Waste Tax 1987-1996

9. Conclusions and recommendations

9.1 Introduction
9.2 Analysis of effects of waste tax
9.3 Evaluation of the design of the waste tax
9.4 Monitoring of waste: continuity and quality in waste statistics
9.5 Summary

9.1 Introduction

The effects of the waste tax must be evaluated in connection with general results and other instruments in the waste area, and for that reason - even though focus in the present evaluation has been on the tax - the evaluation to some extent appears as a more general evaluation of results of the Danish waste and recycling policy from 1987 to 1996.

Reduction of 26 per cent

As the taxable base for the waste tax was extended in 1990 it has been important to account for this change at the evaluation of developments in waste amounts. An analysis of data from the Central Customs and Tax Administration's levying of the waste tax in the period from 1987 to 1996 shows a decrease in net collected waste delivered to municipal plants of 1,029,000 tonnes (26 per cent).

At inert waste landfills etc. there has also been a reduction in amounts of waste subject to tax from 1990 onwards. Here, the decrease from 1990 to 1996 amounts to net 155,000 tonnes, corresponding to a reduction of 39 per cent.

Increased recycling

The reduction in waste amounts should be seen in connection with the increase in recycling activities since 1987. The decrease in waste amounts cannot to any significant extent be explained by fly-tipping.

The reduction in taxable waste amounts can be seen as a result of the general Danish waste and recycling policy in the period from 1987 to 1996, but our evaluation of the effect of the waste tax on total development is summarised below.

Tax is a "locomotive"

It is important to make clear expectations of the waste tax at its design. The analysis showed, cf. Chapter 3, that it was expected to give municipal waste collection companies and private enterprises an incentive to improve separation and recycling, and that the refund possibility for subsequently removed waste would increase separation at landfills and inert waste landfills. The analysis also showed that architects of the tax were aware that it could not penetrate directly to private households and other waste producers covered by collection schemes, as the weight-based waste tax is integrated into volume-based collection fees. However, the idea was to influence professional waste companies into establishing facilities allowing householders etc. to separate their waste. It was also realised that the waste tax would operate in connection with other instruments in the waste sector, and the Minister for the Environment at that time, Lone Dybkjær, referred in 1989 to the waste tax as a possible "locomotive" for the measures on recycling in the Plan of Action for Waste and Recycling.

Against this background, an analysis of existing waste data was made, and studies of the effects of the tax on enterprises and municipal waste companies were carried out. The results of these studies are summarised below.

Analysis of composition of waste reduction

No reduction in industrial and commercial waste

In Chapter 4 it is shown through an analysis of RENDAN material stream analyses 1987-93 that waste reduction at municipal plants has mainly taken place within construction and demolition waste, household waste and other wastes. No reduction in industrial and commercial waste could be identified. The decrease from 1987-93 at municipal treatment plants is evaluated to be composed of a reduction in household waste of around 352,000 tonnes, a reduction in construction and demolition waste of at least 293,000 tonnes, and in other wastes of 226,000 tonnes. This is outweighed to some extent by an increase in industrial and commercial waste of 86,000 tonnes. In addition to this comes increased removal of waste for recycling, a total of 294,000 tonnes, comprising around 100,000 tonnes of construction and demolition waste. The decrease at inert waste landfills is estimated to be mainly due to construction and demolition waste (further 167,000 tonnes). The total increase in recycling of construction and demolition waste is thereby around 560,000 tonnes. From 1994 to 1996 there is a small increase in waste amounts, but the composition of this increase cannot be determined. The increase most likely is caused by the economic recovery.

Impact from instruments

The major part of the reduction has taken place within heavy waste fractions. Reduced household waste amounts are evaluated to be mainly within garden waste and bulky waste, whereas reductions in paper and glass waste are modest. This indicates that the waste tax has had a decisive impact. This impression is strengthened when the whole range of instruments is taken into consideration.

