Waste Tax 1987-1996

7. Price sensitivity and the impact of weight-based pricing

7.1 Introduction
7.2 Pricing in the waste sector
7.3 Results in municipalities
7.4 The Tinglev system
7.5 Evaluation of the Bogense system
7.6 Comparison with other systems
7.7 Summary of evaluations

7.1 Introduction

The purpose of this chapter is to discuss how the waste tax is reflected in prices in the waste sector and to estimate how these mechanisms influence price sensitivity of waste. Experience with weight-based pricing is described together with the consequences of this approach on waste amounts generated.

Professional carriers

The waste tax is calculated and levied per tonne of waste delivered for treatment at registered plants. However, very few waste producers deliver their own waste directly to a plant. Waste is normally collected by professional carriers, and the way in which the price signal from the tax is passed on to waste producers depends very much on the pricing used by carriers.

When it comes to payment for waste disposal there is a basic difference between collected waste and assigned waste:

Collected waste

Filter on incentive

Householders and enterprises covered by municipal collection schemes pay a fixed fee for waste disposal which will often depend on volume and frequency of collection of the waste bin. Pricing also varies considerably between municipalities and intermunicipal companies. Current rules of payment are very broad resulting in considerable local variations. Basically, schemes must follow the non-profit cost-coverage principle, but the way in which the individual local council or company distributes costs between different users is a matter that is decided locally (Kirkelund, 1997).

For individual households (single-family houses etc.) fees will normally be paid to the local council which in return settles its accounts with waste companies and treatment plants. In practice, the waste fee is often levied together with taxes on real estate. For privately and publicly owned tenancies, waste costs are paid with the rent, and the fee is included in the calculation of the cost-based rent.

This pricing means that while the waste tax is weight-based, waste collection fees are normally volume-based. Also, waste costs are not directly visible to the waste producer[note 14]. Finally, there is a time difference in relation to waste volume and payment, as payment in practice is settled on the basis of waste amounts of the preceding year[note 15].

Assigned waste

Visible price signal

Waste producers not covered by a collection scheme, but requested to deliver waste to a plant under the terms of municipal assignments, are typically industrial or commercial enterprises. In some cases, the waste producer himself brings waste to the plant. In this case, the waste tax is calculated on the basis of weight, and visibility and simultaneity are achieved. However, professional carriers are often given the task of transporting waste. These carriers may be local hauliers or private waste companies. Consequently, also for assigned waste it will often be the case that the waste tax is comprised in a total fee for waste disposal, i.e. the tax is internalised in price signals in the waste sector. For assigned waste, however, disposal costs will normally reflect more directly waste amounts and weight, and it must be assumed that enterprises will seek to optimise the relationship between disposal costs and waste amounts.

Householders and others covered by collection schemes are in a different situation. Such waste producers have limited possibilities of action in relation to the waste tax, as they cannot individually reduce waste costs by reducing waste amounts. Their ability to separating part of the waste for recycling also depends on the extent of collect or bring systems in the community. Especially for single-family houses, increased separation of waste only leads to unexploited capacity in the waste bin. A study of municipal information on fees has identified a small number of municipalities in which there is a freedom of choice concerning volume and collection frequency for single-family houses. With volume-based fees (by bin or bag) fees are charged for normal waste production, and in this case the price signal of the waste tax does not reach these waste producers.

Waste producers in blocks of flats in principle have somewhat better possibilities for optimising with regard to treatment costs. By increased separation and recycling, the number of waste containers can be reduced, and it is thus possible to reduce costs. This possibility of response is estimated to be neutralised, as costs of waste collection are integrated in the rent. Thereby, these costs are invisible to the individual householders.

Free-rider problem

As mentioned in Chapter 3, these price relationships in the waste sector were to some extent considered at the design and adoption of the waste tax in 1986. Therefore, in a first stage, it was not expected that the waste tax would influence waste generation in individual households. However, it was expected that it would be possible to influence municipal and intermunicipal waste companies to establish an infrastructure allowing for increased separation and recycling.

However, the problem is that the use of these recycling facilities is voluntary, and in general there is a free-rider problem related to separation and recycling of waste. For each waste producer, more time and effort is required to bring different waste fractions (paper, glass, garden waste, scrap, electronics etc.) to the right containers. This effort may be reduced by collect systems. Environmental and financial gains from increased recycling, however, benefit all citizens in the area of the waste company, as reduced waste taxes are distributed over the normal fee for waste disposal. Many citizens want to do an extra effort for the environment, but there are also many who do not find it worthwhile.

