Councils have “large safety net” against landfill targets

The details have emerged since councils revealed their “disappointment” over low Landfill Allowance Trading Scheme (LATS) prices last week (see letsrecycle.com story).

Authorities are now seeking to off-load the allowances, which permit the landfilling of biodegradable municipal waste, at prices as low as £4.80 per tonne in the hope of attracting some kind of value.

This represents a drop from the £17-20 per tonne prices seen in the first two years of the Landfill Allowance Trading Scheme since it started in 2005/06 – and even those prices were described as “low” at the time compared to the potential £150 per tonne fines for authorities failing to keep within their allowance limits.

One offer for allowances has been posted on Defra's LATS register for the first Landfill Directive target year of 2009/10, and that is at just £50 per tonne.

One reason suggested for the collapse of the market has been the downturn in the growth in waste arisings along with significantly improved levels of recycling and composting.

Local authority officers are not facing pressure from the situation at present, because it is widely expected that the crunch time will not come until after 2010, since the 2013 Landfill Directive to slash landfill rates in half compared to 1995 levels is seen as the key challenge for councils.

But there are warnings that when a shortage of landfill allowances hits, there could be a sudden “scramble” for surplus allowances.

Surplus

LATS is described by Defra as “one of the government's key measures to reduce the amount of biodegradable waste going to landfill”, and sets disposal authorities a steadily decreasing limits each year on the paper and organic waste they can send to landfill. Authorities easily meeting these targets can trade spare allowances to those unable to meet their allowance levels of landfilling in a given year.

A report from the Greater Manchester Waste Disposal Authority issued this month suggests it alone has now built up a 340,000 tonnes surplus of allowances to send biodegradable waste to landfill, for the financial year 2007/08.

Another large waste disposal authority – the North London Waste Disposal Authority – has revealed this week that it has built up a surplus of almost 150,000 tonnes of landfill allowances from that start of the Landfill Allowance Trading Scheme in 2005/06 to this financial year, 2007/08.

Such is the state of the LATS market that North London believes it now has a “large safety net” in case it needs to take its “ageing” Edmonton incinerator off-line for any significant unplanned downtime or if any further legislative environmental improvements need to be made.

Meanwhile, according to Defra's LATS register, Hampshire has already arranged the transfer of more than 580,000 tonnes of surplus allowances to other authorities in the first three years of the scheme.

These LATS surpluses have been cultivated by disposal authorities because the system allows disposal authorities to bank unused allowances from one year to use in later years. The exception to this banking is in Landfill Directive target years – 2010, 2013, 2020 – when the UK must meet European landfill targets; in these years allowances cannot be brought in from other years' allocations.

Commenting on the causes of the surplus to the Authority's board, North London officers said: “The perceived wisdom is that this is due to a downturn in the growth in the waste stream coupled with a general improvement in recycling and composting levels.”

Prices

Revealing the difficult state of the market for selling allowances, Manchester's officers said in their report: “The Authority did sell 23,500 allowances in 2005/06. Since then, however, the market has collapsed and, with most WDAs currently sitting on surpluses, it is extremely difficult to find any buyers.

“The only deal of any value recorded on the Defra LATS Register in 2007 was for 20,000 allowances in April at a price of £5 per allowance,” it added.

The North London report notes that in the last few months 1.3 million tonnes worth of allowances have been put on the market for the years 2006/07 to 2008/09, with prices as low as £4.80 per tonne.

Manchester, and other authorities, face the prospect of losing their built-up surpluses of allowances at the end of 2008/09, prior to the first Landfill Directive target year of 2009/10. Its officers said: “It is therefore important that the Authority attempts to dispose of its surpluses before then.”

A notice is likely to be put out by Manchester that its allowances will be available “in line with the last trade at £5” in order to generate interest from buyers. Manchester's treasurer noted that “poor demand for LATS allowances has meant that we do not have a budget for revenue income from that source”.

North London is suggesting that when it comes to seek a sale of its surplus in 2007/08 and 2008/09, it will look at the current volume-weighted average prices posted by others and offer 5-10% lower for its allowances.

Its advisers, AEA Technology, have suggested selling allowances in 1,000 tonne “parcels” to determine the market's appetite to buy.

The North London Waste Authority is predicting a 141,901 tonne surplus in the year after the first Landfill Directive target year, thanks in part to its Edmonton incinerator, a new in-vessel composting plant and plans to increase both recycling and composting.

It is hoping that 2009/10 to 2012/13 “is the period in which the Authority might reasonably expect to obtain some real value from the sale of surplus allowances.”

Hampshire county council has been disappointed by the lack of income from its surplus allowances, but said it had been “prudent” in arranging its forward plans without including any potential LATS income. County accountants said as a result, they had “certainly not seen any headache” from the low LATS prices, adding that there had been other benefits from the county's investment in landfill diversion infrastructure, which includes three new incinerators.

However, despite the apparently comfortable situation for buyers of landfill allowances at the moment, there was a word of warning from the North London authority, which pointed out: “If the waste stream growth changes adversely, or if recycling and composting levels flatten, or if planned new facilities do not come on stream, perhaps because of a failure to obtain planning consent, this could lead to a scramble for the purchase of allowances during the 2008/09 reconciliation period.”