copy the linklink copied!Chapter 5. Investment and financing mechanisms for waste management

The Environmental Performance Reviews have shown that government support through grants, loans, tax exemptions and other mechanisms are a key part of the overall policy mix for waste management. Moreover, governments are seeking effective financial mechanisms to support the move to a circular economy. Private and public waste operators as well as private companies also provide a key component of waste management financing. In the circular economy, investments by businesses will be a key factor. This chapter examines trends in waste management investments as well as investment and financing mechanisms for waste management in the 11 focus countries to identify good practices.

    

“The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

The Environmental Performance Reviews have shown that government support through grants, loans, tax exemptions and other mechanisms are a key part of the overall policy mix for waste management. Moreover, governments are seeking effective financial mechanisms to support the move to a circular economy. Private and public waste operators as well as private companies also provide a key component of waste management financing. In the circular economy, investments by businesses will be a key factor. This chapter examines trends in waste management investments as well as investment and financing mechanisms for waste management in the 11 focus countries to identify good practices (Box 5.1).

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Box 5.1. Examples of good practices in investment and financing mechanisms

Financing sources and mechanisms

  • Following the guidelines in OECD’s 2006 Recommendation on Public Environmental Expenditure Management, as well as the OECD’s 2012 Principles on Public-Private Partnerships.

  • Set out investment needs and expected financing mechanisms in waste management strategies and plans, integrating them in the overall policy mix (e.g. Poland).

Innovative financing to promote the circular economy

  • Financing to provide incentives for pilot work on the circular economy (Japan).

Financing and other instruments to address contaminated sites

  • Establish clear liability rules to ensure that polluters pay for site contamination (Japan, Korea).

  • Prepare registers of potential contaminated sites and their severity (Israel).

  • Focus public and private resources on priority sites, based on environmental and health objectives (Norway).

copy the linklink copied!5.1. Trends in waste management investments

The level of investments for waste management varied significantly across OECD countries in 2012 – from under USD 50 per capita to over USD 200 per capita in Estonia, Korea, Slovenia and Netherlands. These investments are made by three main sectors: public, business and specialised producers – the latter includes public and private companies providing waste management services. The relative shares of these sectors vary significantly across countries: in Korea and Spain, for example, the public sector represented the largest share; for Estonia and France, it was specialised producers; and in Finland and Slovenia, the business sector (see Figure 5.1)

For most of the focus countries, investment levels by and large increased between 2000 and 2013 (Figure 5.2). The Netherlands and Slovenia saw declines in investment levels after 2007, and Estonia after 2008 (for Estonia and Slovenia, investment increased later in the period).

copy the linklink copied!5.2. Financing sources and mechanisms

The Reviews have shown that governments have played a key role in many OECD countries by providing support for waste management investments. Governments have used several financing mechanisms, including grants, loans and tax exemptions that support investments made by business and specialised producers. The expenditure statistics shown in Figure 5.1 and Figure 5.2 indicate the point of investment and thus do not reflect financing mechanisms and their financial transfers.

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Figure 5.1. The sources and levels of investment in waste management vary across OECD countries
Figure 5.1. The sources and levels of investment in waste management vary across OECD countries

Note: Based on GDP at purchasing power parities. Partial reporting in some countries: for Greece, Israel and Mexico, only public sector reported. For Norway, only data on public sector and business sector total reported. 2011 data provided for Italy, Netherlands and Korea.

Source: OECD (2017), "Environmental protection expenditure and revenues", OECD Environment Statistics (database), http://dx.doi.org/10.1787/data-00694-en.

 StatLink https://doi.org/10.1787/888933976270

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Figure 5.2. Investment in waste management has increased since 2000
Figure 5.2. Investment in waste management has increased since 2000

 StatLink http://dx.doi.org/10.1787/data-00694-en

 StatLink https://doi.org/10.1787/888933976061

The Korean government, for example, has used all three of these mechanisms to support investments in recycling and incineration: in 2014, the national government provided KRW 105.3 billion in financial aid for the construction of waste-to-energy plants; government subsidies, tax credits and long-term, low-interest loans have financed recycling investments, including for food waste; and the government has supported recycling companies, focusing on SMEs, with long-term, low-interest loans for investments in facilities and technology development.

Under Colombia’s National Development Plan 2010-14, government bodies provided subsidies in particular for investment in landfills and transfer stations. National and regional bodies subsidised investments at about one-quarter of municipalities. In addition, since 2001 the government has provided tax exemptions for investments in recycling and for energy generated by agricultural waste.

