BACKGROUND PAPER CARBON PRICE AND LANDFILL WASTE

1. THE ISSUE This paper is an outline of the carbon pricing regime and an appraisal of the risks and opportunities it presents the landfill waste industry. 2. BACKGROUND The carbon price and planned emission trading system are intended to influence consumer and corporate behaviour away from purchasing high emissions-intensive products to lower carbon emission-intensive alternatives. The higher the emissions intensity of a product or service, the higher the carbon price on that product or service will be, assuming that the price increase is passed on to end consumers. The public policy outcome hoped for is a reduction in Australias total greenhouse gas emissions and a decoupling of economic growth from growth in carbon emissions. What will the carbon price be? A fixed price scheme will operate from 1 July 2012 to 30 June 2015. The initial price will be $23 per permit (with one permit equal to one tonne of equivalent carbon dioxide or CO2e) from 1 July 2012 and will increase by 2.5% in real terms in subsequent years.1 Transition to an emissions trading scheme On 1 July 2015, the carbon price will transition to an emissions trading scheme (ETS). The carbon price for permits under an ETS will vary depending on the number of permits in the market (mainly supplied by the Government) and the demand for those permits. However, the market price will not be fully flexible for the first three years of the ETS as there will be a price floor of $15 in 2015-16, and a price ceiling, to be set by 31 May 2014 at $20 above the expected international carbon price at 1 July 2015. Both the floor and the ceiling will increase each year (at 4% and 5% in real terms respectively) before being reviewed in 2017. Will the carbon tax apply to the landfill waste industry? Yes. The landfill waste industry is directly liable. Under the Clean Energy Futures Package2 facilities with direct or scope 1 emissions exceeding 25,000 tonnes of equivalent carbon dioxide (CO2-e) per annum will be required to purchase pollution permits for $23 per tonne of CO2-e they emit.3 How will the carbon tax apply? It is not widely understood that the carbon tax applies to facilities not corporations per se.4 A facilitys
1 2

That is $23.29 from 1 July 2013, $23.87 from 1 July 2014 and $24.47 from 1 July 2015. The Clean Energy Future Package draft legislation was released on 28 July 2011. There are three main pieces of legislation in the Clean Energy Package: a Clean Energy Bill 2011 (the central bill that sets up the carbon price), a Clean Energy Regulator Bill 2011 (that sets up the regulator), and a Climate Change Authority Bill 2011 (that sets up the Climate Change Authority which will advise the government on key aspects of the carbon price mechanism). There is also a raft of consequential amendment bills. 3 Equivalent carbon dioxide or CO2e is a measure for describing how much global warming a given type and amount of greenhouse gas may cause, using the functionally equivalent amount or concentration of carbon dioxide as the reference. 4 The definition of Facility in Clean Energy Bill 2011 is given the same definition as the definition in the National Greenhouse and Energy Reporting Act 2007 (NGERS Act). Section 9 of the NGERS Act defines facility as follows: s9 (1) A facility is an activity, or a series of activities (including ancillary activities), that involve the production of greenhouse gas emissions, the production of energy or the consumption of energy and that: (a) form a single undertaking or enterprise and meet the requirements of the regulations; or (b) are declared by the Greenhouse and
The carbon price: Impacts on Australian landfill waste industry 1

carbon tax liability is based on emissions data from that facilitys National Greenhouse and Energy Report (NGER Report). Based on NGER data the government estimates around 500 facilities will be directly liable.5 Waste facilities are expected to make up 190 of the 500 facilities that will be directly liable for the carbon tax when it commences in July 2012.6 The carbon price will not apply to emissions from waste deposited prior to the scheme starting, referred to as legacy waste, but from 1 July 2012 it will apply to emissions from all new waste, known as non-legacy waste. Legacy waste, or waste deposited prior to the scheme starting, will however be counted toward reaching the facility threshold. To avoid people taking waste to a smaller landfill that fall under the carbon tax threshold, a separate 10,000 tonnes of C02-e threshold will apply to smaller landfills within a prescribed distance of large landfill facilities. This qualification is designed to avoid waste being taken to smaller landfills that do not pass on the extra carbon cost at the gate when they would normally go to a larger landfill that exceeds the carbon tax threshold of 25,000 tonnes of carbon dioxide equivalent and as such applying an extra carbon tax cost at the gate and may be cheaper.7 The prescribed distance will be detailed under the future Clean Energy Regulations, likely to be released after the passage through the Commonwealth parliament of the Clean Energy Bill 2011, with expectations it will be 80km. What is the waste industries indirect carbon tax liability? Aside from its direct liability, the landfill waste industry will be indirectly impacted through electricity and gas usage, fleet operations and other consumables. It is expected electricity and gas producers and other manufacturers will pass their carbon costs through to consumers meaning that the landfill waste industry will also be directly and indirectly liable for the carbon tax. Most of the landfill industrys indirect carbon tax liability will arise from the consumption of purchased electricity and vehicle fuel costs.8 3. COMMENT While many of the operational aspects regarding how the carbon price will apply to individual landfills are yet to be known, the Clean Energy Futures Package can be expected to encourage innovation and capital investment in the waste and clean energy industries. The increase in the cost of disposing of waste in landfills will make re-use, recycling and resource recovery more commercially viable and competitive. Higher energy prices will also make energy from landfill gas more cost-competitive. Alternative waste technology plants and energy from landfill gas is likely to be a future source of growth and job creation for the waste industry. Before examining these opportunities, the key risk for the waste industry, namely uncertainty regarding the future carbon price liability of landfill operators, is examined. Risk: Uncertainly regarding future carbon price liability The volume of carbon emissions generated from landfill waste and the carbon tax liability of landfill operators cannot be precisely calculated and is estimated based on known waste composition and the