Modest results of "command-and-control" for paper and glass

The separate collection of paper and glass has been mandatory under the terms of separate Statutory Orders of 1986, but the increase in collection has been moderate, so that only around half the paper and glass waste potential is collected. By contrast, local councils have not been required to establish separate collection of construction and demolition waste or composting of garden waste. Still, today more than 80 per cent of construction and demolition waste goes to recycling, often at special crushing plants. Composting of garden waste has increased significantly since around 1990, and today more than 90 per cent of garden waste is recycled. Also some of the heavy waste types, including sludge from treatment plants, show very high recycling rates. The explanation of the differences in recycling of "mandatory" and "non mandatory" waste fractions can be found especially in various economic incentives related to the recycling of these waste types through the weight-based waste tax.

Motivational analysis of enterprises

A number of enterprises within the manufacturing industry, trade/services and the building and construction sector were interviewed, and the study described in Chapter 5 shows that the attention of enterprises to waste costs varies considerably among the sectors. Not surprisingly, attention is highest in the most waste-intensive sectors such as breweries, iron and metal industry, and building and construction. There was less or almost no attention in less waste-intensive sectors.

Waste-intensive enterprises

At waste-intensive enterprises, recycling has been systematised so that residual waste amounts are very limited, often less than 10 per cent of total waste amounts. For example, the iron and metal enterprises interviewed generate hardly 500 tonnes of residual waste annually, whereas a supermarket chain and a university each generates around 1,000 tonnes of residual waste annually. 13 of 16 enterprises interviewed have taken initiatives to reduce waste amounts, and there is a wide range of motivation for this effort of recycling. The most important motivation is the possibility of revenues from the sale of waste and residual products. A verification of costs of recycling compared to conventional disposal confirms the impression that the waste tax is not high enough to give enterprises an incentive to increase recycling, as long as they must still pay for disposal of recyclable materials.

The reduction in landfilling of construction and demolition waste has especially taken place within the construction sector, where bricks, concrete and asphalt are recycled. Enterprises with very large amounts of construction and demolition waste may achieve large savings by prioritising separation and recycling. With the present tax on landfilling there are estimated savings of around DKK 300/tonne from crushing compared to conventional disposal.

Motivational analysis of municipal waste companies

Several motives for recycling

The questionnaire study among municipal and intermunicipal waste companies described in Chapter 6 showed that first and foremost political considerations are decisive for the establishment of local separation and recycling schemes. However, a number of other factors also play a role. These factors vary from one waste fraction to another - and for some waste fractions the waste tax is estimated to be more important than for others.

Not surprisingly, for paper and glass, legal requirements are of significant importance. When it comes to construction and demolition waste and garden waste, the desire to reduce costs is the most important factor after the political variable; this reflects the role of the waste tax for these two waste fractions. The cost variable is also important for a number of other waste types.

Decisive impact for C&D waste

The impact of the waste tax was further studied through questions concerning its impact on operating costs in local recycling and separation schemes. Here, an average of around 60 per cent of respondents attribute "some" or "a decisive" impact to the tax on the profitability of established schemes. For construction and demolition waste and garden waste this applies to around 75 per cent of municipalities. 45 per cent of respondents attribute "a decisive impact" to the tax on the recycling of construction and demolition waste.

Replies from municipal and intermunicipal companies show that the waste tax is part of a larger regulatory whole, but it is also a quite significant parameter for decisions on the establishment of recycling schemes.

Analysis of experience with weight-based fees

Very few waste producers bring their waste directly to landfills or incineration plants. They are either included in a collection scheme, or they contract with one or more carriers which collect and dispose residual waste for an overall price. In both cases, this means that the waste tax is internalised in transactions between waste producer, carrier and treatment plant.

For collected waste especially it is a problem that payment is normally based on volume, while the waste tax is calculated on the basis of weight. If increased recycling cannot be converted into less volume or less frequent collection, the gains of a reduction in the waste tax cannot be enjoyed.

