Uncertainty over exchange rates following the Brexit vote may make the export of refuse-derived fuel (RDF) less attractive to some operators and increase incinerator demand in the UK.
That is one of the possibilities discussed in the latest bi-annual study by consultancy Eunomia into the residual waste market, which also predicts that under a “worst case scenario” the UK could even be headed for a shortfall in residual waste treatment capacity if the UK pursues a ‘hard Brexit’.
While we cannot yet say with confidence what form Brexit will take, a hard Brexit could mean taking a fresh look at our need for waste treatment infrastructure
Mike Brown
Eumonia
In the study, Eunomia says that since its last residual waste report was issued in May 2016, the current gap between residual waste arisings and available treatment capacity has reduced “significantly” from 12.9 million tonnes to 10.2 million tonnes as more treatment plants come online. In particular, it points to SSE’s Ferrybride Multifuel 2 facility in West Yorkshire, Wheelabrator’s Kemsley Mill facility and Viridor’s Avonmouth plant.
But, looking ahead, the consultancy says it is difficult to give a definitive forecast of any future capacity gap given all the uncertainties created by Brexit.
In particular, Eunomia says that the UK’s decision to leave the European Union raises questions over whether the UK will pursue higher recycling targets or put in place its own waste policy which is much less ambitious on recycling than the EU’s current circular economy package, thereby increasing demand for residual waste treatment capacity.
The Brexit vote also creates uncertainty over the future trading relationship between the UK and countries remaining in the Union with a consequential impact on exports of Refuse Derived Fuel (RDF), Eunomia claims.
Soft Brexit
The consultancy therefore envisages two future scenarios. In the first, the UK continues to apply current and planned EU recycling targets and retains access to the single market: “In Scenario 1 (Soft Brexit), our analysis suggests that the UK’s supply of capacity will exceed the available quantity of residual waste in 2020/21. The level of excess demand rises to 9.1 million tonnes in 2030/31.”
In the second scenario, the level of recycling is much lower, leading to a shortage of residual waste capacity: “In Scenario 2, the modelling indicates that small quantities of residual waste would continue to be landfilled throughout the period covered by our analysis. The position as at 2030/31 would be a shortfall of treatment capacity of 1.7 million tpa)”.
Commenting on the report, Eunomia’s managing director Mike Brown said: “While we cannot yet say with confidence what form Brexit will take, a hard Brexit could mean taking a fresh look at our need for waste treatment infrastructure.
“However, there is a risk that during the current period of uncertainty, the UK may invest in facilities that could hinder our ability to achieve higher levels of recycling. A soft Brexit is likely to see us still aiming for 65% by 2030. That’s still the direction of travel for the rest of Europe, and the result looks set to be a big increase in spare treatment capacity to be filled by RDF exports.”
Graph plotting the potential impact of soft Brexit and hard Brexit on demand for residual waste treatment capacity (source: Eunomia)
Discussing the implications of Brexit in detail, the Eunomia report notes that all European law is due to be brought into domestic legislation once the Brexit process reaches its conclusion, under the Great Repeal Act. Due to the timescales involved, Eunomia says the Circular Economy Package will “in all likelihood, have become EU law by the time the UK officially departs”, adding that “with much new policy to develop, Defra may well find that it has higher priorities” than to re-draft it.
RDF
On the subject of RDF exports, the report notes that these look set to reach 3.5 million tonnes in 2016, up from 3.3 million tonnes in 2015. And, it predicts that Europe’s appetite for RDF from the UK is likely to increase as EU members increase their recycling rates.
But, it warns that exports could be impacted by the 20% drop in the value of the pound since June. It states: “The longer the exchange rate remains depressed, the more export of residual waste loses its attraction, so some waste could be repatriated to the UK for disposal.”
On the subject of trade barriers to RDF export, Eunomia’s analysis indicates that even a hard Brexit is “unlikely to place any legal barrier to RDF exports” as the EU rules on waste shipments mimic a wider OECD agreement of which the UK is a signatory.”
“However, if Sterling weakens against the Europe, or if a 6.5% EU import tariff proves to apply to RDF, export may become a less financially attractive option – unless continental incinerators opt to reduce their gate fees so as to continue to attract the waste they need.”
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Source: letsrecycle.com Waste Managment
