Effectiveness of Hong Kong s construction and demolition waste charging scheme

Transcription

1 1 Effectiveness of Hong Kong s construction and demolition waste charging scheme Abstract Hong Kong has become a mecca for construction and infrastructure developments, ranging from highway repairs and expanding subway lines to new residential and commercial buildings. Despite their benefits to a growing economy, these urban developments have created massive amounts of construction and demolition (C&D) waste (Poon, 1997). To ease this problem and discourage C&D waste generation, the government implemented a Construction Waste Disposal Charging Scheme (CWDCS) in 2005 (Poon et al., 2013). This charging scheme is based on the polluter pays principle, whereby persons are charged per tonne of C&D waste that they bring to disposal facilities (Yu et al., 2013). This paper evaluates the effectiveness of the CWDCS using three empirical assessments: a two sample t-test to compare the amount of C&D waste generated before versus after CWDCS was implemented, a budget analysis to determine if CWDCS provides economic incentive to reduce C&D waste, and a projection of the number of years it would take for Hong Kong s landfills to be exhausted if C&D waste is diverted from the landfill. This paper finds that CWDCS has demonstrated its ability to reduce C&D waste in landfills and the potential to provide economic incentives for contractors to change their wasting behaviour. To ensure the continued effectiveness of the CWDCS, the Hong Kong government must constantly evaluate and revise the disposal charges to match the changing economic circumstances of the construction industry. Background and Objectives Roaming the streets of Hong Kong, it is apparent that the city is a hub for construction and infrastructure developments, ranging from highway and sidewalk repairs to expanding subway lines, demolition projects, and construction of high-rise commercial and residential

2 2 buildings. In the last decade, private and public construction expenditure has averaged around HK$ 140 billion per year (US$ 1 = HK$ 7.75) (Construction Industry Council, 2012). Although these investments have significant economic benefits, the resulting waste from construction and demolition (C&D) projects are costly to the environment (Poon, 1997; Wong and Yip, 2004). Increasing C&D waste is an issue for many municipalities; however, it is particularly problematic in Hong Kong because its small size and dense population cannot easily accommodate the waste from a growing construction industry (Poon et al., 2004; Yuan et al., 2011). Although the amount of C&D waste as a percentage of total solid waste has decreased from about 40% in the late 1990s to 25% in 2012 (see Figure 1), the total amount of C&D waste generated has been increasing since 2007 (see Figures 2 and 3) (EPD, 2007). It is projected that all three of Hong Kong s existing landfills will be exhausted by the late 2010s and that 400 hectares of landfill space are needed to satisfy the region s waste disposal needs up to 2030 (EPD, 2005). Effective C&D waste management strategies must be adopted in order to reduce the environmental impact of C&D waste, delay the need for additional landfills, and buffer the social costs necessary for landfill creation and maintenance (Wong and Yip, 2004; Yuan et al., 2011). The Hong Kong government has responded to this waste problem by implementing various C&D waste reduction policies since the 1980s, including the Construction Waste Disposal Charging Scheme (CWDCS) launched in December 2005 (Lu and Tam, 2013; Hao et al., 2008). This charging scheme differentiates the cost of disposal methods based on their environmental impact as a way to discourage landfilling and encourage C&D waste sorting and recycling (Lu and Tam, 2013). For context, C&D waste is comprised of both inert and non-inert materials. The former includes nonorganic components such as concrete, stone, brick, and rubble

3 3 which can be sent to public fill sites for land reclamation and site formation. Non-inert waste includes packaging waste, timber, vegetation, and other organic materials which unlike inert waste cannot be reclaimed or recycled and are disposed of in landfills (EPD, 2005). Under the CWDCS, waste brought to landfills is charged the most at HK$ 125 per tonne because of its greater environmental impact (EPD, 2005). C&D waste, however, is usually a mixture of inert and non-inert materials. Rather than sending this entire mixture to the landfill, contractors have the option to sort the waste on-site themselves or send it to off-site sorting facilities where the inert and non-inert materials are separated and sent to their designated facility (EPD 2005; Lu and Tam, 2013). Waste brought to sorting facilities is charged at HK$100 per tonne whereas presorted inert waste brought to public fill sites is charged at HK$27 per tonne (EPD, 2005). This paper seeks to evaluate the effectiveness of the CWDCS using three empirical assessments. Firstly, the difference in C&D waste levels before and after the implementation of CWDCS is compared for statistical significance. Secondly, C&D industry budgets are used to compare the aggregate costs of landfilling versus sorting C&D waste to determine if there is an economic incentive to reuse and recycle construction materials. Finally, the projected number of years for Hong Kong s landfills to be exhausted if C&D waste is sorted versus landfilled entirely is compared to assess the social cost of landfill exhaustion. Discussion of Economic Theory Fundamentally, this construction waste dilemma is a constrained optimization problem contractors and subcontractors are trying to maximize their profits from construction projects subject to the added costs of sorting waste and CWDCS levies. For example, given a certain amount of C&D waste produced from a project, contractors seek a combination of on-site

