LGA response to consultation from DESNZ on the UK Emissions Trading Scheme scope expansion: waste

View the consultation paper from Department for Energy Security and Net Zero (DESNZ).

The LGA has supported the principle to reduce emissions via the carbon Emissions Trading Scheme (ETS). We have stressed, however, that the scheme can only properly achieve its objectives by putting cost incentives in the right place with a priority focus on reducing the production of fossil-based waste in the first place. We propose alternative mechanisms for allocating the cost of the Emissions Trading Scheme, so that it will become an effective incentive for reducing the use of fossil-based material, and generate the revenue needed to support decarbonisation. 

The LGA’s response looks at the wider picture of waste services and local government finance, and the extent to which local government can drive decarbonisation of waste. 

Our response sets out a headline view on extending the ETS to waste, then explores our priority issues for effective implementation. In the final section of the response we respond to the consultation questions and the detail of government proposals. 

Local government works hard to deliver high quality local waste services and is proud of its record. Waste and recycling services connect with every doorstep working in communities every single day, and public satisfaction remains consistently high. 

It is a service predominantly paid for by taxpayers for their benefit, and by proxy for the benefit of the producers of the material that is purchased by consumers.

Local government’s achievements on waste and recycling services are delivered in the face of real financial challenges. During the 2010s, local government’s overall core funding per person fell by 26 per cent in real terms, resulting from a 46 per cent fall in funding from central government being partially offset by local tax increases. 

In facing these challenges, councils have focused on statutory duties and acute needs. Spending per person on children’s social care has risen by 11 per cent, while spending on environment services has dropped by over 20 per cent and spending on key services like transport and housing have fallen by over 45 per cent. 

Maintaining high quality waste services during this time has not been easy, it is a colossal achievement for everyone in the waste sector, councils, operators and partners, and communities themselves.

However, the finance pressures are likely to continue. LGA forecasting projects local government faces a £6.2 billion funding gap over the next two years. This is driven by rising cost and demand pressures to provide adult social care, children's services, homelessness support, and home-to-school transport for children with special educational needs and disabilities, and it leaves councils with less funding for services such as waste and recycling.

A recent LGA survey found two thirds of councils have already had to make cutbacks to local neighbourhood services in 2024/25, including waste services, road repairs, library, and leisure services, as they struggle to plug funding gaps.

This is the funding context for local government into which additional new costs may be introduced into the sector by the extension of ETS to waste.

The ETS is a cap-and-trade system that applies an additional cost to fossil-based emissions released by the incineration process. The expansion of ETS to waste will bring additional costs as it seeks to influence a reduction in emissions from incineration and energy from waste. ETS is a market-led scheme meaning the costs are volatile, moving around with the market due to factors often outside of the waste systems control. 

It is important to recognise local government is not a commercial operator but a public service provider. Local authorities are legally obligated to collect household waste including materials that are difficult and expensive to process, and provide a universal service that includes those that do not participate in recycling schemes. Unlike private operatives, local authorities cannot refuse waste collections based on their composition or processing complexities.

Based on available data, the LGA projects that the expansion of ETS to local authorities in 2028 could add gross additional costs of between £367 million and £747 million and could rise to £1.1 billion in 2036 with a total cumulative cost over this period that could be as high as £6.5 billion. 

Should packaging EPR cover the costs of the fossil-based packaging waste in the residual stream, which we estimate will be around 18 percent, then the costs to local government could still be up to £551 million in 2028 and could rise to £837 million in 2036, and bring about a total cumulative cost of £5.4 billion over this period. 

This is an enormous financial pressure that would create real challenges for local government and its statutory requirement to set a balanced budget each year. While the high-cost scenario may not come to pass, councils would need to take action to budget for this scenario given the level of uncertainty due to the price volatility. 

In summary, the LGA’s view is that the Emissions Trading Scheme should:

• Prioritise putting the cost incentives on producers to drive down the production of fossil-based emissions.
• Pass the ETS costs for associated packaging waste onto producers through Extended Producer Responsibility for packaging (pEPR), and that it be the initial priority to deliver this successfully.
• Avoid transferring any costs for non-packaging fossil-based waste on to local government as there is no strong decarbonisation pathway or existing recycling market. 
• In the short-term, require Energy from Waste (EfW) operators to report non-packaging emissions into the ETS authority in order to pass costs onto producers by other means such as through a new levy, or adding to an existing instrument. 
• Use revenue to develop effective cost pass through mechanisms and invest in decarbonisation and carbon capture technology over the long term.
• Simultaneously consider options for best passing costs through to producers for different materials in the long-term, including EPR schemes.
• Compensate local government as part of the local government finance settlement; though in our view it is simpler and more cost effective to not pass costs onto local government in the first place.
• Looking ahead, consider the role of bold regulatory action restricting fossil-based material produced in the first place, particularly non-essential plastic items. This would support decarbonisation of the waste stream but is also needed to reduce the wider environmental impact of plastic waste, such as plastic escaping into the environment and harming wildlife.

Our priority issues are set out below:

Right incentives in the right place

The LGA has supported the principle to reduce emissions via the ETS. We have stressed, however, that the scheme can only properly achieve its objectives by putting cost incentives in the right place with a priority focus on reducing the production of fossil-based waste in the first place. We have cautioned against the risk that costs are left in local government without the levers to pass them onto the producers of the fossil-based material, because this would simultaneously reduce the scheme’s capacity to achieve its objectives while exposing local government to large financial risk leading to service reductions. In this circumstance, funding compensation for local government would be necessary but, if sufficiently compensated, it would dramatically reduce the income to invest in decarbonisation and create significant bureaucracy circulating costs around the public sector.