A 2006 OECD Recommendation calls for Member countries to ensure that public environmental expenditure is environmental effective, economically efficient and follows sound principles of public expenditure management. The Recommendation sets out good practices for public environmental expenditure, and these need to be considered for support to investments for waste management (Box 5.2).

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Box 5.2. The 2006 OECD Recommendation on Public Environmental Expenditure Management

The Recommendation sets out three checklists, each of which identifies a series of principles for consideration on public environmental expenditure.

Performance in terms of environmental effectiveness

  1. 1. Additionality and consistency with other environmental policy instruments

  2. 2. Well-defined programming framework

  3. 3. Clear identification of environmental outcomes

  4. 4. Maximise environmental effect from available funds

  5. 5. Leverage additional finance

Performance in Terms of Budgetary Good Practice

  1. 1. Fiscal integrity of revenues

  2. 2. Avoid constraints to efficiency

  3. 3. High standards of fiscal discipline

  4. 4. Accountability and transparency

  5. 5. Collection of revenues and public procurement separated from expenditure management

Performance in Terms of Management Efficiency

  1. 1. Sound governance

  2. 2. Professional executive management

  3. 3. Sound project cycle management

  4. 4. Fair and unbiased relations with external stakeholders

  5. 5. Effective management of financial products and related risks

5.2.1. Dedicated environmental funds

Several OECD countries have used funds whose revenues come from environmental charges and taxes. These include Estonia’s Environmental Investment Centre, the Czech Republic’s State Environmental Fund, and Poland’s national and regional environmental funds, whose revenues include waste charges and taxes (see Box 5.3). These funds effectively earmark revenues for environmental spending: the OECD Recommendation warns that this can be a constraint to efficiency, unless the advantages are demonstrated. In Israel, a landfill levy was collected into a fund that is used to finance municipal and private sector waste management activities and build needed waste infrastructure. Estonia, the Czech Republic, Hungary, Poland as well as other countries that recently joined the EU have used these funds for major improvements in their environmental infrastructure, including for waste management. As noted in Box 5.2, the OECD Recommendation called for better transparency, accountability and effectiveness for its system of environmental funds.

Several OECD countries have used external public financing for waste investments. In Europe, EU funds have provided grants to support environmental investments in low-income regions. These were used in countries including Estonia, where EU funds supported separate collection of MSW. In Poland, the Czech Republic, Hungary and Slovenia, grants from EU funds supported a broad range of waste treatment investments, including integrated waste facilities that combined sorting, recycling and composting for MSW. Both Estonia and Poland have employed their national funds as management bodies for these EU programmes. Poland among others has combined these resources (Box 5.3).

Many EU countries, including Estonia and Poland, have received loans from the European Investment Bank, an EU institution, to finance waste treatment investments. External resources supported waste investments in Colombia: funding sources have included the World Bank and bilateral aid programmes. Several OECD countries have provided international assistance in the waste field (see Chapter 6).

Several countries use revenues from waste and other environmental charges to finance waste management investments. Poland has provided low-interest loans from its national and regional environmental funds, institutions whose revenues come from environmental taxes and charges.

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Box 5.3. Poland’s system of environmental funds

Poland’s National Fund for Environmental Protection and Water Management, together with 16 regional funds, have become the main instrument for financing environmental investments. These funds receive the proceeds of environmental charges and fees and use the revenue to make low-interest loans. These bodies also manage EU funding. The 2015 Environmental Performance Review found that National Fund in particular strengthened its professional capacity. Moreover, the funds improved their transparency, accountability and effectiveness – key recommendations from the previous Review in 2003. The National Fund strengthened its rules for project selection and for co-financing and developed a joint strategy with the regional funds. Large projects, such as integrated waste management facilities in Pomerania, a region in the North of Poland, are financed through a combination of EU grants and national and regional fund loans.

5.2.2. The role of the business sector and specialised producers

Other countries have relied more extensively on investments made directly by the business sector and specialised producers. In Estonia, for example, the government-owned energy company provided the main financing for the country’s MSW incineration plant (with co-financing for European Investment Bank), while private waste companies built mechanical biological treatment (MBT) facilities.

Specialised producers provide a majority of waste financing in several European countries, including Belgium, Denmark and France, and other OECD countries have turned to the private sector for waste management investments. In Japan, increased involvement of the private sector in MSW collection and treatment has financed new projects – primarily incineration facilities. In Israel, the Environmental Performance Review called for a greater private sector role in waste management, including separate collection as well as financing facilities such as waste-to-energy plants. The 2014 Environmental Performance Review of Colombia also called for greater private involvement to address resource constraints for waste investments.

