ETS for RFW and Impact of Other “Bad” Ideas

Introduction

The risk in writing opinion pieces such as this, is that one will either be thought of as an attention seeking contrarian – of which there are too many – or as a condescending bore – which is uncomfortably accurate.

 

So, why write at all?

 

I write this because I am concerned about what we are collectively trying to achieve, the means we are using to achieve specific carbon objectives and the risk we are running in misunderstanding public sentiment.

 

In short, unless we take a deeper more nuanced view, I fear we are becoming Hillary Clinton’s 2016 presidential election campaign, misreading the mood music and heading for a nasty shock, despite what polls might say.

 

A Brief History

 

In my 23 years in the environmental space I have found, to no great surprise, that the general understanding of “how we got here” is limited. This has nothing to do with competence or intelligence. The history of our comfortable consumption based society is not taught at any level of our education system and seems to have been forgotten in the analysis of our shared economic history.

 

In my view a synopsis of the journey might look something like the following. Others may differ.

 

For the sake of simplicity let’s use some shorthand for what I would call “bad ideas”. This could be the fascism of Nazi Germany or the horrors of Stalin’s Soviet Union. There are many variations and tunes to be played on “bad ideas”, but you take the general message.

 

For the last eighty years or so we have tried many things to keep the general population away from “bad ideas” because they tend to have a significant cost on the population, usually war, famine… death of one cause or another.

 

After the Second World War amidst shortages in the supply of just about everything and a looming post-war depression just about everywhere, major economies including the UK implemented a broad economic policy of full employment as their “big idea”.

 

I would contend that the core reason behind the implementation of full employment was to prevent economic decline and a regression back towards “bad ideas”. Full employment worked for a while until inflation grew, interest rates soared, economic growth was at best anaemic and capital went on strike. By the mid to late 1970’s, full employment was on its uppers.

 

By the 1980’s a new “big idea” was needed – enter price stability and market deregulation. One of the fundamental issues we are still working through with regards to price stability is that in order to prevent an economic downturn, maintain a decent standard of living and keep the population away from “bad ideas”, there has to be a continuous supply of affordable goods and profit led growth. This requires globalisation as a key supporting structure, decreasing the costs by utilising lower wage economies.

 

Globalisation created pockets of low cost extraction and manufacturing in the East and South and consumption/service economies in the North and West.  Market deregulation in the UK increased the use of credit as a substitute for wage growth. Staggering house price inflation provided an asset base for the average householder to borrow more and more until the conspicuous consumption of the 80’s and 90’s became endemic as we leveraged the labour of low wage economies and the boom in “Ponzi finance” to turbocharge our standard of living.

 

Despite the recession of the early 1990’s (interest rates amongst other factors) our love affair with the conspicuous consumption lifestyle grew more and more out of control. The party lasted until the financial system that supported it crashed in 2007/8.

 

Since then I think it would be reasonable to suggest that there is no “big idea”, no “grand narrative” which has replaced price stability. I would go so far as to suggest that we are still living in the blast radius of the financial crisis.

 

The fallout of the financial crash resulted in lost financial futures, endemic economic instability, populism politics and, probably worst of all, a breakdown in trust in the general population. It is no surprise that nobody falls in the centre ground after such violent impacts – they fall left, they fall right, but never centre[1]. Some want to reclaim and rewrite the culture, some want to reclaim and revise the past. It’s understandable that very few want to take a hard sobering look at the debris and work out what to do next.

 

As the fallout continues globally – intensified by COVID – and without the momentum of any “big idea”, I would argue that it’s clear to see that we are struggling to keep people away from revisiting the “bad ideas” we worked so hard to stay away from. If you doubt this, please look at voter intention in Europe.

 

So What?

 

Good question, to which there are a couple of salient answers.

 

Firstly is the issue of simultaneous impacts. I am now 48, when I used to go out for a few Guinness I knew that when I was drinking the stout I was simultaneously ensuring a 4am panic attack and a filthy hangover.

 

This is what is happening with the populist politics of the 21st Century.

 

As an example, whether people are voting for Geert Wilders’ PVV due to concerns over immigration or because they approve of his anti-EU stance, they are simultaneously voting for a party who do not agree with reductions in carbon emissions and who have stated they will not “spend billions on pointless climate hobbies”. The inverse is also true.

 

Whether they know it or not, voters’ views on seemingly unrelated topics still have serious implications on climate related activities.

 

Second is the issue of loss aversion and specifically how it is impacted by the speed of events.

 

Loss aversion is when our thinking is biased by an aversion to loss where eliminating the risk of losing is preferable to increasing the chances of winning.