Decarbonisation pathways for fossil-based packaging waste

It is welcome that the Government has proposed to pass the ETS costs associated with fossil-based packaging waste onto producers via the packaging Extended Producer Scheme (pEPR), as it provides some clarity about how the ETS will drive the change for packaging. The Government estimates 20 to 30 per cent of fossil-based waste by weight is in scope of pEPR. However, working with a number of local authorities on their recent compositional analysis, we estimate about 18 per cent of fossil-based packaging waste in the residual stream is packaging. 

Given the complexities of both reforms this would need careful planning to ensure that costs are appropriately passed through to producers. In our view this should be an early priority for government and partners. This task will likely include:  understanding waste composition, recycling opportunities and challenges for different items (perhaps using the Recycling Assessment Methodology), ensuring correct pass through from operators (using actuals rather than calculations), stabilising cost volatility, connecting ETS costs by emissions with pEPR costs by weight, dealing with the data lag, and ensuring alignment of incentives to reduce waste in a cost effective way. 

In our view government should progress the simplest approach, which might be requiring operators to report fossil-based emissions from packaging onto the ETS Authority which can pass through to the pEPR Scheme Administrator for retrospective inclusion in fee modulation. We are also concerned by timeframes, slow progress in implementing the wider Collection and Packaging Reforms does not provide local government with absolute confidence that pEPR, Simpler Recycling, and the Deposit Return Scheme will be introduced in time, while the proposals to introduce ETS scope extension to waste are moving quickly.

It is likely that packaging producers will not welcome the alignment with pEPR, that they would rather material returned to them for recycling rather than incinerated. However, it is the principle aim of the ETS to apply incentives where there are the powers for market change, in line with the wider polluter pays principle. Up until the introduction of pEPR, producers have needed to pay little regard to the onward journey of the material it creates and puts on the market, and so it is the right to bring pEPR and ETS together to incentivise the change in behaviour in line with the waste hierarchy, focusing on prevention first, then re-use and recycling.

Government guidance on contract matters would be welcome. This will represent a qualifying change in law with potentially significant burden on the public sector, some councils have already been contacted by operators about this intention. It will be important to provide advice to operators and local government on issues such as managing contract change, monitoring, reporting, what is effective cost pass through, dealing with guaranteed minimum tonnage clauses, procedures for dealing with disputes and so on. To ensure effective pass through it is critical that operators pass actual data through the system, rather than estimate calculations, or simply take associated plant costs and distribute evenly across customers without consideration of who is bringing what.

Decarbonisation pathways for non-packaging fossil-based material

There are currently no advanced plans to bring about EPR schemes for remaining fossil-based material for which there are recycling challenges or no recycling market – such as textiles, hard plastics, electricals, Absorbent Hygiene Products (AHPs), and hazardous waste (such as waste items containing Persistent Organic Pollutants). The majority of this material is problematic for a mix of reasons, for instance the growth of fast fashion and inclusion of plastics, the inability to recycle AHP, the composite and varied nature of hard plastics in electricals. And challenges in recycling means there is often an absence of onward markets for material that is able to be recycled. 

These non-packaging categories represent a significant financial risk. Non-packaging fossil-based material from household waste (i.e. not including trade waste) would push costs into the local government sector between £271 million and £551 million in 2028, rising potentially to £837 million in 2036 with a total cumulative cost of £5.4 billion. With few levers to reduce these costs, local government will have few options but to reduce valuable public services including waste services.

In our view it would be inappropriate to allow operators to pass these costs through to local government. This would simultaneously eliminate the scheme’s capacity to achieve its objective by failing to put any incentives on the producers of the material, while at the same time exposing local government large financial risk that they have little scope to reduce at one of the most difficult times in the sector’s history. 

Instead, in the short term, operators should report ETS liabilities for the different groups of non-packaging material into the ETS Authority, for the government to then decide how to pass those costs directly onto producers of that material. There are different options for passing this cost on. For instance, by creating a new national levy applied across sectors or to items, or through a simple EPR scheme for instance adding a small cost on each item and refining over time, or adding to existing instruments for instance by expanding the Plastic Packaging Tax. The approaches for different material types could vary depending on each market, and engagement on these options should start soon. In our view the preferred options should be as straightforward as possible in the short-term, putting incentives on producers and generating revenue to invest in further decarbonisation.

Thinking longer-term, government should engage producers, local government, and operators to understand these waste streams in more detail, and to explore the options for creating the decarbonisation pathways. Significant contributors of fossil-based emissions, such as modern textiles industry, and plastics, are complex. Options might include EPR schemes, which might be like packaging EPR, or might be tailored differently for different materials. In our view the packaging EPR scheme is especially complex and may not be the right approach for other material. We note that government has indicated an appetite to explore EPR for furniture and textiles.

The case for protecting councils from ETS liabilities is particularly strong for hazardous waste that local government is being directed to incinerate by law, such as waste upholstered domestic seating (WUDS) containing Persistent Organic Pollutants (POPs). The government has yet to provide local government with the funding to adjust systems to process WUDS with POPs, which is over £500 million. It is possible that the requirement to incinerate will extend to other items containing POPs (such as carpets, electricals) in the years ahead, adding to the risk. The European Court of Justice has judged that incinerators for hazardous waste should be excluded from the EU ETS. If the UK ETS includes hazardous waste, there might be an economic incentive to export.

