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New market and risk-based approaches for the regulation of the MSW sector in Portugal António Lorena, PhD Candidate Sustainable Energy Systems MIT Portugal.

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Presentation on theme: "New market and risk-based approaches for the regulation of the MSW sector in Portugal António Lorena, PhD Candidate Sustainable Energy Systems MIT Portugal."— Presentation transcript:

1 New market and risk-based approaches for the regulation of the MSW sector in Portugal António Lorena, PhD Candidate Sustainable Energy Systems MIT Portugal Technology, Management and Policy Graduate Consortium 2014 Meeting

2 2 Overview Context Risks Outcomes Middle-out approach to planning Auction of landfill rights Taxing as a complementary tool Technology, Management and Policy Graduate Consortium 2014 Meeting

3 3 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. Technology, Management and Policy Graduate Consortium 2014 Meeting

4 4 source: 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: Technology, Management and Policy Graduate Consortium 2014 Meeting

5 5 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 years. How to match >20 year concessions with 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 Technology, Management and Policy Graduate Consortium 2014 Meeting

6 6 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 Technology, Management and Policy Graduate Consortium 2014 Meeting

7 7 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. Technology, Management and Policy Graduate Consortium 2014 Meeting

8 8 Outcomes Non-compliance with national-level policy (ENRRUBDA, PERSU II, etc.) Technology, Management and Policy Graduate Consortium 2014 Meeting

9 9 Outcomes Non-compliance with national-level policy (ENRRUBDA, PERSU II, etc.) Technology, Management and Policy Graduate Consortium 2014 Meeting source: APA, 2012 source: APA, 2010

10 10 Outcomes Non-compliance with national-level policy (ENRRUBDA, PERSU II, etc.) Country at two very different paces (performance and costs) Technology, Management and Policy Graduate Consortium 2014 Meeting source: ERSAR, 2013 Tariffs charged by regional utilities

11 11 Outcomes Non-compliance with national-level policy (ENRRUBDA, PERSU II, etc.) Country at two very different paces (performance and costs) New approaches / tools are required to reduce these risks! Technology, Management and Policy Graduate Consortium 2014 Meeting

12 12 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 Technology, Management and Policy Graduate Consortium 2014 Meeting National level Planning (Central Government) Regional Action Plans (Regional Utilities) Local Action Plans (Municipalities)

13 13 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. Technology, Management and Policy Graduate Consortium 2014 Meeting

14 14 Auction of landfill rights 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. Technology, Management and Policy Graduate Consortium 2014 Meeting Regional Utility #1 Regional Utility #n … bid(p 1,q 1 ) bid(p n,q n ) Highest bids win until the total amount of the parcel is attributed Repeat until all parcels are allocated

15 15 Auction of landfill rights Technology, Management and Policy Graduate Consortium 2014 Meeting Average global price for landfill rights (Monte Carlos analysis, n=1000) Price (€/ t)

16 16 Auction of landfill rights Technology, Management and Policy Graduate Consortium 2014 Meeting Average price for each regional utility (Monte Carlos analysis, n=1000)

17 17 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. Technology, Management and Policy Graduate Consortium 2014 Meeting

18 18 THANK YOU! Acknowledgements The author would like to acknowledge FCT for the financial support by Fundação para a Ciência e Tecnologia ( SFRH / BD / / 2010 ). Technology, Management and Policy Graduate Consortium 2014 Meeting Scenarios & Forecasting Benchmarking models (DEA…) Impact Assessment with IO analysis


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