Organic Waste Economic Values Analysis Summary Report

Environment Protection Authority

Consultancy report:

Organic waste economic values analysis Summary report

This report has been prepared by consultants for the Environment Protection Authority (EPA) and the views expressed do not necessarily reflect those of the EPA. The EPA cannot guarantee the accuracy of the report, and does not accept liability for any loss or damage incurred as a result of relying on its accuracy. Department of Industry and Trade Environment Protection Agency

ORGANIC WASTE ECONOMIC VALUES ANALYSIS SUMMARY REPORT

January, 2002 Prepared in association with Access Economics

Ref: 3091-01

NOLAN-ITU Pty Ltd ACN 067 785 853 ABN 23 359 240 890 P.O. Box 393 Level 1, 625 High St, East Kew Victoria 3102 Telephone: (03) 9859 3344 Facsimile: (03) 9859 3411 NOLAN-ITU PTY LTD ACN 067 785 853 ABN 23 359 240 890

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This document is and shall remain the property of Nolan-ITU Pty Ltd. The document may only be used for the purpose for which it was commissioned and in accordance with the terms of engagement for the commission. Unauthorised use of this document in any form whatsoever is prohibited.©

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REF: 3091-01

Document Issue and Status Rev. Status Date Project Manager Reviewer

1-0 Preliminary Draft 18 July 2001 John Nolan Bruno Schacher

1-1 Internal Draft 19 July 2001 John Nolan Sam Bateman

1-2 Draft 10 August 2001 John Nolan Sam Bateman

1-4 Final Draft 13 November 2001 John Nolan Sam Bateman

1-5 Final Draft No. 2 16 January 2002 John Nolan Sam Bateman

1-6 Final 31 January 2002 CONTENTS

1 STUDY OBJECTIVES ...... 1

2 SUMMARY OF KEY OUTCOMES ...... 2

3 TERMS OF REFERENCE ...... 2

4 TERMINOLOGY ...... 3

5 CURRENT ORGANIC PROCESSING INDUSTRY OVERVIEW ...... 3

6 AVAILABILITY OF FEEDSTOCK ...... 4

7 EXISTING AND POTENTIAL PRODUCT MARKETS...... 4 Compost Products 4 Renewable Energy 5 8 ALTERNATIVE ORGANIC PROCESSING SCENARIOS...... 6 Scenario 1 – Base Case 7 Scenario 2 - Expansion of Current Organic Processing Industry 8 Scenario 3 - Inclusion of Other Organics in Current Industry 8 Scenario 4 – Residual Treatment - Pyrolysis 8 Scenario 5 – Residual Treatment – Anaerobic Digestion 8 Scenario 6 - Residual Treatment – Pyrolysis & No Recyclable Organics Collections 9 9 ASSESSMENT TOOLS...... 9

10 KEY FINANCIAL ASSUMPTIONS ...... 10 Evaluation Period 10 Ownership 10 Number of Facilities 10 Gate Fees 10 Transport Costs 11 Labour Costs 11 Land Value 11 Value of Compost to Agricultural Industries 12 11 ANALYSIS OF THE EXISTING INDUSTRY...... 12

12 FINANCIAL EVALUATION OF FUTURE SCENARIOS...... 13

3091-01/DIT EPA - rpt1-6(sum).doc Department of Industry and Trade & Environment Protection Agency CONTENTS

13 COST BENEFIT ANALYSIS ON ECONOMIC VARIABLES...... 14 Processor Operating Profit 16 Agricultural Users Benefit 16 Job Creation 16 Sensitivity Analysis 16 14 ENVIRONMENTAL ANALYSIS ...... 17

15 KEY STUDY OUTCOMES...... 18 1. Economic Benefits of the Existing Industry 18 2. Environmental Comparison with Landfilling 19 3. Economic Benefits to the State 19 4. Role of Residual Waste Treatment Technologies 19 5. Treatment of the Combined Waste Stream in Preference to Source Separation 19 16 ACKNOWLEDGEMENTS ...... 20

3091-01/DIT EPA - rpt1-6(sum).doc Department of Industry and Trade & Environment Protection Agency 1 STUDY OBJECTIVES

The objective of this economic value analysis study is to quantify and evaluate, as far as possible, the broad economic, environmental and social costs and benefits of existing and potential organic waste collection, processing, and product development industries to the welfare of South Australia; so that government, industry and the community can make informed decisions on organic waste management options.

Industries to be considered include those based upon source separation of organics to produce high value compost products, and those based upon treatment of the residual waste fraction to produce renewable energy, and in some treatment processes - lower value compost products.

The renewable energy organic processing industry is complimentary to the “source separation” processing industry, when it utilises the residual waste stream only. However, it is competing when organic feedstock is augmented by the inclusion of organic wastes which are currently, or could be, source separated for processing and the production of compost based products.

It is intended that the study will:

� provide the South Australian Government and other stakeholders with sound information on the range of potentially viable organic processing industries;

� advance understanding of the sustainablity parameters which form part of the decision making process; and

� contribute to the national body of knowledge which is being developed to assist waste managers to undertake assessments of alternative organic processing technologies.

The study is restricted to organic processing industries that are or may be established within 100 km of the Adelaide CBD and their product markets which extend beyond the region.