How the costs may fall across the country

The exposure to potential ETS costs to individual local authorities will vary between places due to a wide range of factors outside of their control. For instance, waste composition and recycling rates can be dramatically impacted by demographics, deprivation, and housing type, whether transient populations like students, or larger proportions of new families producing more sanitary waste, areas with more communal housing or flats above shops, and so on. 

There may therefore be a risk that pushing costs into local government could be regressive, putting local authorities with more deprived neighbourhoods under greatest financial pressure. For local authorities already facing massive financial challenges, additional costs will likely mean reduced services or increased council tax, both of which are more likely to impact the vulnerable. It is unlikely to lead to new investments in services.

Each local authority’s exposure could be heavily impacted by the decisions of their operators. For instance, whether their operator decides to invest in carbon capture, use and storage. It is important the ETS incentivises operators to compete based on their capacity to reduce emissions. This means emissions must be measured at the stack and applied to the operator as is currently the case. A calculations-based approach creates a few risks, for instance the incentive to over-charge local authorities in order to offer a better commercial rate. Overall, the exposure to local authorities is outside of their control. 

Analysis for the LGA indicates the scale of the cost, even with partial mitigation of the cost from packaging EPR payments and pass through of costs to trade waste consumers. 

The table below indicates the gross and net estimated costs for all English local authorities. ETS is market-based mechanism and the price is expected to vary between a range of estimates. The low, medium and high figures use the low to high range of ETS costs provided by DESNZ. The estimated net cost is the remaining cost after payments are made to local authorities through the packaging EPR scheme and pass through of costs to trade waste customers. 

The following estimates illustrate how the costs could apply to individual councils based on their household residual waste tonnages, excluding trade waste.

 

Council A: Urban Unitary Council

 

Council B: County Council with a mix of urban and rural areas

 

Council C: Rural Unitary Council 

 

Scope available to local authorities to reduce fossil-based emissions

Local authorities have decades of experience trying to improve household recycling, however these services are discretionary and so are more difficult to fund while wider budgets are under pressure. They are generally more challenging in communities with large numbers of flats and communal bins, and transient populations such as students.

Additional net costs via ETS will make this activity more difficult to deliver. Government has proposed establishing a competitive funding scheme bid into by local authorities to run projects delivering waste reduction. However, in our view it is not helpful to apply significant new costs on local government via the ETS, and then force them to bid into a small proportion of funding for narrow objectives. Local government want to see simplification of funding rather than being pushed into competition with each other to access small pots.  

We also have some concerns about the value for money case should funding paid into the ETS by local government taxpayers be recycled back out to the sector to run some projects to reduce the impact of a scheme designed to drive market change. The priority must be putting the incentives on producers with regards material that is put on the market and in shaping wider consumer behaviour.

Action that local government can take could be summarised as follows:

• Activity to support waste prevention and reuse: for example, promoting reusable nappies, and diverting material presented for disposal at HWRCs. There are many examples of strong partnerships between councils and the voluntary sector to collect saleable items that would otherwise be discarded, bringing other benefits such as providing training and making items available to people in need at low, or no cost. Ultimately, however, such schemes are competing against the millions of pounds producers annually spend on marketing the consumption of new material of which a large proportion will eventually end up as waste material. 
• Segregation of materials at the kerbside: in practice this means providing residents with separate bins for different materials. In some areas this can reduce contamination of recycling streams and the resulting material is of higher value. However, this type of system requires more space and effort from householders, making it difficult to work in practice in many neighbourhoods and housing types, and it is more expensive to operate than a co-mingled collection. It is especially difficult for flats with communal bins, or flats above shops. Further, councils can only provide the service they cannot force residents to use it, and have lost enforcement powers. 
• Sorting collected waste before incineration: material could be extracted from residual waste prior to incineration through an additional sorting process. This would be a significant extra cost, technology can sometimes be ineffective for plastics in particular, and much of the material extracted may not have a suitable offtake route or recycling process and a viable recycling market, otherwise it goes back into waste disposal and potentially incineration. If existing infrastructure cannot support pre-sorting activity, this would mean creating a new facility and all that entails, such as finding an appropriate site and the design and build process. Some local authorities have helped explore this option already, they have found that it is not currently financially viable and the ETS costs would have to be extremely high to incentivise the action.
• Communication and awareness: working with residents to raise awareness of recycling services and promote recycling. Experience from councils indicates that communication needs to be extensive and sustained over time to have any impact at all. Communications activity on waste is discretionary for councils and as such, may not be a priority given the pressure on council funding. 
• Restriction of residual waste: encouraging recycling by reducing the size of residual bins and frequency of collection rounds. This will not be practical in all places, depending on the nature of the housing stock. The previous government planned to issue guidance limiting frequency of residual waste collections, which should be reversed. Government should take the opportunity to reverse these plans, returning flexibilities to local authorities to design services to meet local need, residual waste collection frequency is one tool that can simultaneously increase recycling and reduce costs.
• Enforcement: councils have some levers under the Environmental Protection Act to encourage residents to use household waste services. However the removal of powers to take enforcement action in England has taken away an important tool. These powers should be returned to English authorities. 
• Carbon capture and storage: the deployment of carbon capture, use and storage (CCUS), and for combined heat and power (CHP) technologies could reduce ETS costs. This is an important part of the future solution, and all partners should come together to consider how to deploy these technologies over the long-term. However, it is not a decarbonisation measure,  it also is expensive and takes time to bring forward. While ETS may incentivise some operators down this route, ultimately it is an investment decision for operators that needs a wider discussion about how to deploy this technology.

