Waste levy and grants for waste infrastructure

Media release

The Auditor-General for New South Wales, Margaret Crawford, released a report today that examined the effectiveness of the waste levy and grants for waste infrastructure in minimising the amount of waste sent to landfill and increasing recycling rates.  

The audit found that the waste levy has a positive impact on diverting waste from landfill. However, while the levy rates increase each year in line with the consumer price index, the EPA has not conducted a review since 2009 to confirm whether they are set at the optimal level. The audit also found that there were no objective and transparent criteria for which local government areas should pay the levy, and the list of levied local government areas has not been reviewed since 2014. 

Grant funding programs for waste infrastructure administered by the EPA and the Environmental Trust have supported increases in recycling capacity. However, these grant programs are not guided by a clear strategy for investment in waste infrastructure. 

The Auditor-General made six recommendations aimed at ensuring the waste levy is as effective as possible at meeting its objectives and ensuring funding for waste infrastructure is contributing effectively to recycling and waste diversion targets.

 

Executive Summary

Overall, waste generation in New South Wales (NSW) is increasing. This leads to an increasing need to manage waste in ways that reduce the environmental impact of waste and promote the efficient use of resources. In 2014, the NSW Government set targets relating to recycling rates and diversion of waste from landfill, to be achieved by 2021–22. The NSW Waste and Resource Recovery (WARR) Strategy 2014–21 identifies the waste levy, a strong compliance regime, and investment in recycling infrastructure as key tools for achieving these waste targets.

This audit assessed the effectiveness of the NSW Government in minimising waste sent to landfill and increasing recycling rates. The audit focused on the waste levy, which is paid by waste facility operators when waste is sent to landfill, and grant programs that fund infrastructure for waste reuse and recycling.

The waste levy is regulated by the Environment Protection Authority (EPA) and is generally paid when waste is disposed in landfill. The waste levy rates are set by the NSW Government and prescribed in the Protection of Environment Operations (Waste) Regulation 2014. As part of its broader role in reviewing the regulatory framework for managing waste and recycling, the EPA can provide advice to the government on the operation of the waste levy.

The purpose of the waste levy is to act as an incentive for waste generators to reduce, re-use or recycle waste by increasing the cost of sending waste to landfill. In 2019–20, around $750 million was collected through the waste levy in NSW. The government spends approximately one third of the revenue raised through the waste levy on waste and environmental programs.

One of the waste programs funded through the one third allocation of the waste levy is Waste Less, Recycle More (WLRM). This initiative funds smaller grant programs that focus on specific aspects of waste management. This audit focused on five grant programs that fund projects that provide new or enhanced waste infrastructure such as recycling facilities. Four of these programs were administered by the Environmental Trust and one by the EPA.

Conclusion

The waste levy has a positive impact on diverting waste from landfill. However, aspects of the EPA's administration of the waste levy could be improved, including the frequency of its modelling of the waste levy impact and coverage, and the timeliness of reporting. Grant funding programs have supported increases in recycling capacity but are not guided by a clear strategy for investment in waste infrastructure which would help effectively target them to where waste infrastructure is most needed. Data published by the EPA indicates that the NSW Government is on track to meet the recycling target for construction and demolition waste, but recycling targets for municipal solid waste and commercial and industrial waste are unlikely to be met.

Waste levy

The waste levy rate, including a schedule of annual increases to 2016, was set by the NSW Government in 2009. Since 2016, the waste levy rate has increased in line with the consumer price index (CPI). The EPA has not conducted recent modelling to test whether the waste levy is set at the optimal level to achieve its objectives. The waste levy operation was last reviewed in 2012, although some specific aspects of the waste levy have been reviewed more recently, including reviews of waste levy rates for two types of waste. The waste levy is applied at different rates across the state. Decisions about which local government areas (LGAs) are subject to the levy, and which rate each LGA pays, were made in 2009 and potential changes were considered but not implemented in 2014. Currently, there are no objective and transparent criteria for determining which LGAs pay the levy. The EPA collects waste data from waste operators. This data has improved since 2015, but published data is at least one year out of date which limits its usefulness to stakeholders when making decisions relating to waste management.

Grants for waste infrastructure

All state funding for new and enhanced waste infrastructure in NSW is administered through grants to councils and commercial waste operators. The government's Waste and Resource Recovery (WARR) Strategy 2014–21 includes few priorities for waste infrastructure and there is no other waste infrastructure strategy in place to guide investment. The absence of a formal strategy to guide infrastructure investment in NSW limits the ability of the State Government to develop a shared understanding between planners, councils and the waste industry about waste infrastructure requirements and priorities. The Department of Planning, Industry and Environment is currently developing a 20-year waste strategy and there is an opportunity for the government to take a more direct role in planning the type, location and timing of waste infrastructure needed in NSW.

The grants administration procedures used for the grant programs reviewed in this audit were well designed. However, we identified some gaps in risk management, record-keeping and consistency of information provided to applicants and assessment teams. In four of the five programs we examined, there was no direct alignment between program objectives and the NSW Government's overall waste targets.