Energy Data Officer to be a facility under section 54; but does not include an activity, or a series of activities, in the exclusive economic zone, except to the extent that it is an oil or gas extraction activity or a series of oil or gas extraction activities. 5 For the full list see: Parliament of Australia, Parliamentary Library: Which 500 companies pay the tax? <http://www.aph.gov.au/library/pubs/climatechange/CarbonPricing/Companies.htm> Accessed 8 August 2011. 6 Of the 500 businesses around 60 are primarily involved in electricity generation; around 100 are primarily involved in coal or other mining; around 40 are natural gas retailers; around 60 are primarily involved in industrial processes (cement, chemicals and metal processing); around 50 operate in a range of other fossil fuel intensive sectors; and the remaining 190 operate in the waste disposal sector. See < http://www.cleanenergyfuture.gov.au/500-companies/> 7 Clean Energy Future document <http://www.cleanenergyfuture.gov.au/clean-energy-future/our-plan/> accessed 5 August 2010. 8 The carbon tax will not apply directly to trucking fuel however trucking outside of agriculture will face reduced business fuel tax credits from 2014.
The carbon price: Impacts on Australian landfill waste industry 2

location of each landfill. On average each tonne of landfill generates about 1.2 tonnes of carbon dioxide per year meaning the $23 carbon tax will be closer to $28 per tonne of physical garbage.9 When a tonne of waste is disposed of in landfill, the carbon dioxide continues to be emitted over the next 20 years, however landfill operators have to pay the carbon tax in the year of the emissions.10 This means landfill operators could continue to pay for carbon emissions in 2032 for waste received in 2012. Landfill operators will therefore need to impose higher waste charges to recoup this cost as their carbon pollution permit liability increases across the life span of each tonne of decomposing rubbish. According to some estimates landfill operators may need to charge up to an extra $35 per tonne of waste, or more, in order to cover their ongoing carbon tax liability.11 Given that there is public policy consensus on the goal of reducing greenhouse emissions by 5 per cent by 2020 with a long-term goal to reduce Australias carbon emissions by 80% by 2050 it is expected that the carbon price will continuously and steadily increase over the medium to long term in order to achieve these targets.12 Predicting the future carbon price liability over the next 20 years will be difficult for the waste industry. Landfill operators will need to accurately estimate the likely future carbon price in order to cover longer term pollution permit liabilities. Assessing future liability will require detailed modeling and independent testing to develop an agreed and rigorous methodology. The landfill waste industry, along with other major carbon polluters, will need to establish significant administrative capacity to effectively comprehend, measure and manage the longer-term impact of the new carbon accounting rules. Opportunity: Recycling and recourse recovery The Clean Energy Future Package presents some exciting opportunities to innovate and invest in resource recovery as well as clean energy technology. The carbon tax will improve the profitability and rate of return of resource recovery and the capture of energy from waste treatment and processing. Most of the larger waste operators are already working to reduce landfill use establishing and operating large waste treatment and recycling and recovery facilities.13 These facilities, often referred to as Advanced Waste Treatment (AWT) facilities, are designed to process large amounts of domestic and commercial waste and produce resalable recovered material.14 Typically, an AWT facility treats waste through mechanical, biological and/or thermal processes involving the separation of recyclables, fermentation, percolation, gasification, melting, etc. Suitability of individual or combinations of such processes depends on the types of waste, level of source separation and community perception of AWTs environmental impacts. These technologies are usually associated with high capital and operating costs.