 

Compensating local government 

The Government has acknowledged there is some financial risk to local government and local taxpayers and is considering some level of compensation through a new burdens assessment. This is a welcome recognition, however in our view any new burdens assessment should take account of the fact that local government must set a balanced budget each year. It must be able to respond to ETS as a market-led scheme with significant costs that are volatile in the short term, with a long-term upward pressure as the cap falls. 

In our view, compensation for local government should be included within the local government finance settlement, alongside a model for stabilising the ETS costs over a year at a minimum. Government has made welcome commitments to move towards multi-year local government settlements to provide financial certainty. This will help local authorities plan spending across local government services, and so ETS compensation within this context would need further consideration. 

However overall, it is our view that it would be simpler and  more effective by not passing ETS costs onto the sector in the first place until there is a decarbonisation pathway in place. There is a risk of establishing an administrative system that expends energy circulating costs around the public sector, creating complexity and burden without having any real impact on those producing the fossil-based waste in the first place. 

Public appetite for bold action

The ETS and pEPR are a market shaping schemes, seeking to influencing producer and therefore consumer behaviour. Our polling with YouGov shows that the public back do in principle back the ambitions of the reforms to incentivise action, and the principle of ‘polluter pays’. For instance, the public are 12 times more likely to think costs in reducing packaging should be met by companies producing it (48 per cent) rather than councils (4 per cent)

Furthermore, polling shows that that there is appetite to go further in requiring action, in addition to incentivising it. For instance, 85 per cent of people said that industry should be required by Government to reduce the amount of packaging used, and nine in 10 people believe only easily recycled material should be used in packaging. It is a trend in line with public support for bold action on the ban on disposal vapes.

Looking ahead, government could consider more direct straightforward action to drive change, such as regulatory restrictions on the production and use of fossil-based packaging, and the production and use of non-recyclable, or very difficult to recycle, material. 

Coverage of the scheme

Question 1. Do you agree that our proposals should apply to facilities that conduct the following activities: incineration and combustion of waste, and other energy recovery from waste (including the production of fuels)? 

We agree to the proposed coverage of the scheme to the facilities mentioned in the question, assuming that our broader concerns about the application of ETS are taken on board. 

These are set out in the introduction to the response, and to summarise:

• The cost of the ETS should fall on the producers of waste, otherwise there is no incentive for them to decarbonise. This should be done through producer responsibility schemes, and where they are not in place the cost of ETS should be met through a levy or other mechanism.
• Passing the cost through to local government could lead to unintended consequences and place further strain on already stretched budgets. If the cost of ETS is passed to local authorities, this should be offset through the financial settlement to local government rather than the new burdens process. 

Question 2. Are there any technologies which we have not referenced in this section, and which would not be covered by the activities we have set out, which you think should be covered by our proposals?

No.

Question 3. Do you agree that facilities that produce monomers and polymers from waste that can be used as raw materials (non-mechanical or chemical recycling) for materials to remain in the circular economy should not be included in the scope of our proposals? 

Yes, but this should be kept under review. We need to understand the carbon impact of recycling activity and where new facilities are developed, we should support them to measure and reduce carbon emissions as part of their operations from the start. 

Note: questions 5 to 9 on hospital incinerators and small emitters are not relevant to the LGA. 

 

Exemptions

Question 10. Do you agree with our position to include the incineration of hazardous and clinical waste in the UK ETS? 

No. 

The consultation document argues that emerging technologies such as chemical recycling will divert material containing POPs into recycling and out of waste disposal. There are several flaws in this argument:

• It is not known whether chemical recycling will destroy POPs. Experience with soft furnishings suggests that government and the regulators will err on the side of caution and apply the strictest controls over the treatment of POPs material. For example, the Environment Agency has been inflexible and dogmatic in regulating councils on the disposal of soft furnishings.
• Chemical recycling and other emerging technologies do not exist at scale.
• POPs and hazardous waste are complex waste streams. Emerging technologies will not offer recycling routes for all types of material

Councils are required to dispose of some waste streams by incineration to prevent harmful chemicals making their way into our bodies and the natural environment. For example, soft furnishings containing POPs. The LGA has repeatedly made the case for councils to be funded for the cost of meeting new regulations on handling and disposing of soft furnishing, but this has all been met out of local budgets. Adding the ETS element is a double whammy for councils. Government departments need to work together, and with local government to develop a holistic approach to managing harmful waste streams and expanding producer responsibility schemes, noting that chemicals commonly found in household items such as carpets and electrical items may soon be classed as hazardous. 

The European Court of Justice has ruled that hazardous waste incinerators should not be included in the EU ETS system. If the UK takes a different approach to Europe it may become cheaper to export hazardous waste. 

Under these proposals, the cost of ETS for fossil based hazardous waste sits on local government without a decarbonisation pathway in place. This sets up the risk of establishing an administrative system that expends energy circulating costs around the public sector, creating complexity and burden without having any real impact on those producing the fossil-based waste in the first place.

One alternative to the proposed model of cost pass through would be for operators to report ETS liabilities for the different groups of non-packaging material into the ETS Authority, for the government to then decide how to pass those costs directly onto producers of that material. There are different options for passing this cost on. For instance, by creating a new national levy applied across sectors or to items, or through a simple EPR scheme for instance adding a small cost on each item and refining over time, or adding to existing instruments for instance by expanding the Plastic Packaging Tax. The approaches for different material types could vary depending on each market, and engagement on these options should start soon. In our view the preferred options should be as straightforward as possible in the short-term.

