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Incinerating Money: the economics of Poolbeg

An overwhelming success story of private sector dynamism in recycling is set to be undone by an oversized incinerator at Poolbeg – at massive cost to Dublin’s businesses
James Nix

Minimising costs is something we expect local councils to do – especially in difficult times. But it’s an imperative that seemingly doesn’t apply to waste management in Dublin. In fact Dublin City Council already charges needlessly-high commercial rates to city businesses in order to operate its household black-bin collection below the cost of provision. Why cross-subsidise and run the service below its cost?

Below-cost charging enables Dublin City Council to retain a big enough share of the black-bin market to suppress the payout due under the penalty clause in the incinerator contract. Penalty payments are expected to amount to €15 million each year from 2013 if the incinerator is built. But that’s only one side of the coin. Add to that the burden of operating the black-bin service below cost – €63 million a year – and ratepayers are needlessly being caught for close to €80 million a year. How has it come to this?

Back in 2007 Dublin’s four councils – Dublin City, Fingal, South Dublin, and Dun Laoghaire Rathdown – collected around 300,000 tonnes of residual waste, made up mainly of black-bin waste from households, together with some commercial waste and street sweepings. Almost all of it was sent to landfill. And – if things stayed the way they were – this 300,000 tonnes would be destined for incineration. But, for the four councils, things have changed quite dramatically in the three years since 2007.

Private operators have come in to capture large swathes of the market. Brown bins for kitchen and garden-compost waste have been rolled out. Recycling and recovery technology has improved significantly, cutting volumes in black bins. And, to crown it all, for waste, we’ve had the downturn.

Current trends indicate that by 2013 it is unlikely the councils will collect even 165,000 tonnes of black-bin waste, which, along with another 30,000 made up of commercial waste and street sweepings, will give a total of about 200,000 tonnes for incineration. The significance of 2013 is that it’s the year the Poolbeg incinerator is due to open.

Troublingly, the contract for the proposed 600,000 tonne incinerator, due to be built and operated at Poolbeg by a US-Danish consortium, has a penalty clause. If Dublin’s councils supply less than 320,000 tonnes a year, the penalty means ratepayers and residents pay for waste Dublin’s councils fail to supply.

So now, for Dublin’s councils, calls to Reduce, Reuse and Recycle – central tenets of waste policy since the early 1990s – have become more than inconvenient. In fact, if their projections for the next ten to 20 years are anything to go by, Dublin’s councils will want to see waste increasing at implausibly high levels – all to ensure as much feedstock as possible for the incinerator.

Before signing the contract in September 2007, Minister for the Environment, John Gormley, asked the councils not to proceed, advising them that their plans were out-of-date. Dublin City Manager, Mr John Tierney, acting on behalf of all four councils, ignored the advice and signed the contract.

But, from 2006, private operators – first Panda, later Greenstar – secured waste-collection permits from Dublin’s local authorities and began serving households. And over the following two years the councils realised they had bitten off more than they could chew. In 2008, when it was clear they would no longer be in control of enough waste to avoid the penalty clause, the councils attempted to confine waste-collection to themselves and their chosen contractors, effectively sidelining private operators.

Panda and Greenstar took a court case, claiming the attempt to confine waste-management to councils was an abuse of their dominant position and a breach of competition law. In a judgment issued last December, the High Court found that the councils had acted illegally and the court struck down a variation of the regional waste management plan intended to exclude private operators. As Mr Justice McKechnie put it, the councils had clearly “gone beyond what could have been contemplated by the Oireachtas in seeking to re-monopolise the market for household-waste collection”.

The High Court judgment also affords some insight into the stance of Dublin City Council, which acts on behalf of all four councils in waste management. In attempting to confine waste management to councils, or their chosen contractors, the High Court noted that Dublin City Council had “massaged” reports, something that is “a strong indicator  …  of unacceptable influence in a process supposedly carried out in the public interest”. Former assistant city manager, Matt Twomey, acted with “bias and prejudgment”, according to the ruling.

The judgment means that Dublin’s councils don’t ‘own’ waste generated by residents and can’t re-monopolise the market. (The councils have appealed the Panda judgement to the Supreme Court, but given the strength of the High Court ruling, one wonders if the motivation for the appeal has more to do with buying time and public relations than legal optimism).

Private operators now control sizeable sections of the market in three council areas; Dun Laoghaire Rathdown, where the council has withdrawn from waste collection, only has private operators. Very few private operators plan to send waste to Poolbeg if the incinerator is built. Their reasons are simple enough: over the last five years they have invested in developing facilities to serve their businesses, and now operate more cost-effective ways of recycling, recovery and turning waste into fuel: in short, too many existing facilities would have to close.

Since entering the waste market private-sector firms have driven innovation. They introduced fortnightly green-bin collections at a time councils only collected once a month and were the first to accept plastics and glass in the green bin. The councils were forced to respond, and later increased their own green bin collections to fortnightly and started accepting some plastics.

Recycling of household waste has gone from an average of 16 per cent across the four council areas in 2003 to around 40 per cent today, helped in no small way by the dynamism introduced by private-sector operators. The highest rate of recycling (44 per cent, in 2008 – the year for which we have the most recent verified figures) is recorded in Dun Laoghaire Rathdown where private-sector firms now collect all household waste. This is all good, even by European standards.  Extraordinary progress.