1. Key findings

The EPA has not conducted recent modelling to test whether the waste levy is set at the optimal level

The waste levy rate, including a schedule of annual increases to 2016, was set by the government in 2009. As part of its broader role in reviewing the regulatory framework for managing waste and recycling, the EPA can provide advice to the government on the operation of the waste levy. The objective of the waste levy is to encourage waste minimisation and diversion of waste from landfill. To achieve this, it must be set at a level that makes the cost of disposal higher than the cost of re-use or recycling, but not so high that it increases the likelihood of waste being illegally dumped or stockpiled above permitted thresholds.

There is evidence that the waste levy has a positive impact on the diversion of waste from landfill. However, the waste levy operation has not been reviewed since 2012 and waste levy rates and increases have not been reviewed since they were set in 2009. Since 2016, the waste levy has increased annually in line with CPI. Several reviews of specific elements of the waste levy have been conducted since 2012, including reviews of waste levy rates for two types of waste. A review of some aspects of the waste levy was conducted during 2020 as a part of work to develop a broader waste strategy, but this review did not examine the waste levy rates.

Since 2012, a number of significant changes have occurred in the waste industry that may have an impact on the effectiveness of the waste levy. These include:

  • introduction of China's 'National Sword’ policy, which limited export of waste to China to that with very low levels of contamination
  • Council of Australian Governments (COAG) ban on exporting waste (to be phased in from 2020), announced in November 2019
  • introduction of a waste levy in Queensland (QLD), which changes the economics of paying the waste levy in NSW compared to transporting waste to QLD to avoid paying the levy
  • the EPA's 2018 ban on using mixed waste organic outputs on land.

The absence of a recent comprehensive review of the impact of changes in the waste industry means the current waste levy settings are not based on the most up to date information. This means the current settings may not have the optimal impact on minimising waste sent to landfill.

The waste levy is applied at different rates across the state

Decisions about which LGAs are subject to the waste levy were made in 2009. The EPA advises that affected councils were made aware that these decisions were based on factors including waste generation and disposal trends, the ability of ratepayers to pay, and projected population growth. The EPA consulted with councils in 2014 about potential changes to the application of the waste levy but no changes were made at that time.

Currently, a higher levy applies to LGAs in the Sydney metropolitan area and the Hunter, Newcastle and Illawarra regions. A lower levy applies to LGAs in the north-east coast and LGAs immediately west of Sydney. Most LGAs do not pay a waste levy. The current rationale for why particular LGAs pay the waste levy and others pay a lower levy or none at all is not as clear and objective as it could be.

The EPA waste data has improved since 2015 but public reporting on environmental outcomes is not timely

Data collected by the EPA and used for compliance and reporting has improved since 2015 due to legislative changes and improved technology. Environmental outcomes related to the waste levy such as recycling rates and rates of illegal dumping are reported every two years in WARR Strategy progress reports and every three years in NSW State of the Environment Reports. However, data used in these reports is at least a year out of date at publication which limits its usefulness to stakeholders when making decisions relating to waste management.

There is currently no formal strategy in NSW to guide waste infrastructure investment

The government's 2014 Waste and Resource Recovery (WARR) Strategy does not include waste infrastructure priorities or a strategy for waste infrastructure. A draft waste infrastructure strategy was published for consultation by the EPA in 2017 but was never adopted formally. The absence of a formal strategy to guide infrastructure investment in NSW limits the ability of the State Government to develop a shared understanding between planners, councils and the waste industry about waste infrastructure requirements and priorities.

The EPA and the Environmental Trust currently provide funding for waste infrastructure solely through grants to councils and industry. With no strategy to guide what is funded, investment is being led by proposals from councils and private companies, rather than being driven by strategic objectives and priorities. The NSW Government is currently developing a 20-year waste strategy which may include consideration of waste infrastructure.

Overall, grant administration procedures support the achievement of program objectives, but were not always applied consistently

Staff administering waste infrastructure grant programs are supported by internal procedures developed by the Environmental Trust and the EPA. Risk-mitigation practices are in place such as preparing Deeds of Agreement between applicants and funding agencies that outline the expected performance of the grant recipient in terms of agreed outcomes and regular progress reports, and engaging probity officers to oversee assessment committee meetings.

However, we identified gaps in the application of grant administration procedures. For example, in four of the five programs we examined, there was no direct alignment between program objectives and the NSW Government's overall waste target. Within the 12 grant rounds we reviewed, three grant rounds provided inconsistent information to applicants and assessment teams. Of the ten grant rounds administered by the Environmental Trust, two were missing documentation that recorded the rationale for awarding grants and eight were missing one or more conflict-of-interest declarations.

In addition, more than half the grant applications included in the grant rounds reviewed for the audit included flawed cost-benefit analyses, indicating that better support or guidance may be needed to assist grant applicants to meet this requirement. Robust cost benefit analyses for infrastructure projects are an important step in the assessment of whether value for money from the investment will be achieved.

2. Recommendations

By June 2021 the EPA should:

1. establish a schedule for reviewing the waste levy settings that includes:

• regular reviews to ensure the waste levy is set at the optimal level to achieve its policy objective
• transparent and objective criteria for determining which local government areas are levied

2. improve the timeliness of reporting on the environmental outcomes from its waste levy compliance activities.