This has been one of several reasons for the increased interest in weight-based fees in recent years. Such pricing is perceived as more fair, and it can better encourage increased separation and recycling. The municipality of Tinglev in the south of Jutland has been a pioneer in the development and use of weight-based pricing, but more municipalities have followed.

Look here

Figure 7.1. Residual waste amounts before and after change in waste system in ten Danish municipalities (Source: SBI, 1996).

Look here

SBI study

A study from the Danish Building Research Institute (SBI) shows that residual waste amounts to a large extent vary with life style and consumption in different residential areas. The study also shows, however, that the pricing system and waste management system as a whole play a decisive role (SBI, 1996).

Figure 7.1. shows residual waste amounts in ten municipalities before and after the introduction of new waste systems. The figures "before" refer for the major part to the period around 1990 and the figures "after" to 1993-94. The statement is based on waste data from the local administrations, in some cases as reported to the ISAG.

Large local variations

The statement shows large variations in residual waste amounts, from only around 100 kg/capita in some municipalities to as much as around 300 kg/capita in other municipalities, despite the fact that all ten municipalities have taken initiatives to increase recycling. The largest residual waste amounts are found in the municipalities of Albertslund, Kolding and Århus. Residual waste amounts are smallest in the municipalities of Bogense, Tinglev and Vejle. In Bogense and Tinglev, collection fees are weight-based.

Figure 7.1 shows that in most municipalities waste amounts have decreased after the change in waste management system. This is not the case for the municipality of Kolding, where increased waste amounts are reported. In the municipalities of Albertslund and Århus the decrease has been very modest.

Figure 7.2 shows total waste amounts collected for the ten municipalities, both residual waste and separated fractions[note 16]. The statement of quantities of recyclable materials is subject to some uncertainty and is not the same for all municipalities; however, it does give a reasonable picture of the extent of collection. Separated waste does not in all cases go to recycling. For example at recycling centres some waste is delivered that must subsequently be incinerated or landfilled.

Significant effect in Tinglev

The statement shows large variations in the separation of waste fractions in the different municipalities. Paper and glass separation does not vary much from one municipality to another, but large variations are seen for organic waste, bulky waste and garden waste. The three municipalities with largest residual waste amounts have no or very modest separation of organic waste and garden waste. Correspondingly, five municipalities with separate collection of organic waste (Bogense, Kerteminde, Nyborg, Ringkøbing and Vejle) have achieved considerable reductions in residual waste. In Bogense, Kerteminde and Vejle, dual collection of domestic waste has been introduced, with a residual waste fraction and an organic waste fraction. In Tinglev, organic waste is not collected separately, but the SBI report notes that it is "noteworthy that Tinglev has achieved the same effect in separation as these three municipalities just by charging weight-based fees". Ringkøbing and Munkebo have achieved their drop in waste amounts by offering containers for home composting.

The study warns against drawing too extensive conclusions, but does note that:

"It seems that weight-based pricing at household level is an efficient way of reducing residual waste amounts. This is demonstrated by the schemes in Tinglev and Bogense. For Kerteminde, the tendency is the same. Here, a policy of differentiated fee rates combined with a large selection of bin volumes and the possibility of voluntary home composting give a similar economic incentive. The effect of the economic instrument seems to decrease, however, the closer we come to big cities, where large waste concentrations and waste amounts are also found" (SBI, 1996: 44).

Albertslund

In Albertslund weight-based fees have been introduced, but only for tenancies. It is very likely that lack of results compared to Tinglev and Bogense are due to the way in which waste costs are integrated in rents, cf. above. In Albertslund each citizen does not enjoy a direct economic benefit from increased separation. At first, only the housing society or owner has the benefit, and only in a longer term perspective will it be reflected in the cost-based rent.