The study has been undertaken on behalf of the Department of Industry and Trade and the Environment Protection Agency by Nolan-ITU. Access Economics has contributed to the study by conducting the financial analysis and economic cost benefit analysis. This summary report is supported by a comprehensive and confidential report provided to the Department of Industry and Trade and the Environment Protection Agency.

1 3091-01/DIT EPA - rpt1-6(sum).doc Department of Industry and Trade & Environment Protection Agency 2 SUMMARY OF KEY OUTCOMES

The key study outcomes are summarised below:

i) Economic benefits to the State derived from the existing “source separated” organic processing industry are indicated by the analysis. These are due to downstream agricultural flow-on benefits and high labour requirements. ii) All of the organic processing options considered, including the existing and expanded source separated composting industry as well as residual waste treatment using pyrolysis and anaerobic digestion technologies, result in improved environmental outcomes compared with landfilling only. iii) The “source separation” composting scenarios result in the greatest benefit to the State due to downstream agricultural flow-on benefits and high labour requirements, and that augmentation of the current “source separation” organic processing capacity will result in additional benefits. iv) There is also a role for new thermal treatments, enclosed composting and anaerobic digestion in the treatment and resource recovery from residual wastes. They can co exist with composting of source separated organics, provided that environmental performance is clearly established and the technology has been fully tested and is recognised as being both technically and commercially viable. v) Adoption of domestic residual waste technologies to the exclusion of ‘source separation’ alternatives is not considered desirable unless it is demonstrated that the performance of the specific technology under consideration would result in improved environmental and economic outcomes.

3 TERMS OF REFERENCE

The terms of reference for the study are as follows:

� Gather information from relevant sources to establish the overall operation and sector impacts.

� Interview a selection of clients to cover the key market segments and to gain qualitative data on the effects of the products.

� Analyse and assess these effects against statistical data on industry size to form economic contribution values.

� Provide consolidated summary tables of environmental benefits and costs including greenhouse gases and energy efficiencies and of overall findings of the economic and employment analysis.

2 3091-01/DIT EPA - rpt1-6(sum).doc Department of Industry and Trade & Environment Protection Agency 4 TERMINOLOGY

The potential sources of organic waste material considered include recyclable organics (RO), commercial wet organics (CWO), domestic food waste (DFW) and domestic residual waste (DRW).

Recyclable organics refers to ‘green’ organic wastes such as leaves, tree prunings, and shrubs from household yards, parks and gardens, and road reserves. Commercial wet organics includes organic wastes from the agriculture, and food processing industries such as manures, wool scouring wastes, grape marc, animal carcases, and biosolids. Domestic food waste is the food fraction of the waste stream generated by households.

Domestic residual waste refers to the residual waste placed by householders in the garbage bin after source separation has occurred. For all organic processing industry scenarios considered, it is assumed that domestic residual waste does not include paper, cardboard, and plastics which are source separated by householders for kerbside recycling.

References to ‘compost based’ products includes both composted organic material (‘compost’) and secondary products derived from compost such as pellets.

5 CURRENT ORGANIC PROCESSING INDUSTRY OVERVIEW

The current organic processing industry within the study area is well established. Approximately 111 000 tonne/yr of recyclable organics and over 75 000 tonne/yr of commercial wet organics is currently processed; an increase of about 20% since 1999. Of the processed recyclable organics, 38% is sourced from kerbside collections, 41% from parks and gardens and drop off depots, with the remaining 11% sourced from the commercial sector.

There are over 10 licensed organic processors within 100 km of the Adelaide CBD, and six known unlicensed facilities which mainly produce mulch and are not actively involved in large scale composting. Of the licensed organic processors, Jeffries Garden Soils and Peats Soil and Garden Supplies receive over 50 % of the total organic feedstock used in the production of compost based products. All of the licensed processors compost “source separated” organics using traditional open windrow processing.

A range of compost based product are manufactured by varying the mix of organic wastes in the compost, adding soil and/or sawdust, and introducing nutrients. The processed material is sold to the viticulture, horticulture, landscaping, and site remediation industries. A small quantity is also exported. The larger existing facilities are at production capacity, hence will need to re establish at new locations within the next few years to meet projected industry growth rates.

There are substantial opportunities to expand the industry through an increase in the number of councils offering collection services, the potential collection of domestic food waste, and increased source separation of commercial wet organics.

3 3091-01/DIT EPA - rpt1-6(sum).doc Department of Industry and Trade & Environment Protection Agency 6 AVAILABILITY OF FEEDSTOCK

As part of this study, the availability of feedstocks for organic processing has been estimated.

For ‘source separated’ processing systems about 206 000 tonne/yr of recyclable organics could be obtained through improved kerbside collection systems, and enhanced commercial recovery systems. By introducing domestic food waste collections, an additional 60 000 tonne/yr would become available. Approximately 30 000 tonne/yr of commercial food and kitchen waste is also potentially available. The potential availability of commercial wet organics is estimated to be greater than 188 000 tonne/yr. In total, over 484 000 tonne/yr of source separated material is potentially available for processing.

It is estimated that approximately 260 000 tonne/yr of domestic residual waste is landfilled each year of which about 240 000 tonne/yr is available for residual waste treatment. The remaining 20 000 tonne/yr is potentially recoverable non-organics (i.e. metals and glass). The organic available organic fraction is based upon the current level of kerbside collection for recyclable organics.

7 EXISTING AND POTENTIAL PRODUCT MARKETS

Compost Products

Land degradation, caused by a loss of organic matter through soil erosion, salinisation, nutrient depletion is one of the one of the most serious environmental threats facing Australia.

