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Subsidies to the Use of Natural Resources

Environmental Economics Research Paper No.2
This report was prepared by a consultant,
the National Institute of Economic an Industry Research (NIEIR),
for the Department of the Environment, Sport and Territories.
Commonwealth of Australia, 1996
ISBN 0 642 24864 8

5. Solid waste disposal

5.1 Introduction

Solid wastes come from a range of sources in urban and rural areas. Some wastes are disposed illegally, e.g. by dumping on roadways, but although this mode of disposal remains a problem, most wastes are collected and disposed of at designated landfill sites. Most are public sites operated by local governments. Disposal costs are rising as more distant sites are required and as the disposal systems must meet more stringent regulations.(see note 1 below)

According to the Commonwealth Government paper, A National Waste Minimisation and Recycling Strategy (NWMRS) released in June 1991, about 14 million tonnes of solid, domestic, commercial and industrial waste were disposed of through landfills in 1990. In addition, some 200 000 tonnes of liquid and solid industrial waste were taken to special landfills and treatment facilities. The aim of the NWMRS is to have 50 per cent of solid waste diverted from waste streams by 2000 measured in 1991per capita waste weight terms.(see note 2 below)

A 1990 survey by the Industry Commission (IC) estimated that landfill, incineration and recycling accounted for 96 per cent, 1 per cent and 3 per cent respectively of waste disposal by local governments in 1989. (see note 3 below) However, in recent years there have been substantial increases in recycling (see note 4 below) suggesting that the national recycling rate may have doubled from 3 per cent in 1989 to about 6 per cent in 1994 and that the 1994 disposal to land fill was possibly about 13 million tonnes compared to 14 million tonnes in 1991. It is likely therefore that the trend solid waste growth has been more than offset by increased recycling.

The Recycling and Resource Recovery Council (RRRC) in Victoria has recently prepared some preliminary estimates of waste diversion across the full waste stream (e.g. domestic, industrial, commercial, institutional, building and demolition). This work indicates that about one-third of the waste stream is being diverted to re-use or recycling but that diversion of two-thirds is required if the NWMRS were to be met.(see note 5 below) This current diversion rate is high in international terms, for example levels in leading US recycling states are about 40 percent.

1 This section of the study only covers publicly recorded and managed wastes and does not cover other forms of waste such as mining waste.
2 National Waste Minimisation and Recycling Strategy, Commonwealth Environment protection Agency and Department of the Arts, Sport, the Environment and Territories, p.14.
3 Industry Commission, Waste Management and Recycling: Survey of Local Government Practices, 1990 (IC1990a).
4 See, for example, Monitoring of Performance Against Waste Minimisation and Recycling Targets: Final Report, prepared by Maunsell Pty Ltd , August 1994 for the federal Environment Protection Agency (Maunsell, 1994).
5 RRRC,Annual Report 1993–94, pp.11–14.

Despite the progress a 1994 report to the federal Environment Protection Agency found that attainment of the NWMRS attainment was lagging at the end of 1993 although some specific recycling targets, for example for glass containers and aluminium cans are likely to be achieved.(see note 1 below) Only 24 per cent of councils that responded to the survey had a waste management plan, but 81 per cent had regular kerbside collection of recyclables.

An allied problem is that of litter. Litter in urban areas frequently ends up in waterways (via drains), where it can cause damage to local ecosystems. It is also unsightly and detracts from the amenity of urban living. Litter measurement is not easy. Regular counts undertaken by the Keep Australia Beautiful Council suggest that littering has generally been reduced but that the rate of decline has slowed, if not stopped. Paper of various types and plastic items from consumer packaging are particular problems in the litter stream requiring attention from government and from businesses which produce the items which become litter.

Modern landfill engineering practices are significantly improving the environmental performance of landfills. Leachate control and methane extraction, together with improved cover techniques to reduce problems of birds and odour, are reducing the impact of new landfills on host communities. These improvements have effectively internalised many of the costs of landfill operation which were previously external. However, new solid waste problems continue to emerge even though significant advances have been made in areas such as paper, glass and metal wastes. One emerging problem is that associated with electronic office equipment where technical progress and growth in purchases is rapid; in combination these factors are leading to large increases in the disposal of obsolete equipment. Another emerging problem is that impacts associated with the transport of waste to landfills will tend to increase as more distant sites are used.


5.2 Financial subsidies

Financial subsidies to solid waste disposal arise from the failure to recover the full costs of disposal undertaken by public agencies. There is seldom a requirement to fully account for site costs such as the opportunity cost of land, site rehabilitation and replacement, or to achieve normal rates of return on the public assets involved in waste disposal. In addition, most of the revenue for solid waste disposal operations of councils comes from fixed charges based on property values and estimated waste disposal revenue requirements rather than user charges based on the volume and type of waste collected. As indicated in several places in this report this fixed, or unrelated to actual service, charging approach is very inefficient in terms of resource allocation.

