Clause 6 - Borrowing and banking of landfill allowances

Waste and Emissions Trading Bill [Lords] – in a Public Bill Committee at 4:15 pm on 3 April 2003.

Alert me about debates like this

Photo of Ms Sue Doughty Ms Sue Doughty Liberal Democrat, Guildford 4:15, 3 April 2003

I beg to move amendment No. 1, in

clause 6, page 4, line 17, leave out 'by regulations', and insert 'not'.

Photo of Anne Begg Anne Begg Labour, Aberdeen South

With this it will be convenient to discuss amendment No. 2, in

clause 6, page 4, leave out from line 20 to line 11 on page 5.

Photo of Ms Sue Doughty Ms Sue Doughty Liberal Democrat, Guildford

This seems to me to be one of the key areas of the Bill, which, as we discussed on Second Reading, is designed to do several things. It is possible to meet targets or to trade them, but within that, there is flexibility to allow local authorities to catch up, albeit by spending money. The ability to trade within the year gives them flexibility. However, the clause will allow them to carry over allowances to the next year by banking them, and that concerns me. It seems to be a risky strategy, if we are trying to reduce, year on year, the amount of waste that we send to landfill, because it would seem possible to keep sending waste to landfill and then suddenly reduce the amount sent to landfill some time afterwards. It would seem a bit reckless to defer all the good work that I was doing in any area, because I had borrowed my allowances for subsequent years, and then suddenly had to catch up at the last minute because I had no allowances left.

We need to forward plan. The Minister helpfully said that disposal authorities will know what the targets are for the 20 years of the scheme. That would seem to provide a good opportunity for business planning. I accept that we are talking about a small part of the whole waste management strategy, which we discussed extensively this morning, but those who are trying to develop their waste management strategies—the disposal authorities and the waste management business, which is contracted to execute waste management strategy on behalf of the authorities—need to get on with their planning. It would appear that if one is allowed to borrow allowances for a subsequent year, one might delay investment in the necessary technologies. I should have thought that the Government might be trying, in the Bill, to send the message, ''We must stop sending waste

to landfill. We know what our targets are, so, using those allowances, we must plan wisely for the future.'' Even with the statutory recycling targets, if municipal waste grows by 3 per cent. a year, one could find that, by borrowing allocations from subsequent years, one was sending the same amount of waste to landfill in 2008 as in 2003. To me, that is contrary to the sense of the Bill. We want to reduce landfill as soon as possible by trading within those years. Trading within the year would allow that to happen, but borrowing from subsequent years would and could defer it if we did not have a prudent disposal authority, which would stack up trouble for authorities in future years. That is why we have proposed changes: we do not want that to happen.

Photo of Mr Jonathan Sayeed Mr Jonathan Sayeed Conservative, Mid Bedfordshire 4:30, 3 April 2003

The concepts in the amendments are ones that I brought up on Second Reading, and I know that they were mentioned by the hon. Member for Lewes in his speech. The amendments would remove the power to borrow and bank allowances.

As the Bill stands, a waste disposal authority could borrow additional capacity to landfill from the landfill allowances of subsequent years, except target years. That may mean that decisions and investment in technologies necessary to enable the UK to comply with the landfill directive are deferred. Even with statutory recycling targets, if municipal waste continues to grow at 3 per cent. per annum, a waste disposal authority could, by borrowing allowances from subsequent years, feasibly landfill in 2008 quantities of biodegradable municipal waste similar to those that it landfilled in 2003.

Perversely, borrowing could significantly reduce the incentive for local authorities to trade. I therefore ask the Minister to respond the argument that the banking of permits may act as a disincentive for waste disposal authorities to improve continuously, year on year, and to invest in the required new and long-term infrastructure. We do not want to build into the Bill a culture of disincentives and short-termism.

Photo of Michael Meacher Michael Meacher Minister (Department for Environment, Food and Rural Affairs) (Environment)

I entirely agree with both hon. Members who have spoken; it is certainly important that we do not allow the flexibility written into the Bill to be abused. I hope that I shall be able to persuade them and the rest of the Committee that that will not be the case. There are several safeguards that I believe will adequately prevent abuse. The Bill enables us to provide a measure of flexibility that we think desirable, so long as it cannot be abused.