Approximately 75% of all agricultural land in Australia contains 1% or less of organic carbon material, which is considered extremely marginal. It is widely recognised that if steps are not taken to reverse the degradation of these finite soil reserves, the long-term viability of many primary production industries will be severely threatened. Further impacts include loss of habitat with associated effects on biodiversity and amenity.

Compost based products can make a beneficial contribution to address a range of land degradation problems. The application of compost based products to agricultural soils can help to reverse the rapid rate of soil decline across the state by providing organic carbon to the soil. Compost use also improves water use efficiency and hence reduces the risk of soil salinisation through excessive leaching.

Viable intensive agricultural markets for compost based products include the viticulture and horticulture (vegetables and fruit) industries, as well as the cut flower and nursery sectors. Other compost based product markets include landscape (amenity); rehabilitation and bioremediation.

Extensive agriculture was excluded as a large scale market sector due to the high transport and application costs compared with the relatively low value of the crops. Export markets were also excluded because of uncertainty regarding sustained market growth opportunities.

The potential demand and market values of the sectors are presented in Table 1.

4 3091-01/DIT EPA - rpt1-6(sum).doc Department of Industry and Trade & Environment Protection Agency Table 1: Potential Demand and Market Values for Compost Based Products Market Sector Potential Market Value Demand ($/tonne) (tonne/yr) Cut flowers, nurseries, and vegetables 48 000 60 Fruit and Vineyards 126 000 70 Landscape 85 000 45 Rehabilitation & Bio-remediation 57 000 8 Total 316 000

Renewable Energy

Converting organic waste to renewable energy has been seen as a significant way of contributing to meet the Australian Government’s commitment to greenhouse gas abatement as part of the Kyoto Protocol. This has become increasingly important due to the recently legislated target of 2% electricity generation from the renewable sources under the Renewable Energy (Electricity) Act, 2000. Combined solar, wind, tide and small scale hydro electricity schemes have limited chances to make up the mandated renewable energy source changes by the Kyoto commitment period of 2008 to 2012.

As well as power generators meeting mandated targets, the introduction of tradeable Renewable Energy Certificates has resulted in the introduction of novel fiscal measures, stimulating energy from biomass ventures. Recyclable organics, commercial wet organics, domestic food wastes, and domestic residual wastes have been classified as streams which are suitable biomass feedstocks and a high level of financial assistance has been provided by the Commonwealth Government to encourage uptake of alternative technology waste to energy ventures based on these greenhouse gas reduction objectives. These alternative technologies include thermal technologies such as pyrolysis and gasification, and other energy generating processes such anaerobic digestion. In addition to generating a heat and fuel, anaerobic digestion produces a solid residue which may be used to produce a compost based product.

It is assumed that the energy sells for $40/MWh, and that Renewable Energy Certificates will be sold at $30/MWh in 2005 rising to $40/hr in 2010 to meet the 9 500 GWh renewable energy target.

5 3091-01/DIT EPA - rpt1-6(sum).doc Department of Industry and Trade & Environment Protection Agency 8 ALTERNATIVE ORGANIC PROCESSING SCENARIOS

A range of potentially viable organic processing scenarios have been assessed for their broad economic, environmental and social costs and benefits. In addition to the existing organic processing industry (Scenario 1), five other generic organic processing industry configurations which cover the broad spectrum of available options have been evaluated. These are:

Scenario 2: Expansion of the existing source separated organic processing industry with minor improvements to technology and incremental growth in processing capacity to 275 000 tonne/yr. Scenario 3: Significant expansion of the existing source separated organic processing to 350 000 tonne/yr, in part through the inclusion of domestic food waste. For this scenario two enclosed composting facilities would be established. (This scenario is reliant upon an expansion on the potential market size of 316 000 tonne/yr). Scenario 4: Pyrolysis of domestic residual waste with continuation of existing industry. The domestic food waste processing capacity is assumed to be 260 000 tonne/yr at a centralised facility. Scenario 5: Anaerobic digestion of domestic residual waste with continuation of existing industry. The domestic residual waste processing capacity is assumed to be 260 000 tonne/yr at a centralised facility. Scenario 6: Pyrolysis of domestic residual waste with downsizing of existing source separated industry through the discontinuation of recyclable organics kerbside collections. The domestic residual waste processing capacity is assumed to be 295 000 tonne/yr through a centralised facility, with a reduction in feedstock of about 35 000 tonne/yr to the existing source separated processing industry.

All of the above generic primary organic processing systems involve pre and post processing elements which are specific to technology provider specifications. The main elements of the primary systems are summarised below.

Composting is an aerobic process and hence it is essential to have sufficient bulking agents to allow for air flow. For feedstooks with a high fraction of wet organics composting is typically undertaken in an enclosed facility where the odoriferous off-gas is collected and cleaned in a biofilter. Whilst domestic residual waste can be composted in enclosed composting facilities, only source separated composting has been considered in this study.

Pyrolysis is a new thermal treatment technology process which produces syngas comprised primarily of hydrogen, methane, carbon dioxide, and carbon monoxide. No air is used in this process. The gas is cooled, cleaned, and transferred to power generation units. The process also produces other by-products including a carbon rich char and an oily tar-based substance.