One way to increase the emphasis on source reduction programs, as part of waste minimisation strategies, is via implementation of user pays pricing systems for waste. The general absence of such systems in Australia may be a significant reason why source reduction has received little emphasis. Many councils still do not have specific garbage rates and even fewer adopt charging systems for garbage that are based on a pay-by-volume or pay-by-weight basis. There is, therefore, little incentive for residents to minimise their waste.

The trend is to separate general rates from garbage (solid waste) rates, for example in the municipalities of Boorondara and Eltham inVictoria. There is also a movement towards partial charging by volume or (rarely) by weight for waste disposal.

1 Maunsell 1994, op. cit.

The 1994 Maunsell report to the federal EPA referred to above found that 17 per cent of councils surveyed in 1993 had charges based on volume or weight. In Australia, councils such as Boorondara provide a 140 litre bin for household waste disposal charged for through rates, but will provide a 240 litre bin for an extra charge of $100 per year. This extra charge is essentially to discourage higher waste disposal per house hold as it is estimated (by S. Bateman, Maunsell, pers. comm.) to be about 10 times the marginal cost of disposing of the extra 100 litres (5200 litres per year) of garbage.

Similar systems are used in North America. For example in 1981 Seattle in the United States introduced a system of volume based charges. Residents subscribe in advance for weekly collection of waste in increments of one 114 litre bin. Residents who have, say, two bins collected per week pay significantly more than residents who subscribe for only one bin. In response partly to volume based rates and partly to waste minimisation programs, separate collection of recyclables and a composting service, the average number of bins subscribed per household fell from 3.5 in 1981 to only 1in 1989. In 1989, about 25 per cent of house-hold waste in Seattle was diverted by City-sponsored and other recycling programs.(see note 1 below)

In the Regional District of Nanaimo (RDN), British Columbia, Canada, residents must purchase tags for attachment to second and more garbage bags left out for collection; untagged bags are not collected (C. McIver, RDN, pers. comm.). Weight based systems are difficult to implement because of problems in estimating, and costs of measuring, the weight of solid waste.

In the IC study on recycling, it was estimated that public sector solid waste disposal operations in Australia achieved an average real rate of return of 6 per cent on estimated assets in1989. (see note 2 below) The Industry Commission study indicated that risks in waste disposal warranted a higher than 5 per cent real rate of return, but did not conclude that the 6 per cent return achieved in 1989 was too low as:

Here we consider that the 6 per cent rate of return is too low as the general services should be costed and charged for separately from landfill operations and that it is not evident that waste revenues are under estimated.

Based on the IC data on assets extrapolated to1994, (see note 3 below) an 8 per cent real rate of return rather than one of 6 per cent would require that net returns from council solid waste disposal operations be raised by about $20 million in 1994. Revenue increases, coupled with cost reductions in waste disposal operations, could come from businesses producing and using packaging as well as entities from whom the garbage is collected.

This estimate, however, does not adequately take into account the replacement cost or rehabilitation of sites. The IC study found that 62 per cent of Councils made no provision for site rehabilitation and replacement costs and few appeared to be making adequate provision given likely replacement costs and the remaining life of existing sites. These costs should be estimated and provision made for them in charges for solid waste operations.

1 As reported in Waste Management and Recycling: Survey of Local Government Practices, Industry Commission, 1991 (IC 1990a).
2 Industry Commission, Report on Recycling, Volume I, Report No. 6,(IC 1990b) AGPS, 1990,pp.45–48.
3 Assets comprising sites at replacement costs of $700million based on purchase costs and costs of preparing the site for landfill operations, and plant and equipment $300 million, both in 1994 dollars.

The IC study reported that the average provision in 1989 for acquisition of new sites was 4.7 per cent of estimated replacement cost, when on the basis of average remaining life it should have been 8.3 per cent.(see note 1 below) On the basis of estimated 1994 site replacement costs of $700 million (extrapolated from the IC 1989 estimates) the replacement provision would need to be increased by about $25 million. This figure assumes that replacement costs rise at the same rate as interest rates, but does not take into account the likely cost of meeting tighter environmental standards at these new sites, site rehabilitation costs, nor increased waste diversion. Assessing the impacts of these factors on financial subsidies to solid waste operations is difficult due to lack of data and the interaction of some with environmental subsidies discussed below. The costs of meeting 1989 environmental standards at these new sites was taken into account in the IC report but tighter regulations since then and in the future are likely to increase that cost. Estimation of this cost would require detailed study.

Site rehabilitation or remediation when land-fills close is an important aspect of solid waste management which entails a number of operations. These include covering of the landfill, preparing or cleaning up the site for another use, ongoing monitoring of the environmental conditions of the site and provision for contingent environmental liabilities.(see note 2 below) Costs of site rehabilitation were not estimated by the IC nor do they appear to be available from later studies. They could be estimated from a survey of likely closures and estimates of rehabilitation costs in each year.

