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Third ESTET National Consensus Conference
Closing the Loop:
Financing and Regulating waste strategy after the PIU
Response to the Secretary of State
Dirk Hazell
Chief Executive, ESA
Mr Chairman, my Lords, ladies and gentlemen.
This is my fourth performance at our industry's main annual conference. Earlier speeches contain a more conventional trade association shopping list and are available on ESA's website.
Today, in response to the Secretary of State, I move onto new ground and hope this will prove to be helpful both in emphasising ESA's approach based on the partnership to which the Secretary of State referred and otherwise.
I start with a direct response to the main theme of the Secretary of State's speech and close with a short report on our most recent work on the municipal waste stream.
1) The World Summit
The Secretary of State rightly concentrated on the World Summit. It was also entirely appropriate that the chief executives of Severn Trent and Suez, the groups to which ESA's two largest Members belong, both made powerful presentations at the Summit's main business event.
The Summit was relevant both to the theme of today's Conference and to the work of ESA's Members. After all, ESA's Members want the British economy to be more resource efficient and to have a sustainable Total Material Requirement.
Similarly, the Wuppertal Institute report, to which the Secretary of State referred and recently commissioned by DEFRA, clearly points to the central contribution of ESA's Members in closing the loop and achieving these objectives. The Report's comments on environmentally valid recycling and on stabilisation of the carbon cycle entirely reflect ESA's established policies of restoring to the productive economy more of the energy and material contained in waste.
ESA has also consistently stated on the record for years that we are content to see producer responsibility initiatives reduce the toxicity and bulk of waste over the longer run. While landfill remains essential in an integrated waste management portfolio, our industry's strategic commercial objective is to help to close the loop.
Two years ago, and pointing to the commercial opportunities for ESA's Members, I suggested that we were crossing a threshold into a period where sustainability would become a central component of decision making both in government and in all economic activity. I believe the Johannesburg Summit took us further down this journey.
Sustainable development requires long term political leadership and at Johannesburg many governments deepened their commitment to this agenda.
The Secretary of State referred to partnerships at Johannesburg. For me, the most striking development at the Summit was the step change in the approach of the World's corporate leaders to their wider responsibilities and this is in line with ESA's own thinking.
ESA has for some years openly acknowledged that regulation is the prime commercial driver for our sector in the UK. Better regulation is an essential pre-condition to get our industry to where we want it to be and where it must be if the UK complies with the Landfill Directive. However, ESA has never claimed that regulatory compliance is in itself a sufficient objective for our sector.
Our industry and our industry's clients have environmental and social obligations. Like the Secretary of State and the World Business Council for Sustainable Development, ESA wants good environmental practice to be good business.
We want commercial competition to drive the corporate sector to reconciling an appropriate rate of return on invested capital with appropriate environmental and social objectives. In addition to regulation, this requires a range of market oriented drivers such as tradable permits and fiscal incentives calculated to achieve clearly defined outcomes.
The Summit produced strong evidence of a new corporate consensus. We saw a strongly stated determination to tackle the corruption that has been such a problem for developing economies. We also saw maturing and increasingly effective and numerous corporate approaches to environmental and social responsibilities in both developed and developing economies.
Such a responsible approach towards the environment and towards people on whom a company's activity impacts is precisely the approach one would expect to see in a utility such as ESA represents. After all, the £1 billion a year our Members want to invest in infrastructure is a long term investment in long term partnerships to provide an essential long term service. The Secretary of State today announced a new initiative by the Government on the triple bottom line concept of social and environmental as well as financial reporting. While welcoming this, I offer the thought that the triple bottom line must always be set in an appropriate economic context.
Apparently, Enron operated a social responsibility programme. As Enron failed in its commercial duty to preserve itself, its social responsibility programme also turned to dust.
As waste tends to flow to the cheapest method of treatment allowed by law, so capital tends to flow around the World to where it can earn the highest rates of return. Any durable solution for life after the PIU-which is what the Strategy Unit was called when we launched this Conference-must work with and not against both these flows.
A successful triple bottom line approach must not depress rates of return on invested capital. A successful triple bottom line must instead align market rates of return on capital with corporate environmental and social responsibility.