By December 2021 the Department of Planning, Industry and Environment should:

3. determine the state's waste infrastructure needs to inform planning for and funding of waste infrastructure in NSW.

By June 2021 the Environmental Trust should:

4. improve record-keeping during grant program assessment committee meetings

5. ensure that conflict-of-interest declarations are completed for all members of assessment teams and stored in accordance with documented record-keeping requirements.

By June 2021 the EPA and the Environmental Trust should

6. ensure that consistent information is provided to applicants and assessment committees within their respective grant programs.

1. Introduction

1.1 Purpose of the waste levy

The waste levy is a market-based instrument legislated under the Protection of the Environment Operations Act 1997 (the POEO Act) to discourage landfill disposal and promote the reduction in the use of materials and the re-use, recovery or recycling of materials in New South Wales. The levy works by increasing the cost of sending waste to landfill, thereby providing an economic incentive to reduce waste generation and promote reuse and recycling.

The waste levy applies in the regulated area of New South Wales which is made up of the Metropolitan Levy Area (Sydney, Illawarra and Hunter regions) and the Regional Levy Area (the Blue Mountains, Wollondilly and the area north of Port Stephens to the Tweed). The current application of the waste levy to local government areas in NSW is shown in Exhibit 1. Metropolitan Levy Areas are shown as tan and Regional Levy areas as blue.

map of New South Wales showing levied and non-levied areas, see the paragraph above for colour code.
Exhibit 1: Levied and non-levied areas in NSW

Source: Environment Protection Authority, 2020.

A flat levy is charged on solid waste regardless of the type of waste, but the rate varies across the two geographical regions. In 2020–21, the waste levy is:

  • $146.00 per tonne in the Metropolitan Levy Area
  • $84.10 per tonne in the Regional Levy Area.

Concessional rates apply to some specific waste types.

The waste levy is paid on:

  • all waste disposed at EPA-licensed landfills in the regulated area
  • waste generated in the regulated area disposed at landfills in the non-regulated area.

Certain licensed waste facility operators in New South Wales incur a waste levy liability when waste is delivered to these facilities. These include waste processing, resource recovery and waste storage facilities. The levy liability is then reduced for any waste sent off site for lawful recycling, reuse or disposal.

The waste levy is ultimately paid for by the waste generator through direct payment to landfill operators and council charges paid by ratepayers.

For an accessible version of this image please email communications@audit.nsw.gov.au
Exhibit 2: Relationship between waste operations and the waste levy in NSW*

* Waste transfer stations, processing facilities and recycling facilities also pay the waste levy when they exceed allowable stockpiles.
Source: Audit Office research.

The EPA collects the waste levy from all landfill operators monthly. Other licensed waste facility operators only pay the levy for:

  • residual waste sent to landfill
  • waste that is stockpiled for more than 12 months or above an authorised limit.

Revenue from the waste levy is placed into the state's consolidated revenue. The waste levy revenue collected between 2013 and 2019 is shown in Exhibit 3. Data published by the EPA in WARR Strategy progress reports indicates that the trend of increasing waste levy revenue is a result of:

  • increasing amounts of waste generated and sent to landfill, associated with population growth and construction activity
  • increasing waste levy rate per tonne of waste sent to landfill. 
Waste levy revenue in NSW for 2013 to 2019 increased from 501 million dollars in 2013-14 to 751 million in 2018-19
Exhibit 3: Waste levy revenue in NSW 2013 to 2019

Source: EPA financial statements (audited).

1.2 Waste and environment levy envelope

The government makes one third of the waste levy revenue available for waste and environmental programs. The one third allocation of the waste levy revenue is known as the Waste and Environmental Levy Envelope (WELE). Budgets prepared in 2016–17 identify a range of waste and environmental programs funded from the WELE.

Waste management, resource recovery, and regulatory programs along with healthy and protected landscapes make must the majority of the programs funded by WELE in 2016 to 20. For an accessible version of this image email communications@audit.nsw.gov.au
Exhibit 4: Waste and environmental programs funded from the WELE 2016–2020*

*  We note that the distribution of the WELE may change from 2020 in line with outcomes-based budgeting.
Source: Budget data prepared by the EPA in 2016–17 (unaudited).

Waste management programs, which represent 52 per cent of the forecast WELE expenditure, include the Waste Less Recycle More initiative valued at $802.7 million. $465.7 million was allocated between 2014–15 and 2016–17 and a further $337 million between 2017–18 and 2020–21.

Waste Less Recycle More directs funds to programs targeted at different aspects of waste management. These include the following:

  • Organics infrastructure fund and program
  • Waste and recycling infrastructure fund
  • Household problem waste program (e.g. batteries, paint and gas bottles)
  • Recycling innovation fund
  • Business recycling program
  • Local government waste and resource recovery program
  • Illegal dumping clean-up, prevention and enforcement fund
  • Litter prevention and enforcement fund.

Grants funded through these programs are available to councils, non-profit organisations and businesses.

