Waste markets study: full report

Economic Modelling

An economic impact assessment has been developed to assess the impacts of the landfill ban on residual waste over 10 years from its implementation in 2021, in accordance with the Treasury's Green Book guidance. The impact assessment takes into account the economic costs (presented as negative numbers) and benefits (presented as positive numbers) of the market and non-market impacts associated with the proposed alternative treatment options (as described in the Financial modelling section). These options are both compared to a common baseline where no landfill ban is introduced.

Methodology

Modelling Approach

All figures presented in the economic modelling are presented in real terms (2017 prices). The geographical remit is limited, so far as practicable, to Scotland. Accordingly, in scenarios where waste is treated beyond this geographical boundary only the impact of waste treatment in Scotland is considered. Transport emissions that occur within the UK are attributed to Scotland. The costs and benefits are delineated according to Standard Industrial Codes in alignment with the Input Output framework used by Scottish Government. The categories of economic actors used are:

• Public authorities (local authority collected waste);
• Waste collectors (private collected waste);
• Waste brokers;
• Hauliers;
• Exporters;
• Treatment/landfill providers in Scotland.

The modelling does not seek to account separately for the capital costs and capital value of the key assets that might be developed under each scenario – principally EfW facilities and (to a far lesser degree) transfer and pre-treatment facilities. In each case, we have sought to address these capital costs through the gate fees that are charged, rather than accounting for them separately. This is because capital costs vary significantly depending on the source, and may be incurred either by public or private bodies making them difficult to attribute for modelling purposes. Amortisation of capital can also be made difficult by variations in the projected lifespan of facilities and the potential for them to be refurbished to extend their working lives.

To provide an indication of the capital costs, prior work by Eunomia has found an approximate average cost for an incinerator of less than 200,000tpa to be in the range of £750-850 per tonne of capacity, with prices falling below £650 per tonne of capacity for much larger facilities. Two recent Scottish data points suggest prices may be somewhat higher at present in Scotland:

• The Edinburgh incinerator is expected to cost £142m and have a capacity of 155,000tpa, a cost of £916 per tonne of annual capacity.^[11]
• The planned Grangemouth incinerator, projected to cost £210m to build, would have a capacity of around 216,000tpa, a cost of £972 per tonne of annual capacity.^[12]

Even assuming these higher costs, and that the full cost would be capitalised, projected gate fees in the late 2020s exceed £120 per tonne, meaning that the great majority of the cost of capital for any new facilities would be recouped within the timeframe examined in the study. Capital considerations have therefore been excluded from the modelling.

Beyond impacts falling on specific economic actors, there are also impacts that are not valued in markets ('non-market impacts'), but have an impact on society as a whole. For waste management, these tend to relate to environmental impacts such as greenhouse gas emissions and air pollution. These include methane emissions from biogenic carbon resulting from the disposal of residual waste to landfill or emissions of CO₂ and nitrogen oxides (NOx) as a result of incinerating waste within Scotland or of transporting material by road within the UK (see Table 7).Transport emissions within England are likely to be small, and sensitive to assumptions regarding where in Northern England waste is treated; we have not therefore sought to separate these impacts from those in Scotland. Where possible, we have sought to monetise environmental impacts so that they can be taken into account.

This modelling takes account of treatment emissions that occur within Scotland, in line with the economic actors analysis; thus, options in which material is exported for treatment may look environmentally favourable. To understand the impacts of material disposal and transport outside Scotland's boundary, an estimate has been calculated for illustrative purposes. For the analysis it has been assumed that the material is shipped to either the Netherlands, Denmark or Sweden. This analysis also excludes the impacts of particulate matter emissions from road transport.

Table 7: Environmental Assessment Assumptions (Tonnes of Emissions per Tonne of Waste)

Treatment Type	Carbon (CO2 eq	NOx
Landfill	0.31	N/A
Thermal Treatment (UK)	0.28	0.001
Thermal Treatment (Europe)	0.13*	0.001
Road Transport (kg per litre)	N/A	0.019
Boat Transport (per km)	0.03	N/A

Notes: Assumptions based on prior Eunomia modelling in which assumptions regarding waste compositions and the performance of facilities have been combined to produce emissions estimates. *Assumed median value across incineration in Denmark, Netherlands and Sweden.