This requires very high standards of corporate governance. ESA has incorporated Green Alliance indicators into our code of conduct and ESA's frankly ambitious targets for improving the health and safety record of our industry illustrate increasingly rigorous and transparent social responsibility.
In the difficult trading circumstances faced by the UK's waste management industry, the Landfill Tax Credit Scheme is perhaps most appropriately regarded as a sectoral accelerant towards the triple bottom line approach.
Our industry works hard for its money and I want to see those who work in it better paid. However, sustainably higher wages cannot be based on unrealistic claims from trade unions or on applying relatively low skills to ever increasing volumes of waste. Higher pay must relate to higher added value. This means applying more skill and more infrastructure to extract more economic value from each unit of waste. This is the commercial reality of closing the loop and of life after the PIU. From this commercial reality sustainable environmental and social benefit can flow.
Dame Judith Mayhew-political leader of the Corporation of London-attended the Johannesburg Summit to promote the new London Principles, the World's first attempt of its type to incorporate environmental sustainability into investment and insurance activity.
This was an important initiative but, without wishing to carp, I have three caveats. First, the London Principles might have been even stronger if DEFRA had invited ESA and our Members to help to draft them.Second, although the commercial recycling rate in the City is high and although the Barbican is currently achieving nearly 25% recycling for household waste, the Corporation's official recycling figures need urgent attention. The Corporation chose to put itself in the environmental firing line by leading from the front on the synergy between environmental and financial services. Its own environmental house must not only be but must also be seen to be sustainable.
Third, our Members' current experience of insurance points to the need for financial services to focus more on our sector. I hope the rising number of leading financial institutions joining ESA will sooner rather than later illustrate the practical value of the London Principles!
For all that, Dame Judith used Johannesburg to promote a key part of the British economy, financial services, in its own and the wider interest and I hope my response to the Secretary of State's comments about Johannesburg has been helpful, positive and relevant.
Before turning to municipal waste, I would like briefly to mention three matters.
2) Support for HMG on definition of recycling
First, ESA commends the Government's responsible approach to defining recycling. We want the Government to do what is right not what is most sensational. The Government's Best Value performance indicators define recycling not on an input but on an output basis.
By pointing to productive re-use of recycled materials, the Government must be right to aim for accurate and credible data on recycling which broadly reflects environmental benefit.
3) ESA, our Members and partnership
The Secretary of State rightly emphasised the importance of partnerships. While our industry is not adept at blowing its own trumpet it is-in fact-an industry that is highly engaged in the communities it serves. The staff of ESA and our Members also spend a lot of time in partnerships with responsible NGOs. However, there are limits.
The essence of ESA's core objective and that of most of those with whom we engage is to find lawful ways to make economic growth environmentally acceptable.
In contrast, it is difficult to resist the conclusion that, at least within the UK, the objective of Greenpeace is instead to limit economic growth: a certain recipe for civil strife and wars which condemns the bulk of humanity to perpetual poverty.
The Chief Executive of Greenpeace in the UK recently, and on public record, spoke of the criminal courts as a routine parameter of conduct. It seems to me that if he truly believes this to be acceptable, his duty is to lead from the front rather than simply to support others in running the risk of prosecution. Also, ESA cannot reasonably be expected to engage with an entity actively condoning criminal offences against our Members' facilities. We live in a civil society under the rule of law. By its conduct Greenpeace foregoes the right to engage in debate.
4) Hazardous waste
My final point before turning to municipal waste relates to the Secretary of State's express recognition, which of course we welcome, of the need for clarity on treatment standards for hazardous waste. Also, in response to the Secretary of State's announcement of a hazardous waste forum, we will of course want to be constructive participants.
ESA's policy was stated with clarity in our evidence to the Select Committee. ESA's view continues to be that hazardous waste must, once co-disposal ends in 2004, be pre-treated to a safe and stable state before final management in landfill.
5) Municipal waste
My concluding comments report on our most recent work on the municipal waste stream.
Specific targets in the Landfill Directive for diverting the biodegradable component of the municipal waste stream from landfill cause local authorities and ESA's Members to share a pressing interest in life after the PIU. Last month ESTET commissioned a major MORI poll and as a result we now know our interest is shared by the wider public.
