CIWM West Midlands Open Meeting, 2nd August 2005 Questioning LATS Glyn Jones, Urban Mines

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CIWM West Midlands Open Meeting, 2nd August
2005Questioning LATSGlyn Jones, Urban Mines
University of York

• Very brief overview of tradable permits
• Some problems
• DEFRA WIP LASU case study
• The market so far
• Conclusions from research
• My questions
• Your answers

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Tradable permits - theory

• Assign property rights/assets and make them
  tradable
• Market for the right to landfill BMW
• Competitive markets, low transaction costs,
  different marginal diversion costs cost
  minimising solution
• Estimated savings from US SO2 trading, 25-34

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The Market for Landfill Permits (Adapted from
Barrow, M. An Economic Analysis of the UK
Landfill Permits scheme Fiscal Studies (2003),
24(3))
WTPB
WTAA
P
Diversion costs
O
WA
LO
L1
WB
O
Available permits
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Implementation concerns

• Landfill trading kicks off amid climate of fear
  
• (ENDS, March 2005)
• "the extent to which local authorities use the
  flexibility provided by tradable permits and
  choose to buy and sell permits will affect the
  cost-effectiveness of this instrument."
• . the inherent market risks of LATS are
  currently magnified by so many other dimensions
  of uncertainty that waste disposal authorities
  are generally frozen by lack of confidence,
  instead of planning to use the flexibility
  intended."

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DEFRA WIP LASU Case Study

• Highlighted importance of EfW downtime planning
  need to see how this can be minimised with plant
  operator
• Need to work together on LATS shared pain of
  downtime
• Need to look at cost effective recycling schemes
  beyond statutory targets to ease dependency on
  EfW
• Report summary on DEFRA WIP LASU website

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Sensitivity to EfW downtime
. even under low EfW scenario and after
increasing recycling to 30 in 2009/10
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The market for LATSthe picture so far

• General view short-medium term permit surplus,
  but large shortfall post 2010. Low permit value
  moving to high with slow infrastructure
  development
• Reluctance to do anything other than bank permits
  in early years? Could be expensive
• One significant seller has effectively set the
  price of permits at c20

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Conclusions

• Uncertainty can be managed
• Allows budgets to be assigned for future years
• WDAs need a LATS strategy and a LATS trading
  strategy
• Identify, quantify, and prioritise risks using
  tools such as Monte Carlo analysis
• Cultural issues need to be addressed need for
  clear objectives and tools for responsible
  officers
• Action in short term (investment or trading) will
  mitigate medium-long term risks i.e. dont just
  bank permits and hope

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Future work

• Comparison with US SO2 trading programme
• Impacts of market power and distribution of
  initial permit allocations e.g. price setting by
  Hampshire?
• Compounding uncertainty
• Impact of ability of permit holder to control the
  growth in the underlying commodity
• Uncertainty surrounding outputs of new
  technologies
• Planning delays
• Learning - risk management knowledge transfer to
  (or from within?) the public sector

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Some questions

• Is there a difference between a LATS strategy and
  a LATS trading strategy?
• M-BEAM improvements or even used?
• What are the problems/uncertainties in
  calculating your permit position?
• How do you manage the uncertainties?
• Are you scared to trade?
• What are you willing to pay for permits?
• Is the cost in the budget?
• What are you willing to sell permits for?
• Is the income ring fenced?
• How did you calculate the purchase/sale price?
• Are the finance department involved?
• Have members increased their interest in waste
  because of LATS?