1.3 Waste Avoidance and Resource Recovery Strategy

The Waste Avoidance and Resource Recovery (WARR) Strategy 2014–21 provides a framework for waste management in New South Wales. It sets directions for a range of priority actions with corresponding targets to be achieved by 2021–22:

  1. Avoid and reduce the amount of waste generated per person.
  2. Increase recycling rates to 70 per cent for municipal solid waste and commercial and industrial waste, and 80 per cent for construction and demolition waste.
  3. Increase waste diverted from landfill to 75 per cent.
  4. Manage problem waste better by establishing or upgrading 86 drop-off facilities or services for managing household problem wastes state-wide.
  5. Reduce the number of litter items by more than 40 per cent compared with 2011–12 levels.
  6. Reduce illegal dumping state-wide.

The WARR Strategy identifies the waste levy, a strong compliance regime and funding through the Waste Less, Recycle More initiative as the key tools to achieve these targets. The waste levy increases the cost of waste disposal, making waste avoidance, reduction and recycling more financially attractive than disposal to landfill. The Waste Less, Recycle More initiative provides grant funding to support investment in recycling infrastructure, encourage innovation, improve recycling behaviour and develop new markets for recycled materials, as well as tackle littering and illegal dumping.

The achievement of targets 1, 2, and 3 listed above is linked to the application of the waste levy. The achievement of targets 2, 3 and 4 is linked to the availability of necessary waste processing infrastructure. The waste levy and availability of waste processing infrastructure are only two factors that influence achievement of the targets. Others include:

  • regulations and enforcement
  • education and behavioural factors
  • strong markets for downstream outputs from waste processing.

The Environment Protection Authority (EPA), the Environmental Trust and the Department of Planning, Industry and Environment (DPIE) share responsibilities for delivering the WARR targets:

  • The EPA is responsible for developing and enforcing the regulatory framework within which private and public sector entities and individuals manage waste and recycling, and undertaking research, data collection and analysis to ensure a robust evidence base is available for decision-making. The EPA is also responsible for administration of some grants and managing the Waste Less Recycle More program.
  • The Environmental Trust is responsible for delivery of the Waste Less, Recycle More grants to Local Government, industry, research institutes, community groups and other stakeholders. These are delivered in partnership with the EPA.
  • DPIE's responsibilities include the development of strategic policy and planning for the waste and resource recovery sector.

1.4 About the audit

The objective of this audit was to assess the effectiveness of the NSW Government in minimising waste sent to landfill and increasing recycling rates.

The audit focused on two key tools managed by the government that contribute to achieving these outcomes:

  • The waste levy

The audit examined whether the EPA regulates the waste levy in a way that reduces waste generation and diverts waste from landfill.

  • Grant programs targeted towards providing waste infrastructure

The audit examined whether funds allocated through Waste Less Recycle More effectively support investment in waste infrastructure that supports reuse and recycling. The audit specifically focused on grant programs that provide funding for new or enhanced recycling infrastructure, and increase the capacity for waste recycling and reuse in NSW:

-    Organics infrastructure fund and program
-    Waste and recycling infrastructure fund (including Major Resource Recovery Infrastructure Program and Resource Recovery Facility Expansion and Enhancement Fund)
-    Product Improvement Program
-    Household problem waste program.

Audited agencies were the EPA, DPIE and the Environmental Trust.

2. Waste levy

2.1 Waste levy impact

The objective of the waste levy is to provide an incentive for waste generators to re-use or recycle waste rather than send it to landfill. For the waste levy to operate effectively it must be set at a price that results in the cost of disposal being higher than the cost of re-use or recycling, but not so high as to discourage compliance which could lead to waste being illegally dumped or stockpiled above permitted thresholds. The waste  levy is not the only cost incurred by waste generators when they send waste to landfill. Transport costs and gate fees imposed by landfill facilities also form part of the overall cost of sending waste to landfill.

The waste levy impact varies by waste stream

Data provided by the EPA indicates that the waste levy may be most effective for Construction and Demolition waste (C&D) and delivers only a minimal effect on household waste, also known as Municipal Solid Waste (MSW). This differential impact, based on rates of diversion from landfill for the three waste streams shown in Exhibit 5, was also noted in economic research commissioned by the Office of Environment and Heritage in 2011 and a review of the waste levy commissioned by the EPA in 2012.

Exhibit 5 identifies the rate of diversion from landfill for each of the three solid waste streams: MSW, Commercial and Industrial (C&I) and C&D between 2015–16 and 2018–19. The graph identifies greater diversion rates for C&D compared with the other two waste types as well as a large gap between current and target performance in diversion rates for MSW and C&I.

The graph shows the changes in diversion rates for municipal solid waste, commercial and industrial waste and construction and demolition waste. Graph shows actual percentages as well as target ones. For accessible version email communications@audit.nsw.gov.au
Exhibit 5: Changes in diversion rates for the three waste streams 2015–16 to 2018–19

Source: EPA published waste data.

The EPA has not conducted recent modelling to test whether the waste levy is set at the optimal level

The waste levy settings and operation require review from time to time to ensure the levy is meeting its objectives as an economic instrument to reduce waste generation and promote reuse and recycling.
The EPA advised that waste levy rates were last reviewed in 2009, with a path of pricing changes established to 2016 to provide certainty for the waste industry. Since 2016, the levy rate has been indexed in accordance with the Consumer Price Index (CPI).