Overall our assessment of the situation is that further analyses and survey would likely reveal an estimate of net costs at least double that made on the basis of the IC data referred to above. That is that the replacement and rehabilitation cost provision should be increased by about $50 million. Adding the amount of $20 million estimated above for achievement of an 8 per cent rate of return to the $50 million estimated for site replacement and remediation costs indicates that charges should be raised by $70 million to remove financial subsidies to solid waste operations. There is also considerable scope for replacement of fixed charges with user charges.

Thus we estimate that the 1994 financial subsidy to solid waste operations is $70 million, or about $5.5/tonne of solid waste going to landfills in 1994.


5.3 Environmental subsidies

Despite tighter regulatory control of solid waste operations, the range of solid wastes and disposal modes still produces a number of environmental subsidies or negative externalities. These include the visual impact of illegal litter dumping, the aesthetic externalities of garbage disposal sites and the impacts (health, property and habitat damage) of dust and other particles from landfill sites. Also decomposition of solid wastes can result in odours and leaching of landfill causes water quality impairment from run off and into ground waterflows. Indirect effects such as odours, litter and noise result from the transport of solid wastes from the waste generation location to the disposal site.

1 IC, Report on Recycling, op. cit.,p.47. The IC Survey of local governments (IC 1990a) found that remaining landfill lives were higher in rural than in urban areas, except in South Australia and Tasmania (see p.28) and provision as a percentage of replacement was generally higher for rural areas (see p.30).
2 See, Waste Management and Landfill Pricing: A Scoping Study, Bureau of Industry Economics, 1993, pp.15–18.

Land fill disposal produces greenhouse gases (methane), as does the combustion of solid wastes. Analysis for the 1994 National Greenhouse Gas Inventory report estimated that in 1990 landfill emissions of methane were 1.344 million tonnes (about 20 per cent of total Australian methane emissions; total emissions from landfill and waste incineration were an estimated 5 per cent of total GHG emissions).(see note 1 below) Emissions and particulates from combustion and storage of wastes can also result in corrosion and other damage.

In Perth leachates from landfill sites have damaged the tourist and fishing industries. To control this damage landfill sites are being lined at a cost of about $6/tonne of waste going to landfill.(see note 2 below) On this basis, to line landfill sites taking 75 per cent of solid waste (see note 3 below) in Australia, control costs might be about $59 million a year in 1994 dollars.(see note 4 below) However, we do not accurately know the:

(i) costs of lining landfills in other Australian regions; nor
(ii) what proportion of wastes currently go to leachate controlled landfills in Australia.

Therefore this externality valuation based on leachate control must be used very cautiously. Also this estimate does not take into account non-leaching externalities such as dust, litter odours and methane emissions associated with solid waste operations.

Using another basis, Stanley and Maunsell (see note 5 below) have estimated that improved environmental control techniques at newer landfill sites in Melbourne have increased costs to about $26 per tonne from about $13 per tonne at older sites that do not meet these requirements. This figure of $26 per tonne (annualised) includes $6/tonne (1994 dollars) for site closure costs(capping, gas flaring, monitoring, rehabilitation).

If we use the Stanley/Maunsell estimate of about $13/tonne needed to meet tighter environmental regulations, and assume that 75 percent of current sites do not meet these tighter regulations (see note 6 below) , landfill externalities would be valued at about $127 million in 1994.

This and the leachate control estimate could be averaged to obtain landfill externalities estimates but as the Stanley/Maunsell estimate is more comprehensive it is used.

In addition to these costs can be added off-site externalities associated with landfill operations. These costs were estimated by Stanley to be about $1/tonne (1994 dollars) on the following bases.(see note 7 below)

1 NGGI 1994, op. cit., p.13 and p.19.
2 Industry Commission, Waste Management Report, p.41.
3 Estimate of landfills without adequate controls based on discussions with EPA, other waste management officials and consultants.
4 9.8 million tonnes of Australian waste disposal at $6/tonne for leachate control costs.
5 The Cost of Waste Disposal in Melbourne, report prepared by John Stanley and Associates Pty Ltd and Maunsell Pty Ltd for Visy Recycling, June 1992.
6 See above for estimate basis.
7 John Stanley and Associates, Proposed waste disposal site at Clayton Road, South Clayton: Review of economic issues involved in determining site suitability for landfill, a report for the City of Oakleigh, 1991.

Extrapolated to the national situation on the basis of the estimated 1994 solid waste disposal (see Section 5.1) these costs would amount to about $13 million in 1994.

In total, therefore, we estimate that environmental subsidies to solid waste disposal totalled about $140 (127 + 13) million in 1994. As they are based on limited and uncertain data this estimate should be used very cautiously.

No comprehensive valuation of environmental subsidies to Australian solid waste disposal operations or contaminated sites appears to have been undertaken; the emphasis to date has been on financial subsidies and means of reducing the solid waste stream. More work on both sets of subsidies would be useful.


5.4 Summary

A summary of financial and environmental subsidies to solid waste disposal activities is provided in Table 15.


Table 15: Summary of financial and environmental subsidies,1994, solid waste disposal activities

image: table 15

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