Note: Questions 11 to 14 relate to the operation of hazardous and clinic waste incineration facilities and the LGA is not able to offer a view. 

Question 15. Do you agree that the customers of clinical waste incinerators will be able to take action to reduce the fossil content in the waste they generate and achieve their waste reduction targets?  

No. Healthcare providers and other institutions drive the generation of clinical waste. Customers of clinical waste incinerators, such as local authorities, are not able to significantly influence the type or amount of clinical waste generated. While they can advise and guide customers on waste reduction, the actual generation of clinical waste remains outside their control.

Plastic is useful in a medical setting because it is sterile, durable and shatterproof. Single use plastic items such as personal protective equipment and disposable syringes help contain the spread of infectious disease. Without alternative products made from alternatives to fossil fuels, customers and collectors cannot be expected to make substantial changes to the waste composition. There is a role for government in bringing health and waste sectors together to consider the short- and long-term options for reducing the fossil element of clinical waste. 

Adjusting the cap for waste incineration facilities

Question 16. Do you agree that the proposed approach, of adding allowance equivalent to emissions in scope per emission trajectories aligned to the Carbon Budget Delivery Plan, is the appropriate approach to adjusting the cap, to ensure the emissions reduction required to deliver carbon targets?

No. The level of the cap is based on the carbon reductions that each sector needs to achieve in order for the UK to reach net zero targets. It is not based on evidence of what is practical or feasible. 

ETS is a trading system that actively manages demand and supply for carbon credits as a lever for reducing carbon emissions. It has a track record of price volatility and DESNZ’s own figures show that prices will rise between a wide range of predictions. Councils are not equipped to deal with fluctuations in the ETS, and the uncertainty over constantly fluctuating costs could destabilise council budgets. 

To avoid this, government should place the responsibility for ETS payments on the producers of waste in order to drive decarbonisation. Some waste streams are covered by a producer responsibility scheme that can be used to achieve this, specifically packaging and electronic waste. For other waste streams the operator of incinerators could pass the ETS costs  directly onto producers of that material. There are different options for doing this, for instance, by creating a new national levy applied across sectors or to items, or through a simple EPR scheme for instance adding a small cost on each item and refining over time, or adding to existing instruments for instance by expanding the Plastic Packaging Tax.

Question 17. Do you agree with the proposed approach to adjusting the cap to account for the inclusion in the scheme of the emissions from the wate incineration sector?

No. See above

Question 18. What would you expect to be the impact of the proposed approach to cap adjustment on participants in the sector and/or the wider ETS market? 

The LGA has supported the principle to reduce emissions via the ETS. We have stressed, however, that the scheme can only properly achieve its objectives by putting cost incentives in the right place with a priority focus on reducing the production of fossil-based waste in the first place. We have cautioned against the risk that costs are left in local government without the levers to pass them onto the producers of the fossil-based material, because this would simultaneously reduce the schemes capacity to achieve its objectives while exposing local government to further financial risk.

The risks to local authorities will vary between places due to a wide range of factors outside their control. For instance, demographics, levels of deprivation and the type of housing stock can all have an impact on the amount of waste generated, and participation in recycling schemes.

Questions 19 to 32 relate to the monitoring, review and verification period. The  LGA is not able to offer a view on the technical aspects of monitoring emissions from waste incineration. 

Guidance for the customers of waste incineration facilities. 

Question 33. On which aspects of the policy should we produce guidance, either for operators, their customers or both?

Councils are largely customers of energy from waste and incineration facilities, with many operating under long term PFI agreements. 

Unpicking a multi-million pound long-term contract is incredibly complex. Councils are not just looking at ETS in isolation, as other waste reforms will have an impact on waste infrastructure. For example, the requirement to collect food waste from households from 2026 will reduce the amount of food waste in the residual waste stream. In turn, this could affect the process of incineration by changing the volume and calorific value of waste as agreed in long-term contracts. Councils will be aware of these risks, and it may be helpful for government to consider a programme of tailored support that goes beyond universal guidance. 

Aspects of the policy where guidance could be helpful:

• Aligning the costs of ETS with the operation of the extended producer responsibility scheme for packaging, so that councils and producers have a shared understanding.
• Guidance on the monitoring period prior to implementation, noting concerns from councils that the costs may be passed to them as customers of EfW operators.
• Guidance on contract matters covering issues such as fair and effective cost pass through, managing impacts of changes for instance on guaranteed minimum tonnage clauses, and procedures for dealing with disputes.
• Allocating cost where an operator is dealing with multiple customers. This needs to be done in a way that is fair and rewards those who are reducing the amount of fossil-based waste. This may be more complex to administer and so less attractive to operators than a simple division of the cost between consumers.

34. How should we seek to test and guidance either for operators, their customer or both? 

Guidance can set out what is expected of operators, but if it is optional councils are still exposed to a level of risk. 

The process of developing guidance should be transparent, making full use of the expertise in the sector and existing mechanisms for engaging local government. The LGA would be happy to discuss this further, and we welcome a discussion on how guidance could be backed up with practical support for councils, given the scale of complexity involved in contract negotiations and the risks of contracts failing or passing significant financial risks on to councils. 

35. To what timescale should guidance on different aspects of the policy, and for different audiences be produced?

All audiences will be looking for guidance as soon as possible. 