 

For example, in a cost of living crisis which seems to show no signs of abating it should be obvious that many people will be reticent to lose access to utilities/goods/services that, on the face of it, are cheaper than competing climate beneficial options. Even if this means “winning” the fight against climate change, it is increasingly a cost that people are unwilling to bear. If you doubt that I’d advise looking at the slide on Government climate policies over the last few years and the continuous filibuster that is the Conference of the Parties – whose votes do you think they are trying to keep?    

 

Loss aversion is heightened when the “winning” will not be experienced by people perceiving themselves to be at risk of losing. One of the most difficult aspects of attempting to implement unpopular climate policies is that you need the political support of people who won’t be here to see the results.

 

We are all aware of the phrase “A society grows great when old men plant trees in whose shade they know they shall never sit”. In the UK however old men (65+) are overwhelmingly intending to vote in 2024 for one party that has pledged to “max out” oil and gas reserves or another whose manifesto states that “Westminster’s obsession with Net Zero is making us all net poorer every year”. A great society we are not.

 

What Does This Have To Do With Waste?

 

Why did Rishi Sunak invent the concept of a “seven bin” recycling service? If one was being sympathetic we could say he was misinformed. If one was being more realistic we would say because it’s a relatively easy trope to pull off that recycling services are unbelievably confusing and an imposition on the “hardworking British people”.

 

It’s an easy trope to pull off because as materials develop, as technology comes on board and as policies shift, our recycling services will be susceptible to change. Given it’s one of the very few responsibilities given to householders to impact climate change, it is easy to weaponise for political advantage. In short, the worst that can be said of our current waste systems is that ‘recycling is confusing’ or that ‘HWRC are difficult to use’.

 

With the inclusion of energy from waste in the UK Emissions Trading System my view is that is all about to change.

 

The ETS will require operators of EfW plants to surrender CO2 emission allowances equivalent to the total emissions of CO2 of fossil origin from their installations within a given year. Although a certain amount may be given to installations as “free allowances” the rest will be procured at auctions.

 

Of respondents to various questions in last year’s ETS consultation 97% said that waste operators would be able to pass the cost of a carbon price onto their customers, including Local Authorities.

 

For reference the ETS price in 2022 was as high as £97.75/t and as low as £66.55/t. In July 2023 however the Department for Energy Security and Net Zero added 53.5 million tonnes of extra carbon allowances into the scheme between 2024 and 2027 and later that year the price dipped to less than £40/t.

 

This is first of all a disaster in terms of how cheaply companies can pollute, but it is also a disaster for any Local Authorities seeking to have a planned and coherent approach to meeting the costs of ETS for their waste.

 

If we take a Local Authority with 100,000 tonnes of waste going to EfW and a fossil carbon content of say, 30%, then it’s possible that this could cost anywhere between £5.8m and £2.1m depending on how we treat the estimation of contribution of fossil carbon to overall CO2 emittance, the prevailing carbon price and the treatment of free allowances.

 

Ask any Local Authority if they could cope with a potential £3m swing in budget year to year. I would suggest it is unworkable.

 

Also in the ETS consultation, 84% of respondents said that the introduction of a carbon price could incentivise waste operators and/or Local Authorities to reduce fossil waste being incinerated. This is however asymmetric and illiterate to the powers that Local Authorities have at their disposal.

 

It is true to say that commercial waste companies can create incentivised pricing of services to minimise fossil carbon content of their residual waste. It is not possible for Local Authorities to employ pay as you throw or other such methods on householders to minimise fossil carbon content in their residual waste. Local Authorities have a legal duty placed on them to provide a service to their community, private waste management operators have no such legal duty.

 

As a result Local Authorities will be burdened with an additional cost, the quantum of which may be highly variable, with almost no powers to mitigate or minimise their exposure [2] 

 

How will Local Authorities choose to meet these additional costs? In Scotland we may still have a Council Tax freeze and so money will be sought from cuts to other services. Perhaps Council Tax will have to increase? Perhaps other services in the department will see job losses? Unpopular at best is the likely response from the public.

 

Add to that the very real possibility that not all of the money raised through the ETS is used by Government to address climate spending and it also begins to have the stench of stealth taxation.

 

The ETS is due to take effect from 2028 (we have a two year transition period from 2026). Public sentiment towards the policy and its costs will depend upon the overall economic and social climate, but if the last 13 years are anything to go by, I suspect it will be as volatile as it is today. If Labour wins the 2024 election and stick to the fixed term Parliament act then the ETS for EfW will have had one year of operation, the costs of which will be anybody’s guess.

 

What I am more certain of is that unless something is done to mitigate the impact on Local Authorities, the policy will be framed in 2029 by its opponents as another “green tax” making householders poorer and reducing local services.

It is wind in the sails for anti-climate populists from a policy which had significantly more progressive alternatives.