6 3091-01/DIT EPA - rpt1-6(sum).doc Department of Industry and Trade & Environment Protection Agency The anaerobic digestion process produces biogas which is transferred to power generation units. The residual solid organic material from the process can be composted. The process typically consumes a substantial amount of water in order to ensure that appropriate feedstock properties are maintained. Off-gas is collected and cleaned usually by both an ammonia scrubber and a biofilter.

Scenarios 2 and 3 are based upon “source separated” organic waste processing, with the production of high value compost based product. Scenarios 4 to 6 involve treatment of the residual waste stream. Whilst Scenarios 4 and 5 allow for the maintenance of the existing organic processing industry at it’s current capacity, Scenario 6 also includes the processing of recyclable organics which is currently collected at the kerbside, thus resulting in a reduction in the inputs to the existing processing facilities.

Whereas Scenarios 2 and 3 differ from the base case in expanding the processing of source separated organic material, Scenarios 4 to 6 differ from it by processing all the domestic residual waste in a way that generates electricity and greatly reduces the amount of domestic residual waste currently landfilled.

An overview of the scenarios analysed is presented below. For each analysis, total organic inputs and material movements of 546 000 tonne/yr are considered with the respective amounts recovered and landfilled depending upon the individual scenario specifications. The existing kerbside domestic recovery programs for recyclables have been included in all scenarios as a prerequisite, as they achieve waste hierarchy objectives as outlined in the Draft Environment (Waste to Resources) Protection Policy (EPP) and are strongly supported by the community.

The quantity of waste landfilled in each scenario differs, and as such the financial and environmental assessment relates to the entire scenario, not the technology. This is particularly relevant for the environmental assessment, as the avoided landfill savings are highly influential on the final assessment results.

Scenario 1 – Base Case

The current organic processing industry is assumed to include only the operations and activities of the organic processing facilities within 100 km of the Adelaide CBD, and incorporates their markets which extend outside of this area. There is a range of associated upstream and downstream activities upon which the composting industry is dependent. Council recyclable organics shredding operations with public sale or reuse on parks and gardens are considered separately as indirect benefits and costs. Only two large-scale facilities have been assumed to exist. While there are, and will continue to be, a number of smaller facilities, this simplified assumption has little impact on the overall values analysis.

This scenario involves the continued collection and processing of organic materials at current rates (188 000 tonne/yr), but with changed gate fees and new composting sites outside of metropolitan Adelaide. The 260 000 tonne/yr of domestic residual waste is assumed to be landfilled at new sites located outside of metropolitan Adelaide.

7 3091-01/DIT EPA - rpt1-6(sum).doc Department of Industry and Trade & Environment Protection Agency Scenario 2 - Expansion of Current Organic Processing Industry

In Scenario 2 it is assumed that 190 000 tonne/yr of recyclable organics, including an additional 35 000 tonne/yr of kerbside recyclable organics, is bulk hauled from transfer stations to open windrow composting facilities located outside of metropolitan Adelaide. This is mixed with 85 000 tonne/yr of commercial wet organics, and 33 000 tonne/yr of blending materials for the production of 198 000 tonne/yr of final product.

Scenario 3 - Inclusion of Other Organics in Current Industry

This final ‘source separated’ processing scenario involves the establishment of two enclosed composting plants as well as the two open windrow facilities as described in Scenarios 1 and 2. About 40% of the composting is assumed to occur at enclosed composting facilities located within metropolitan Adelaide.

The combined organics processing is assumed to be 350 000 tonne/yr. This includes 70 000 tonne of kerbside recyclable organics, 35 000 tonne of domestic food waste, and 245 000 tonne of other organic wastes such as recyclable organics from parks and gardens, and commercial wet organics.

Scenario 4 – Residual Treatment - Pyrolysis

In this scenario it is assumed that the domestic residual waste undergoes residual treatment via the pyrolysis process. Collection and processing of source separated organics is assumed to be identical to Scenario 1.

Approximately 260 000 tonne/yr of domestic residual waste will be pre-sorted to remove about 20 000 tonne/yr of metals and glass. Electricity will be produced from syngas at onsite generators. The residual material requiring landfill is expected to reduce to 65 000 tonne/yr.

Scenario 5 – Residual Treatment – Anaerobic Digestion

In this scenario it is assumed that the domestic residual waste undergoes residual treatment via anaerobic digestion. Collection and processing of source separated organics is assumed to be identical to Scenario 1.

Approximately 260 000 tonne/yr of domestic residual waste will be pre-sorted to remove about 65 000 tonne/yr of bulky materials. The remaining material is shredded prior to anaerobic digestion. Electricity is produced from the recovered methane via onsite generators.

Of the total residuals generated, 50 000 tonne/yr is assumed to be disposed to landfill with 45 000 tonne/yr used as daily cover. The remaining residuals will be mixed with 2 500 tonne/yr of recyclable organics and composted to produce landscaping products and rehabilitation material.

8 3091-01/DIT EPA - rpt1-6(sum).doc Department of Industry and Trade & Environment Protection Agency Scenario 6 - Residual Treatment – Pyrolysis & No Recyclable Organics Collections

In this scenario it is assumed that the domestic residual waste, including the recyclable organics currently collected at the kerbside, undergoes residual treatment via the pyrolysis process. The current arrangements for processing of other municipal and commercial recyclable organics will continue.

Approximately 295 000 tonne/yr of collected material will be pre-sorted to remove over 20 000 tonne/yr of metals and glass. The remaining material will be pre-treated before undergoing pyrolysis. Electricity will then be produced from syngas at onsite generators.