4 4 sorting, off-site sorting, landfilling, and public filling activities so that sorting costs and CWDCS charges are minimized. Thus from a purely economic perspective, contractors choose C&D waste management activities based on their cost and therefore CWDCS charges can be a powerful tool in changing C&D wasting behaviour. If the landfill charge is high enough, there is economic incentive to avoid landfilling and use cheaper public fill methods instead. However, if levies are unreasonably high, then contractors may choose to bypass these charges through illegal dumping of waste (Yuan et al., 2011). Contractors must also consider the cost of on-site C&D waste sorting which is dependent on the sorting technologies and practices available. If available technologies are inefficient and labour intensive, then it may actually be cheaper for contractors to send their C&D waste directly to the landfill rather than sorting out the inert materials themselves. Budgets are a useful tool to assess these sorting and disposal costs for a production scenario with specific levels of C&D activity output. Comparing budgets based on different waste management strategies will help contractors make production decisions by revealing which combination of disposal methods will yield the greatest return. In reality, however, contractors must deal with other factors beyond costs when deciding the optimal combination of waste management activities. Factors such as the amount of sorting space available on construction sites and labour contracts that determine whether sub-contractors are obligated to handle waste must also be considered (Poon et al., 2001). Empirical tools and economic analysis also do not factor in the importance of waste reduction education and awareness. As effective as CWDCS may be from an economic standpoint, C&D waste education is necessary for contractors to understand why waste reduction is important, how to minimize

5 5 C&D waste, and ultimately how their activities impact Hong Kong s waste dilemma (Wong and Yip, 2004). Furthermore, there are social costs of C&D waste which are difficult to quantify in a purely economic producer problem. C&D waste has non-monetary costs to the environment and society such as environmental degradation, loss of ecosystems for the creation of disposal sites, pollution, effects on public health, and loss of land for residential and commercial development. Although this paper focuses primarily on the direct costs of C&D waste management to the producer, it is important to recognize the limitations of this economic analysis in depicting the full complexity of C&D waste management. Nevertheless, the costs associated with different C&D waste management strategies remain a crucial part of changing C&D wasting behaviour. As Poon et al. (2001) reveals, contractors prefer disposal methods that require less expenditure and therefore maximize net returns. The findings in this paper are therefore relevant to policymakers by providing a foundational economic analysis of CWDCS effectiveness on changing C&D wasting behaviour. Methods Data on total solid waste and amount of landfilled versus public filled C&D waste was compiled from the EPD s annual Monitoring of Solid Waste reports from 1997 to 2012 (see Table 1) (EPD, 2007). The average C&D waste sent to the landfill on a tonnes per day basis was calculated for the six years prior to (i.e ) and six years following (i.e ) CWDCS implementation. A paired two sample t-test was used to compare the mean C&D landfill waste between the two time periods and its significance determined at the 0.05 alpha level.

6 6 Two annual budgets were then developed based on 2012 aggregate construction industry data provided by Hong Kong s Census and Statistics Department (2012) (see Figures 4 and 5). These budgets were created with the assumption that the level of output (i.e. amount of C&D activities) is fixed and therefore assumes that the costs of labour, sub-contract work, operating costs, materials, supplies, and utilities are also fixed. The amount of C&D waste was isolated as the only discretionary component in order to single out the effects of different waste management strategies on net returns to the construction industry. As such, the only variable costs were disposal charges and the cost of C&D waste sorting. The first budget (see Figure 4) is based on the scenario that C&D waste is sorted by construction contractors on-site. The disposal charge is equal to: (WP)(PP) + (WL)(PL) Where WP = amount of C&D waste sent to public fill (tonnes per year, tpy) Pp = public fill charge (HK$ per tonne) WL = amount of C&D waste sent to the landfill (tpy) PL = landfill charge (HK$ per tonne) The annual amount of C&D public fill (W P ) and landfill (W L ) waste were determined by multiplying daily waste intake values (measured in tonnes per day, tpd) by 365 days. following: The sorting cost of separating public fill and landfill materials was calculated using the (WP + WL)(PS) Where PS = cost of on-site sorting of C&D waste (HK$ per tonne) In a similar study conducted in Shenzhen, China, the unit cost of sorting C&D waste was determined to be 15 yuan/tonne (Yuan et al., 2011) this is equivalent to HK$12 based on the 2012 exchange rate (1 yuan = HK$ 0.81; XE Currency, 2014). This unit cost equivalent is used based on the assumption that the waste sorting technologies and practices in Shenzhen and Hong

