Application of Tradable Permits in Public Sector Waste Management: Quantitative Analysis of the Landfill Allowance Trading Scheme

Market-based instruments (MBls) provide economic incentives to alter environmentally damaging behaviour and are increasingly used to complement command-and-control regulation. Tradable permits are MBls that divide an overall regulatory limit into individual permits to pollute, which are allocated to polluters and can be traded on a market. In theory, they increase flexibility and cost-effectiveness of overall compliance as polluters can decide to what extent they abate and sell permits or pollute and buy them, depending on their individual costs of compliance. Tradable permits were traditionally applied successfully to tackle air emissions in the private sector but are increasingly 'colonising' other areas. The UK pioneered their use in waste management through the Packaging Recovery Note (PRN) system for packaging waste. This innovation has continued with the Landfill Allowance Trading Scheme (LA TS), chosen to implement the EC Landfill Directive targets for reduction of Biodegradable Municipal Waste (BMW) sent to landfill by Waste Disposal Authorities (WDAs) in 2010, 2013 and 2020. Launched in April 2005, it is the first tradable permit system of its kind to apply to the public sector. Research so far into LATS has been qualitative and a priori. This study employs a questionnaire survey of WDAs throughout England to investigate key issues surrounding the efficacy of LATS from a quantitative post-implementation perspective. Analysis suggests severe weaknesses in LATS, in general agreement with previous findings. WDA opinions suggest the market will be distorted by the risk-averse nature of the public sector, amplified by uncertainties over future conditions and the threat of stringent penalties for non-compliance. Dislocation between stakeholders and policy along the complex pollution and environmental services chain inherent to waste management is expected to further distort market signals and other financial incentives. Insufficient funding for BMW diversion/treatment facility provision and other 'enabling' mechanisms is a key barrier to compliance. LATS may also drive increased environmental degradation in comparison to command-and-control. These findings suggest command-and-control may be a more appropriate choice of policy instrument in this case. More generally, they highlight how tradable permits may lose their theoretical cost-effectiveness in practice and that inherent barriers to applying tradable permits in the public sector and waste management exist, which legislators should not assume application of an MBI can surmountFaculty of Scienc