Approximately 73 750 tonne/yr of by-product will be produced. Whilst markets are developing for this material, it is assumed that it will be landfilled.

9 ASSESSMENT TOOLS

In this study, assessment of organics processing options which were previously made using the traditional criterion of engineering and economics, have been assessed on an ecologically sustainable development (ESD) basis, with an emphasis on economic, social and environmental dimensions. This allows for government, industry and the community to make ESD based, ‘triple bottom line’ considered decisions on these options.

The financial viability of the various agents have been examined for each scenario for the given tonnages, gate fees, wages, transport costs and other prices.

The indirect effects flowing from increased inputs from upstream industries, increased activity in downstream industries, with consequent increased sales and increased disposable income have been assessed using multiplier analysis. This allows for the examination of the effects on employment and value added of increased crop yields from the application of compost, the associated increase in wine production, and increased use of transport generally.

The net economic impacts have been assessed based on a cost-benefit methodology. This has been restricted to “economic” variables. The cost-benefit analysis is conducted from the point of view of the State of South Australia, rather than the national economy.

Existing Life Cycle Assessment data on generic organic processing scenarios to inform a subjective environmental assessment process.

9 3091-01/DIT EPA - rpt1-6(sum).doc Department of Industry and Trade & Environment Protection Agency 10 KEY FINANCIAL ASSUMPTIONS

Evaluation Period

All scenarios relate to a 20 year period commencing in 2005. They address the collection and disposal of 546 000 tonne/yr of domestic residual waste and organic materials, both of which are assumed to be generated at current rates throughout the 20 years. All scenarios assume the construction in 2004 of new processing facilities at new sites, even where there is a continuation of existing methods for processing organics.

Ownership

It is assumed that all facilities are under private ownership.

Number of Facilities

For simplicity it has been assumed that there will be two large open windrow composting plants for all scenarios. In practice it is expected that there will be up to ten commercial operations of which two to three are likely to dominate the market. There will also be several independent facilities which process single organic waste streams. An example is marc composting within the viticulture industry.

For Scenarios 4 to 6, which involve pyrolysis and anaerobic digestion, it is assumed that there will be one metropolitan processing facility.

Gate Fees

The assumed gate fees applying to receival at all facilities, from 2005, are presented in Table 2.

Table 2: Assumed Gate Fees Material Facility Gate Fee ($/tonne) DRW Transfer station for landfill disposal 40 RO, DFW, and CWO Enclosed composting facility 55 RO, CWO Open windrow composting facility and transfer station 35 RO Resident self haul to transfer station 80 All materials Anaerobic digester and pyrolysis plants 60 RO Shredding at transfer stations 24 Transfer station holding fee 3.50

10 3091-01/DIT EPA - rpt1-6(sum).doc Department of Industry and Trade & Environment Protection Agency The Wingfield landfill site will close at the end of 2004 and there will be higher gate fees at new sites well outside Adelaide, with landfill gate fees estimated to increase linearly in real terms from $40/tonne by 50% over 20 years.

The value of recyclables recovered from residual waste at facility pre-sorting operations is assumed to be $20/tonne.

Whilst in normal circumstances increases in production result in a reduced unit value, it is assumed that the unit price is inelastic for processed product. The justification is that the quality of the processed product will increase due to improved quality control and improved customer perceptions and satisfaction.

Sand, soil, and pinebark are typically used as blending materials. The average cost of supply, including delivery, is assumed to be $20/tonne.

For the landscape (amenity) and rehabilitation and bioremediation markets it is assumed that the purchase and application costs are balanced by the value of the product. The mean cost of managing commercial wet organics which are not recycled is assumed to be $60/tonne.

Transport Costs

Transport costs have been estimated for individual vehicle types based upon industry standards for $/tonne/km and the assumed travel distances. Transport costs have been estimated for kerbside collection, bulk haul to facilities, resident self haul, and transfer from facilities to markets.

Labour Costs

The labour costs provided in the financial evaluation cover gross salary, workcover, payroll tax, superannuation, and overhead costs including the provision of amenities of 20%.

These average annual labour costs per employee are assumed to be $40 000 for the open windrow composting industry, $45 000 for the enclosed composting facilities, thermal treatments, and anaerobic digestion plants, and $35 000 for the waste collection industry.

Land Value

The estimated land area requirements and land value for each of the facilities considered in the six scenarios is presented in Table 3 below.

11 3091-01/DIT EPA - rpt1-6(sum).doc Department of Industry and Trade & Environment Protection Agency Table 3: Land Area Requirements and Capital Value Facility(1) Area ha Value $M Open windrow No 1 (85 km from CBD) 200 1.0 Open windrow No. 2 (25 km from CBD) 120 5.4 Encl. Composting Facility No 1 4 0.6 Encl. Composting Facility No 2 4 0.6 Pyrolysis plant 3 to 4 0.5 to 0.6 Anaerobic digestion plant 5 0.8 Pyrolysis plant 4 0.6 (1) All facilities 15 km from CBD unless otherwise stated.

Value of Compost to Agricultural Industries

Use of compost in the viticulture, horticulture, cut flower, and nursery industries has been estimated to increase typical yields by about 12%. This is primarily due to water efficiency savings. Other benefits of compost use are improved micro-organic activity and worms improving nutrient availability to the plant which cannot be achieved simply by adding fertiliser, reduced use of herbicides, and increases in organic soil content.