The operation of the waste levy was last comprehensively reviewed in 2012. At that time, the EPA commissioned a review of the operations of the NSW waste levy that discussed issues and made recommendations consistent with the levy's objectives. A further examination of the waste levy was commissioned by the EPA in 2017, but this focused on improvements to revenue forecast models and not on the operation of the waste levy itself.

Since 2012, there have been a number of events affecting the waste industry in NSW and Australia to varying degrees. These include:

  • introduction of the China's 'National Sword' policy, which limited export of waste to China to that with very low levels of contamination
  • the Council of Australian Governments (COAG) ban on exporting waste (to be phased in from 2020), announced in November 2019
  • introduction of a waste levy in Queensland (QLD), which changes the economics of paying the waste levy in NSW in comparison to transporting waste to QLD
  • the EPA's 2018 ban on using mixed waste organic outputs on land.

The EPA has implemented temporary waste levy discounts and exemptions following studies into the effectiveness of the waste levy on specific types of waste, including metal and mixed waste organic outputs. However, there has been no review of the waste levy rates and operation that considers the cumulative impact of the events listed above upon the effectiveness of the waste levy, nor models the optimal level of the waste levy. Queensland, Victoria and South Australia have all reviewed their waste levy arrangements over the past two years.

DPIE is currently leading a project to develop a 20-year waste strategy and commissioned a review of the specific aspects of the waste levy design and settings to inform that work. This review did not examine whether the levy is set at the optimal level.

The waste levy rates are prescribed in the Waste Regulation, which was last reviewed in 2014. The EPA advised that the Waste Regulation will be reviewed in 2021. This provides an opportunity to review the contribution of the waste levy to achieving its objectives.

There is evidence that the waste levy has a positive impact on recycling

While the impact of the waste levy is not modelled, there is evidence of a positive relationship between the waste levy and diversion of waste from landfill:

  • the 2017 review of the waste levy commissioned by the EPA found that between 2009–10 and 2016–17, waste levy increases corresponded with over 11 per cent waste diversion from landfill in the Sydney metropolitan area relative to what would have occurred if the waste levy had remained constant in real terms
  • economists assessing 37 grant applications in 2014 identified four recycling infrastructure projects that were financially viable only because the waste levy would make recycling a more viable option for processing waste than sending the waste to landfill
  • waste data published by the EPA since 2015 shows that diversion rates are higher in levied areas of the state.

Exhibit 6 shows the difference in overall diversion rates between the levied and non-levied areas in NSW. The impact of the waste levy in levied areas of NSW is heavily influenced by the impact on construction and demolition waste, most of which is generated in the Sydney metropolitan region. We note that diversion rates are not solely dependent on the waste levy and may be influenced by a range of other factors such as regulations, education and behaviour and markets for outputs from recycling. 

graph shows percentage of waste diverted for each financial year between 2015 to 16 and 2018 to 19 for metropolitan levied area, regional levied area and non levied area. For accessible version email communications@audit.nsw.gov.au
Exhibit 6: Waste diversion rates for levied and non-levied areas in NSW

Source: EPA published waste data.

The waste levy is applied at different rates across the state

The waste levy was first implemented in the Sydney metropolitan area in 1971. The geographical coverage was extended to areas immediately outside Sydney in 1996 and then to some regional areas in 2009.

The EPA advised that the changes to the levied areas in 2009 were based on projected population growth, waste generation and disposal trends, ability of ratepayers to pay, and possible waste flows between levied and non-levied areas, and that councils subject to the levy were made aware of the rationale for their inclusion in the levied area at that time. The 2012 review of the waste levy recommended extending the waste levy to apply to more of the state to remove inconsistencies and discourage transport of waste within NSW to areas with lower levy rates. In response to this recommendation, the EPA consulted with councils in 2014 about extending the waste levy beyond the current levied areas. Following this consultation, the geographic coverage of the waste levy was not changed and inconsistencies identified in 2012 remain.

The development of a 20-year waste strategy and the 2021 review of the Waste Regulation provide an opportunity to establish objective criteria for which areas in the state are subject to the waste levy.

2.2 Waste levy compliance and oversight

The WARR Strategy identifies compliance with legislation and regulations as an essential tool in achieving waste targets. Similarly, the EPA's 2014 Waste and Environment Levy Compliance Strategy says that "an important aspect of waste compliance programs is evaluating whether the programs have ultimately contributed to environmental improvements."

All licensed waste facility operators must conduct their activities in accordance with Section 88 of the Protection of Environment Operations Act 1997 Act and the Protection of the Environment Operations (Waste) Regulation 2014 (‘the Regulation’).

The waste levy regulatory framework requires all such facility operators to:

  • pay the required waste levy
  • maintain records relating to waste and vehicles
  • report monthly to the EPA on quantity and type of waste received
  • provide other information to the EPA as required
  • maintain verified weighbridges with data capture software to record quantities of waste
  • install video monitoring systems, if directed by the EPA.