Across all areas of infrastructure, public-private partnerships represent about USD 0.8 trillion of investment in OECD countries, with further projects in the pipelines. The Environmental Performance Reviews, however, contain few references to public-private partnerships for waste management projects. One example was in Poland, where financing from national sources, EU funds and the private sector were brought together for the construction and operation of an incinerator in Poznan. This was the first public-private partnership project in the waste sector in Poland, and about ten years passed from initial discussions to agreement and the start of construction. An analysis of this project highlighted the need for greater capacity on the part of public authorities to manage and implement public-private partnerships financing for large investment projects. OECD has set out three broad principles for these types of agreements (Box 5.4).

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Box 5.4. OECD: Recommendations of the Council on Principles for Public Governance of Public-Private Partnerships (2012)
  • Establish a clear, predictable and legitimate institutional framework supported by competent and well-resourced authorities.

  • Ground the selection of Public-Private Partnerships in Value for Money.

  • Use the budgetary process transparently to minimise fiscal risks and ensure the integrity of the procurement process.

5.2.3. Investment planning

The OECD Recommendation on Public Environmental Expenditure calls for a well-defined programming framework. The Reviews have shown how OECD countries have linked government financing to policy frameworks: this is the case for the 3Rs approach in Japan, as well as the national and regional waste management plans in Poland.

In Israel, the Recycling Action Plan has envisaged investments in infrastructure for separate collection, sorting and recycling of waste, as well as incineration facilities. Under this Plan, the national Ministry of Environmental Protection intended to allocate NIS 3 billion to municipal governments, who would make investments. Here, the Environmental Performance Review underlined that synchronisation of policy instruments, including the landfill levy and investment subsidies, was needed to avoid potential over-investment, in this case in recycling capacity.11

In the Netherlands, the second Netherlands Waste Management Partnership (NWMP) set targets to eliminate the landfilling of combustible waste and to increase level of waste recovery between 2006 and 2015. Government actions included a landfill tax along with voluntary agreements with waste incineration companies, which invested in greater capacity. In contrast, Estonia set a broad target to increase the recovery of MSW and also put in place a landfill tax, but left investment decisions for new waste treatment facilities to companies, which constructed both an incineration plant and several MBT plants.

The experience in Estonia and the Netherlands provides cautionary tales, as both countries found themselves with overcapacity: the Netherlands for incineration and Estonia for MBT and incineration, in part addressed by the import of waste for incineration. Moreover, while the waste-to-energy plants have boosted renewable energy production in both countries, these investments have likely reduced progress towards recycling. Similar challenges are seen in other OECD EU countries, including Germany, Sweden and Switzerland, and may be a risk for the Czech Republic, where public funds support incineration facilities and planned changes in the policy mix (landfill bans, increased landfill taxes) are likely to make incineration more attractive to investors. The Czech review noted that, when planning new waste treatment facilities, it is important that authorities consider the benefits of alternative treatment technologies as well as treatment capacity in neighbouring countries.

copy the linklink copied!5.3. Innovative financing to promote the circular economy

As noted in Chapter 3, only a few OECD countries had comprehensive circular economy policies in place at the time of the most recent Reviews. Japan is one of the leaders: its national government has supported industry and local authorities in circular economy projects (Box 5.5).

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Box 5.5. Support for the circular economy: the Eco Town Programme in Japan

Japan has financed several programmes that implement the national 3Rs (reduce, reuse and recycle) approach. The Eco Town Programme combines town planning and community recycling and outreach with financing for recycling investments: it has subsidised private companies to put in place innovative recycling projects for MSW and for key waste streams including organic waste, plastic waste and Waste Electrical and Electronic Equipment (WEEE) (government support covered on average about one-third of investment costs). The programme has encouraged other companies to make recycling investments in the designated Eco Towns.

Other OECD countries have supported resource efficiency and eco-innovation investments that can support the move towards circular economies. Some of these investments support research and development: in Slovenia, the government has provided co-financing to industry for several innovation areas, including sustainable building technology. Others support resource efficiency investments in industry. In Israel, the government has financed industry investments that reduce the production of hazardous waste. Estonia’s EIC has supported projects for resource efficiency, and in the 2014-20 period, the Centre planned to allocate EUR 100 million in grants from EU funds to resource and energy efficiency projects in industry. The Environmental Performance Review highlighted a need for an overall framework to address eco-innovation and the circular economy and also called to ensure that the EU resources were used effectively.

copy the linklink copied!5.4. Financing and other instruments to address contaminated sites

Many of the focus countries face a legacy of contaminated sites, including old industrial areas as well as abandoned, often illegal landfills. The cost of clean-up can be high: in Japan, the Ministry of Environment estimated that soil contaminated potentially affected about 113 000 ha, with remediation costs of up to JPY 17 trillion (about 3% of yearly gross domestic product [GDP]).