Vejle

It is remarkable that the municipality of Vejle has achieved almost as good results as Tinglev and Bogense, without using weight-based fees. Especially in Tinglev and Vejle, the starting point before and the result after the introduction of the new system are almost identical. This indicates that the SBI report is not necessarily right in its conclusions regarding big cities and possibilities of achieving large reductions in residual waste amounts in cities without using economic incentives and by establishing the right collection systems. Especially it should be noted that Kolding and Århus have bring systems for their garden waste, and that the potential for collected garden waste as a consequence is not exploited fully.[note 17]

However, the question remains whether environmental results have been achieved at the same low cost as in Tinglev, Bogense and other municipalities using weight-based pricing.

Below, experience from these municipalities is described on the basis of data in the SBI report, reports from the Danish Environmental Protection Agency on weight-based pricing as well as information collected in relevant municipalities.[note 18]

Individual weighing

The municipality of Tinglev has developed and achieved approval of a weighing system that registers waste amounts from each household at the time of collection of the waste bin (Miljøstyrelsen, 1994b). The waste bin is equipped with an electronic identification tag. At the automatic emptying of the container into the collection truck, waste is weighed and registered electronically. Once a year the household receives a specified invoice for actual waste amounts collected.

Low residual waste amounts

Tinglev is interesting because the weight-based fee is the fundamental part of the waste system. The environmental system in the municipality comprises one recycling centre and 14 small environmental centres for glass and paper. Furthermore, home composting is encouraged. Tinglev is remarkable as total waste amounts (i.e. including waste for recycling) per capita are among the lowest in the country, cf. figure 7.1. The amount of residual waste has been reduced in very few years, from 248 kg/capita in 1990 to 105 kg/capita in 1992.

The fee is composed of a fixed element, based on the volume at the disposal of the household (choice between two bin volumes) and a variable element per kilo waste delivered in excess of 3 kg per collection. In the first year, a fee was charged corresponding to a waste amount of 300 kg per household, and the next year a precise account was made and levied with the real estate tax of that year. Subsequently, each year an amount is charged corresponding to the waste amount of the preceding year and levied with the real estate tax.

The new system

The system has been introduced in three steps, and this allows to some extent an evaluation of the effects of each measure. In the autumn of 1990 the environmental and recycling centres were established. On 1 September 1991 domestic waste bins were replaced, and a shift to fortnightly collection and weighing was made. On 1 January 1992 the waste collection fee was differentiated, based on weighed amounts. However, it may be argued that citizens have not distinguished clearly between the introduction of the new collection system and the weight system in itself, and thus the effects of step 2 and step 3 cannot be distinguished.

The establishment of the environmental and recycling centres gave a reduction in collected residual waste amounts of just 5 per cent. Step 2, the shift to fortnightly collection, gave a further reduction of 46 per cent (down to an average of 105 tonnes/month in the last six months). Finally, amounts were further reduced by around 7 per cent in step 3, the introduction of weight-based fees, so that the total reduction reached 58 per cent (i.e. waste amounts of around 91 tonnes/month against 214 tonnes/month before the introduction of the system).

Evaluation of data

There is some uncertainty connected to the figures. According to waste collectors, there may have been some mixing of industrial and commercial waste and household waste in the collection (and thus in statistics) before the introduction of the weight-based fee. It is remarkable that, compared with earlier estimated figures, waste amounts from industry going to incineration have increased after the introduction of the new domestic waste system, separating domestic waste and industrial and commercial waste (Miljøstyrelsen, 1994b, figure 8.2a). It may be necessary to deduct some 30 tonnes/month from earlier estimated domestic waste amounts. Therefore, the total reduction in residual waste amounts may be estimated at 51 per cent.[note 19] Waste separation increased in Tinglev from 75 kg/capita in 1990 to 189 kg/capita in 1992 - or from 14 per cent to 47 per cent of total waste amounts. [note 20](SBI, 1996: 120). The largest increase in separation has been for garden waste, but also bulky waste and glass collection has increased markedly.

Increased separation and recycling

The above-mentioned reduction in residual waste from 248 kg/capita to 105 kg/capita is composed of an increase in waste separation of 113 kg/capita and a reduction in waste amounts of 29 kg. (SBI, 1996: 120).

The reduction in total waste amounts, however, corresponds quite well to the amount of industrial and commercial waste that used to be stated together with household waste. Therefore, it must be assumed that the reduction in residual waste amounts is due to enhanced separation and recycling. There are no indications that waste reductions in Tinglev are only achieved by an environmentally unsound avoidance of the waste regulation, such as home burning of household waste, fly-tipping etc. The municipality of Tinglev has stated that the system functions satisfactorily.

