How to take into account economy and local conditions in implementation of BAT?

Consultant: CMDC Joint Venture

How to take into account economy and local conditions in implementation of BAT?


IPPC and economics

Economics reflected in ‘available’ element of BAT‘Available’ techniques shall mean those developed on a scale which allows implementation in the relevant industrial sector, under economically and technically viable conditions, taking into consideration the costs and advantages (Article 2(11) IPPC Directive)

Key points “economically and technically viable” “taking into account the costs and advantages” We require sufficient data in order to be able to make a decision


The IPPC Balancing Act

BEST AVAILABLE TECHNIQUE

Non-EnvironmentalCommercialPressures

PollutionControlCosts

Economic Viability

Technically Viable Techniques

Local

Environmental Issues

Global

Regional

Desired Environmental Outcome

Advantages Costs


Waste Incineration Plant


Non-Enviro. Commercial Pressures

Competition Within Sector Power of Suppliers & BuyersThreat of New Entrants & SubstitutesReturn Expected from Investors Cost of Capital

Pollution Control Costs

Waste Handling / mixingFurnace configurationFGR / SNCRElectrostatic PrecipitatorDry or Wet Scrubber

Economic Viability- how much additional cost burden can sector absorb


From Technical Guidance

LocalNOx, PM10’s

Metals Dioxins Furans

Odour Noise

Health, Amenity

CO2Global Warming

RegionalSOx, NOx, Acid Rain

Desired Environmental Outcome - Operating Techniques and Emission limits

Advantages Costs


Waste Landfill


Non-Env Commercial Pressures

Competition Within SectorPower of Suppliers & BuyersThreat of New Entrants & SubstitutesReturn Expected from Investors Cost of Capital

Pollution Control CostsLiner / barrier techniquesCapping, leachate treatmentGas Control/ FlareWaste HandlingFencingMonitoring MethodsFinancial Provision

Economic Viability- how much additional cost burden can sector absorb


From Landfill Directive Technical Guidance

LocalProtection of

Local Surface & GroundwaterOdour Noise

Litter

Health, Amenity

CH4Global Warming

Regional

None?

Desired Environmental Outcome - Operating Techniques and Emission limits

Advantages Costs


When would the Authority need to collect costs / make assessment?

In the development of guidance the balancing of these issues is already being addressed at increasingly detailed levels

BREF National Technical Guidance Individual Permits Landfill Directive

Not in all cases -so don’t worry !

Collection of cost data / specific economic assessment is not required:• Where either BAT or the “best environmental option” as per guidance is already

proposed by the operator with no specific local environmental issues that require a

beyond guidance solution.• For a new installation the DETR Practical Guide sets out that the best technique is

normally expected to be BAT (as per guidance)


Collecting cost data and economic assessments will however be required:

When there are multiple candidate BATs -- and selection of the appropriate one is not

clear-cut

When the BAT set out in the BREF/TGN is not appropriate, e.g. covering the sub-sector

under examination

Where local environmental impacts require a “beyond guidance BAT” solution

Where there are claims for a “sub BAT” outcome

For an existing installation where flexibility might be allowed re scale and timing on the

basis of disproportionate costs

This list is not exhaustive: costs can be required to make the decision whenever the Authority sees fit


Assessment of costsStep 1: obtain cost estimates from operators

Step 2: examine the credibility of the operator’s cost data are they complete? are they accurate?

Step 3: assess whether the costs are excessive economically viable in proportion to the environmental benefits


Step 1: collecting costs Require all costs for the operator resulting from the decision to invest in the

technique capital and operating costs in disaggregated form cost savings and changes in revenues assumptions on aggregation (eg discount rate, time horizon)

Required for all options examined

Operator is responsible for preparing costs

Where possible apportion costs to individual pollutants

Performance of different options varies therefore require cost represented per unit of pollution abated


Illustrative cost data submission

This submission is not sufficient to determine BAT

The cost data cannot be assessed on the basis of this break-down

Option Option 1(business as

usual)

Option 2 Option 3

Annualised capital costs (£’000) 1100 800 1500

Annualised operating costs(£’000)

900 1200 1000

Total annualised costs (£’000) 2000 2000 2500

NOx abatement (tonnes/yr) 1600 1000 2000

Cost / tonne abated (£/t) 1250 2000 1250


Step 1: total costsCOST COMPONENT OPTION 1 OPTION 2 OPTION N

COSTS

Total capital costs (£’000)

Net change in annual operatingcosts (£’000)Economic assumptions Time horizon (years) Discount rate (%)Equivalent annual costs(£’000 / yr)POLLUTION ABATEMENT

“Pollution abatement” (tonnes)

Unit cost (£’000 / tonne)


Step 2: examine the credibility of the data

Three key questions: are all the relevant cost components included? are the costs accurate and reasonable? are the assumptions for discount rate and economic lifetime of equipment consistent and

plausible

How to assess (will vary on a case-by-case basis): probe the operator expert judgement and internal consultation control cost database (benchmarking) economics support


Step 3: assess whether the costs are excessive

In IPPC this relates to: “economic viability” “taking into consideration costs and advantages”

=The IPPC balancing Act (see balance diagrams)

Economic viability: implies affordability for average operator to afford the technique; not necessarily for each individual operator. Work is in progress to maintain an ongoing view by collating business information on the sector from annual reports and

the internet.

Consideration of Costs and advantages: implies a cost-benefit comparison: balancing cost (£) v abatement level and associated advantages (usually not

expressed in £ terms) Remains an expert and sometimes negotiated judgement Work in progress to create a database of costs of abatement techniques


The IPPC Balancing Act


Non-EnvironmentalCommercialPressures

PollutionControlCosts

Economic Viability


Local

Environmental Issues

Global

Regional

Desired Environmental Outcome

Advantages Costs


Step 3: determining economic viability- Existing Burdens

Financial Resilience of Firms within the Sector Using Ratio Analysis of ‘Average Good Operator’, ‘ best’& ‘Worst’ to gain a measure of: Liquidity Solvency Financial return Efficiency


Step 3: determining economic viabilityImplies affordability by the ‘average’ operator not by the individual operator

Examine in terms of impact on unit profit margin, eg: market price : £100 per unit profit margin : £10 per unit change in abatement cost : £2 per unit

Can realistically request these data from operators but analysis should be undertaken by/with economists

Can be very complex and requires extensive sectoral knowledge (eg whether firms can pass through or must absorb cost increases)


Step 3: assessing costs and advantagesCosts should not be disproportionate to the environmental benefits, - a

useful means to assess is by £s per tonne of pollution abated

The control cost database can support by providing such figures

But there still remains a need for the Account manager’s expert judgement in selecting the appropriate option

How to take into account economy and local conditions in implementation of BAT?

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