The UK Landfill Tax Sets the Standard for a Carbon Tax

Sometimes I feel that the discussions on carbon tax are very similar to fantasy baseball. I hope I don’t offend any fans of fantasy baseball by saying so, but conversations on carbon tax involve, in a similar manner, smart people that know a lot about the issue and passionately debate the pros and cons of different scenarios (i.e. is fee and dividend scheme what we need or too radical?).

Just like fantasy baseball, carbon tax is nothing but a pretend game taking place in a parallel universe with no effect on real life, only without the fun involved in fantasy games. Yet, today I’d like to add another piece to this fantasy debate exploring lessons we might learn from the success of another environmental tax – the UK landfill tax.

What’s the point, you might ask, if this is nothing but a pretend game? Well, the point is that carbon tax is a fantasy sport now just like the civil rights movement was 50 years ago, gay marriage was 30 years ago, Obamacare was 20 years ago and immigration reform was 10 years ago. We need to continue the conversation on carbon tax. Otherwise there’s no chance it will ever transform from a fantasy game into an actual legislation.

So let’s try for a second to stay positive and see what we can learn from other nations who decided an environmental tax can actually help solve a problem. A good example is the UK landfill tax that was introduced in 1996 by no other than the Conservatives, becoming UK's first environmental tax.

The aim of the tax as set out in the UK waste strategy was “to ensure that landfill costs reflect environmental impact, thereby encouraging business and consumers, in a cost effective and non-regulatory manner, to produce less waste; to recover value from more of the waste that is produced; and to dispose of less waste."

And almost 17 years later, the tax is considered a big success – according to BusinessGreen’s Guy Newey, the tax helped increase recycling rates in the UK from around seven percent in 1996 to 43 percent now, reduced the amount of waste landfilled in absolute terms, and helped transform the waste sector and led to an increase in energy from waste plants.

Looking at the structure of the tax and the changes it went through over the years provides some interesting lessons for anyone thinking about how to create an effective and successful carbon tax. Here are the main ones:

1. Begin with a low fee and escalate it over the years

The tax was at first $10.66 per a ton for active waste and was among the lowest in Europe. Then it increased, at first slowly and later on faster, reaching a current level of $109.6 per ton in 2013. Next year it is supposed to increase to $121.78 per ton.

The initial low level might be one of the reasons that it was approved with almost no opposition. Just think for a minute what would be the level of resistance and the chances of the tax to be approved in the first place would be if it was 10 times higher from day one.

2. Move from covering externalities to changing behavior

At first the tax levels had been set to reflect the externalities from landfill, which was why it went up very slowly by about $1.50 a year from 1999-2004. About a decade ago, British government realized that while the tax might cover externalities, its rate was too low to change behavior and make landfill the least desirable option for waste disposal.

The result was an increase in the "escalator" value, which came into effect in 2005, first with an increase of $4.57 a year (2005-1007) and then $12.18 a year (2008-2013). This is another lesson of the greater feasibility of gradual change, no matter how much we’d like to see these changes happening right now.

3. Make it cost-neutral for business

The UK landfill tax, explains a report prepared by ETC/SCP for the European Environment Agency (EEA) on landfill taxes in Europe, was designed to be revenue neutral. “The cost to business was offset through a reduction in employers’ higher rate national insurance contributions from 10.2 to 10 percent,” the report explains.

A similar reduction specifically focusing on the big emitters might be helpful as well – though not necessarily fair by environmental justice standards, it might help receive the support of large emitters.

4. Creating opportunities, not just reducing risks

The UK government wisely positioned the tax as an opportunity for innovation and job creators rather than just a risk mitigation tool, by giving landfill operators significant incentives to invest in environmental projects.

Who knows, maybe talking about the carbon tax in terms of providing “some of our biggest opportunities - using resources more efficiently and helping create the new green jobs of the future” will also help “sell” it.

Let’s remember these lessons once we’re back to the fantasy (for now) sport of carbon tax.

[Image credit: Wisconsin Department of Natural Resources, Flickr Creative Commons]

Raz Godelnik is the co-founder of Eco-Libris and an adjunct faculty at the University of Delaware’s Business School, CUNY SPS and the Parsons The New School for Design, teaching courses in green business, sustainable design and new product development. You can follow Raz on Twitter.