The amendments relate to the banking and borrowing of allowances and would prevent allocating authorities from permitting allowances to be used in scheme years other than the one for which they were allocated. On Second Reading, I emphasised that the Bill was the first of its kind in Europe, possibly in the world. I also admitted that that was probably for the wrong reasons, and not because of our great innovation. What is unique about the Bill is that it sets up the framework not only for the system of landfill allowances—which is very important—but for the

method of trading those allowance between waste disposal authorities.

The trading system as a whole is designed to ensure that waste disposal authorities can reduce the amount of biodegradable municipal waste going to landfill in a manner suitable to them, while ensuring that the UK still fulfils its obligation for target years. The system, if one looks at it holistically, will give waste disposal authorities flexibility and ensure cost-effectiveness throughout the UK. It is quite ambitious; it is certainly innovative; and I believe that it can work.

We refer to the inter-year use of allowances—between years as opposed to within a year, to which the amendment refers—as either banking or borrowing. Banking allows waste disposal authorities to keep allowances that have not been used in one year for use in later years. That rewards good performance in waste management. Where a waste disposal authority has put in place good basic systems, it might already be diverting a high proportion of waste from landfill. With a banking system, it can save allowances in early years and either trade them or use them in later years when targets get tighter and it is waiting for new initiatives to come on stream.

Borrowing, which might be more of a problem for some hon. Members, means that waste disposal authorities will be able to bring forward the use of allowances that have been allocated for future years. I understand the arguments and the risks. Borrowing will be possible in England because the aim is, as I have said, for allowances to be distributed for all scheme years at the beginning of the scheme. The objective of that flexibility is to encourage responsible waste management planning by giving waste disposal authorities time to invest in new facilities. We are in the early stages of what will be a steep incline as we increase the system's capacity to facilitate recycling. That will happen only if there are significant increases in investment in plant and infrastructure, which is what the national recycling waste management fund is all about.

Photo of John Hayes John Hayes Shadow Minister (Environment, Food and Rural Affairs)

The problem is that the borrowing system that the Minister envisages needs to be seen in relation to the accelerating targets. If authorities borrow early and their targets get stiffer and stiffer, as they surely will, they might find themselves in considerable difficulty in the medium and long term. If there were a flat-line target, and they were expected to perform in a roughly equivalent way year on year, it would not be so much of a problem. My anxiety is caused by the combination of tough, accelerating targets and the potential for early borrowing against allowances.

Photo of Michael Meacher Michael Meacher Minister (Department for Environment, Food and Rural Affairs) (Environment)

I hope that the problem will be avoided by the publication of allowances for each of the next 20 years. The allocating authorities have informed the waste disposal authorities what those figures will be each year. Clearly, they have to be planned for, but there is no reason why we should have to tighten them. If we do a lot better in the early years, it is possible that they could be loosened a little towards the end. There is no question of tightening them so long as we know where we have to get to in each of the target years, particularly 2016 and 2020.

Although I do not have the figure to hand, I know that the target will be no more than 35 per cent. of 1995 levels. Once we have allocated the responsibility for meeting that to each waste disposal authority, there will be no reason for altering the framework.

Photo of Norman Baker Norman Baker Liberal Democrat, Lewes

I am sorry to be unduly pessimistic, but we are giving waste disposal authorities and waste collection authorities a huge responsibility—the Minister recognises that these are stiff targets—when they have previously had no targets for avoiding landfill and increasing recycling. Suddenly, a regime is being imposed on them, and their response will be to borrow allocations until they sort out what they are doing. They will be faced with difficult decisions about incinerators and so on, and they will borrow and borrow on the never-never. When we come to 2007, many authorities will run out of borrowing time and will not meet their targets. I am sorry if that sounds pessimistic, but I fear that it will happen. What will the Government do in 2007 if that is the case?