It is estimated that the combined gross crop productivity benefit for use of compost within the viticulture, horticulture, cut flower and nursery industries is about $102/tonne of organic product applied.

The main report also describes assumptions on several other less critical parameters including:

� impact of activities on buffer zone valuations;

� external infrastructure requirements;

� application of products to agricultural land; and

� cost of council kerbside collection and disposal services.

11 ANALYSIS OF THE EXISTING INDUSTRY

The current “source separated” organic processing industry generates employment and contributes to the State’s economy in the following areas:

� collection of source separated material;

� facility design and construction;

� processing and compost production;

� product transport to markets and application; and

� downstream flow on effects.

12 3091-01/DIT EPA - rpt1-6(sum).doc Department of Industry and Trade & Environment Protection Agency The financial viability of the existing organic processing industry is based on: (i) the level of landfill prices and collection costs; (ii) the cost of processing – i.e. technology and capital employed; (iii) and the market for end product, including distribution and marketing costs.

The current organic recycling industry generates a direct income of about $12.2 million/yr, and provides full time equivalent (FTE) direct employment for 152; with 85 in processing and transport and 67 in kerbside collection and transfer station shedding operations. The industry is expected to have a net present value (NPV) of $32 million over the period 2004 to 2019.

The compost produced is estimated to increase crop productivity for the viticulture, horticulture, cut flower and nursery industry by $6.2 million/yr at a supply and application cost of $5.6 million/yr. This represents a NPV of $9 million.

It is estimated that at the current usage rates compost results in an increase in wine production of $13.8 million, and in wine value adding by $13.1 million/yr, with employment of an additional 174 personnel.

From an environmental perspective, the existing organic processing industry results in significant reductions in water and air pollution compared to that which would have occurred if all of the organic material currently source separated and composted was disposed of in landfills. It also results in a reduction in greenhouse warming potential as well as transport energy use and emissions.

It is therefore concluded that the existing organic processing industry benefits the State through the creation of direct and indirect employment, an increase in agricultural production particularly in the wine industry, and superior environmental performance compared with landfilling.

12 FINANCIAL EVALUATION OF FUTURE SCENARIOS

Table 4 summarises the results of the financial analysis which allows for the costs and sales of the organic processors, and the costs to households, councils and businesses. Offsetting the NPV of the cost to the community by the NPV of the net cash flows of the processors gives a total financial impact of waste management. Each scenario is ranked in order of highest preference on financial terms with ‘A’ being the highest preference rating to ‘E’ being lowest preference rating.

Costs to the community of waste are defined to be the sum of costs to councils and to households and business.

In terms of financial impacts, Scenario 6 (pyrolysis of domestic residual waste including current kerbside collected recyclable organics) is the preferred scenario. It also has the second lowest cost to the community, despite having the highest cost to self-haul waste. This is primarily due to the removal of the cost of providing a separate recyclable organics kerbside collection system. This scenario also appears to be the most profitable option.

13 3091-01/DIT EPA - rpt1-6(sum).doc Department of Industry and Trade & Environment Protection Agency Table 4: Financial Impacts of Scenarios ($m in 2001 Prices) Financial Impacts in NPV Terms ($ million) for Each Scenario 1. Base Case 2. Expansion of Current Industry 3. Inclusion of Other Organics in Current Industry 4. Residual Treatment – Pyrolsis 5. Residual Treatment – Anaerobic Digestion 6 Residual Treatment – Pyrolsis with no Recyclable Organics Collections Cost to Community -$471.5 -$482.4 -$488.7 -$505.2 -$505.2 -$481.7 Processor Net Cash Flow Open Windrows $31.8 $53.5 $37.6 $31.8 $31.8 $16.6 Enclosed Composting $62.1 Pyrolysis $107.8 $130.0 Anaerobic $44.9 Total -$439.7 -$428.9 -$389.0 -$365.6 -$428.6 -$335.1 Ranking F E C B D A

NB: Gate prices for all organic processing options is as quoted by technology proprietors and industry representatives.

13 COST BENEFIT ANALYSIS ON ECONOMIC VARIABLES

The cost-benefit analysis goes beyond the financial analysis, which allows only for commercial results, by allowing for upstream and downstream benefits in other industries in terms of increased economic activity and employment in South Australia. Because it is conducted from the point of view of the State of South Australia rather than the national economy, processor profits are adjusted to reflect South Australia’s assumed share of profits.

The results of the cost benefit analysis are summarised in Table 5.

The Base Case (Scenario 1) was found to be the cheapest in terms of waste collection and disposal, as gate fees were $35/tonne to $40/tonne rather than $55 or $60/tonne as in Scenarios 4 to 6, and because the relatively expensive separate recycled organic collections are kept to a minimum.

Scenarios 2 and 3 expand kerbside collections of recyclable organics, which are relatively costly as a lower volume of domestic residual waste is collected and the collection method is more labour-intensive. In addition, some waste in Scenario 3 is disposed of for $55/tonne, rather than the $35-$40/tonne as in the first two scenarios.