The Regulation also enables waste facility operators to obtain deductions from the levy in prescribed circumstances, such as when waste is sent for recycling.

The EPA implements a risk-based waste levy compliance regime

There are 531 licensed waste facilities in New South Wales, 268 of which are in the levied areas. To ensure that licensed waste facility operators comply with the requirements of Section 88 of the Protection of Environment Operations Act 1997 and the Regulation, the EPA implements a risk-based waste levy compliance and enforcement program outlined in its 2014 Waste and Environment Levy Compliance Strategy. Compliance risk is based on the following risk model:

  • financial risk – highest priority risk
  • operational/control risk – medium priority risk
  • legal risk and strategic risk – lowest priority risk.

EPA implements this model by selecting waste facilities for examination based on their risk profile. Examination includes a range of methods such as scrutiny of past audit history, consideration of waste exemptions and deductions, comparison of weighbridge records against data sent to the EPA, surveys of the volume of waste processed, transported and stored, and video surveillance.

Waste data used to monitor compliance with the waste levy and other regulations has improved since 2015 but reporting on environmental outcomes is not timely

Prior to 2015, only licensed landfill operators were required to report to the EPA on waste. The EPA supplemented this data with information on waste activities collected through surveys of waste processing facility operators and local councils.

Since 2015, the data used by the EPA to perform its compliance activities is based on monthly reports submitted by all licensed waste operators through an online portal. These reports use data from independently calibrated electronic weighbridges and include information on the tonnage of waste received, processed and transported off-site. They also include information about waste re-used or recycled. The data collected through the online portal is subject to auditing by the EPA’s waste levy compliance team which checks facility reports against the facility’s weighbridge records. Since 2015, the EPA also collects data through an online tracking system on the transport of waste from the metropolitan levy area that is over ten tonnes, and transport of waste tyres and asbestos.

There are penalties in the legislation to ensure waste facility operators do not provide false and misleading information and the EPA conducts internal quality reviews of the dataset. This data is currently used for monitoring waste levy compliance and forecasting waste levy revenue. It also provides the EPA with robust data for making decisions about waste management. However, EPA's waste data relating to environmental outcomes is at least a year out of date when published in WARR Strategy progress reports and NSW State of the Environment reports. While the EPA is meeting its legislative reporting obligations, this data would be more useful to stakeholders making decisions about waste management if reported in a more timely way.

3. Grants for waste infrastructure

Achievement of the 2014–21 state targets for waste and resource recovery (WARR targets) is reliant in part on the availability of infrastructure that supports waste diversion and recycling. The state WARR targets dependent on waste infrastructure are:

  • Increase recycling rates to 70 per cent for municipal solid waste and commercial and industrial waste, and 80 per cent for construction and demolition waste.
  • Increase waste diverted from landfill to 75 per cent.

A further target — manage problem waste better by establishing or upgrading 86 drop-off facilities or services for managing household problem wastes state-wide — is dependent on accessible community waste drop-off facilities across NSW.

Exhibit 7 identifies the five grant programs that provide funding for new or enhanced waste infrastructure to increase capacity for reuse or recycling of waste. All five of these programs were examined in the audit.
In addition to the grant programs shown in Exhibit 7, other programs provide funding for infrastructure, but at a smaller scale. Examples of these include:

  • Bin Trim which provides rebates to small businesses for small scale recycling equipment such as cardboard and soft plastic balers.
  • Litter grants which provide funding for litter bins.
  • Weighbridges grants for installation of a weighbridge at waste facilities.
  • Landfill consolidation and environmental improvement grants for rural councils to replace old landfills with transfer stations or to improve the infrastructure at landfill sites.
flowchart showing the factors relied on to reach target of increase waste diverted to landfill to 75 per cent. For accessible version email communications@audit.nsw.gov.au
Exhibit 7: Relationship between WARR targets and waste infrastructure grant programs

Source: Audit Office research.

3.1 Planning and funding waste infrastructure

There is currently no formal strategy in NSW to guide waste infrastructure investment

A draft waste infrastructure strategy was published for consultation by the EPA in 2017 but was never adopted nor further developed into a full strategy.

The absence of a formal strategy to guide waste infrastructure in NSW limits the ability of the State Government to develop a shared understanding between planners, councils and the waste industry about what infrastructure is required, when and where.

DPIE is currently preparing a 20-year waste strategy. There is an opportunity for the government to use this waste strategy to set clear parameters for determining priorities for investment in waste infrastructure.

All state government investment in waste infrastructure is delivered through grants

The EPA and the Environmental Trust currently support waste infrastructure solely through grants to councils and industry on application. There is evidence that some waste infrastructure projects would not proceed if it were not for government assistance.

Solely funding waste infrastructure through grants means that proposals from councils and private companies are driving decisions about what waste infrastructure is built in New South Wales. There is a risk that some waste infrastructure projects could be designed to maximise returns to commercial waste operators rather than to respond to government objectives. While it is appropriate and desirable that councils and industry have input into waste infrastructure planning for the state, the State Government could play a more direct role in determining what waste infrastructure is built, and in what locations.

Development of a 20-year waste strategy also provides government with an opportunity to consider a range of funding options for waste infrastructure.

