Speed read: Taxes have been used to shape behaviour for centuries. Now, environmental taxes are on the rise. Parliament debated the introduction of an incineration tax not once but twice at the start of this year. Without proper funding for enforcement, however, such a tax may simply drive the industry underground, playing into the hands of organised waste criminals. Given the current financial climate, the government may choose to hold fire.
Environmental taxes are in vogue. At the World Economic Forum in Davos in 2019, Greta Thunberg said “I want you to act as if the house is on fire, because it is.”[1] Just as taxes have been used to shape behaviours for centuries, with ‘sin taxes’ ranging from Tobacco Products Duty to the ‘sugar tax’ in 2018, so now governments are increasingly targeting behaviours which damage the environment.
In January and February this year the UK Parliament debated the introduction of an incineration tax, together with a halt to new investment in energy-from-waste (EfW) facilities.[2] For obvious reasons, the issue has been placed on the back-burner while the world deals with COVID-19. However, when we re-emerge, will an incineration tax be next? If so, will it have the desired effect?
Environmental taxes
Many countries already have incineration taxes, and they are evolving. In January this year, the Dutch government expanded its tax on incinerated domestic waste (the ‘afvalstoffenbelasting’) to include imported waste,[3] and Sweden introduced a new incineration tax in April this year, after a previous failed attempt in 2006-2010.[4]
The UK already has a raft of environmental taxes in place, from the CRC Energy Efficiency Scheme, the Climate Change Levy, and the Aggregates Levy, through to capital allowances on energy-efficient items.[5] A new plastic packaging tax is being introduced from April 2022 to incentivise the use of recycled plastic, with the measures estimated to affect 20,000 producers and importers.[6]
The government has also targeted the other end of the chain – waste – for many years, having introduced the Landfill Tax in 1996. Although other factors cannot be ruled out, it is clear that taxes can play a part in shaping behaviour: the amount of biodegradable municipal waste sent to landfill in the UK decreased from 35.7 million tonnes in 1995, to 7.7 million tonnes in 2016.[7]
An incineration tax – why, when, how?
Incineration, the process of combusting organic materials and substances to convert them into bottom ash, flue gases, particulates and heat (which can be used to generate electric power) is controversial. When combined with EfW, it falls just one step up from landfill, at the bottom of the EU ‘waste hierarchy’ (which ranks waste management options according to what is best for the environment).[8]
Those who campaign against incineration state that the process harms recycling, exacerbates climate change, acts as a barrier to the circular economy, and causes air pollution (affecting human health).[9] Government figures showed that in 2018, 5% of total UK greenhouse emissions were from waste management.[10] As argued by Labour MP Sharon Hodgson “it is counter- productive to have a landfill tax to deter burying plastic, which causes no CO2, but not to have an incineration tax for incinerating plastic, which causes masses of CO2.”[11]
On the other hand, proponents of incineration will point out that plants operate at upwards of 850 degrees centigrade,[12] burning up to 90% of the total waste generated[13] and also eliminating certain harmful chemicals; certain types of waste simply cannot be recycled. Incineration plants can be close to towns, saving on transportation costs inherent in the landfill process, and they have filters to eliminate pollutants.[14] Addressing health concerns, Public Health England has said that
“modern, well run and regulated municipal waste incinerators are not a significant risk to public health. While it is not possible to rule out adverse health effects from these incinerators completely, any potential effect for people living close by is likely to be very small.”[15]
Of course, some plants also use waste to create something positive: bioenergy.
In December 2018 the UK Government announced that “incineration currently plays a significant role in waste management in the UK, and the Government expects this to continue”.[16] However, it indicated that it will consider an incineration tax, should other policies to incentivise recycling not deliver the required results.
The aim of such a tax would presumably be threefold: to reduce carbon emissions, to actively promote recycling as an alternative, and to raise public funds. It could be structured in the same way as the Landfill Tax – calculated by reference to the tonnage of waste sent to incinerators – which would be consistent with the structure of incineration taxes in other jurisdictions.
Would it work?