 

Framing Effect and “Winning Now”

 

It’s possible you have read this far and have become thoroughly depressed. My sincere apologies if this is the case. Allow me to try and provide some thoughts on what we need to do, what we can do and progressive alternatives.

 

In describing an alternative to the ill thought through ETS, it will become abundantly clear that I do not view spending in the same way as the last thirteen years of Conservative Chancellors. As it goes, neither do most economists. The UK is not a household which needs to focus on short term balancing of the books, nor is it a corner shop which needs its weekly income to spend on next week’s stock. As long as we have a printing press and a system capable of collecting appropriate levels of taxation, the international money markets are unlikely to freak out. What they need to see is a competent well thought out plan.

 

As with most areas of contentious policy what is required is a deep level of thought about the “framing effect”. The “framing effect” is where our thinking is biased by how information is presented.

 

District heating is a good example. One way of looking at district heating is that it is sustainable, lower carbon, progressive. Another way is to say it is domestically produced and free from the interests of politics, international demagogues or price volatility. Each will play better with a specific demographic.

 

I am also interested here to dispel the effect of loss aversion by proposing strategies that can have the effect that we are “winning now”.

 

Let’s take the ETS as a starting point.

 

We want to avoid the carbon emissions associated with the burning of fossil carbon in residual waste. The ETS doesn’t do this directly, it assumes that there will be a price at which this activity becomes more expensive than the next option. The next option may be to bury the fossil carbon materials. It may be to recover and recycle them. However, these options themselves have all sorts of other incentives, activities and costs required for them to happen.

 

What I would like to propose is to just ban fossil carbon (specifically plastic) from the residual bin. I would like it all to go in the recycling bin. All of it.

 

Before you even finish that sentence, if you are an industry veteran, you will be asking where will it go? Who takes that material? How will we separate it? Is there a market for it?

 

I completely understand those concerns.

 

What I am proposing is that we take this opportunity to replace an unmanageable tax burden with a plan for investment and jobs, supplemented by investment, tax breaks and employment support from Government.

 

Before you finish that sentence many of you will be clawing your eyes out about debt to GDP and making some fairly heavy handed claims about Keynes.

 

I completely understand those concerns.

 

The reality is however, that this is already happening in other countries to achieve their climate aims whilst stimulating a level of employment and investment which populist politics cannot compete with.

 

Let’s take the US Inflation Reduction Act as an example. The headlines are about investment tax credits providing up to 30% credit for qualifying investments in green energy, bonus credits for using US sourced materials, credit and tax support for employment, financial support for utilisation of apprentices. However, the most interesting aspect is that despite the legislation receiving no Republican support, the majority of clean energy investment is flowing into red states.

 

Will they fight against it? Performatively yes. Will they refuse investment and jobs? Absolutely not.

 

The IRA is an example of “winning now” that is big, bold and hits sceptics where it hurts – right in the jobs. It uses the “framing effect” to its advantage and makes the case on terms everyone can understand whether they are suffering from loss aversion or not.

 

So, I’m proposing we do something bold instead of the ETS.

 

I’m proposing we take all the fossil carbon out of the residual bin. I am proposing that we create the conditions for significant investment in a new fleet of polymer separation, processing and conversion facilities. I am proposing that we create new tax incentives to reshore manufacturing which requires polymer supply, beginning with packaging which qualifies for the 30% plastic packaging tax.

 

I am also proposing that we support this with an investment programme for apprentices. Currently almost 13% of 16-24 year olds are unemployed. The overall UK unemployment rate might only be just over 4%, but the statistics are skewed in favour of boomers and Gen X.

 

I’m proposing we target investment in these facilities, these apprentices and jobs in the places that need it most – Blackpool, Burnley, Middlesbrough, Liverpool, Kingston Upon Hull, Manchester, Inverclyde, Merkinch, Buckhaven… the list goes on, unfortunately.

 

The Wash Up

 

As unrealistic as you may find them, I am proposing these things for very specific reasons.

 

I am proposing these ideas because I genuinely believe that our industry should be a bigger agent for change, not in climate terms, but in jobs and investment, than it currently is.

 

I have worked for 23 years in the industry and in the last decade the recycling rate has increased by less than 5%. Employment has been sclerotic. Facilities are crumbling. Something is not working and the lack of pace, progress and tangible benefit to the public is starting to catch up with us.

 

Am I worried about carbon and climate? Yes, but not as concerned as I am about policies, such as the ETS, which are likely to be exploited for political gain, especially when they lend a helping hand to the current resurgence of “bad ideas”.

 

—————————————————————————————————————————————————————————-

[1] I would argue that right wing populism is just more visible than left wing populism, but across the World both have been happening for some time

 

[2] I don’t hold out much hope for PAYT being a measure that will be brought forward in the Circular Economy Bill

Leave a Comment