Impacts of the scheme and reducing adverse risks

36. Do you expect waste incineration gate fees to become more expensive than landfill or expert as a result of the UK ETS expansion? Is this expectation the same for all material types and regions? 

Yes, it is likely that ETS costs will be added to gates fees for incineration, and this could reduce the difference in price between energy from waste and landfill. 

We may see different costs applied to council EfW customers, compared to commercial customers. The market for commercial waste is competitive and this will motivate EfW operators to keep prices down. Councils may not be able to secure the same deal, and could end up paying more for the same service. Guidance from the ETS authority on managing contacts may be helpful to ensure that operators are motivated to give councils a fair price. 

It is important to recognise local government is not a commercial operator but a public service provider. Local authorities are legally obligated to collect all types of waste including those that do not participate in recycling schemes, and those difficult and expensive to process. Unlike private operatives, local authorities cannot refuse waste collections based on their composition of processing complexities.

Indirectly, the rise in waste incineration costs could affect other waste services. For example, the costs for Materials Recycling Facilities (MRFs) could increase as the process includes incineration for any material that is rejected by the MRF as contaminated or non-recyclable. 

37. If waste incineration gate fees were to become relatively more expensive, with consideration of non-price factors when taking waste disposal and manage decisions, how significant is the risk that waste is, in practice, diverted back down the hierarchy to landfill or export?

Local government has made significant shifts away from landfill. According to Defra waste statistics local authorities sent 1.76 million tonnes of waste to landfill in 2022/2023, compared to 8.51 million tonnes ten years ago, and over 22 million tonnes twenty years ago. 

It would be a step backwards to divert waste down to the hierarchy to landfill or export, and this would be a concern for many residents.

38. Considering possible benefits and challenges that could arise, do you think that further UK ETS  expansion to landfill should be explored as a mechanism to protect against the diversion of waste from waste incineration to landfill?

No. DESNZ should look at other ways to reduce the likelihood of a switch to landfill or export. 

As we have already argued, making waste disposal more expensive does not disincentivise producers from using fossil material in their products unless they are directly responsible for the cost. 

Increasing the cost of waste disposal will make criminal activity more attractive. This will place more strain on regulators, who are already struggling to keep pace with waste crime. 

39. Do you think alternative options to manage the landfill risk should be explored?

Yes, but it is not enough to look at policies related to waste disposal. We need a holistic approach that prevents waste in the first place, and builds in the producer pays principle. 

40. Do you think either of the approaches outlined above to address landfill risk would give rise to unintended consequences?

The consequence would be to increase the cost of disposing of household waste. If there is no diversion of the costs to producers, the costs will fall onto councils and will have to be met by increasing council tax or cuts to services. 

As noted above, this could encourage waste crime by making it even more profitable to undercut legitimate waste disposal businesses. 

41. What would be the most effective approach to mitigate the risk of waste being diverted from waste incineration to RDF/SRF export?

We do not have the expertise to respond to this question. 

Questions 42 to 47 relate to charges and regulation of waste exports. The LGA does not have a view on these questions.

Decarbonisation pathways and activities for local authorities

Before addressing the specific consultation questions we have some general points to make about the ability of councils to decarbonise the residual waste stream. 

Local government can have some influence over waste prevention and diversion to reuse and recycling, but have few levers to make a significant difference to the level and composition of waste put on the market. The government should take this opportunity to return powers to local authorities, by ending plans to require more frequent residual waste collections which can increase recyclable material deposited in residual waste, and by returning powers to take enforcement action on households failing to appropriately use household services. Further, pEPR, the deposit returns scheme for drinks containers (DRS) and Simpler Recycling should provide a wider supportive framework for local authorities to run services that reduce emissions from fossil-based waste. 

Government has proposed establishing a competitive funding scheme bid into by local authorities to run projects delivering waste reduction. While funding into waste reduction is welcome, behaviour change schemes or collection reforms can make some difference but evidence from experience demonstrates that they can be expensive and unlikely to significantly reduce emissions. 

Government, and Defra in particular, may wish to review the waste prevention programme of 2023 for any gaps in evidence and metrics that could help to support waste prevention higher up the chain of production, reuse and behaviour change programmes. The waste prevention programme only applies to England, with the devolved nations of the UK taking different approaches. We would wish to avoid tension between the UK wide ETS scheme and different waste prevention policy approaches between the four nations. 

We also have some concern about the value for money case should funding paid into the ETS by local government taxpayers be recycled back out to the sector to run some projects to reduce the impact of a scheme designed to drive market change. The priority must be putting the incentives on producers with regards material that is put on the market and in shaping wider consumer behaviour.

The deployment of carbon capture, use and storage (CCUS), and for combined heat and power (CHP) technologies could reduce ETS costs. This is an important part of the future solution, and all partners should come together to consider how to deploy these technologies over the long-term. However, it is expensive and takes time to bring forward, while ETS may incentivise some operators down this route, there is a need for a wider discussion about how to deploy this technology

Question 48. Do you agree with the decarbonisations pathways for waste incineration detailed above?

In answering this question, it is important to remember that councils have no control over what is bought and sold in the shops, or how people choose to consume products or dispose of them. The rise of fast fashion illustrates the problem of a market that allows producers to sell items without any responsibility for the environmental impact. 

While local authorities have decades of experience trying to improve household recycling, these services are discretionary and so are more difficult to fund while wider budgets are under pressure. Additional net costs via ETS will make this activity more difficult to deliver.  They are generally more challenging in communities with large numbers of flats and communal bins, and transient populations such as students. 