The roll-out of brown bins is also eating into the amount of waste collected by councils. By the end of 2008 around half of all homes in Dublin City and Fingal were issued with a brown bin, with the process completed over the course of 2009. Progress has been slower in Dun Laoghaire Rathdown and South Dublin, but all households in both council areas are expected to have a brown bin by the end of this year.

Based on what has happened in Galway the full roll-out of brown bins will see this category jump from 4 per cent of total waste to 22 percent, cutting black-bin waste by 80,000 tonnes. The impact of the brown bin partly explains preliminary figures from the EPA showing 30 – 50 per cent falls in waste going to landfill in 2009/2010. (Moreover, the incinerator proposed for Poolbeg is not licensed to accept brown bin waste.)

Other developments are contributing too. Composting plants are being constructed within a short timeframe. Acorn Recycling, for example, built a composting plant in Tipperary with a capacity for 45,000 tonnes a year in just 10 months, and there are more to follow. The expansion of five existing treatment-plants in the Greater Dublin area – run by Panda, Greenstar, Thorntons, Greyhound and Oxigen – and a new plant to be constructed by AES Ireland will allow for 500,000 tonnes of waste to be made into refuse-derived fuel, or RDF. The Indaver incinerator at Carranstown near Duleek in east Meath is due to begin accepting waste in the second half of next year and has capacity for 200,000 tonnes. Against the backdrop of these developments it is little wonder that private operators find the Poolbeg proposal over-sized.

What do these developments mean for landfill?  The EU landfill directive stipulates that nationally no more than 916,000 tonnes of biodegradable municipal waste can be landfilled in 2010; this drops to 610,000 tonnes in 2013, and falls again in 2016 to 427,000 tonnes. It looks like Ireland will meet this year’s target, Dara Lynott of the Environmental Protection Agency told the Irish Times, in mid-September. The actual figures will not be available until 2011.

Conor Walsh is technical director for SLR Consulting and has compiled a number of reports for the Irish Waste Management Association, the organisation representing private waste–operators. Walsh holds no brief for any particular technology and his work includes progressing incineration projects as well as alternatives. For Walsh it’s a question of capacity: he says Ireland will certainly meet the 2013 and 2016 targets, and adds that those claiming we won’t are simply “not close enough to the waste sector to see that the alternatives have been progressing quietly in the background”. Those suggesting Ireland won’t meet the landfill directive requirements include Richard Tol at the ESRI (which was retained by Dublin City Council in early 2010).

Turning to commercial waste, Dublin’s councils only control a tiny fraction – 5 per cent – of the market, and are not projecting any increases. At 46%, the level of recycling in the commercial sector is quite high and is expected to increase to 60% over the next three or four years. By 2013 the councils might collect somewhere in the region of 15,000 tonnes of commercial waste.

The only remaining area controlled by councils is street sweepings and litter. Residual waste in this category could be cut from its 2008 level of 35,000 tonnes to around 15,000 tonnes by 2013 – if councils embrace composting and recycling. Regrettably, it is possible the councils may arrest improvements here in order to inflate volumes for the incinerator – even though a mix of leaves, sweet-wrappers and empty food receptacles could be easily recycled.

In 2008 the figures for council-controlled waste were as follows – 245,000 tonnes of black-bin waste, 35,000 of street-sweepings and 20,000 tonnes of commercial waste – giving a total of 300,000 tonnes. In 2013 the above figures are set to look something like this. Brown bins will cut the 245,000 figure to 165,000 tonnes; adding on street sweepings and commercial waste still yields a total short of 200,000 tonnes.

What about increased recycling and allowing for growth over the next three years? Increased recycling – which is predicted to go from 40 to 60 per cent at the household level over the next three years, and possible growth between now and 2013 could be factored in, but I’ve simply assumed these factors cancel each other out – probably an assumption that tends to over-estimate final volumes. The last factor to take into account is the level of waste that might be dispatched by private contractors to Poolbeg. Even if this did hit 20,000 tonnes, bringing the total up to 220,000 tonnes, Dublin’s councils are still 100,000 tonnes – about a third – short of the penalty clause volume of 320,000 tonnes. It’s a gap that can’t be bridged.

But the gap can be suppressed, at least to some extent. Which is where waste-pricing policy comes in. In 2009 the councils lost €59 million on waste collection and treatment; in 2010 they project a loss of €63 million. The below-cost operation of the black bins helps keep down financial exposure to the penalty clause, which is expected to cost around €15 million a year. Counting annual losses and penalty payments, the Irish Waste Management Association expects the Poolbeg contract to impose an additional cost on ratepayers of €2 billion over twenty-five years.

In September it emerged there was a break-clause in the Poolbeg contract allowing Dublin’s councils to walk away. Whether the councils can exercise the breakclause without paying compensation is an issue not yet teased out, though much of the defensive posturing by the City Council seemed to lack precise economic justification. So far there are no indications that Dublin’s councils are seeking a way out. Instead of bringing the matter to a head this September, the councils and the contractor agreed to amend the contract and extend the date of the break clause to May 2011. Media coverage of the existence of the break-clause failed to highlight the apparent flouting of the public interest inherent in an unexplained extension of the contract.

The only conclusion is that the councils are putting off the day when they have to figure out a way to stop losing €80m a year. Instead, Dublin’s councils seem to be entrenching themselves over Poolbeg. It’s a stance that carries no real consequences for the councils: council entrenchment is something paid for by other people. In the world of municipal waste, the public interest is a foreign land.

Read also The Poolbeg Incinerator: an essay in cynical lobbying