Where now for Energy from Waste?

In our LawNow dated 14th October 2014 we referred to the recent EU's legislative proposals (published on 2nd July 2014) relating to further transformation of waste management in the Union. A particular ambition behind the new proposals is to develop a circular economy. If the proposals are implemented (and enforced), in waste management terms this would result in:

• The waste hierarchy being relaunched in a hugely muscular form
• The future of reuse and recycling infrastructure will be significantly enhanced
• Landfill will have little future

In waste management terms energy from waste is largely a recovery operation and hence is next to the bottom of the waste hierarchy. This does not sit well with the rhetoric surrounding the concept of a circular economy. However commercially (and in many respects from an energy perspective) energy from waste is a favoured waste management option. So the question naturally arises, what is the future position of energy from waste in the light of these proposals?

Direct and indirect

In practical terms the diversion of waste from landfill can only support energy from waste at least indirectly. However the other targets would have the effect also of diverting waste (including in particular important combustible waste streams) away from not only landfill but also energy from waste.

Of course there are many forms of energy from waste and too many to cover in articles of this length and nature. It seems to us that for a number of reasons the future of anaerobic digestion remains fairly safe in a waste regulatory sense (indeed it is expressly supported in the EU 7th Environment Action Plan (“7th EAP”) at paragraph 37). Of course it will remain to be seen to what degree actual reduction in food waste arisings and diversion to donation and animal feedstock will reduce supply to anaerobic digestion plants. Otherwise we concentrate in this article on thermal (incineration) energy from waste (“EfW”)

Silence

What is interesting is that the operative terms of the proposed Directive (i.e. the Articles) are completely silent with regard to exactly how EfW is intended to fit into the circular economy. In one sense this is understandable as the proposed Directive does not strictly need to do this. In another sense however it would be extremely useful (for the EfW sector and its investors) if the proposed Directive set out a clear position.

We need therefore to look wider than the operative terms. Indeed as EU directives must be interpreted purposively, it is essential to consider the recitals to the proposed Directive and surrounding policy to properly interpret the proposed Directive. Doing this reveals three very interesting and commercially important concepts.

Investment signals

It is clear that in drawing up these legislative proposals the EU Commission gave thought to how the proposals might impact on investment. For instance:

• “…will affect a wide range of private and public stakeholders in the Member States and will have an important impact on planned investments and future infrastructures…” (Draft Directive, Explanatory Memorandum, section 3.4)
• “Many Member States have not yet completely developed the necessary waste management infrastructure and are planning investments now. It is therefore essential to set clear policy objectives in order to avoid locking secondary raw materials at the bottom of the waste hierarchy.” [Emphasis added](Draft Directive, recital 4).

What is clear is that the EU Commission is intending that investors take careful note of the significant proposed changes in waste management.

Reuse and recycle to trump EfW

Having recognised that the sector and its investors are entitled to clear policy objectives, what are they? What seems to be clear is that support for investment in reuse and recycling facilities and processes conceptually should trump support for EfW. For instance:

• “…energy recovery is limited to non-recyclable materials, having regard to Article 4(2) of the Waste Framework Directive” (7Th EAP, paragraph 43).
• “…limiting energy recovery to non-recyclable materials…” (Draft Directive, Explanatory Memorandum, section 1.2)
• “It follows … that Member States should support the use of recovered materials, such as recovered paper and wood, … with the aim of securing the supply of raw materials and moving the Union closer to a “recycling society”, and, whenever possible, should not support landfilling or incineration of such materials. Member States should not support the incineration of waste that can be recycled in a technically and economically feasible way and under environmentally safe conditions.” (Draft Directive, recital 12) [Emphasis added] [Same goes for use of European funds]
• “Energy recovery including waste-to-energy recovery and use of biofuels, will have a role to play with respect to non-reusable and non-recyclable waste.” (Communication section 3.1).

We suspect that many countries (including the UK) which are currently reasonably highly dependent upon landfill, will look at other EU nations which have managed to create domestic markets in which the dominant waste management culture is reuse and recycling but that this culture co-exists with a significant percentage of EfW ( i.e. energy from waste is significant but (in terms of volumes) is very much the junior partner to recycling and reuse). The argument that may follow for these Member States is therefore that in diverting waste from landfill there will be enough head room in the volumes of such diversion to satisfy targets for reuse and recycling whilst at the same time maintaining or creating a healthy EfW sub-sector.

Use of existing facilities and overcapacity

Below are very interesting comments from the EU Commission which tend to support the idea of greater movement of waste across Member State boundaries (at least in a transition period) in order to feed existing but under underutilised EfW facilities in some Member States.

• “This will require more efficient use of the unevenly spread energy recovery capacity currently available in the EU, together with measures to avoid overcapacity.” (Communication, section 3.1).
• “Making the best use of available waste management capacity in the EU would require better planning and information sharing and may involve tolerating more shipments of waste within the EU towards the most modern and efficient installations, at least as a transitional measure.” (Communication, section 3.2).

It will be interesting to see how this plays out as it raises a significant number of issues. A danger which concerns the EU Commission is if overcapacity of EfW causes reduced fees for incineration this may disincentivise investment in improving and innovating reuse and recycling processes.

Comment

The implications for the energy from waste sector from these developments may be significant. It remains to be seen in particular how exactly the proposals will impact on future development of EfW infrastructure in areas with little current EfW capacity but located in proximity to existing EfW facilities in neighbouring Member States.