14 3091-01/DIT EPA - rpt1-6(sum).doc Department of Industry and Trade & Environment Protection Agency Table 5: Summary of Cost Benefit Analysis ($m in 2001 Prices) Cost Benefit Analysis of Scenarios: NPV terms ($ million) for Each Scenario 1. Base Case 2. Expansion of Current Industry 3. Inclusion of Other Organics in Current Industry 4. Residual Treatment –Pyrolsis 5. Residual Treatment – Anaerobic Digestion 6 Residual Treatment –Pyrolsis with no Recyclable Organics Collections Cost to Community of Waste Management -$471.5 -$482.4 -$488.7 -$505.2 -$505.2 -$481.7 Benefit to SA from Processor Profits Open Windrows $1.6 $2.6 $1.8 $1.6 $1.6 $0.8 Enclosed Composting $3.0 Pyrolysis $5.3 $6.4 Anaerobic $2.2 Downstream Net Benefits $8.6 $19.8 $26.8 $8.6 $8.6 $5.1 Labour Adjustment $52.7 $75.0 $92.4 $71.8 $64.5 $59.1 Net Benefit 2005 -$408.6 -$384.9 -$364.6 -$417.9 -$428.3 -$410.3 NPV 2005-2011 C B A E F D

Kerbside domestic residual waste collection in Scenarios 4 and 5 is the same as in Scenario 1, but RO is now disposed of at $60/tonne rather than $35/tonne. Scenario 6 is the cheapest in terms of kerbside collection as the council runs only one type of collection for all waste, which outweighs the effect of a higher disposal fee ($60/tonne).

In the financial impacts analysis differences in the cost to the community resulting from varying gate fees net out against the higher gate fee income received by processors. Hence there is no net impact on overall net cash flows. In the cost benefit analysis, bigger processor cash flows from high gate fees do not offset the cost to the community, as it is assumed only 5% of these net cash flows accrue to South Australians. Thus the cost-benefit rankings are likely to be sensitive to gate fee assumptions – that is, higher processor gate fees in Scenarios 3, 4, 5 and 6 bias the cost- benefit analysis against them.

15 3091-01/DIT EPA - rpt1-6(sum).doc Department of Industry and Trade & Environment Protection Agency Processor Operating Profit

Counting only 5% of processor operating profit as a benefit to South Australia clearly has an impact on the ranking of the various scenarios. As discussed above, 5% is an appropriate conservative assumption, given that South Australians typically own only a small fraction of Australian business capital. However, even if it were assumed that the processing operations were wholly South Australian owned, there would still be leakages from the State through company tax and fees for technology and management licenses.

Agricultural Users Benefit

In every scenario, the net benefit to downstream (agricultural) users reflects the quantity of compost used, since they pay the same per tonne costs and receive the same per tonne benefits regardless of the amount bought. Scenario 3 provides agricultural users with the greatest amount of compost, and therefore, the greatest net benefit.

Job Creation

Scenario 3 also makes the greatest direct and indirect contribution to job creation. This is partly a reflection of the greater benefits to farmers – as horticulture and viticulture are labour- intensive industries, increasing production boosts employment by a proportionally large amount. Scenario 3 also generates the largest amount of indirect labour in transport. A conservative approach has been adopted in assessing the net benefit to South Australia from additional job creation.

According to the analysis, despite being relatively costly in terms of collection and disposal of waste, the scenario that manages waste at the least overall net cost to South Australia is Scenario 3. This comes about due to high net benefits in terms of downstream compost usage and job creation. Scenario 2 ranks second for similar reasons – though it is cheaper for councils and self-haul waste disposers, the reduced benefits from using less compost in agriculture and less employment generation outweigh these effects.

Sensitivity Analysis

To assess the robustness of the conclusions, sensitivity analysis for cost benefit outcomes has been performed by:

� decreasing electricity generation from the pyrolysis plants by 37.5%;

� increasing all kerbside collection costs by 20%;

� increasing the infrastructure costs for enclosed composting facilities, anaerobic digestion and pyrolysis plants by 20%;

� maintaining the base level landfill gate fee at $40/tonne over the 20 year period;

� 10% of the additional employment benefit continues indefinitely;

16 3091-01/DIT EPA - rpt1-6(sum).doc Department of Industry and Trade & Environment Protection Agency � increasing the percentage profits accruing to South Australians to 70% of open windrow operations and 30% for all other organic processing facilities; and

� increasing all facility gate fees by 20%.

The results are reasonably robust to different assumptions. In particular, changes that affect the cash flows of processors tend to have minor effects on the cost benefit analysis outcomes, because only 5% of the gross operating surplus is assumed to flow to South Australia.

The rankings remain the same as in the base case, except in two of the sensitivities. The first occurs when the costs of collection are 20% higher – Scenario 6 moves from rank D to C due to its lower collection costs. The second arises when South Australians keep more of the processor profits – Scenario 1 drops from rank C to E, as profits are so much lower in this scenario.

Sensitivity to the discount rate assumption of 7% was examined by repeating the analysis with discount rates of 5% and 10%. The rankings of the scenarios remained the same.

14 ENVIRONMENTAL ANALYSIS

This study applied life cycle assessment (LCA) inventory data to assess the environmental performance of waste technology options against a ‘landfill only’ benchmark. Existing data on generic processing technologies was used due to the lack of LCA data in Australia.

All of the organic processing scenarios assessed are expected to result in better environmental outcomes than for the ‘landfill only’ benchmark as there will be less water pollution and global warming impacts.

The results of the environmental assessment across impact categories are presented in Table 6. In each impact category each scenario is ranked in order of performance with ‘A’ being the highest performing in that category to ‘E’ being lowest performing. The score relates to the management of waste for the scenario and is not a direct comparison of technologies.

