Challenges and opportunities for the UK trade in waste

November 29, 2017

The parallel legislative progress of the EU’s Circular Economy Package (CEP) and Brexit marks a pivotal moment for the future of UK waste policy.  Whichever concludes first will signal the direction of travel for the UK’s trade in waste – in the short term at least.

Within these overarching drivers, the UK’s trade in waste is governed by multiple dimensions. There is the regulatory dimension, recognising the European Directives that frame waste policy, such as the Waste Framework Directive (2008) and the Landfill Directive (1999).  This is overlaid by the spatial dimension in which the EU has created common markets and waste-related definitions and standards so that member states can trade material tariff free across borders. One further dimension is how environmental and economic objectives are reconciled and whether cheaper solutions supersede those less environmentally damaging or vice versa.

All of the above will be governed by the UK’s future relationship with Europe. It is within this context that I recently gave evidence to the House of Lords EU Energy and Environment Sub-Committee following the successful publication of Policy Exchange’s report Going Round in Circles: Developing a new approach to waste policy following Brexit.

Throughout the session a number of themes emerged such as extended producer responsibility, producing secondary materials higher up the value chain, movement of EU nationals and waste crime after Brexit. The export of refuse-derived fuel (RDF) was also subject to much debate and provides a good example of how the multiple dimensions noted above interact. This interaction will ultimately dictate the UK’s trade in waste and is therefore worth a closer look.

Refuse Derived Fuel

A major category of waste export is ‘Refuse Derived Fuel’ (RDF) which is manufactured from residual waste and exported to other countries for energy recovery. Exports of RDF have grown substantially in recent years, from close to zero in 2010, to 3.2 million tonnes in 2016. In 2016, 46% of UK RDF exports were sent to the Netherlands, one example of the spatial dimension of waste.

Exports of RDF represent an additional cost to the UK. The current “gate fee” charged for RDF exports is £87 per tonne. This is slightly lower than the cost of landfilling waste in the UK (£103 per tonne). The export of RDF cost the UK around £280 million in 2016. Indeed, UK businesses and households have spent the best part of £1 billion in just six years to export waste to other countries where they use it to generate heat and power in Energy from Waste (EfW) facilities.

A combination of policy, planning, and market factors make this possible. In particular, this is a side-effect of more and more waste being exported from the UK in order to avoid the higher landfill tax. This exemplifies the regulatory dimension and is also an (rare) example of where economic and environmental drivers are complimentary. It is both cheaper and preferable from an environmental perspective to export RDF than send it to landfill.

Secondly, the export of RDF occurs because there is currently a gap between the amount of residual waste arising in the UK, and the capacity available to treat it. Research by Eunomia suggests we generate around 26 million tonnes of waste per year in the UK, yet the total energy from waste capacity amounts to only 13 million tonnes per year. We only have the capacity gap to generate waste from half of our output – so the gap is filled by shipments of RDF to other countries for energy recovery.

This capacity gap represents a large infrastructure challenge and opportunity for the UK- one on which Defra, Local Authorities are businesses should work together. Although exporting waste as RDF is a real cost to the UK economy, the environmental case for or against RDF exports is more nuanced. The export of waste implies additional emissions associated with transportation, but EfW facilities in Continental Europe are generally more efficient than those in the UK, since they typically capture both heat and power or use gasification technology. This means that the overall environmental impacts of RDF export may be lower than an electricity-only incinerator in the UK.

How the UK reconciles these economic and environmental concerns (the third dimension) will be influenced by the outcome of the Brexit negotiations and will be subject to lengthy discussion. Indeed, this misalignment was borne out during the evidence session.

Impact of Brexit

So what are the impacts of Brexit on the UK’s trade of RDF? Committee members broadly defined these as tariff barriers and non tariff barriers.

Looking at tariff barriers first, the key question is the possible impact of tariffs on RDF exports once the UK has left the EU. Non-EU countries exporting waste to the EU are generally subject to WTO tariffs at 6.5% or higher. If UK exporters are subject to the same tariffs, then this would increase the cost of RDF exports as a waste treatment route, exacerbated by the recent fall in Sterling, since continental facilities quote their gate fees in Euros.

The Dutch Waste Association suggested that this cliff edge scenario could result in a loss of exported material and, due to the capacity gap, potentially 3.5 million tonnes being landfilled again in the UK. This outcome would undermine EU and UK action which has helped transform waste treatment in the UK from landfill-based disposal towards tighter environmental controls.

If a post-Brexit trade situation makes waste exports more expensive than domestic feedstock contracts, and faltering recycling in England makes EfW more desirable, this might be used to underpin arguments for incineration as a low cost solution.  This solution may be optimal from an economic perspective, but may only satisfy environmentally driven goals if UK EfW facilities are developed with greater efficiency, by recapturing the heat or using gasification technology. This should undoubtedly be the aim after Brexit to maximise resource productivity, ensuring that operators extract all economically-recoverable materials during use. To achieve this, the Department for Business Energy and Industrial Strategy (BEIS) and the Department for Environment, Food and Rural Affairs (DEFRA) should do two things:

  • Re-orientate the financial incentives for energy from waste in order to meet its own objectives of getting the most energy out of residual waste.
  • Prioritise energy from waste towards high efficiency technologies (producing ‘green gas’ or Combined Heat and Power). These technologies offer far higher levels of efficiency than electricity only energy from waste facilities and could play an important role in decarbonising heating and transport.

Secondly, non tariff barriers to trade were also discussed in particular, concerns surrounding regulatory divergence between the UK and EU. Should the Circular Economy Package (CEP) become transposed into UK law before Brexit, regulatory divergence will be minimal in the short term. Looking further ahead, where the UK is outside the EU and the CEP is not transposed by the UK Government, the UK may still be required to comply with EU regulation for continued trade of materials. The key question is whether aligning standards to those demanded by non EU markets – and the benefits this may entail – is worth the possible loss of waste-related markets inside the EU.

Any departure would significantly change the spatial and environmental dimension of waste. For example, the current export of RDF to Europe can be justified on environmental grounds due to close proximity and higher efficiency EfW facilities. However, greater transportation distances to markets further afield, with less stringent regulatory frameworks, may undermine this.

Moreover, the added bureaucracy that regulatory divergence entails could act as a further barrier to trade. As one of the panellists giving evidence said, “profit margins on per-tonne movement of waste are tight. Anything that gets in the way in terms of the new bureaucracy that will emerge outside of the customs union could certainly have a sluggish effect on trade.” Any regulatory divergence should carefully consider the potential to act a barrier to trade and environmentally driven goals.

Going forward, the long term approach of the UK will be determined by how the Government prioritises the dimensions that govern UK trade in waste; regulatory, spatial, economic and environmental. There are no scenarios that tick all of these boxes, so inevitably policymakers will need to choose.

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