The characteristics of the waste disposal landfill such as age, site location of the landfill, and the technology adopted in the c. The existing legal framework Majority of the local governments in Australia organize the market in their area of jurisdiction through a competitive tendering program thus giving the monopoly to a private waste disposal company. Thus making the waste disposal firms to compete “for the market” rather than competing ‘in the market’. Landfills in Perth and the larger Western Australia are managed by both local government and private sector. The local government operate the putrescible landfills while the private firms manage the inert sites. The involvement of the local government arose from the or no competitor (Freebairn, 2010). Policy solutions A landfill levy is ideally imposed on landfill wastes in a manner such as to arrest the negative externalities associated by the landfill disposal. According to Bartelings (20050, the diversion of wastes from landfill only occurswhen the price rise as a result of the landfill levy is directly transmitted to the polluter (Baron & Shecter, 2005). In illustrating the impact of imposing of a landfill level, a simple model can be used to highlight the demand and supply as shown in figure below. Demand for the landfill is represented by D0 is equal to the demand of the market. This scenario is basically an explanation of the ideal market scenario where the slope and shape of the demand curve is unlikely to be straight. The supply to the landfill is represented by the proprietor of the landfill’s long term marginal cost curve which is ideally constant at price P0. Summing up the marginal external costs associated with the landfill, to the marginal private cost of the landfill operator, results to the marginal social costs, which is equal to the supply curve of the particular landfill. Taking into account, the external costs associated with the landfill, the resultant equilibrium level of the landfill decreases to Q1. The socially optimal level of the landfill is achieved when the marginal external costs of a landfill are equal to the landfill levy. In this case, the landfill costs to the waste producers rise from P0 to P1, and thus equal to the levy amount. The difference Q0 and Q1 represents the quantity of wastes taken to other waste disposal methods such as recycling. The challenge of any government is the how to determine the levy such that the private costs are equivalent with the social costs, established on the determination of the external costs associated with the use of landfills. It is difficult to set the right landfill levy if there are no accurate parameters and information. The danger is if the landfill level is kept low, the producers of waste materials may lack the necessary and sufficient reasons and prohibition to divert their waste to reuse or recycling. On the other hand if the is landfill levy is set too high, the waste material producers may turn to illegal disposal. Therefore the key objective is for the regulatory agencies to achieve a movement towards the determination of the optimum level of landfill or effectively divert the waste from landfill. Economic logic of Setting up landfill levy The Landfill levy in Australia applies to the waste material disposed at licenced landfill dumpsites within the Perth region or gathered within the Western Australia metropolitan area. Extending the levy to include the waste material disposed within the non- metropolitan landfills may appear to be highly inequitable from a capacity- to- pay view point, however it looks sensible in terms of the general equity perspective. Regional centres and rural areas, however are at a disadvantaged in respect to the human and financial resources, distance covered to the markets for the recycled materials as well as the capacity and willingness to comply. Enforcing proper Landfill dumpsite standards should be maintained prior to the imposing of the Landfill levy. It is also prudent to address the perceptions regarding the quality and performance attributes of the recycled materials such as through education and training as well as participative research studies involving consultant construction companies, relevant local and state agencies as well as academic researchers. This type of research can be adequately financed by the realised Levy funds and has a potential of boosting the demand for the recycled materials (Covec, 2007). In the current set up, the house holders in Western Australia lack the direct influence on the landfill charges thus making them to have limited options on the available waste disposal and management practices. Their marginal cost is positive, although the marginal individual cost of waste management is negative. This form of pricing however provides no incentive to either reuse, recycle of reduce. The most appropriate pricing scheme would be through unit per either volume or weight for the individual waste material collected. This forms a more effective approachof minimizing the wastes disposed within the landfills rather than instituting a fixed component of annual rates (Baron & Shecter, 2005). Determining the effectiveness of the landfill levy Ideally, the Landfill levy has two main purposes; Boosting the relative comparative costs of landfill disposal over recycling Generating the necessary resource for the State and Local government to strategically champion various recycling initiatives In analysing the impact and effectiveness of the Landfill Levy programs for the improvement of the recycling and basically proper waste management techniques, the following yardstick must be met. The landfill Levy should be set up such that: a. The ultimate landfilling prices should effectively reduce the over-reliance on landfill and thus boost the resource recovery, waste reduction and avoidance b. The final realized landfill rates should reflect the entire environmental expense of landfilling c. The realised funds should be sufficient to finance programs aimed at ensuring a Zero- Waste vision for the state To be a successful economic instrument, the landfill levy should be indexed on either the price changes for the landfill services or the resource recovery upon recycling. These however, creates the challenge for the local administration in determining that meets the optimal social balance between the amount of waste material disposed off in the landfills and the volume of the resource recovery through recycling. Works Cited Baron, M., & Shecter, M. (2005). Exploring Benefit Transfer: diamenities of waste Trasfer Stations. Environmental and resource Economics . BDA Group & MMA. (2007). South Australia's Waste Strategy 2005- 201, benefit Cost Assessment. Zero Waste SA, Adelaide . Covec. (2007). Recycling, cost benefit analysis. Newzealnad Ministry of Environment . Ecoresearch, B. G. (2004). Analysis of Levies and Financial instruments in relation to waste management. Zero Waste SA, Adelaide . Eshst, T., Ayalon, O., & Shechter, M. (2005). A critical Review of economic valuation studies of externalities from incineration and landfilling. Waste Management and Research . Freebairn, J. (2010). Environmental Taxation and its possible Application in Australia. Australia's Future Tax and Transfer Policy Conference. Melbourne: Melbourne Institute of Applied Economic and Social Research. Kinnaman, & Fullerton. (2005). Effectivenees of landfill taxation. Institute of Environmnetal Stusdies . Linderhof. (2001). MMA, B. G. (2009). The full cost of landfill disposal in Australia. Department of the Environment water, heritage and the Arts, Canberra . Schollum, & Paul. (2010). evaluation of the social optimum for the Landfill Levy in Western Australia. UWA Business School, University of Western Australia . Read More