Having read Mike Ritchie’s blog ‘Carbon Price: how not to overcharge or be overcharged‘ – I write to put the record straight regarding the likely price impacts from the Clean Energy Bill.
Yes, there are three variables that influence the direct carbon price increase at landfills:
1) The waste emission liability
2) The price of carbon permits
3) The landfill gas collection efficiency
The first of the three is as described by Mr. Ritchie and can be calculated by using the DCCEE default (municipal waste, commercial or construction) waste compositions or actual composition data.
The second is not so easy, as in most cases the emission will occur over 40-50 years (with about 80% emitted in the first thirty years) and the landfill owner must estimate, model or reasonably determine the cost of the permits needed.
As Mr. Ritchie stated the landfill owner may buy all the permits needed up front (from the commencement of emissions trading in 2015) or buy the permits as the emissions occur. However, the problem with buying all permits up front is what will be the value of the permit price in 2015. Is it a price in line with Treasury forecasts or is it the floor price of $15?
This leaves the landfill owner with a dilemma – $17 or $37 per tonne of CO2-e?
Moving on to the third issue – the landfill gas collection efficiency number – I am concerned with Mr. Ritchie’s use of 75% efficiency. The collection efficiency adopted at each landfill must:
a) Conform to NGER modeling, and
b) Be equal to the average expected over the next twenty years.
Notwithstanding debate over many years regarding landfill cap emissions, NGER modeling gas collection is capped at 75% and most landfills (when the NGER Method 1 modelled emissions are used as a base) with a gas collection system fall in the 30% to 60% range.
Using the data developed above for the three variables (assuming a position is taken where there is a range rather than specific data) the price increase can indeed be calculated from Mr. Ritchie’s equation.
Example: For one tonne of MSW landfilled in 2012/13
Price cost price pass through = 1.19 tonnes CO2-e x $30 (1) x (1-0.45) (2) = $19.63
(1) = upper range of the carbon price
(2) = mid-point of gas collection
This is well outside Mr. Ritchie’s $2 to $7 range.
Calculating the carbon price at landfills is a complex issue.
As such I agree most strongly with Mr. Ritchie’s final point; understand your assumptions or get someone who does to help you.
Max Spedding is the secretary of the Australian Landfill Owners Association (ALOA).