Grant program targets are not clearly aligned with state WARR targets

The audit examined the alignment of targets for the five grant programs included in the audit and the state targets for waste and resource recovery (the WARR targets). We also examined the alignment between program targets and program outcomes.

With the exception of targets for Community Recycling Centres, there is no direct alignment between the WARR targets and targets established for programs that fund waste infrastructure supporting those targets. Programs that fund waste infrastructure set targets for the amount of waste processing capacity they intend to fund. These targets are expressed as tonnages. WARR targets related to waste infrastructure are expressed as per centages of waste to be diverted from landfill and per centage increases in recycling rates. These are related to waste facility throughput. While the WARR targets and program targets are conceptually linked, it is difficult to assess the contribution that waste infrastructure programs make to achieving WARR targets.

Exhibit 8 shows a comparison between the state WARR targets and targets set for individual programs. The table also shows the capacity funded for each of the programs included in the audit.

Exhibit 8: Comparison of WARR targets, infrastructure capacity needed, program capacity targets and capacity funded
Program WARR target Program target* Capacity funded 2014–2019
Household Problem Waste - CRC 86 facilities 86 facilities 110 facilities
Organics processing facilities Increase waste diverted from landfill to 75%

Increase recycling rates to 70% for MSW and C&I
Additional processing capacity of 480,000 tonnes per annum Additional processing capacity of 536,717 tonnes per annum

Waste and recycling infrastructure fund:

  • Major resource recovery infrastructure grants
  • Resource recovery facility expansion and enhancement grants
  • Product Improvement Program
Increase waste diverted from landfill to 75%

Increase recycling rates to 70% for MSW and C&I and 80% for C&D
Additional processing capacity of 890,000 tonnes per annum Additional processing capacity of 2,225,263 tonnes per annum

*  Program targets shown represent the sum of targets set for the 2013–17 WLRM fund and the 2017–21 WLRM extension.
Source: Data provided by the EPA, DPIE and the Environmental Trust (capacity funded is unaudited).

Additional community recycling centres were funded beyond the program targets to respond to gaps in accessibility of households to centres across the Sydney metropolitan area.

Audited agencies informed us that there is a need to fund more capacity than required to meet the targets, as some projects fail to deliver. However, it is unclear why the programs included in the Waste and Recycling Infrastructure Fund have funded capacity that is almost three times in excess of the program target. 

3.2 Assessing grant applications and monitoring projects

To maximise the impact of a grant program on meeting the state waste targets, the program must be administered so that:

  • projects chosen for funding are those that are likely to deliver the greatest impact on state waste targets
  • project risks are managed to minimise the risk that the project does not deliver the agreed outcomes.

The audit examined the grant application, assessment and project monitoring documentation from 12 grant rounds and 20 specific grant projects. Ten of the grant rounds were managed by the Environmental Trust and two by the EPA, referred to as the ‘funding agencies'.

Exhibit 9: Grant programs and funding agencies included in the audit
Grant program Administered by
Household problem waste – Community Recycling Centres Environmental Trust
Organics infrastructure fund  
Waste and recycling infrastructure fund  
  • Major resource recovery infrastructure grants
Environmental Trust
  • Resource recovery facility expansion and enhancement grants
Environmental Trust
  • Product Improvement Program
EPA


Source: Audit Office research.

Our sample included completed projects, some that were still in progress and one that was withdrawn. Grant applicants included both councils and private operators. We looked particularly at the contribution of the funded projects to meeting state waste targets, and how the funding agencies managed risk to ensure that the funded project delivered the agreed outcomes.

Implementation of some grant administration procedures requires improvement

Staff from DPIE administer Environmental Trust programs, guided by the requirements of the Environmental Trust Act (1988) and supported by grant administration procedures. The EPA follows almost identical grant administration procedures to the Environmental Trust and also supports the Environmental Trust in the following ways.

  • delivering information sessions for all grant rounds, including those administered by the Environmental Trust
  • conducting regulatory and compliance checks for all grant applications proposing projects to build or enhance waste infrastructure
  • verifying self-reported performance of grant recipients.

Grant applications are initially assessed by the EPA and DPIE for completeness and also compliance with environmental and planning regulations. They then undergo scrutiny and analysis by an independent economist.

Grant applications are then assessed by a Technical Review Committee of independent experts and community representatives. Depending on which agency administers the grant program, recommendations for awarding grants are made by this committee to either the Environmental Trust members or the CEO of the EPA.

Grant administration practices support the achievement of program objectives and management of project risks. Risk-mitigation practices include establishing Deeds of Agreement with applicants which outline the expectations of grant recipients in terms of outcomes of the funded project and regular progress reports and engaging probity officers to oversee the deliberations of assessment committee members when they meet.