Financial evaluation

For the local council, some savings have been achieved by the new system. The largest impact is attributed to the shift to fortnightly collection and the fact that citizens must place the collection bin at the kerbside - a change that has meant that now only one man operates the collection truck against three men before. Furthermore, the costs of disposal have also decreased, as no waste tax is levied on waste for recycling. However, there have also been expenses on the new container system for recycling.

For citizens, financial consequences vary with the waste amount generated. Before the introduction of the new system, each household paid a fixed fee of DKK 1,098/year. This fixed fee has now been reduced to DKK 380/year. In the Yearbook of Municipal Statistics, the average waste collection rate for a single-family house in Tinglev is stated at DKK 850/year which corresponds to an average waste amount of 269 kg/household/year or around 10 kg per collection. This means that waste collection costs have fallen by an average of around 26 per cent per household. In 1992 there was an actual profit for citizens from the introduction of the new system.

94 kg residual waste/capita

Bogense has also introduced weight-based fees. This system is interesting because residual waste amounts per capita are the lowest among the ten municipalities included in the study (94 kg/capita in 1993). Residual waste amounts have been reduced by 60 per cent per capita, from 235 kg/capita. This reduction is composed of an increase in recycling of 124 kg/capita and an actual decrease in waste generation of 17 kg/capita.

The new system

In Bogense, the new waste management system was introduced on 1 November 1992. The system consists of a dual bin in which organic waste and residual waste are separated, and weight-based pricing of the two fractions. At the shift to the use of these bins, collection was also reduced from once a week to once every two weeks, and citizens had to place the bin at the kerbside. Furthermore, a contract on two collection sites and collection of part of the recyclable waste eight to ten times a year was entered with the local scouts. A staffed recycling centre has also been established.

Experience

A fixed fee is levied, covering costs of the recycling centre and the collection schemes. The weight-based fee is calculated on the basis of waste amounts in excess of 5 kg per collection. Residual waste and organic waste were charged at different rates to start with, but this differentiation is no longer in effect, as it gave an incentive to mix residual waste into the organic waste, which had a lower fee.

The Bogense system has run into certain practical problems. The original truck was not completely reliable, and errors occurred in data transfer. As a consequence it was necessary to invest in a new truck in 1995. Also, the two volumes in the dual waste bin do not correspond to needs, which means that part of residual waste is mixed with organic waste. At the intermunicipal composting plants it has been noticed that the quality of organic waste has declined, and the local council believes that an effort will soon be needed to improve separation quality. As in Tinglev, an increase in industrial and commercial waste has been reported, but it is unclear whether part of domestic waste has been transferred to this type of waste, or whether it is due to uncertainties in earlier waste statistics.

Financial evaluation

For citizens, costs vary with waste generation. The fixed fee amounts to DKK 625, and a household with an average amount of waste pays annually DKK 514 in variable fees, so total costs are DKK 1,139. Before the change, the fixed annual fee was DKK 1,113 (1992), which means that an average household pays more or less the same as before.

7.6 Comparison with other systems

In Tinglev and Bogense, remarkable reductions in residual waste amounts have been achieved in very few years. It seems cleat that this effect is due to the use of weight-based fees.[note 21]

Only 15 per cent meet objectives

In many municipalities, facilities for separation and recycling of waste have been established, but only few have achieved as high recycling rates as these two municipalities. According to an outline prepared by RENDAN on the basis of ISAG data, only 15 per cent of municipalities meet objectives in the Plan of Action for Waste and Recycling (Lassen, 1996). 60 per cent of municipalities are actually very far from meeting the objective. The study of municipalities in this report showed that they have come a long way with establishing facilities for recycling, so there are indications that the problem lies with citizens' use of these facilities.

The municipality of Kolding has introduced source separation with collection of four recyclable fractions and residual waste. Furthermore, there are bring systems for bulky waste and problem wastes. However, residual waste amounts have increased from 225 kg/capita in 1990 to 246 kg/capita in 1993. At the same time, the amount of waste collected for recycling has increased by 53 kg/capita. Total waste amounts were 457 kg/capita in 1993. One reason for the large residual waste amounts in Kolding may be that garden waste is covered by a bring-system. Kolding is thereby an example of the fact that the presence of extensive collect schemes and separation facilities will not always lead to a reduction in residual waste amounts.