Weight-based fees show results

However, experience from two municipalities - Tinglev and Bogense

- which have introduced weight-based fees (cf. Chapter 7) shows that more cost-based pricing to households can lead to significant reductions in residual waste. In these municipalities, residual waste amounts have been reduced to around 100 kg/capita, corresponding to a reduction of 50 per cent. In municipalities without weight-based fees, but with recycling facilities made available to citizens there is no similar drop in residual waste amounts, but rather a stagnation. An exception is the municipality of Vejle where a comprehensive and service-oriented collection system has been introduced. Vejle has achieved a reduction in residual waste similar to that of Tinglev and Bogense, but the system is considerably more expensive for citizens. In Tinglev, the weight-based fee system, together with other changes, has led to a reduction in waste collection fees of some 25 per cent. Experience therefore also indicates that wider application of the weight-based fee system will lead to considerably more cost-effective waste management, though this and other aspects should be analysed in more detail.

Adaptations are necessary

It is important to note that the two municipalities in question are two small, rural municipalities with many single-family houses, and it is uncertain whether it would be just as simple to introduce weight-based fee systems in cities, for example with many blocks of flats. The risk of evasion is also higher in cities. On the other hand, environmental and economic gains from the use of weight-based fees seem noticeable, and the tendency also seems to move towards more local councils introducing weight-based fees, cf. the study of municipalities. Weight-based systems can be designed in many ways. An alternative to the Tinglev system could be an intermediate solution giving larger freedom of choice concerning waste bin volume and frequency of collection. It will also be important to find a model applicable to blocks of flats. Such a model might be a 'pay-per-bag' system, as it is known abroad. Changes applying to tenancies will furthermore require amendments to legislation on rents, so that payment for waste disposal can be separated from the general rent.

Summary

Against this background, the effects of the waste tax can be summarised as follows:

As the decrease in residual waste amounts has mainly been seen for construction and demolition waste, household waste, and mixed waste, and not for industrial and commercial waste, this indicates that the waste tax has had different effects in different sectors.

Industrial and commercial waste

For industrial and commercial waste, before the introduction of the tax there was a tradition for sale of recyclable waste products in many waste-intensive enterprises. As it has not been possible to reduce waste amounts further, this must be because the economy of recycling requires in practice that there is a positive price on recyclable materials. The rate of the tax in 1996 was not high enough to lead to recycling, if the enterprise were to finance collection and transportation of these materials. Financial gains, primarily consisting of reduced disposal costs, are marginal in relation to the total turnover of enterprises. This is due to high fixed costs of collection and transportation of recyclable materials that have no positive market price. It is not possible to evaluate whether the tax increase in 1997 has been sufficient to enhance the incentive.

Construction and demolition waste

For construction and demolition waste, it is crucial that landfilling of such waste has become very expensive, and at the same time that recycling, especially of concrete, bricks and asphalt can be made at special plants at very low cost. Especially construction activities and certain demolition activities generate much construction and demolition waste, and due to their waste-intensive nature the waste tax has a significant and measurable effect on total costs of the activity. Especially separated construction and demolition waste can be disposed of at very low costs, and in large construction or demolition works, it is rarely very resource-intensive to carry out this separation.

Other wastes

For other wastes, the same mechanisms come into effect as for construction and demolition waste. Especially slag and sludge are expensive to dispose of by conventional landfilling.

Household waste

For household waste, a large reduction in amounts has been seen. This decrease in residual waste amounts has mainly taken place in heavy and non-regulated waste fractions (construction/demolition and garden waste) and only to a lesser extent in regulated waste fractions (paper/cardboard and glass). Local administrations state that the desire to reduce costs of treatment of these fractions in general has been the second-most important factor for establishing separation facilities (so important that around 75 per cent consider that the waste tax has some or a decisive impact on the profitability of recycling of heavy fractions). As a consequence, it is evaluated that the waste tax has been a catalyst for recycling. It cannot be estimated how comprehensive separation and recycling of waste would have been in households without the tax. It could be argued that if local authorities had had enough political will, the facilities would have been established in any case.