The decarbonisation pathways available to councils can be summarised as follows:

• Activity to support waste prevention and reuse: for example promoting reusable nappies, and diverting material presented for disposal at HWRCs. There are many examples of strong partnerships between councils and the voluntary sector to collect saleable items that would otherwise be discarded, bringing other benefits such as providing training and making items available to people in need at low, or no cost. Ultimately, however, such schemes are competing against the millions of pounds producers spend on marketing every year encouraging the consumption of new material of which a large proportion will eventually end up as waste material. 
• Segregation of materials at the kerbside: in practice this means providing residents with separate bins for different materials. In some areas this can reduce contamination of recycling streams and the resulting material is of higher value. However, this type of system requires more space and effort from householders, making it difficult to work in practice in many neighbourhoods and housing types, and it is more expensive to operate than a co-mingled collection. It is especially difficult for flats with communal bins, or flats above shops. Further, councils can only provide the service they cannot force residents to use it, and have lost enforcement powers. 
• Sorting collected waste before incineration: material could be extracted from residual waste prior to incineration through an additional sorting process. This would be a significant extra cost, technology can sometimes be ineffective for plastics in particular, and much of the material extracted may not have a suitable offtake route or recycling process and a viable recycling market, otherwise it goes back into waste disposal and potentially incineration. If existing infrastructure cannot support pre-sorting activity, this would mean creating a new facility and all that entails, such as finding an appropriate site and the design and build process. Some local authorities have helped explore this option already, they have found that it is not currently financially viable and the ETS costs would have to be extremely high to incentivise the action.
• Communication and awareness: working with residents to raise awareness of recycling services and promote recycling. Experience from councils indicates that communication needs to be extensive and sustained over time to have any impact at all. Communications activity on waste is discretionary for councils and as such, may not be a priority given the pressure on council funding. 
• Restriction of residual waste: encouraging recycling by reducing the size of residual bins and frequency of collection rounds. This will not be practical in all places, depending on the nature of the housing stock. Government issued guidance limiting frequency of residual waste collections, which should be reversed. Local authorities should be free to design services to meet local need, residual waste collection frequency is one tool that can simultaneously increase recycling and reduce costs.
• Enforcement: councils have some levers under the Environmental Protection Act to encourage residents to use household waste services. However the removal of powers to take enforcement action in England has removed an important tool. These powers should be returned to English authorities. 

 

The Resources and Waste Strategy sets out requirements for more types of waste to be collected as recycling, such as soft or flexible plastics (crisp packets and so on), and there is an assumption that mandating collection will lead to development of infrastructure to process material for recycling. This is optimistic and even if it comes to pass, there is a lag in timescales as it will take years for new infrastructure such as chemical recycling plants to be planned and built. The consultation document expects substantial increases in recycling “over the next ten to fifteen years” (page 29). This is a much more realistic timeframe than the ETS implementation date of 2028. We would expect councils to be collecting soft plastic by 2028, but with no feasible recycling option it will be sent to incineration.

The consultation document mentions a process that would allow councils to bid for funding to support decarbonisation activities. Bidding processes are generally unhelpful for local government and this implies that there would only be short-term, one-off funding pots. The LGA’s White Paper for local government highlights the challenges councils face in dealing with competitions for small, siloed funding pots. We argue in the White Paper that we must get back to providing local government with longer term settlements, an end to the proliferation of funding pots, and straightforward accountability based on outcomes for residents. For this reason, a competitive bidding process will not support the activities suggested in the consultation document, such as behaviour change and additional sorting of residual waste to remove the fossil elements. These require sustainable funding for local government and a strong partnership with local communities. 

Question 49. Do you have any evidence on the cost, savings and potential profits that could be generated from decarbonisation pathways such as CCS and heat networks?

The potential for savings will be different depending on the age and location of the facility. Carbon Capture and Storage (CCS) will only be attractive for newer facilities, where the cost of CCS can be reclaimed over the remaining lifetime of the contract. 

There are many questions about the practical application of CCS to waste incineration as it is a relatively new and untested concept. CCS and heat networks can add value by using the by products from incineration, but they should not be considered a tool for decarbonising the waste stream. To reduce carbon we need to look at the design and use of fossil-based material before it becomes waste. CCS is expensive to bring forward, and it is unclear whether the cost can be absorbed by operators or will need additional investment and government support. This may be an area where operators could benefit from additional help, and a joint approach across government that takes in different objectives of creating growth, reducing carbon and decarbonising energy generation. 

Question 50. Please provide any comments on cost savings from decarbonisation technologies such as CCS and heat networks and whether these will be passed back to customers, including local authorities.

If it is possible to achieve savings from CCS and heat networks it would be helpful if they were passed back to local authorities as customers. However, this depends on the level of flexibility given to EfW operators. Their immediate priority maybe to recoup their initial outlay, or to reduce prices for commercial customers in order to win their business. 

Question 51. Do you agree that there is a need for guidance on decarbonisation for local authorities and waste incineration operators? 

Guidance could be helpful. However, if guidance is provided without solutions to funding questions and a strategic approach to waste prevention, it is unlikely to make much difference. 

 

Question 52. Beyond the mechanisms listed above, are there any other mechanisms you would recommend to support local authorities to decarbonise? 

The government should take this opportunity to return powers to local authorities, by ending plans to require more frequent residual waste collections which can increase recyclable material deposited in residual waste, and by returning powers to take enforcement action on households failing to appropriately use household services. 

