new market and risk-based approaches for the regulation of the msw sector in portugal antónio...

Technology, Management and Policy Graduate Consortium 2014 Meeting

New market and risk-based approaches for the

regulation of the MSW sector in Portugal

António Lorena, PhD Candidate Sustainable Energy Systems MIT Portugal

[email protected]


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Overview

• Context

• Risks

• Outcomes

• Middle-out approach to planning

• Auction of landfill rights

• Taxing as a complementary tool


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Context

• Most of the waste legislation is defined at the EU level. By 2020,

– Preparation for reuse and recycling of >50% of MSW (Waste Framework Directive)

– Reduction of landfill deposition of biodegradable waste to <35% of biodegradable MSW produced in 1995 (Landfill Directive)

• Portugal has struggled to meet EU targets and requirements. In the near future, this may limit access to specific funding schemes.

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120

1000000

2000000

3000000

4000000

5000000

6000000

0%

5%

10%

15%

20%

25%

30%

3,139,028.03,031,539.02,909,890.02,838,373.03,040,953.03,012,927.03,372,505.03,200,676.03,251,361.0

2,901,418.02,433,458.0

914,723.0891,906.0876,753.0937,102.0854,578.0825,485.0

869,262.0958,883.0934,430.0972,858.0

823,526.2

105,103.0286,231.0304,774.0310,433.0298,600.0316,218.0

377,175.0418,404.0394,609.0431,949.0

698,810.5

199,546.0211,510.0302,455.0384,962.0446,973.0491,541.0

525,940.0607,068.0603,168.0573,715.0

572,243.7

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source: www.dn.pt source: www.lisboasos.blogspot.pt

Context

• Financial constraints limit the capacity to improve service provision. In some cases, service provision will or has decreased.

• The national regulator of waste services (ERSAR) estimates that the MSW is highly dependent of transfers from local and national government (~200 M€ of 600 M€ total costs of municipalities on waste services ).

• Also, according to the SWOT analysis of the recently proposed strategic plan for MSW (PERSU),

– Threats… The constraints and limitations of the public sector (no public investment, limits on financing and indebtness, mandatory reductions on supplies and services and human resources)

• There is a risk of establishing unachieveble targets. Past experience shows that these financial constraints have blocked the adoption or compliance with national targets. In the current environment, these risks are aggravated.

source: www.correiodominho.pt


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Context• Empresa Geral do Fomento is a public

company that has >51% share in 12 regional companies. These 12 companies represent ~60% of the MSW management.

• Privatization of EGF is currently taking place. To guarantee the new company is committed with national planning, concession contracts are being established.

• EU target definition is usually for 10-15 years. How to match >20 year concessions with 10-15 planning horizons?

• There is a risk of not having the necessary tools to enforce national planning to the bottom line of EGF’s new shareholders.

Multimunicipais

Intermunicipais


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Context

• The economic regulation of waste services is guaranteed by ERSAR.

• The previous regulatory framework can be classified as price-cap and sunshine type regulation. However, due to the constitutional principle of autonomy of municipalities, only regional utilities where EGF is a shareholder were subject to regulation.

• The new regulatory framework focuses more on efficiency and establishes a revenue cap system. ERSAR still does not regulate regional utilities where EGF is not shareholder, but can verify if these are following the predetermined rules for tariffs.

• However, in any case, the regulation is hardly risk-oriented

– It does only consider if prices are sufficient for economic sustainability

– It does not consider deviations from investment plans


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Risks

• R1 Portugal has struggled to meet EU targets and requirements. In the near future, this may limit access to funding schemes.

• R2 There is a risk of establishing unachieveble targets. Past experience shows that these financial constraints have blocked the adoption or compliance with national targets.

• R3 There is a risk of not having the necessary tools to enforce national planning to the bottom line of EGF’s new shareholders.

• Despite these and other risks, the existing regulatory and management framework does not take into account risks.


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Outcomes

• Non-compliance with national-level policy (ENRRUBDA, PERSU II, etc.)


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Outcomes


source: APA, 2012

source: APA, 2010


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Outcomes


• Country at two very different paces (performance and costs)

source: ERSAR, 2013

Tariffs charged by regional utilities


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Outcomes


• Country at two very different paces (performance and costs)

• New approaches / tools are required to reduce these risks!


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Middle-out approach to planning

• Middle-out approach: national strategic plans should result from well informed regional level action plans

• The role of the national-level institutions are

– To define the Vision

– To establishing the regulatory framework (economic instruments, emission levels, price, among others)

• Advantages of the middle-out approach

– Avoids prescriptive measures, i.e. it does not impose technical solutions that may not be feasible or cost-effective.

– Takes into account usually the best information available

– Reinforces the accountability of regional utilities

National level Planning (Central Government)

Regional Action Plans(Regional Utilities)

Local Action Plans(Municipalities)


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Auction of landfill rights

• Market-based approaches can guarantee efficient solutions (i.e. at the lowest possible cost) by making use of the best information possible.

• A auction system for landfill rights is proposed.

1. Total amount of allowed landfill deposition is defined at the planning process.

2. Total amount is divided in parcels, each parcel is auctioned through multiunit sealed-bid system.


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• The system is being tested through agent-based modelling.

1. Each company has its marginal abatement cost function, and knows how much landfill rights have been already sold and how much rights each competitor has.

2. The bidding price and quantity for each regional utility for each time step is a probability function of urgence, the highest value of the marginal abatement cost and a predetermined lower limit to bid.

Regional Utility #1

Regional Utility #n

…

bid(p1,q1)

bid(pn,qn)

Highest bids win until the total amount

of the parcel is attributed

Repeat until all parcels are allocated


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Auction of landfill rightsAverage global price for landfill rights (Monte Carlos analysis, n=1000)

Price (€/ t)


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Average price for each regional utility (Monte Carlos analysis, n=1000)


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Taxing as a complementary tool

• As most EU countries, Portugal has a landfill tax.

• By design, the Portuguese Landfill Tax (TGR) aims to

– Cover administrative costs to oversee the waste activities (mainly to the national environment agency APA)

– Promote the objectives defined in the Waste Framework Directive (e.g waste hierarchy)

• By design, it should be transferred to the waste producers (final users) through municipal tariff systems

• The TGR should also be used as a collar for the auctioning: establish the upper limit and thus the incentive to keep landfill deposition to the acquired rights.


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THANK YOU!

AcknowledgementsThe author would like to acknowledge FCT for the financial support by Fundação para a Ciência e Tecnologia ( SFRH / BD / 51134 / 2010 ).

Scenarios & Forecasting

Benchmarking models (DEA…) Impact Assessment with IO analysis

new market and risk-based approaches for the regulation of the msw sector in portugal antónio...

Documents

policy graduate consortium

meeting slide

management framework

msw management

national planning

nationallevel policy

national targets

meeting source