Themelis, Prof. Nickolas J.; Waste-to-Energy: Renewable Energy Instead of Greenhouse Gas Emissions, Columbia University & Chair, Waste-to-Energy Research and Technology Council (WTERT) < www.seas.columbia.edu/ earth/wtert/sofos/themelis_AD_paper_Nov19.pdf> (accessed 8 August 2011) 10 Ibid. 11 Max Spedding from Australian Landfill Owners Association quotes this figure in various media reports eg Carbon tax adds $35 to council waste disposal and rubbish dump charges, Courier Mail 1 August 2011. <www.couriermail.com.au/money/money-matters/carbon-tax-adds-35-to-council-waste-disposal-and-rubbish-dumpcharges/story-fn3hskur-1226105552767> accessed 8 August 2011. 12 Up to $100 according to some estimates. 13 Veolia operates the Woodlawn the Woodlawn BioReactor and receives putrescibles wastes from Veolia Environmental Services transfer terminal in Clyde, NSW. This is a purpose built facility designed to accelerate waste decomposition and maximise the capture of biogas to produce green electricity. This has the added benefit of reducing greenhouse gas emissions from compostable wastes. See: < http://www.veoliaes.com.au/community-andenvironment/woodlawn-community/woodlawnqa >. SITA also operate an advanced waste treatment facility at Kemps Creek that converts organic from the garbage bin into compost and mulch product and recovers resources like aluminium, steel, plastic and glass. See <http://www.sita.com.au/our-services/infrastructure-services/kempscreek-sawt-advanced-resource-recovery-facility.aspx> 14 For example recycled aluminium has a market price of approximately $1,500 per tonne, recyclable paper and cardboard can fetch up to $120 per tonne and plastic, depending on the quality, up to $50 per tonne.
The carbon price: Impacts on Australian landfill waste industry 3

While there are a number of AWT facilities currently operating throughout Australia, or that are in planning stage, many of these technologies and their applications to various materials are still in their early stages of development. Europe, where there are often stricter environmental controls on landfill and much larger volumes of waste to process, have more advanced and established AWT and renewable energy from waste operations. In Oslo, for example, the city uses landfill to generate power and diverts 82 per cent of its rubbish to recycling, reprocessing or reuse.15 Copenhagen has reduced the volume of waste going to landfill to 4% after implementing a waste reduction plan and mandatory source separation of recyclable materials.16 Based on the experience of these cities and others with more mature resource recovery infrastructure than in Australia, it is likely the carbon tax will accelerate a shift to large-scale, centralised waste management. The trend to invest in large-scale, capital-intensive waste management infrastructure will favour larger multi-national waste management companies offering innovative solutions and with a capacity to invest more in research and development and technology. Opportunity: Landfill gas to energy Energy generation from landfill gas is an exciting opportunity for the landfill waste industry to both offset its carbon tax liability and generate alternative income streams. Landfill gas is produced when microorganisms break down organic material in the landfill and is comprised of approximately 50-60 percent methane and 40-50 percent carbon dioxide.17 As landfill gas diffuses through the landfill a percentage of this gas can be captured through a network of pipes installed throughout the landfill for this purpose.18 The extracted gas is cleaned and dried as appropriate, and then used as fuel for an engine which drives a generator converting the methanes chemical energy into electricity.19 Renewable energy landfill gas is especially valuable because it provides base load power. Theres also a real demand from consumers for greener energy and with many taking part in voluntary programs and willing to pay more for power derived from renewable sources. Opportunity: Government funding and transition measures The government has proposed a number of funding measures to assist business with the carbon price impacts. The waste industry may be able to access some of this funding, especially for energy efficiency, renewable energy, and clean technology measures. For example the Commonwealth governments Renewable Energy Target will provide further incentives to generate renewable electricity from landfill gases20 with renewable energy targets increased from 9,500 megawatt hours, to 45,000 megawatt hours by 2020.21 If waste facilities become renewable energy generators they will produce Renewable Energy Certificates (RECs) issued by Office of the Renewable Energy Regulator pursuant to the Renewable Energy
15