Recycling facilities not always used

The study has also revealed that it is important to distinguish between establishing facilities and actually using them. Experience with weight-based fee systems shows that recycling increases significantly when the financial incentive is allowed to penetrate to households: good intentions regarding separation do not always have the impact one might have hoped for. Many local administrations make separation and recycling facilities available to citizens, but use of these facilities is significantly higher in municipalities with weight-based fee systems.

Effect on heavy fractions

Finally and not surprisingly, it can be seen that financial incentives such as a weight-based waste tax lead to reductions in waste amounts where waste is most concentrated (heaviest) and cheapest to dispose of in an alternative way. Neither is it surprising to note that it is difficult to bring down waste amounts where it is most expensive and troublesome to carry out recycling. It cannot be expected that a tax will lead to reductions in waste amounts for all types and fractions. No economic calculations have been made on costs of recycling, but it seems that, with the tax, more cost-effective reductions in waste amounts have been achieved than if all waste producers had been ordered to carry out the same reductions in their waste generation. However, there still seems to be a possibility of cost-effective reductions, on the condition that institutional barriers in the waste sector are removed.

9.3 Evaluation of the design of the waste tax

Below, an evaluation is given of the design and administration of the waste tax.

Waste tax rate

Originally, the waste tax was a modest tax of DKK 40/tonne, but over the years it has been differentiated and increased up to five to eight times the original amount. The reduction in waste amounts was most important in the first years of existence of the tax, while in recent years waste amounts have stagnated. This stagnation is partly explained by the growth in private consumption and production.

Saturation of recycling

Recycling of construction and demolition waste and garden waste is considerable today, and it is assumed that the possibilities for waste reduction are fully exploited in areas where marginal costs have been lowest. Marginal costs of increased recycling of household waste and the remaining industrial and commercial waste are assumed to be significantly higher. The so-called institutional rigidities in the waste sector put a filter on the price signal, so that it does not penetrate fully to waste producers, in particular when it comes to waste which is collected.

It can also be expressed in the way that elasticity is low for these waste fractions. The increase in the waste tax rate that took effect from 1.1.97 is relatively significant, and a statement of waste amounts at the end of 1997 will give an indication of whether the assumption of low elasticity is correct. Based on replies from local administrations and enterprises it must be expected, however, that response to the tax increase will be limited.

Weight-based fees

Institutional rigidities in the waste sector not only consist of pricing principles often based on parameters other than weight, but also of players being normally obliged to use certain collection systems, including for recyclable waste. In practice there is a monopoly for this collection. To ensure better penetration of the waste tax, it should be considered to introduce more weight-based pricing for collected waste, and to increase competition in the collection sector.

More competition

For industrial and commercial waste it has been seen that in cases where the price of waste products is not positive, the costs of collection and reprocessing of recyclable materials will often be so high that the price difference between conventional disposal and recycling is limited. The reason for this modest difference is fixed costs of container capacity and collection. For industrial and commercial enterprises a shift towards less fixed costs and more weight-based pricing might play a certain role. However, there is also reason to question whether competition is sufficiently free in the markets for recyclable materials. Due to transport costs, waste products must often be delivered locally. Monopolistic situations may be exploited to establish a practice of charging fees for collecting recyclable materials. Therefore it is essential to ensure sufficient competition in the market for recyclable materials.

Whether there is a need for further increases in the waste tax rate will have to await an evaluation of the not insignificant increase that took effect on 1.1.97. The evaluation does indicate, however, that better "transmission" of the price signal in the waste sector through institutional changes might lead to a further decrease in residual waste amounts.

Non-taxable waste

As mentioned in Chapter 3, certain plants receiving waste are exempt from the waste tax. The most important exemption, in terms of amounts, is landfills for residues from coal-fired power plants, such as fly ash and slag. Today considerable recycling of such residues takes place, and according to the ISAG, in 1995 residual waste amounted to some 300,000 tonnes, corresponding to around 7 per cent of the taxable waste amount. However, it seems difficult to argue for this exemption for environmental reasons.

Fly ash etc.

Large amounts of fly ash etc. are generated from flue gas cleaning. The waste tax was introduced at a time with political efforts to find an agreement with power companies on installing flue gas cleaning at power stations. The exemption must probably be explained by this desire to promote flue gas cleaning.