The model uses assumptions regarding equivalent CO₂ and NOx emissions per tonne of material disposed/treated that are derived from previous Eunomia environmental modelling that is relevant to the position in Scotland. Estimating the net carbon emissions from landfill and thermal treatment can be complex, and depends on assumptions regarding factors such as:

• Residual waste composition, including carbon content and the proportion of the waste that is biogenic;
• Landfill gas capture rates and how captured gas is used;
• The rate at which material degrades in landfill;
• The efficiency of the incinerator engine;
• The carbon intensity of any electricity and/or heat generation requirement that is displaced by energy from waste.

Account has been taken of these factors in preparing the emissions estimates. A range of defensible estimates is possible depending on the assumptions made, but the ongoing decarbonisation of the electricity grid is gradually eroding the environmental benefit provided by EfW.

The equivalent tonnes of CO₂ emissions and NOx emissions are monetised using BEIS updated short-term traded carbon values^[13] and a NOx damage cost of £9,094/tonne (Defra Air Quality Economic Analysis, 2015 prices inflated to 2017 prices).^[14]

The economic assessment excludes taxation, which is regarded as a transfer between economic actors rather than a cost. For this policy this is a particularly important consideration as it excludes the impact associated with landfill tax, which currently stands at £88.95 per tonne (standard rate). Other taxes, such as VAT and corporation tax, are also excluded. For private actors, it is assumed that 10 per cent of turnover is profitable and that the main rate of corporation tax is 19%, falling to 17% by April 2020. The corporation tax impact of the policy options is again excluded from consideration in the financial modelling.

No account has been taken of the impacts of the change to the amount of waste recycled which is outside the scope of this assessment. Since the recycling rate is modelled as a scenario rather than as a consequence of the landfill ban, it is a consistent factor between the options.

Baseline Development

The costs and benefits for the options considered in this economic assessment are measured against a common baseline. The baseline is, in effect, a prediction of how the waste sector will develop over a 10-year period in the absence of the landfill ban and in accordance with the recycling rates assumed within each scenario. This is used to compare the two options against one another.

For each authority area for household waste (collected by local authorities) and C&I waste (collected by waste collectors), a baseline was developed that estimates the costs that would be incurred throughout the supply chain under current and firmly planned treatment solutions. For example, authorities that currently landfill as a treatment solution are forecast to continue to use this solution.

As no data is available to identify the volume of C&I waste collected by public authorities, it has been assumed for the purposes of this modelling that all C&I waste is collected by private waste collectors.

Options Development

To assess the impacts in relation to the baseline, the next step was to define two options that apply in each scenario:

• Option 1 – no new treatment capacity is developed in Scotland; and
• Option 2 – additional thermal treatment capacity is developed to meet Scotland's longer-term needs.

For these options, changes in costs were calculated for each aspect of the value chain; from waste collection, treatment and disposal. The cost and benefits attributable to the following sectors have been attributed to the following actors:

• Public authorities (local authority collected waste);
• Waste collectors (private collected waste);
• Hauliers;
• Exporters;
• Treatment/landfill providers in Scotland.

The economic impacts falling on these actors associated with the treatment of residual waste (irrespective of option) include:

• Public authorities (for household material) and waste collectors (for C&I material) incur costs for the haulage and treatment/disposal of residual waste;
• Hauliers receive the value of transport from the waste collectors and public authorities;
• If the material is being treated or disposed of in Scotland, the value paid by public authorities and waste collectors (excluding taxes) is transferred to the treatment/landfill providers; or
• If the material is being treated or disposed of outside of Scotland, an allowance of £15 (excluding taxes) is transferred to exporters with the remaining value paid by the authorities 'lost' to the Scottish economy.

Figure 11 illustrates how the distribution of economic impacts moves through the Scottish economy.

Figure 11: Waste Supply Chain Transfers

Calculation of the Impacts

The modelling analyses the impacts year-by-year at an authority level, looking separately at the changes in economic costs for the treatment of household and C&I waste. In general terms the key changes are:

• Changes in haulage and the associated economic impact;
• Changes in treatment gate fees and associated economic impacts; and
• Impacts on the environment associated with the changes above.