Other ways

It should not be neglected that certain municipalities have achieved quite significant reductions in residual waste amounts without using weight-based fees. In municipalities that have only introduced home composting schemes (such as Munkebo and Ringkøbing) reductions are seen in residual waste amounts of around 30 per cent. In Munkebo, residual waste amounts are still quite large: 184 kg/capita, whereas in Ringkøbing they amount to 120 kg/capita.

The municipality of Nyborg, having introduced source separation of organic waste and residual waste without introducing weight-based fees, has achieved a reduction in residual waste amounts of around 40 per cent. The new system consists of a shift from weekly domestic waste collection to alternate collection of green and grey waste, i.e. fortnightly collection of the two fractions respectively. However, residual waste amounts were as large as 152 kg/capita in 1993. Total waste amounts have increased by 25 per cent. The waste collection fee in 1993 was DKK 1,445/household, though for households with their own composting only DKK 1,075/household. Even though weight-based fees have not been introduced, there is still a considerable discount for householders composting their own waste.

The Vejle system

The municipality of Vejle seems to be the only municipality which has achieved residual waste amounts comparable to those of Tinglev and Bogense - 112 kg/capita - without introducing weight-based fees.

In Vejle, the system is based on source separation of organic waste and residual waste. In contrast to other municipalities, source separation takes place by citizens using differently coloured plastic bags for different fractions which are placed in one common container. Fractions are subsequently separated automatically by colour identification at a central reception site at the waste treatment plant. Furthermore, kerbside collection of bulky waste is made once a month, and citizens can bring recyclable fractions to a large centre with more than 17 different containers.

For enterprises, clear economic incentives have been introduced in the waste management system, whereas householders pay a fixed, annual fee independent of amounts. The only sanction on householders not separating correctly is a quarantine implying that they must bring their own waste to the recycling centre for a certain period.

Residual waste amounts as a total have been reduced by 55 per cent after the introduction of the new system, from 248 kg/capita in 1987 to 112 kg/capita in 1993. Amounts of waste for recycling have not been stated for 1987, but in 1993 were 461 kg/capita, excluding garden waste of 207 kg/capita. Total waste amounts per capita are very high in Vejle and amounted to 573 kg/capita in 1993.

Financial evaluation

There have been large costs related to the establishment of the central separation and composting plant. Excluding subsidies from the Danish Environmental Protection Agency, the plant has cost DKK 64 million. The local council has also equipped households with the necessary waste bag stands, free plastic bags have been distributed etc. in order to ensure a smooth operation of the system.

All in all, waste collection fees for households have doubled from 1987 to today, and a little less than DKK 2,000 is paid by single-family houses, whereas flats are charged half this amount. The costs of the system would have been even higher, if the municipality had not received the subsidy from the Danish Environmental Protection Agency.

7.7 Summary of evaluations

Below, focus is put on Tinglev, Bogense and Vejle, the municipalities having achieved the most notable results. Bogense is the municipality that has come the longest way with a reduction in residual waste amounts per capita per year to only 94 kg, whereas Tinglev and Vejle have 105 and 112 kg respectively.

Almost identical starting point

The starting point for the three municipalities before the shift to new systems was almost identical, though Bogense was some 5 per cent below the two other municipalities. It should also be noted that Vejle has achieved its reduction over a longer period - from 1987 when the first separation possibilities were established to 1993 when the new central separation plant went into operation. The results from Vejle should probably therefore be seen in connection with a longer period of adaptation than in Tinglev and Bogense.

The Vejle system demands the least effort from citizens as they only have to separate in different waste bags under the kitchen sink. This makes the system especially suitable for blocks of flats where existing waste chutes etc. can still be used. Also bulky waste is collected, while other recyclable waste must be brought. The system can furthermore be extended to comprise several different fractions in differently coloured plastic bags.

In Bogense, the system comprises a separation facility in the waste bin, and there are collect systems for a number of other recyclable fractions. In Tinglev citizens must bring their waste to recycling and carry out home composting.

