The Uneven Playing Field of the 2014 Waste Charges

At the time of writing the Government’s CPM termination bills have passed the House of Reps and are progressing to the Senate. They will most probably see the fixed carbon price repealed and replaced by Direct Action and the Emission Reduction Fund (ERF).

The ERF provides the funding and the methodologies to project proponents to reduce emissions and help achieve Australia’s 5% reduction target. For those of you with long memories, the ERF looks and feels a bit like Greenhouse Friendly which existed before the Carbon Price Mechanism (CPM). It is based on the principles of Baseline and Credit (for reducing your emissions below the Baseline).

The recycling and landfill industries have been successful in having the role of waste recognised in the ERF design with agreement so far on:

  • The recognition of capture of landfill gas from both legacy and non-legacy waste;
  • The recognition of diversion of both legacy and non-legacy Municipal Solid Waste (MSW) from landfill through AWT facilities;
  • Soil Carbon (e.g. sequestration through application of compost and biochar on land).

Direct Action potentially opens the door to many other sources of abatement but unfortunately there still are no ERF methods for:

  • Diversion of Source Separated Organics (food and green “FOGO”) from landfill through composting;
  • Diversion of green/garden waste from landfill through composting;
  • Avoided emissions through recycling of materials with high embodied energy;
  • Avoided emissions by replacement of superphosphate fertilisers with compost;
  • Transport (biofuel); or
  • Energy Efficiency.

Waste generators (you and me, our councils, hardware and grocery stores, etc.) may still be paying carbon premiums on landfill disposal until the repeal is finalised. These premiums also include (amongst other things) provisions for the future emissions of waste we put into landfill.

As these future emissions usually cover forty years’ worth of prepayment, not only have you paid 2 years worth of real CPM liability but also approximately 38 years worth of future emission liability.

The Government says the ACCC has been empowered to ensure there are no “windfall” profits from the repeal of the CPM. However it is very uncertain how a landfill operator would refund the prepayments.

Landfill operators are in an invidious position. Do they continue to charge for current and future possible liabilities under the CPM or assume it will be repealed and back dated to 1 July 2014? Some are but most are not. The CPM is the law of the land afterall.

On an average prepayment of $20/t of waste 20Mt of waste to landfill (assuming 75% of all waste goes to a landfill covered by the CPM), waste generators have prepaid approximately $300 million per year for two years in landfill disposal or $600 million overall.

That is $600 million taken out of the economy and currently sitting on the balance sheet’s CPM or profit lines of landfill owners. It rightly belongs to the payer – you and me, companies and councils.

With good advice, corporations and councils would be able to implement measures to recover some of these prepayments. But the question to be asked is what about all the little companies and individuals. These people don’t have a chance. Where is the level playing field?

There is no legal requirement for landfills to pass back the CPM or the prepayments and even the PUP party reforms (250% penalty for not passing back funds) do not apply to the landfill sector. Why not? That is the right question to ask.

Carbon premiums have been charged to residents and businesses across the economy and part of the non-liable amount of these premiums should be redistributed to the waste generators when the CPM is terminated.

Some landfill operators argue this would be too difficult to do and that because contractual arrangements would not necessarily allow the rebate to flow back to the customers via waste collectors and that they should keep the funds and use them for further GHG management on site.

Other options to rebate landfill customers could include:

  1. Direct cash rebate to major users in the CPM period (e.g. councils and major businesses).
  2. Rebate on gate fees to all current 2014/15 users.
  3. Deferral of future landfill price rises including landfill levy pass through.
  4. Price discounts in long term disposal contracts for major users.

It would also be prudent for landfill operators to put current carbon premium cash flows into escrow accounts in expectation of claims from existing landfill users.

Let me be clear, it is not the fault of the landfill operators. They are between a rock and a hard place.

The Government needs to step in and clarify its expectations in relation to windfall gains by landfill operators. Answers to questions like “How do we quantify savings form the repeal of the CPM?”, “What will be the ACCC‘s role?”, “How would this work in practice?” need answers as soon as possible – especially in the light of requests that all CPM savings be passed on back to the customers.

Until this is resolved, councils, businesses, you and I will continue to have no visibility on whether our waste charges include a CPM component and how much of our existing prepayments are being refunded and to whom.

By Julien Gastaldi and Mike Ritchie, MRA Consulting Group.