61%-nearly two out of every three people-placed collection, recycling and management of waste as the most valued service provided by local authorities. The runner up, schools, was way behind.
Regardless of where people live in Great Britain, their gender, age or social group-however you look at it a clear majority-rank the services provided overwhelmingly by ESA's Members on behalf of local authorities to be the most important service they receive from local government.
Looking to life after the PIU is no mere self-indulgent introspection. It matters to most people across our Country.
The MORI poll also revealed another very important fact.
As you know, across the UK less than £1 per household per week is spent on collecting and managing waste. Many agree that there is an urgent need at least to double this figure.
However, the MORI poll showed that more than a quarter of people-28%-think each household spends more than £5 a week on collection and management of household waste. Most people-56%-thought each household already pays more than £2 a week.
Clearly, therefore, most people think they are paying much more than they are for the local government service they most value and many people think they are already paying more than local authorities and ESA's Members actually need.
I offer a personal view as to the best way of raising the money.
ESA and many others anticipated the Government's apparent decision in the spring to increase the Landfill Tax significantly after 2004. This is the Government's obvious fiscal driver towards landfill diversion targets and towards making recycling economically viable. For years we have asked the Government to signal its intentions for the Landfill Tax after 2004 so our Members can invest in alternative infrastructure.
If, that is, they can ever get planning permission. Or can afford to compete for local authority contracts, a procedure both local authorities and ESA's Members would like to see urgently streamlined.
While raising the Landfill Tax is the Government's main fiscal driver towards achieving landfill diversion targets and while it is a driver most industry leaders believe the Government should use, it does not follow that the tax is the best way to direct additional funds to managing the municipal waste stream.
Most waste is produced by the business sector. Broadly, the producer pays principle already applies to business. Even without their own specific diversion targets under the Directive, commerce and industry will respond to the price signal of a higher Landfill Tax by seeking to achieve higher resource productivity. The combination of a significantly higher Landfill Tax and of producer responsibility would go a long way towards achieving the desired minimisation of business waste to which the Secretary of State correctly referred.
However, the UK's medium term economic outlook is challenging. On top of a difficult global trading environment which will depress profitability for some years, the international competitiveness of British business is being eroded by pressures such as higher business taxation.
In such a context, if the Landfill Tax is raised to achieve environmental objects, there is a strong case for appropriate offsetting reductions of tax on business. This achieves the Government's environmental objective with no overall impact on the public purse and without further undermining competitiveness.
As everyone here today knows, the municipal waste stream is different. The task ahead of local authorities is also made significantly more difficult by the fact that householders are broadly immune from the polluter pays principle.
Raising the Landfill Tax imposes a burden on commercial producers of waste and on local authorities but it does not apply the producer pays principle to householders and it does not in itself increase local authorities' resources.
Public debate about funding management of municipal waste has not been particularly illuminating or relevant.
ESTET therefore commissioned Ernst & Young two months ago to produce a preliminary discussion document to explore application of the producer pays principle to householders.
Ernst & Young were particularly asked to consider non-regressive models and to take fully into account the current structure of local government and of local authorities' contracts with our Members. Ernst & Young were also asked to consider the experience of the water sector.
Ernst & Young's paper is a public document openly discussing a range of options. Given the confusion of debate, one of its useful outputs is perhaps to draw a clear distinction between direct charging, a flat fee local authorities could collect from Council Tax payers on behalf of ESA's Members, and variable charging which requires householders to pay more if they generate more waste.
Variable charging is obviously the purer application of the producer pays principle. It may be the long term solution for the UK and in some parts of the Country some of ESA's Members could operate variable charging relatively soon.
However, given uncertainties in the longer term evolution of the European Union's environmental policy in the Sixth and Seventh Environmental Action Programmes and given hugely divergent recycling rates across the UK, direct charging might be a more pragmatic and viable initial step towards enabling local authorities to arrange, on a basis which cost-effectively manages credit risk, for ESA's Members to provide a higher level of service to the communities both serve. ESA has for some time advocated piloting of direct charging in the current Parliament and we hope this will be one feature of "life after the PIU".
I said my speech today would enter new territory and, in response to the Secretary of state, I have tried to strike a new tone. I hope you agree that I have had a measure of success and that this has been constructive. Thank you so much for your attention. 
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