Tinglev cheapest

These differences are also reflected in municipal waste collection fees for single-family houses. In Tinglev, the average fee is around DKK 850, in Bogense around DKK 1,100, and in Vejle just below DKK 2,000. It should be noted, however, that citizens in Vejle in contrast to Tinglev and Bogense do not have to bring the waste container to the kerbside. The Vejle system is also more expensive, because it still requires weekly collection, and, without further changes it does not allow for a shift to fortnightly collection, as in the other cities, because total waste amounts have not been reduced. On the other hand, the Vejle system would have been even more expensive without a quite considerable subsidy from the Danish Environmental Protection Agency. It is beyond the scope of this project to make a detailed study of cost structures in the three municipalities, and it would probably also require access to municipal accounts.

In Vejle, it should be noted that a recent study has shown extensive satisfaction with the waste management system, which is believed to give further scope for municipal initiatives in the area. This satisfaction is estimated to outweigh the larger costs paid by householders compared to Tinglev and Bogense.

Does the Vejle system attract more waste?

It seems, however, as if more service-oriented systems in Vejle and other municipalities with conventional pricing attract more waste. It is remarkable that total waste amounts increase in these municipalities despite more facilities for recycling. The amount of bulky waste is larger in these systems, and especially in Vejle there is a large "various" fraction at the container sites that cannot be recycled.

Conclusion

Larger reductions are possible

It is important to ensure that no environmentally unsound disposal takes place as a consequence of weight-based fees. Experience from Tinglev and Bogense does not indicate that this should be a big problem, and the financial gain would also be limited. Better documentation of behaviour-changes, for example in the form of a questionnaire study, would bring about more information on this aspect.

On the basis of available experience, there are many indications that if the waste tax were given better possibilities of penetrating directly to households, for example through weight-based fees, it would lead to larger reductions in residual waste amounts. Furthermore, it will lead to considerably more cost-effective reductions in residual waste than in systems without weight-based fees. Where there is no coherence between waste amounts and payments, the local council must use resources for "servicing" and "informing" citizens into delivering waste for recycling. Naturally, it is also a prerequisite for weight-based fees that the local administrations make certain basic facilities available for the disposal of waste for recycling. In principle, weight-based fees are also possible for blocks of flats, but it will require an amendment to legislation on cost-based rents to make the gain from a reduction in waste amounts visible. [note 22]

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14/ This is in contrast to taxes on electricity and CO₂ which are specified on the bill. However, a fixed tax is paid on electricity on top of the consumption-based fee.

15/ For tenancy when the cost-based rent is adjusted, for owners when the local council fixes the rate of conversion between weight and volume on the basis of last year's operating result.

16/ Reference is made to detailed data sheets in the SBI report.

17/ The lack of efficient collection schemes for organic waste and garden waste in these cities may be explained by the desire to exploit available incineration capacity.

18/ The SBI study is based on actual waste amounts for treatment or recycling. In other studies, such as that on the Bogense system, no physical environmental data have been used, but only reported separation behaviour. In the Bogense study it is also assumed that there are no differences in collected waste amounts among the different municipalities (Thøgersen, 1994; Beckmann og Thøgersen, 1995; Grunert-Beckmann, 1996). SBI data are considerably more precise and show significant differences between municipalities.

19/ The gain of step 3, the introduction of weight-based fees, must therefore be estimated to be larger than the 7 per cent reduction mentioned above. The collection of industrial and commercial waste and household waste has been effectively separated since the introduction of the new system from 1.9.91, and if waste amounts are compared for the last four months of 1991 with the first four months of 1992, a reduction can be seen by 17 per cent in residual waste amounts. However, this may also be due to seasonal fluctuations.

20/ Not all separated waste goes to recycling. A minor fraction of garden waste and bulky waste is incinerated or landfilled. The increase in this fraction is 19 kg from 1990 to 1993.

21/ Tølløse should briefly be mentioned as a third municipality that has achieved remarkable results with the introduction of weight-based pricing. The system is quite identical to the Bogense system. The result has been a reduction in residual waste amounts of 47 per cent, primarily explained by an increase in recycling, as the reduction in total waste amounts has been 8 per cent. Disposal costs have dropped from DKK 3.4 million in 1993 to DKK 1.6 million in 1995. It should be noted, however, that the fixed fee in Tølløse before the change in systems was as high as DKK 2,336 (1992).

22/ Legislation on rents has also been very restrictive when it comes to levying fees for water supply which cannot be made individually