However, these waste types are primarily generated at coal-fired power plants, while natural gas-fired plants to not generate similar amounts of residual waste.

Hazardous waste

Oil and chemical waste is also exempt from the waste tax. The reason for this exemption is the desire not to hamper collection and environmentally sound destruction. However, treatment costs for oil and chemical waste will often be several times higher than the waste tax itself, so a waste tax would hardly influence the decision for environmentally sound management. Oil and chemical waste only constitutes a few per cent of total waste, and a tax would have little impact on the management of this waste.

Tax differentiation

Until 1997, tax differentiation was too small to neutralise the differences in treatment costs at landfills and incineration plants, and therefore it is difficult in this context to evaluate the effect of the differentiation. It is premature to evaluate the enhanced differentiation of 1.1.97 and the new differentiation between waste incineration with and without power generation.

Ban should be evaluated economically

It seems contradictory that a ban on landfilling waste suitable for incineration is introduced parallel to a financial incentive favouring incineration. It could be feared that the ban on landfilling waste suitable for incineration might lead to expensive solutions for local councils without a noticeable environmental or economic advantage from incineration. If the ban on landfilling waste suitable for incineration is to be upheld, the tax differentiation between landfilling and incineration does not serve an environmental purpose in itself. In contrast, the desire to have better energy recovery from waste incineration seems to be a reasonable argument for the differentiation between different types of incineration plants.

Tax refund scheme

Possible profits created by regulations

Plants reprocessing materials for recycling are able to recover a partial refund for the waste tax. The reason for this is that, in comparison with other operations the reprocessing activity may generate relatively large amounts of residual waste. However, limiting this possibility of low rates for certain types of recycling plants should be considered.

The refund scheme has not been studied in detail in the present evaluation. If, however, the waste tax generates certain 'windfall-profits' at recycling plants, there does not seem to be a good reason to uphold the exemption for the normal waste tax rate. On this basis, limitíng the exemption to new and more innovative types of plant could be considered, for example for plastic and electronics, whereas the exemption could be abolished for more conventional plants in the iron and metal area etc.

Problem waste

Waste tax to be supplemented

The waste tax is a weight-based tax, and it does not discriminate problem wastes. For example, plastic waste and electronic waste are considerably more problematic to recycle than ordinary household waste. On this basis, the tax is not a very precise instrument.

In Great Britain, differentiation is made between waste types so that construction and demolition waste is taxed at a lower rate. It will, however, be difficult to design a waste tax that corresponds more to the exact impact of waste. It is considered more expedient to establish take-back schemes, perhaps supported by deposit systems, for problem wastes, and to use the waste tax as a more general instrument aimed at total waste amounts.

Evasion

Need for inspections

The very high waste tax entails a risk of fly-tipping, especially of construction and demolition waste. Nothing indicates that extensive fly-tipping has taken place, as very large amounts of construction and demolition waste are transported to crushing and recycling plants. However, there might be good reason to pay attention to the 250,000 tonnes per year transported to backfillings (harbours, ski slopes, noise barriers etc.) as in order to enjoy tax exemption such backfillings must comply with a number of requirements. Comments from interviewed local administrations also indicate the risk of more widespread fly-tipping in open countryside.

Administration

Costs of measuring and weighing

Registered plants must use a weigh-bridge approved by the Central Customs and Tax Administration. At the 1990 extension of the taxable base to also cover inert waste landfills, the requirement for weigh-bridges caused discussion of the administrative costs of the tax. Investment in this equipment was stated at DKK 2-300,000 per weigh-bridge. It is estimated that the requirement to use weigh-bridges has only had an impact at few inert waste landfills, despite an acceptable transitional scheme. Several municipal plants had already installed weigh-bridges before the introduction of the tax.

In relation to the total yield of the waste tax in the years 1987-96 (a total of around DKK 4 billion) investment in weigh-bridges has been modest and has hardly amounted to more than DKK 9-10 million as a consequence of the change in 1990.

