Danish EPA Environmental Project no. 979, 2005 (17-03-05)

This is an English summary of a publication in Danish. It is an interesting reflection as there are clearly pros & cons. For example England and Wales have chosen different approaches to limiting the landfilling of biodegradable municipal waste (ie the English trading allowances, the Welsh not).

Summary and conclusions

The establishment of a quota system makes it possible to directly regulate the amount of waste for incineration and land filling thereby ensuring that political goals are achieved. There is, at present, no Danish or foreign experience on the use of tradable quotas for waste for incineration or land filling. The aim of this project is to make an initial evaluation of the possibilities to introduce regulation in connection of tradable quotas. The project identifies possible designs for quota systems including key elements in the design of a quota system, interaction with current organisation and legislation within the waste sector, and evaluation in relation to tax setting and administrative obligations.

This is the preliminary project, and the main focus has been placed on providing a broad description of possibilities of and limitations in a quota system. A more detailed description and evaluation of the individual elements of a quota system do not fall within the scope of the project.

Substantial information has been collected on experiences gained particularly on projects promoting waste recycling. The aim has been to provide an indication - although somewhat conservative - of the possibilities of stabilising the amount of waste for incineration and land filling, as well as an indication of possible price levels for the various quotas. These efforts were prioritised in order to obtain an initial evaluation of the options and costs in connection with stabilising the amounts of waste deposited and to assess the risk of exorbitant taxes/charges in a potential quota market. The estimate of the amounts and costs is a conservative one, as readily available information is limited.

Negotiable/transferable/trading quotas as a resource

Quotas aim directly at regulating the amount of waste for incineration or land filing. A set quota provides the holder with the right to incinerate or deposit a tonne of waste for a specific year, and the state issues, for example, on an annual basis, a number of quotas which correspond to political goals for the amount of waste for incineration and land filling.

In order to ensure flexibility, it is crucial that the quotas can be converted/traded. Those who have difficulty in reducing the amount of waste for land filling and incineration should be able to buy quotas from those who are better able to reduce waste amounts, thereby making the system flexible, when seen from the individual actors‘‘ viewpoint, without losing the primary objective.

Tradable quotas are economic instruments, equivalent to taxes, distinguishing themselves, however, by one marked feature. Quotas directly control the amount of waste deposited, while taxes indirectly control the amounts deposited through pricing. Tradable quotas also provide a price/cost indicator via the price/tax set for specific quotas, however, this price cannot be pre-determined as it is dependent on the number of quotas issued and the development of waste amounts. With quota regulation, the amount of waste for incineration and landfills is known beforehand, but not the cost/price to be paid by the individual actors. With taxes, the situation is reversed, the cost/price is known beforehand, but not the amount of waste for incineration and landfills.

Under optimal conditions, both ttaxes and tradable quotas would then provide the same result. With the price mechanism both instruments have similar effects, however a quota system could possibly focus more attention on waste production and i