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Green Alliance Annual Meeting
How price signals can drive business action
Dirk Hazell, Chief Executive Environmental Services Association
5 December 2002
Thank you for your invitation to participate today.
ESA and our Members are pleased to support the Green Alliance.
The Green Alliance has an excellent record of promoting environmental improvement based on rigorous analysis of relevant fact. Of course we don't always agree with the Green Alliance, but we share the ambition of better integration into public policy of environmental protection.
ESA sees the Green Alliance as a partner in helping the UK's future economic growth to be environmentally benign. We have been pleased, particularly through Object C of the Landfill Tax Credit Scheme, to support projects such as your challenging environmental indicators for our Members' waste management facilities.
Object C of the Landfill Tax Credit Scheme covers research, training, information and, following ESA's lobbying, recycling.
A year after deciding that Object C was to be two thirds of the Credit Scheme, the Government now appears to have decided to abolish it, replacing it with a tax rise.
The Green Alliance's paper on energy tax describes hypothecation of a particular tax to specified expenditure as "extremely inefficient". I agree, but this is what the Government appears to have in mind for the tax stream replacing Object C. The Government feels no need to hypothecate specific tax streams to the NHS, schools or the possible campaign in Iraq. It should be sufficiently committed to the environment not to need to hypothecate environmental taxes.
The Green Alliance's paper on Energy taxation makes some strong points. For example, it notes the need to focus on stabilising the carbon cycle as a whole and it rightly points to the need for the Government's environmental fiscal signals to be mutually compatible.
Obviously there are lots of ideas to debate: for example, I would argue that multilateral negotiation in a forum like the OECD to achieve broad global agreement on co-ordinating environmental taxes is preferable to compulsory harmonisation of EU energy taxation.
However, I offer congratulations to the Green Alliance on an interesting contribution to debate.
While I would not go so far as to say that the Treasury's document Tax and the Environment is a model of detached modesty, it is a reasonably clear statement by the Government of its approach to environmental taxation.
Again, there is much in the Government's paper to welcome. For example, there is express acknowledgement that before the Government intervenes, it should identify the environmental policy objective it wishes to achieve. If we indeed achieve such a happy state of affairs, perhaps the inconsistency and volatility in public policy to which ESA's Members have in recent years been subjected might become a thing of the past. This would enable investment to be provided even more cost-effectively.
ESA represents an industry which is content to see increasingly more prescriptive regulation and dramatic increases in taxation on its core activity, landfill. This aspect of our agenda is however very clearly focussed and must be placed in a more general context.
Business must secure an appropriate rate of return on invested capital but British business has seen serious falls in profitability in recent years and we share the CBI's concerns about high business taxes and about weakening of the supply side by, for example, inappropriate regulation.
The total of effect of taxation and regulation must allow Britain's businesses to be internationally competitive and the UK's current competitive position does not justify overall increases in business taxation.
I have already suggested that there should be global efforts to co-ordinate the objectives of environmental taxation. I would also suggest that compliance with environmental taxes should be simple and that these taxes must have transparent objectives consistent with the market economy and the open world trading system. They should stimulate the market to develop products with benign life cycles and they should be fiscally neutral: the Government has, for example, correctly recognised that increases in the Landfill Tax should be fiscally neutral for business.
The UK's standard of living depends on the free flow of capital around the world to where it can earn the highest rate of return.
Waste, in total contrast, goes to the cheapest outlet allowed by law. The market will always be the primary driver for capital, but at the current stage of economic evolution, regulatory and market drivers are needed to restore to the economy more of the value contained in waste and to pre-treat hazardous waste.
If the UK is to comply with EU law, a combination of regulatory and economic drivers must drive waste into a new generation of infrastructure.
The need for regulatory drivers was clearly illustrated by the 'fridge fiasco. We hope regulatory drivers will be in place before operational changes required by the EU take effect for hazardous waste.
While there will be an element of import substitution and of job creation as recycled materials are used in place of imported raw materials, the UK's businesses and householders will need to pay more for management of waste.
Higher costs of permitted waste management combined with producer responsibility can over time be relied on to cause business to reduce its generation of waste per unit of output.
The specific diversion from landfill required by the EU for municipal biodegradable waste is more complex. The Government appears correctly to have recognised that business should not be expected to subsidise management of household waste.
As of today and compared to other forms of treatment such as recycling, landfill in the UK is too cheap.
While regulation over the next decade will cause the price of landfill to rise and restrict the supply of new landfill, the order of magnitude of price change needed in the relevant timeframe of EU law can be achieved only by raising the Landfill Tax.
The landfill tax is a fiscal accelerant to achieve diversion from landfill by, for example, making recycling on an industrial scale commercially feasible. The landfill tax achieves this when it reaches £35 a tonne. We have therefore welcomed the Government's intention to raise the landfill tax to £35 per tonne and hope this will happen sooner rather than later.
To comply with EU law, a good working assumption is that annual spending on the municipal waste stream needs to double to £3 billion a year.
As businesses should not subsidise management of the household waste stream, the question arises as to how best to fund management of this waste stream.
There is environmental merit in transparency and in householders being progressively subject to the producer pays principle.
Variable charging of householders for the waste they produce may be a correct long term objective, but it might have been helpful if the Strategy Unit had more clearly differentiated between direct and variable charging: indeed, the relevant annex to their report wholly confuses the two.
Like other environmental taxes, variable charging can be regressive and it also provides an incentive to flytip. Direct charging of householders for management of their waste need provide no incentive to flytip and can avoid regression. We think it offers merits as an interim funding solution for managing the UK's household waste stream.
That's a summary of where we are and again I would like to thank the Green Alliance for the vital role they play in helping to achieve a society where a good business is an environmentally sustainable business. 
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