One mechanism to ensuring funding for remediation is to establish liability for owners and polluters of contaminated sites. In Japan, the owner or polluter is required to bear the costs of remediation. Moreover, since 2010 listed companies have been required to report potential liabilities related to contaminated sites on their balance sheets. Korea has put in place strict liability provisions for contaminated sites, and in Colombia, industrial companies are responsible for remediation at sites they pollute: environmental authorities have required some oil and chemical companies to undertake site restoration work. Not all OECD countries have clear requirements, and some performance reviews, as for Estonia and Israel, have called on governments to strengthen liability.

For many sites, a former owner has gone bankrupt or no single polluter can be identified: consequently, government financing has to play a key role in site investigation and clean-up. In Japan, both the national government and local authorities have provided financial assistance for assessing and treating soil contamination. In Norway, the national government, local municipalities and other government bodies have supported clean-up of sites where the polluter cannot be clearly identified, such as harbours. National or regional financing may be necessary to cover the high costs of remediation: in Colombia, municipalities are responsible for contaminated sites where the private polluters cannot be identified, but in general they lack resources to address the problem. Both Estonia and Poland have used grant financing from EU funds: Estonia, for example, used these resources for the remediation of industrial and military facilities, old landfills for mining and industrial waste from the oil shale sector, and abandoned industrial areas.

Nonetheless, many countries are likely to face financing constraints given the dimension of contamination problems. In Slovenia, for example, the national Court of Auditors noted delays in addressing contaminated sites, many of which were former industrial and mining facilities. The state had assumed liability for these sites, but a lack of resources had proven a key obstacle.

OECD Environmental Performance Reviews have called on countries to develop a register of sites, in order to better understand the issue: the review of Poland, for example, recommended completing a register that had been started. In Israel, a ministerial survey identified 3 300 potentially contaminated sites, including industrial facilities and commercial and agricultural areas, such as petrol station and sites where hazardous waste had been illegally buried.

Performance reviews have also called for a risk-based approach to focus government and other resources on the most serious problems. This approach has been followed in several countries, including Norway (Box 5.6), and the OECD called on Norway to continue to strengthen its efforts to address contaminated sites.

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Box 5.6. Setting Clean-up priorities in Norway

In Norway, over 3 500 potentially contaminated sites were identified. Clean-up activities focused on priority areas: the 100 most heavily polluted sites, including old industrial facilities and former landfills; day-care centres, playgrounds and schools affected by contamination from former industrial activities and the use of contaminated soils in landscaping; and seriously contaminated marine sediment, in particular in areas for fish and shellfish harvesting.

References

OECD (2003), OECD Environmental Performance Reviews: Poland 2003, OECD Publishing, Paris, https://doi.org/10.1787/9789264100961-en.

2006 OECD Recommendation on Public Environmental Expenditure Management C(2006)84.

OECD (2010), OECD Environmental Performance Reviews: Japan 2010, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264087873-en.

OECD (2011a), OECD Environmental Performance Reviews: Israel 2011, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264117563-en.

OECD (2011b), OECD Environmental Performance Reviews: Norway 2011, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264098473-en.

OECD (2012a), OECD Environmental Performance Reviews: Slovenia 2012, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264169265-en.

OECD (2012b), Principles on the Public Governance of Public-Private Partnerships, OECD Publishing, Paris, www.oecd.org/governance/budgeting/PPP-Recommendation.pdf.

OECD/ECLAC (2014), OECD Environmental Performance Reviews: Colombia 2014, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264208292-en.

OECD (2015a), OECD Environmental Performance Reviews: The Netherlands 2015, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264240056-en.

OECD (2015b), OECD Environmental Performance Reviews: Poland 2015, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264227385-en.

OECD (2017a), OECD Environmental Performance Reviews: Korea 2017, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264268265-en.

OECD (2017b), OECD Environmental Performance Reviews: Estonia 2017, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264268241-en.

OECD (2018a), OECD Environmental Performance Reviews: Hungary 2018, OECD Publishing, Paris, https://doi.org/10.1787/9789264298613-en.

OECD (2018b), OECD Environmental Performance Reviews: Czech Republic 2018, OECD Publishing, Paris, https://doi.org/10.1787/9789264300958-en.

Note

← 1. 1 More recent evidence since the review period suggests that investment has not led to overcapacity in recycling facilities in Israel: OECD, Environmental Performance Reviews – Medium-term progress report: Israel (Working Party on Environmental Performance, 8 10 March 2016, ENV/EPOC/WPEP(2016)5, document prepared by the Israeli Ministry of the Environment).

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Chapter 5. Investment and financing mechanisms for waste management