OFT calls for more competition in organic waste market

But, the OFT warns that those implementing any regulatory changes will need to be careful not to give an unfair advantage to water and sewage companies as these are already advantaged by the regulatory framework and planning system.

And, it says thatenhanced competition should apply to the treatment of sewage sludge as well as the treatment of other kinds of organic waste.

The Organic Waste: OFT Market Study was first launched in January 2011 (see letsrecycle.com story) in response to a request from water regulator Ofwat for the OFT to examine the sewage sludge treatment sector. Due to the interaction between this market and the wider organic waste treatment market, the OFT decided to assess the entire organic waste market in England and Wales and the potential for increased competition.

Sewage

The study says that, at present, competition from waste businesses for treating sewage sludge is extremely restricted pointing out that corporate culture and guidance often prevents water and sewage companies from outsourcing this work. It also says that gaining planning permission for waste facilities is harder than for sewage sludge treatment works, as the latter are deemed as essential infrastructure.

With regards to the treatment of organic waste such as food waste, the OFT says that only a small amount is treated by water and sewage companies at present, despite the regulated reward structure and reported planning advantages. The report puts this down to the complexities associated with co-treatment and fears about additional risk.

As a result, the OFT claims that there is scope for more of a joined-up approach.

It says: Given the similarities in the technologies and systems used to treat and recover or dispose of sewage sludge and other organic waste, there is a clear potential for competition between suppliers of treatment of each type of waste.

Barriers

Despite the opportunities, however, the OFT identifies a number of barriers to competition related to aspects of economic, environmental and planning regulation, and to the apparent corporate culture of some water and sewerage companies.

It makes a range of recommendations aimed at promoting competition, thereby driving efficiency and innovation in the sector.

At the heart of the recommendations are proposed changes to the economic regulation of water and sewerage companies to foster efficiency and help create a level playing field between them and other suppliers of organic waste treatment as part of a current review by Ofwat. The study also recommends greater harmonisation of the environmental regimes applicable to sewage sludge and other organic waste.

For instance, it recommends that Defra and the Welsh Assembly Government explore ways of achieving better convergence in the relevant quality standards for digestate produced from sewage sludge and other organic waste. And, it suggests that there may be merit in exploring whether the use of digestate on agricultural land be governed by its physical characteristics rather than the feedstocks and treatment processes used to produce it.

In addition, the OFT considers that planning policy proposals currently under consideration could contribute to greater competition. For instance, Defra is currently working on a National Waste Management Plan for England which aims to facilitate more effective waste management planning to help ensure the right infrastructure is built.

Sonya Branch, OFT senior director of the Services, Infrastructure and Public Markets Group said: Our market study, conducted with Ofwat’s support, identifies that there is greater scope for competition in the treatment of organic waste, however the current economic regulation, environmental protection and planning regimes are barriers to this competition developing.

We have therefore today made a number of recommendations to Ofwat and other government bodies that have the potential to tackle these barriers to competition, benefit consumers and drive efficiency and innovation in organic waste treatment.

The OFT has provisionally decided that a market investigation reference to the Competition Commission would not be appropriate at this time, as it considers that the regulatory barriers and distortions to competition identified in this market study can be better and more proportionately addressed by Ofwat and other government departments acting on the recommendations in this study. The OFT is now consulting on this provisional decision.

Reaction

Initial reaction came to the report from Jeremy Jacobs, managing director of the Association for Organics Recycling (AfOR).

Mr Jacobs welcomed the provisions in the study to ensure that concerns over unfair competition from the water sector were addressed and said he was pleased that the study also looked at the potential for waste companies to treat more sewage sludge.

Law firm Lawrence Graham LLP also gave a response. Rosemary Choueka, head of EU, Competition & Regulation at Lawrence Graham said: “The OFT’s recommendations are sensible, given the issues it has identified in its study, and it is to be hoped that Ofwat will make the necessary changes to incentivise water and sewage companies to act more efficiently.

“Of course, it will then be up to the water and sewage companies to react in a pro-competitive manner and up to the waste management companies to show an interest in treating sewage sludge. This may be another string to the waste companies’ bows, as they compete to grow in an ever-important market.”