The outputs from this assessment have then been summed to provide a net figure for each year. The first ten annual net values are then discounted, using a social discount factor of 3.5%, and summed to give a Net Present Value (NPV). This method is in alignment with established economic impact assessment methodology.

Results

Table 8 and Table 9 show the results of the economic modelling for each scenario within Scotland. In both scenarios, both options result in an overall loss to the Scottish economy. This result derives principally from the increase in waste exports resulting from the landfill ban. Table 10 details the additional environmental impact for waste exported for outside of Scotland for treatment compared to the baseline. Note that the figures in Table 10 are provided for information and are not included in the main economic costs in Tables 8 or 9 or in the Executive Summary.

In both scenarios, the total combined economic and environmental cost to Scotland is greater for option 1, where no further thermal treatment capacity is developed. In this option, a far greater quantity of waste is exported, with most of the value received by treatment providers outside of Scotland. Only the economic value of waste haulage and RDF processing remains of benefit to the Scottish economy. The costs in scenario 1 are lower throughout, but in both cases costs gradually decrease over time.

In option 2, there is an initial loss to the Scottish economy; however, as thermal treatment capacity comes online, principally in 2025, this loss subsides. After 2025, there is no longer an annual economic cost to Scotland each year, but the economic benefits achieved are not sufficient to outweigh the costs – in excess of £100m each year – incurred between 2021 and 2024. This change over time is shown in further detail in Appendix 6.

The combined total costs are greater in the 'business as usual' scenario (scenario 2) as a result of the higher tonnage of waste requiring treatment. This results in more waste being exported, and therefore a greater loss the Scottish economy. Somewhat counter-intuitively, the environmental results are greater in scenario 2 due to the higher volumes of waste diverted from the baseline landfill scenario. Similarly, the option to export waste seems to result in a more favourable environmental impact, primarily due to the fact that environmental impacts from treatment outside Scotland are not accounted for within the modelling. (The impact of these non-Scottish emissions (together with non-UK transport emissions), which are generally excluded from economic models of this type, are shown for information in Table 10). In reality, the environmental impacts of emissions associated with overseas treatment and (to a lesser extent) transport of waste outside the UK, would add to the impact of the policy. In all scenarios and options, environmental performance improves as 2030 approaches.

Table 8: Scenario 1 - Economic Costs Modelling (2021-2030)

Option		NPV (£m)
Option 1	Total Economic Costs	-984
	Total Environmental Costs	40
	Combined Total Cost	-943
Option 2	Total Economic Costs	-430
	Total Environmental Costs	16
	Combined Total Costs	-414

Note: figures may not sum to the totals due to rounding.

Table 9: Scenario 2 - Economic Costs Modelling (2021-2030)

Option		NPV (£m)
Option 1	Total Economic Costs	-1,213
	Total Environmental Costs	57
	Combined Total Cost	-1,156
Option 2	Total Economic Costs	-486
	Total Environmental Costs	37
	Combined Total Costs	-449

Note: figures may not sum to the totals due to rounding.

Table 10: Additional Environmental Impact Outside of Scotland

Scenario		Option 1 NPV (£m)	Option 2 NPV (£m)
Scenario 1	Landfill Emissions in England	-7	-5
	Incineration Emissions in Europe	-104	-86
	Transport to Europe	-6	-4
	Combined Additional Cost	-116	-95
Scenario 2	Landfill Emissions in England	-9	-7
	Incineration Emissions in Europe	-130	-106
	Transport to Europe	-7	-6
	Combined Additional Costs	-146	-118

Note: figures may not sum to the totals due to rounding.

Industry Impact

As shown in Table 11, for all options, local authorities and private waste collectors are likely to suffer a negative economic impact as a result of the ban, due to the additional waste management costs they incur. The policy is likely to result in waste being transported further than in the baseline, whether to Scottish facilities or those in England or on the continent. Hauliers and exporters are therefore likely to see most economic benefit from the ban. Treatment providers in Scotland also lose out initially as landfill receipts will decline before all thermal treatment infrastructure becomes operational. However, as capacity comes online, economic value is diverted back into the Scottish economy (and at a higher rate than the landfill gate fee minus landfill tax) rather than being lost via exports to Europe or England.

