Reducing Landfill: A Landfill Allowance Scheme Consultation
4 BORROWING AND BANKING OF ALLOWANCES
4.1 This chapter describes the borrowing and banking of allowances as provided for in section 6 of the WET Act. These mechanisms would give local authorities added flexibility in meeting their obligations under the scheme and would be particularly useful as local authorities move towards a level playing field. They have to be carefully designed to ensure that they do not cause Scotland, and the UK as a whole, to fail to meet their targets.
BORROWING
4.2 Borrowing would allow local authorities planning to install diversion facilities to use allowances from their future allocation before these facilities are ready.
4.3 The Executive's view is that the level of allowances that can be borrowed should be restricted. Allowing unlimited borrowing may encourage some local authorities not to put in place adequate infrastructure in time. It will also discourage trading in the early years of the scheme. The Executive proposes that local authorities should be allowed to borrow up to 5% of their next year allowances from year to year. This should give local authorities reasonable flexibility without creating risk.
4.4 The WET Act prevents the borrowing of allowances for use in EC target years. This is because if local authorities were allowed to borrow extra allowances for use in EC target years there would be a risk that Scotland, and subsequently the UK as whole, might exceed their targets and be liable to fines from the EC.
4.5 The WET Act also prevents the borrowing of allowances across EC target years. This is because the targets become increasingly difficult to meet over time. The 2013 target is a particularly steep reduction from 2010 and it would be inadvisable to allow local authorities to use allowances from this period in advance when they are likely to need them to meet the 2013 target.
BANKING
4.6 Banking would allow local authorities that have already put in place diversion facilities, and therefore do not need all of their allowances in a particular year, to bank those unused allowances. These can then be used or traded in future years, when their allowance has reduced.
4.7 Unlimited banking will be permitted within each interim target period. Local authorities which have diverted BMW from landfill and have managed to save allowances should be able to bank these to trade in later years (particularly if they are not able to sell them immediately - they may be able to make up some of the costs of diversion later).
4.8 The Waste and Emissions Trading Act prevents banked allowances being used in EC target years. Allowances banked before the first target year will have to be used by the end of the scheme year in 2009; they will then expire. This is for the same reason that borrowing in target years is not allowed: it could cause Scotland and the UK as a whole to exceed their targets.
4.9 The WET Act also prevents the banking of allowances across target years. This is a consequence of preventing the borrowing of allowances across target years. Local authorities will not be able to gain all the allowances they need through borrowing and will need to purchase extra allowances on the market. However, if banking is allowed across target years, local authorities with spare allowances may choose to bank them rather than sell them. This will cause a shortage of allowances on the market.
4.10 The WET Act provides for regulations to be made allowing Scottish Ministers to suspend the borrowing and banking of allowances. The Executive intends to take this power if it seems likely that otherwise Scotland's ability to meet its targets will be adversely affected.
Q14: Is 5% a sensible limit on the following year's allowances that local authorities can borrow? If not, what percentage should local authorities be allowed to borrow?
REGISTRATION OF BORROWING AND BANKING
4.11 Local authorities will be required to supply the Scottish Environmental Protection Agency (SEPA - see section 6) with details of borrowed allowances. Until details have been registered and confirmed by SEPA the borrowing of allowances will not have taken place officially. Local authorities will need to provide details of the amount of allowances borrowed and their reference numbers. The reference numbers will include a code for the local authority to whom the allowance was originally allocated and the year for which it was originally allocated. These details can be provided at any point during the scheme year to which borrowing relates, but must be provided no later than 3 calendar months after the end of that scheme year.
4.12 SEPA will automatically bank the unused allowances of individual authorities at the end of each scheme year except in target years or across target periods. For example, any allowances that a particular local authority has not used in 2007/08 will be automatically transferred into that local authority's account for 2008/09.