See C40 Cities - Climate Leadership Group - Best practices - Waste <http://www.c40cities.org/bestpractices/waste/oslo_system.jsp> accessed 8 August 2011. 16 Copenhagen puts only 3% of waste into landfill < http://www.c40cities.org/bestpractices/waste/copenhagen_landfill.jsp> accessed 8 August 2011. 17 Methane is a potent greenhouse gas with a Global Warming Potential, for a 100 year horizon, of between 21 and 25 compared to carbon dioxide. In its Fourth Assessment Report released in 2007, the IPCC revised this value to 25. 18 Estimates vary approximately 20% - 90% of the total gas generated which in itself is imprecisely known. The pipes are held under negative pressure by a suction fan attached to a gas cleaning station and engines for this application are designed to operate with landfill gas. 19 Paulina Jaramillo and H. Scott Matthews, Landfill-Gas-to-Energy Projects: Analysis of Net Private and Social Benefits, Department of Civil and Environmental Engineering. Carnegie Mellon University, Pittsburgh, Pennsylvania, Environmental Science and Technology, 2005, 39 (19), pp 73657373. 20 Renewable Energy Target (RET) scheme, which is designed to deliver on the Governments commitment to ensure that 20 per cent of Australias electricity supply will come from renewable sources by 2020. 21 See Parliament House website: Background paper on Climate Change: Renewable Energy Target <http://www.aph.gov.au/library/pubs/climatechange/governance/domestic/national/mandatory.htm> Accessed 8 August 2010.
The carbon price: Impacts on Australian landfill waste industry 4

(Electricity) Act 2000.22 RECs are created at the rate of 1 REC per MWh and are deemed financial instruments for the purpose of stimulating the development of renewable energy generators. In addition to producing electricity, a qualifying generator is also deemed to create . A market has been created for RECs by federal regulations requiring that electricity retailers procure and submit to a registry RECs equivalent to a specified percentage of their total electricity sales.23 These and other incentives in the Clean Energy Future Package will influence continued innovation and new commercial opportunities for the waste industry.24 What will happen next? The Clean Energy Future Package was approved by the House of Representatives on 12 October 2011 The legislation has the support of the Greens giving the government the numbers to pass the legislation through both houses of parliament. The legislation is expected to pass through the Senate before the end of the 2011, with the carbon price commencing on 1 July 2012. 4. RECOMMENDATIONS THAT the landfill waste industry mitigate against the risks and leverage the opportunities the carbon price and ETS presents by: Identify and allocate reporting responsibilities and responsibilities for gathering and providing information regarding carbon tax liability. Ensure greenhouse and energy information gathering and reporting is optimal. Improve corporate knowledge and literacy in relation to carbon management, renewable energy and the impact of the Clean Energy Futures Package. Investigate options to reduce emissions and improve efficiency. Identify the kinds of government funding that is available to the landfill waste industry. Identify energy generation from landfill gas opportunities.

Aaron Magner UNSW Sustainability www.sustainability.unsw.edu.au www.recycling.unsw.edu.au

22 23

See Office of the Renewable Energy Regulator <www.orer.gov.au> Accessed 8 August 2010. Office of the Renewable Regulator (ORER) - Power Stations Guide <www.orer.gov.au/powerstations/index.html> Accessed 8 August 2010. 24 Australian Government, Department of Climate Change. National Greenhouse and Energy Reporting System, Technical Guidelines for the Estimation of Greenhouse Emissions and Energy at Facility Level Energy, Industrial Process and Waste Sectors in Australia. Discussion Paper. December 2007.
The carbon price: Impacts on Australian landfill waste industry 5

BIBLIOGRAPHY Clean Energy Futures web site < http://www.cleanenergyfuture.gov.au Office of the Renewable Energy Regulator <www.orer.gov.au> C40 Cities - Climate Leadership Group <http://www.c40cities.org/> Parliament House website: Background paper on Climate Change: Renewable Energy Target <http://www.aph.gov.au/library/pubs/climatechange/governance/domestic/national/mandatory.htm> Paulina Jaramillo and H. Scott Matthews, Landfill-Gas-to-Energy Projects: Analysis of Net Private and Social Benefits, Department of Civil and Environmental Engineering. Carnegie Mellon University, Pittsburgh, Pennsylvania, Environmental Science and Technology, 2005, 39 (19), pp 73657373. Forster, P., V. Ramaswamy, P. Artaxo, T. Berntsen, R. Betts, D.W. Fahey, J. Haywood, J. Lean, D.C. Lowe, G. Myhre, J. Nganga, R. Prinn, G. Raga, M. Schulz and R. Van Dorland, 2007: Changes in Atmospheric Constituents and in Radiative Forcing. In: Climate Change 2007: The Physical Science Basis. Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change [Solomon, S., D. Qin, M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M.Tignor and H.L. Miller (eds.)]. Cambridge UniversityPress, Cambridge, United Kingdom and New York, NY, USA. Themelis, Prof. Nickolas J.; Waste-to-Energy: Renewable Energy Instead of Greenhouse Gas Emissions, Columbia University & Chair, Waste-to-Energy Research and Technology Council (WTERT) < www.seas.columbia.edu/earth/wtert/sofos/themelis_AD_paper_Nov19.pdf> (accessed 8 August 2011)

The carbon price: Impacts on Australian landfill waste industry 6