Table 11: Economic Impact on Industry Actors

Industry		NPV (£m)
		Scenario 1: Option 1	Scenario 1: Option 2	Scenario 2: Option 1	Scenario 2: Option 2
Public Authorities		-853	-842	-1,132	-1,114
Waste Collectors		-770	-713	-953	-879
Haulage	Household	54	44	70	52
	C&I	34	21	41	24
Exporters	Household	46	43	58	51
	C&I	102	56	126	63
Scottish Treatment/Landfill Providers	Household	464	649	648	897
	C&I	-61	312	-71	420
TOTAL		-984	-430	-1,213	-486

Note: figures may not sum to the totals due to rounding.

Multiplier Effect

Changes in activity in particular areas of the economy can have wider effects, benefiting or damaging other sectors. Multipliers have been developed by the Scottish Government to estimate these wider effects. In this section we provide extracts of the Scottish Government's Input-Output tables that relate to the waste industry to illustrate the extent to which changes in this sector may impact upon the wider economy. The latest tables available were published in July 2018 and relate to the period 1998-2015^[15].

The Scottish Government's website explains multiplier effects as follows:

"If there is an increase in final use for a particular industry output, we can assume that there will be an increase in the output of that industry, as producers react to meet the increased use; this is the direct effect. As these producers increase their output, there will also be an increase in use on their suppliers and so on down the supply chain; this is the indirect effect. As a result of the direct and indirect effects the level of household income throughout the economy will increase as a result of increased employment. A proportion of this increased income will be re-spent on final goods and services: this is the induced effect. The ability to quantify these multiplier effects is important as it allows economic impact analyses to be carried out on the Scottish economy."

It was determined that the industries which would be affected by the ban were:

• Public Authorities;
• Waste Collectors;
• Brokers;
• Haulage;
• Exporters;
• Treatment/ Landfill Providers (based in Scotland only).

Analysis of Standard Industrial Classification (SIC) guidance^[16] found that the code which covered the waste activities for these industries was SIC E38 'Waste collection, treatment and disposal activities; materials recovery'. Unfortunately, the Input-Output tables do not separate E38 from E39 (Remediation activities and other waste management services'). Whilst analysing these figures is still useful, it is important to bear in mind that they include a wider industry group than will likely be affected by the ban.

Table 12 provides extracts from the Scottish Input-Output tables for Type 1 and Type 2 Multipliers. The most useful figures shown in these tables are the 'output multipliers'. Type 1 multipliers relate to direct impacts, while Type 2 relates to indirect impacts. Table 12: Multiplier Effects

Multiplier Type	SIC	Industry Group	Output Multiplier	Rank	Income Effect	Rank	Employment Effect	Rank	GVA Effect	Rank	Income Multiplier	Rank	Employment Multiplier	Rank	GVA Multiplier	Rank
Type 1 Multipliers	38 39	Waste, remediation & management	1.4	24	0.4	50	7.8	74	0.6	65	1.4	26	1.8	16	1.5	24
Type 2 Multipliers	38 39	Waste, remediation & management	1.6	25	0.5	50	9.8	71	0.7	61	1.6	26	2.2	13	1.9	22

The tables illustrate that the 'waste, remediation and management' industry group has an output multiplier of 1.4 for type one and an output multiplier of 1.6 for type two impacts. These are ranked highly at 24 and 25 out of 98 respectively suggesting impact upon other sectors is high. This demonstrates that events that affect this industry influence a wide range of other sectors and have a significant wider impact on the Scottish economy.

Within the economic modelling, costs are incurred by public bodies and waste collectors, but there is no increase in the use of their services. If option 2 is adopted, these additional expenditures result in an increase in demand for waste treatment in Scotland, which is met through the development of additional waste treatment facilities. The development of these facilities may give rise to multiplier effects. However, where waste is exported, the opportunity for these multiplier effects within the Scottish economy are lost.