Photo of Michael Meacher Michael Meacher Minister (Department for Environment, Food and Rural Affairs) (Environment)

They will take account of the factors of which I am about to tell the Committee. Fortunately, that intervention came just before the point in my speech at which I am to set out the safeguards that will prevent us from getting into that position. The regulations that permit borrowing may place limits on the use that waste disposal authorities can make of borrowing from future years—we have the capacity to regulate that. Let me make it clear that banking and borrowing will not be a way for waste disposal authorities to evade their responsibilities.

The Bill puts in place a number of measures to ensure that the system cannot be abused. Most importantly, banking and borrowing across or into target years is will not be permitted. That removes the potential danger of a waste disposal authority using up all its allowances in the first three years of the scheme, and possibly causing the UK to fail to meet interim targets. Such an authority would certainly be liable for penalties in future years.

There are other safeguards. For example, regulations may provide for limits on the number of allowances that may be used inter-year, or specify conditions that have to be met. Ultimately—as some politicians like to say, this is the killer point—each waste disposal authority will know that if it landfills more than its allowance because it has borrowed and utilised it in previous years, it will be liable to a financial penalty and to a supplementary penalty where that failure contributes to the UK as a whole missing its landfill directive targets. That collection of safeguards is more than adequate to prevent abuse of the flexibility.

The amendments would scrap the part of the trading scheme that allows inter-year use of allowances. That would be a wasted opportunity as regards the UK showing that it pursues policies at the forefront of sustainable waste management which combine the maximum flexibility with ensuring that the landfill directive targets are achieved. Moreover, meeting the targets would be a much more painful process if there were no

flexibility to allow investment to be made; that takes some years to come on stream. The situation would be much more difficult for individual waste disposal authorities and, indeed, the UK as a whole. Again, we have tried to get right the balance between providing as much flexibility as we can, and ensuring that that cannot be abused and that the country as a whole can meet its targets.

Photo of John Hayes John Hayes Shadow Minister (Environment, Food and Rural Affairs)

I want to make a short contribution, because the Minister has put his finger on the two sides of the debate. There is a concern, which I have expressed, that not all authorities will act responsibly. My hon. Friend the Member for Mid-Bedfordshire spoke about the risk of short-termism if authorities do not see their way to employing the strategic planning for which we all hope. That is complicated by the fact that some local authorities have a more strategic view of life than others. We know that from our experience of local government and our study of how local authorities currently deal with waste.

The Minister is right to say that the safeguards will limit that problem and, furthermore, to make the key point that people start from a different baseline. There is an enormous variety not only in the profile of disposal and collection authorities, but in their performance, and that is why we need the flexibility to which the Minister referred. It will allow some to borrow and some to bank. Some will be ahead of the game; some will be well behind it, and they will need to invest heavily early on to meet the medium and long-term targets. The Minister set out a balanced case for the pros and cons of the system. There are risks and pitfalls, but on balance the necessary flexibility may be more significant than the risk.

Photo of Michael Meacher Michael Meacher Minister (Department for Environment, Food and Rural Affairs) (Environment) 4:45, 3 April 2003

This is truly a remarkable Committee. I am pleased to hear the leading Opposition spokesman defending my case with greater eloquence, persistence and comprehensiveness than I could have done. He is absolutely right, and as they say, I rest my case.

Photo of Ms Sue Doughty Ms Sue Doughty Liberal Democrat, Guildford

This short debate has been interesting, but I do not think that we are entirely convinced. As I think the Minister accepted, we have a real worry about local government borrowing against the future without the certainty that what they hope will happen will come about, especially given the possibility of a change of Administration or strategic direction. People may borrow at one stage, saying, ''We know where we are,'' but there may be a couple of elections further down the line and everything may change completely, so we are hostages to fortune.

The Minister described the penalties and great threats that may be imposed. I hope that he would make it clear to local authorities that those threats were serious and not negotiable; that might offset some of our fears. We shall put our trust in the Minister to ensure that those penalties are well known and understood, and to make it clear what will happen to local government if the rules are

transgressed. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 6 ordered to stand part of the Bill.

Further consideration adjourned.—[Mr. Ainger.]

Adjourned accordingly at fourteen minutes to Five o'clock till Tuesday 8 April at five minutes to Nine o'clock.