Table 6: Environmental Assessment– Relative Category Rankings Scenario Impact Category 1. Base Case 2. Expansion of Current Industry 3. Inclusion of Other Organics in Current Industry 4. Residual Treatment - Pyrolsis 5. Residual Treatment – Anaerobic Digestion 6 Residual Treatment – Pyrolsis with no Recyclable Organics Collections Water pollutants F E D B C A Air pollution C B A D F E Global warming potential F E D C A B Transport D F E B C A

17 3091-01/DIT EPA - rpt1-6(sum).doc Department of Industry and Trade & Environment Protection Agency The environmental valuation scores represent the relative performance within each impact category only. It is not possible to provide an overall environmental valuation ranking of the scenarios as the category results are not additive. The scores do not constitute a cost benefit assessment nor have they been weighted according to social values regarding the impact categories.

The dominant influence on results, for all scenarios, in all impact categories, is from avoided landfill. Each of the scenarios considered performs better than landfill in regard to net pollutants to water and global warming potential. Landfill performs better than pyrolysis in regard to air emissions (this assessment includes the avoided air emissions associated with energy cogeneration from the pyrolysis facility).

In regard to water pollution, Scenario’s 4 and 6 result in the best environmental outcome, followed by Scenario 5 and then Scenario’s 3 and 2. Much of this saving may be attributed to avoided landfill.

Scenarios 2 and 3 result in the best air pollution environmental outcome. Emission reduction in thermal processing and energy recovery scenarios can only be met through a trade-off with financial costs and energy consumption. Based on the relatively low financial cost and the energy generation capacity of plants assumed for this study, it is expected that air emissions would be higher than best practice performance levels.

The electricity credit derived from energy generation from pyrolysis and digestion enables these technologies to outperform composting from a global warming potential perspective. The anaerobic digestion scenario appears to result in the best outcome due to the lower greenhouse gas emissions compared with pyrolysis.

Whilst transport is particularly significant from a cost perspective, it is less significant environmentally in regard to net pollutants to air and water, global warming potential and energy. Scenarios 4, 5 and 6 provide greater environmental gains in terms of transport efficiencies.

15 KEY STUDY OUTCOMES

1. Economic Benefits of the Existing Industry

The analyses conducted did not include a scenario with no organic processing (i.e. all organic waste is landfilled). However, the results from Scenarios 1, 2 and 3 show that economic benefits increase as the proportion of organic processing increases. This suggests that economic benefits would be less if there were no organic processing. The major difference from Scenario 1, if there were no organic processing, would be smaller collection costs, partially (but probably not fully) offsetting reduced benefits from smaller employment creation and downstream in agriculture. These two approaches indicate the economic benefits of organic processing.

18 3091-01/DIT EPA - rpt1-6(sum).doc Department of Industry and Trade & Environment Protection Agency 2. Environmental Comparison with Landfilling

The study clearly demonstrates that all of the scenarios considered result in an improvement in environmental outcomes compared with landfilling only. This endorses the State’s current policy to encourage recycling and resource recovery.

3. Economic Benefits to the State

It is apparent from the cost benefit analysis, based upon economic aspects only, that the “source separation” composting scenarios result in the greatest benefit to the State due to downstream agricultural flow-on benefits and high labour requirements, and that augmentation of the current “source separation” organic processing capacity will result in additional benefits. Therefore, source separation of organics with processing into compost products should be encouraged.

4. Role of Residual Waste Treatment Technologies

There is also a role for new thermal treatments, enclosed composting and anaerobic digestion in the treatment and resource recovery from residual wastes - as these result in environmental improvements compared to landfilling and from a financial perspective appear to compete favourably with composting of source separated organics. It is, however, clear that the environmental performance of these technologies is heavily dependent upon the pollution control equipment and operational performance which in turn influences the financial performance.

It is concluded that new thermal treatments, enclosed composting and anaerobic digestion of domestic residual waste can co-exist with composting of source separated organics, provided that environmental performance is clearly established and the technology has been fully tested and is recognised as being both technically and commercially viable.

5. Treatment of the Combined Waste Stream in Preference to Source Separation

Adoption of domestic residual waste technologies to the exclusion of ‘source separation’ alternatives would not be considered desirable unless it is demonstrated that the performance of the specific technology under consideration would result in improved environmental and economic outcomes.

It is therefore recommended that the current waste management hierarchy of reduce, reuse, recycle, treat, and dispose continue to be applied to organic wastes, unless improved environmental and economic outcomes can be demonstrated on a case by case basis.

19 3091-01/DIT EPA - rpt1-6(sum).doc Department of Industry and Trade & Environment Protection Agency 16 ACKNOWLEDGEMENTS

The authors are indebted to the many stakeholders who have contributed to the study. These include: Compost SA, the government agencies – Industry and Trade, Environment Protection Authority, Primary Industries and Resources SA, and SA Water, industry - Jeffries Garden Soils, Peat Soils and Garden Supplies, Michell Wool and Leather, Brightstar, and Global Renewables Limited. Advice on the agricultural benefits of compost has also been obtained from John Buckerfield of EcoResearch.

20 3091-01/DIT EPA - rpt1-6(sum).doc Department of Industry and Trade & Environment Protection Agency 3091-01/DIT EPA - rpt1-6(sum).doc Department of Industry and Trade & Environment Protection Agency