There is no one size fits all approach, but by returning powers to councils they will be able to work with their communities to develop strategies for reducing waste and diverting more material into reuse and recycling. 

The whole chain of production, retail and recycling needs to come together to decarbonise. That is why we are urging the government to engage producers, local government, and operators to understand fossil heavy waste streams such as textiles in more detail, and to explore the options for creating decarbonisation pathways. Options might include EPR schemes, which might be like packaging EPR, or might be tailored differently for different materials. In our view the packaging EPR scheme is especially complex and may not be the right approach for other material. We note that government has indicated an appetite to explore EPR for furniture and textiles.

 

Combined, phased approach

Question 53. Do you think that sampling (e.g. MRF requirements) would be an effective approach for accurate cost pass through from EfW operators to customers?

We support sampling as the most effective mechanism for allocating costs to EfW consumers. Some EfW operators will have a mix of customers including private waste businesses. The design of the sampling mechanism must include safeguards that prevent operators from loading ETS costs on to local authorities to give them a market advantage in securing business from commercial customers. 

This is an area that would benefit from early, and detailed discussions between operators and their consumers. Government support and incentivisation of these conversations would be welcome, given the complexity of revising PFI contracts. 

Equality considerations

Question 57. Do you consider that the application of the UK ETS to waste incineration will lead to any impacts for any groups with protected characteristics under the Equality Act 2010? Do you consider there to be any further equality considerations? Do you consider any elements of the UK ETS expansion to waste incineration could be designed to advance equality of opportunity and/or foster good relations?

The exposure to potential ETS costs to individual local authorities will vary between places due to a wide range of factors outside of their control. For instance, demographics, deprivation, housing can all dramatically impact waste composition or the wider recycling rate; whether transient populations like students, or larger proportions of new families producing more sanitary waste, areas with more communal housing or flats above shops, and so on. There may therefore be a risk that pushing costs into local government could be regressive, putting local authorities with more deprived neighbourhoods under greatest financial pressure that can only be responded to by reducing local services or increasing council tax. 

Each local authority’s exposure could be heavily impacted by the decisions of their operators. For instance, whether their operator decides to invest in carbon capture, use and storage. It is important the ETS incentivises operators to complete based on their capacity to reduce emissions. This means emissions must be measured at the stack and applied to the operator as is currently the case. A calculations-based approach creates a few risks, for instance the incentive to over-charge local authorities in order to offer a better commercial rate.  Overall, the exposure to local authorities is outside of their control. 

UK ETS and heat networks – call for evidence

Question 58. Do you agree that the UK ETS should be used to support heat offtake through the ETS? 

Yes. Heat networks will be an important part of our decarbonised energy system providing affordable heat to social homes, public buildings, and other residential and commercial buildings. Utilising heat that is currently being wasted needs to be a priority as it contributes to government energy security aims by avoiding addition energy generation and utilises fossil and non-fossil energy sources.

Heat networks have their own set of challenges and therefore anything that supports heat offtake is favoured. Heat networks are a long-term investment which needs certainty in both policy and pricing and therefore a long-term commitment to support heat offtake through the ETS is incredibly important. Heat Networks have a 40 – 50-year operating life with a matching investment portfolio and new developments either required to or considering connecting to a heat network, utilising heat from an EfW facility, will want a degree of price certainty for the heat they will be procuring. Furthermore, where connected to new build developments, the developer will omit on site heat generation and therefore it is critical that heat network developers can rely on long term heat purchase agreements.

Heat networks can also provide new and diverse heat sources with an outlet for waste heat utilisation. Heat network expansion and integration with additional, diverse heat sources builds resilience for the heat network which can lead to more favourable pricing for customers. Heat networks looking to attract connections to heat sources or customers of heat need to provide both pricing and income certainty so the ETS application needs to be consistent and provide certainty.        

Question 59. Do you have a view on what incentive mechanism (e.g. free allowances, subtraction of a number of allowances from the UK ETS obligation, etc.) would work best to encourage the export and utilisation of heat?

The polluter pays principle should be the primary consideration when considering the incentive mechanism to best encourage the utilisation of heat. Packaging EPR will account for packaging waste but as discussed before it does not account for items such as AHPs, textiles, or furniture. 

Free allowances bring with them an inherent risk due to the price uncertainty of a tradable asset. As discussed earlier, heat networks are long term infrastructure investments that need certainty to attract investment. On that basis, utilising the UK ETS exemptions process for heat networks provides the long-term certainty investors and operators require. 

Also, in the future, heat networks using a variety of heat source may consider connecting to increase flexibility and efficiency so keeping the factors that influence pricing simple, would maximise this opportunity.   

Question 60. Do you think that policies to incentivise heat offtake should apply to surplus or waste heat, as well as heat produced for the purpose of export? 

Yes. In deciding what to include to incentivise heat offtake, the main consideration should be how the heat is being utilised and what grade of heat is be taken, rather than how the heat was generated. 

Question 61. If an incentive is provided, how should the level of incentive be determined e.g. should it be linked to emissions that are offset by exporting heat, the volume of emissions associated with the production of heat, etc.? 

The level of incentive provided should be linked to the emissions that are offset by exporting heat. Most communal heating systems currently in operation are typically operating with gas fired boilers so natural gas should be considered as the displaced energy source. 

As heat pump technology matures, large scale heat pumps are likely to be the alternative source, but as the technology is still developing, the current common alternative should be considered.

Question 62. Do you have a view as to whether incentivising heat offtake through the UK ETS could have any perverse consequences? 

No