The audit found that the relationship between the EPA and the Environmental Trust functions well in relation to administering the grants that fund waste infrastructure. However, we identified some opportunities for improvement in the application of grant administration procedures:

  • In the ten grant rounds administered by the Environmental Trust that were reviewed for the audit only two had a full set of conflict of interest declarations and confidentiality agreements for all Technical Review Committee members. As Technical Review Committee members are active in the waste industry and may have commercial relationships with applicants, it is important that their independence and objectivity is carefully assessed and records are maintained. We note that there has been improvement in the retention of these documents in recent years.
  • While reports are prepared by probity officers present at meetings of the Technical Review Committees, committee deliberations are not recorded for grant programs administered by the Environmental Trust. Technical Review Committee views are instead documented in spreadsheets that record the scoring and other assessment comments of committee members. For two of the ten grants rounds we examined, these spreadsheets could not be located by the Environmental Trust staff. This exposes the risk that the government would be unable to justify awarding grants to particular applicants if the outcomes of a grant round were challenged at a later date. Government agencies are required to keep documentation in accordance with the State Records Act 1998 and the NSW Government Standard on Records Management. This includes proceedings of meetings.
  • Cost-benefit analyses prepared by applicants to demonstrate the economic value of their projects were often poor quality, despite the availability of free support services provided by the funding agencies. Economists engaged by the funding agencies to assess the cost-benefit analyses identified flaws in 69 per cent of those prepared for the grant rounds included in the audit. Without robust cost benefit analyses, there is a risk that the projects awarded grants may not be those delivering the greatest overall benefit in reference to the program objectives. There is an opportunity to work with the NSW Treasury to develop a cost-benefit analysis template more suited to external grant applicants.

Inconsistent information is communicated about grant program priorities

Setting priorities for individual grant rounds can help the government to address gaps in needed waste infrastructure, both in types of waste and locations where infrastructure is required.

Some grant rounds have priorities which are communicated to grant applicants in application guidelines. Priorities are also communicated to assessors in assessment guidelines. In our audit sample of 12 grant rounds, documentation in three rounds included inconsistent and potentially misleading advice for grant applicants and the assessment team about the priorities for the grant round.

Exhibit 10: Examples of inconsistent information about grant program priorities

Application guidelines for the 2017 round of the Resource Recovery Facility Enhancement and Expansion Fund stated that construction and demolition waste would be the priority for funding. However, the guidelines provided to the assessment team said that the priority would be waste recovered from business, industry and households.

Application guidelines for the 2019 round of the Product Improvement Program specified the following priority waste types to guide applicants: mattresses, plastic film or other plastics, copper chrome arsenic timber and other treated timbers, tyres and rubber, nappies and incontinence pads. Guidelines provided to the assessment team only identified paper/cardboard, glass and plastics as the priority materials.

Source: Audit Office research.

Inconsistent information provided to grant applicants and assessors limits the effectiveness of setting priorities. It also prevents applicants from receiving due process and creates a risk that the best projects may not be funded. Applicants may decline to apply for a grant because they believe that their project will not be seen as a priority, or an assessment team may erroneously reject a project that it believes is a low priority.

3.3 Monitoring results

The Environmental Trust and the EPA both execute Deeds of Agreement with successful grant recipients. These Deeds are a form of contract that includes a schedule of payments based on achievement of project milestones. The Deeds of Agreement also include the original grant application forms in which the applicants have committed to environmental outcomes such as processing capacity and throughput and social outcomes such as increased employment.

Grant recipients provide progress reports on agreed milestones but reporting does not include a re-assessment of risks to agreed environmental and social outcomes

While project progress is monitored by the funding agencies, other risks that may affect project outcomes are not formally assessed by the funding agencies throughout the project.

Formal processes are in place for grant recipients to report performance against project targets and request variations to project schedules and scope. However, unless the grant recipient requests a variation, or reports a change to their original risk assessment, the funding agency may be unaware of internal or external risk factors impacting upon the project's agreed social and environmental outcomes until the final milestone report and measures are submitted. One project reviewed for the audit delivered all milestone reports on time until the final report revealed that the project scope had been changed and the agreed waste throughput was unlikely to be delivered. Earlier assessment of project risk might have identified the change of scope and led to earlier investigations.

Final project reports may not reveal whether agreed waste diversion rates and throughput have been achieved

Project infrastructure is typically not yet operating at full capacity when the final milestone payment is made and neither the EPA nor the Environmental Trust follows up to check that the grant recipient achieves the agreed throughput and waste diversion.

Nine completed projects were included in the audit. For those nine, at the time they submitted their final reports:

  • 3 had met or exceeded the agreed tonnage of waste diverted from landfill
  • 4 had not yet met their agreed outcomes
  • 2 had no agreed outcomes relating to waste diverted from landfill.

Successful recipients are expected to deliver outcomes included in their grant applications. For most, these include processing capacity (also known as built capacity) and throughput, which represents commitments to diverting waste from landfill. The funding agencies check that the agreed built capacity has been delivered before the final grant payment is made. They also check six months of throughput data. However, changes in the competitive market for recycling inputs or outputs or regulatory changes mean that the agreed throughput is not always achieved at the time the final reports are received. Neither the Environmental Trust nor the EPA monitor the outcomes of funded projects to know if agreed throughput is ever achieved. This means they do not know if these projects are delivering the expected contribution to WARR targets. 

Appendices

Appendix one – Responses from audited agencies

Appendix two – About the audit

Appendix three – Performance auditing

 

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Parliamentary reference - Report number #343 - released 26 November 2020