9.4 Monitoring of waste: continuity and quality in waste statistics

Available statistics on waste amounts constituted, as mentioned in Chapter 4, a considerable problem for the present evaluation and caused a great deal of data analysis which to a large extent also contributed to prolonging the work.

An assessment of different data sources led to the conclusion that the 1985 survey made by the regional councils could only be compared to more recent data with difficulty. The 1985 survey is often used as a basis year by both the ISAG and RENDAN, but this should not be done without noting the significant differences in statement methods.

The ISAG

With the introduction of the ISAG, the Information System for Waste and Recycling of the Danish Environmental Protection Agency, a new data system for waste information was established from 1993, covering both taxable and non-taxable waste. The Danish Environmental Protection Agency receives copies of declarations to the customs and tax regions on waste amounts delivered to and amounts subsequently removed from registered plants, and these data are used as a control in relation to reports to the ISAG. However, it would be appropriate that the ISAG asks plants to check amounts declared to the customs and tax administration against amounts stated in annual reports to the ISAG. This could be done by asking plants in the questionnaire to state how the different taxable waste streams match with amounts declared to the Central Customs and Tax Administration, as these data are assumed to be the most authoritative.

RENDAN

RENDAN still carries out more specialised material stream analyses, financed by the Council for Recycling and Cleaner Technology. This means that waste treatment plants give information on waste amounts to three different institutions: the Central Customs and Tax Administration, the Danish Environmental Protection Agency and RENDAN. In addition, information must also be given to local and regional councils. It does not seem expedient that partly overlapping information is given to several different institutions. From an evaluation point of view, it is also a problem that there is no concord between figures reported to the different institutions.

Central Customs and Tax Administration

It is recommended to ensure better co-ordination of waste statistics. With the ISAG, a clear prioritisation and consolidation of waste statistical work has taken place in the Danish Environmental Protection Agency, but it is recommended to develop single-string waste statistics, with a starting point in the ISAG and with a more consistent use of data from the Central Customs and Tax Administration. Considerations to this effect should be part of the study of simplification and optimisation of waste data management which was recently launched, financed by the Council for Recycling and Cleaner Technology.

9.5 Summary

The results of this evaluation can be summarised in the following points:

	residual waste amounts delivered to municipal plants were reduced by 26 per cent net from 1987 to 1996,
	residual waste amounts delivered to inert waste landfills etc. were reduced by 39 per cent net since these plants were included in the waste tax base in 1990,
	reductions in residual waste amounts have taken place in heavy fractions of household waste, construction and demolition waste and mixed waste, despite increased private consumption and steeply increasing construction activities,
	there has been no reduction in the amount of industrial and commercial waste for landfilling and incineration; waste amounts have followed developments in the net production index,
	the waste tax has played a role for the reduction in household waste as it has been an incentive for local councils to separate the heaviest fractions,
	the waste tax has played a decisive role for the recycling of construction and demolition waste, and a new industry has emerged,
	until 1996, the waste tax had difficulties in penetrating to industrial and commercial enterprises, except for areas where the price span was large due to a positive price of waste products,
	householders and others with collected waste will separate their waste to a larger extent if the fee for waste disposal were more weight-based or more in relation to the amount of waste generated.

The following recommendations are given to the design of the waste tax:

	if the increase in the tax rate in 1997 does not result in further reductions in waste amounts, and if the objective for recycling is maintained, there may be reason to consider an increase or differentiation of the tax in order to improve profitability, especially with regard to recycling at enterprises,
	attention should be paid to the fact that lack of competition in the recycling industry may distort the price of recyclable materials and thus damage the economy in recycling,
	it should be considered whether there are still environmental reasons for tax exemption for plants receiving residues from coal-fired power plants,
	a choice should be made between the ban on landfilling of waste suitable for incineration and the use of tax differentiation,
	the ISAG and other statistics on waste amounts should be co-ordinated better with data on waste from the Central Customs and Tax Administration,
	experience with weight-based fees should be analysed in more detail.

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