The intention behind such a tax may be considered laudable and it could have a serious impact on market behaviour. However, it also raises various concerns, which would need to be considered carefully.
Economic impact
The economic repercussions of an incineration tax must be properly considered, particularly in the current troubled market. In 2018-19 43.8% of municipal waste collected in England was incinerated (11.2 million tonnes).[17] It overtook recycling and composting as the largest single municipal waste management method.[18] The waste industry, and indeed the waste investment industry, will need to be consulted on the impact of a new tax.
Practically speaking, any tax will also need to target the right people. Credits should be available for those incinerating waste which cannot be recycled or otherwise reused.
Criminality
Taxes can, paradoxically, also drive misbehaviour underground, leading to concealment of the very problem they were designed to solve. This has been illustrated in the case of landfill tax. In January this year, five directors were sentenced to 11 years’ imprisonment for failing to declare sales of waste-paper and aluminium to a recycling company (avoiding corporation tax and VAT worth over £2.6 million).[19] Indeed, concerns over crime in the waste industry have progressed so far that a new Joint Unit for Waste Crime was launched this year, to bring together the UK regulatory agencies, HMRC and the National Crime Agency to target waste crime.[20]
There is a real concern that in taxing incineration, the industry will become (ironically) harder to regulate. Organised criminals are looking for new commodities through which to launder money, particularly given the real estate and art markets have become harder to infiltrate now that they fall within the regulated sector, (post the 2017 and 2019 Money Laundering Regulations respectively).
The solution lies in effective enforcement. All corporates would be required to adapt their ‘reasonable procedures’ to prevent the facilitation of tax evasion, in order to protect themselves from corporate liability under the Criminal Finances Act 2017. This could help to police the industry. However, the buck must not stop with them. It will be important for the authorities to ensure they pursue those at the heart of any criminality, even if they are harder to track down and less financially attractive. Otherwise, behaviours will flourish underground, and resentment will breed amongst those who try to do the right thing and are penalised for procedural failings.
Ultimately, the success of any incineration tax will likely turn on funding. HMRC will need to be financed properly before effective enforcement will be viable. By way of a benchmark, the estimated operational impact of introducing the plastic tax is £6.59 million to develop a new computer system to support the tax, together with £11.36 million in staff costs.[21]
Post COVID-19 it is unlikely that the government will be flush with cash for some time. However, the prospect of an incineration tax looms. It may well re-surface in the years to come, when the current crisis is over and the country has started to re-build itself.
[1] https://www.bbc.co.uk/newsround/49812183
[2] https://hansard.parliament.uk/Commons/2020-01-28/debates/9209AD6A-6C6B-47CB-A460-5147EC43131F/IndustrialAndCommercialWasteIncineration
https://hansard.parliament.uk/Commons/2020-02-11/debates/D1799344-3D26-4DF0-94C1-3AEB397AF375/WasteIncinerationFacilities
[4] http://task36.ieabioenergy.com/news/tax-on-waste-incineration-increase-recycling-sweden/
[5] https://www.gov.uk/green-taxes-and-reliefs/aggregates-levy
[9] https://ukwin.org.uk/oppose-incineration/
[11] https://hansard.parliament.uk/Commons/2020-02-11/debates/D1799344-3D26-4DF0-94C1-3AEB397AF375/WasteIncinerationFacilities
[13] https://www.fcc-group.eu/en/fcc-cee-group/waste-to-resource-new-/waste-treatment/thermal-waste-treatment/thermal-waste-treatment/myths-and-the-reality.html
http://www.ipcbee.com/vol87/rp016_ICAER2015-A0077.pdf
[14] https://www.conserve-energy-future.com/advantages-and-disadvantages-incineration.php
[16] https://commonslibrary.parliament.uk/research-briefings/cdp-2020-0014/
[18] https://commonslibrary.parliament.uk/research-briefings/cdp-2020-0029
[19] https://www.cps.gov.uk/cps/news/five-directors-jailed-hiding-payments-avoid-paying-ps26-million-tax
[20] https://www.gov.uk/government/news/clock-is-ticking-for-waste-criminals-as-new-taskforce-launched