7 7 Kong are the same. The geographic proximity of the two regions (Shenzhen is located in the Chinese province directly north of Hong Kong) and similar levels of development supports this assumption. The second budget (see Figure 5) assumes that contractors do not participate in any waste sorting and therefore dispose everything to the landfill regardless if some of it can be recycled or reclaimed. As such, waste sorting costs are zero. The disposal charge is determined by the following: (WP + WL)(PL) Revenue in both budgets is based on total receipts of all construction activities, which is comprised of the gross value of construction works performed and all other business receipts (Census and Statistics Department, 2012). The margins and net returns of both budgets were calculated as follows: M = R VC NR = M FC Where M = margin (HK$) R = revenue (HK$) VC = variable costs (HK$) FC = fixed costs (HK$) NR = net returns (HK$) Both budgets were then compared to determine the quantitative effects of C&D waste sorting on aggregate net returns. Finally, further empirical analysis was done to estimate the amount of time it would take for Hong Kong s landfills to become exhausted if all C&D waste was landfilled as opposed to sorted into public fill and landfill material. This paper specifically looks at the West New Territories Landfill (WENT) as a representative example. According to the EPD (2005), WENT has a daily waste intake of 6400 tonnes, which is approximately 46% of total daily waste intake

8 8 from all three existing landfills. Based on WENT s projected exhaustion by 2018 (EPD, 2005), the estimated amount of additional waste that the landfill can receive was determined as follows: AWWENT = (DWENT)(365 days/year)(4 years) Where AWWENT = amount of additional waste that WENT can receive (tonnes) DWENT = daily waste intake of WENT (tpd) If all C&D waste was sent to landfills (including that which could have been recycled as public fill), then the amount of landfilled solid waste disposed in WENT based on 2012 data (EPD, 2005) is equal to: WWENT1 = (WP + WL)(0.46) Where WWENT1 = amount of landfilled solid waste in WENT if no sorting (tpy) The number of years it would take for WENT to become exhausted if all C&D waste is landfilled is therefore determined by: AWWENT WWENT1 This scenario is contrasted with the number of years it would take for WENT to become exhausted if C&D waste was sorted into public fill and landfill material. If sorted, the amount of landfilled solid waste does not include public fill material, and therefore the amount of landfilled solid waste disposed of in WENT is equal to: WWENT2 = (WL)(0.46) Where WWENT2 = amount of landfilled solid waste in WENT if sorting (tpy) Consequently, the number of years it would take for WENT to become exhausted if C&D waste is sorted is equal to: AWWENT WWENT2 Results and Conclusions From the paired two sample t-test, it was determined that the difference in daily C&D landfilled waste before and after implementation of CWDCS is significant (p = ). In other

9 9 words, the charging scheme had a meaningful effect on decreasing C&D waste in landfills. Despite this statistical significance, however, the raw data shows that landfilled C&D waste started to increase three years after the implementation of CWDCS (see Table 1). Yu et al. (2013) similarly note that although C&D waste was reduced in the years immediately following CWDCS implementation, this reduction cannot be sustained with current levy rates. Thus, it is important for the government to note that while CWDCS has proven successful in significantly reducing C&D waste, its long-term effectiveness relies on frequent evaluation and alteration of levy rates. Due to the difference in sorting and disposal costs, the two budgets reveal that net returns to the construction industry are higher when C&D waste is sorted and separated into landfill and public fill material rather than disposed of in landfills entirely (see Figures 4 and 5). Net returns in the C&D waste sorting scenario are $29,553/tonne higher than the landfilling scenario, which has net returns of $153,192/tonne. Based on the difference in net returns then, it can be concluded that the CWDCS does provide economic incentive to contractors to reduce landfilling and take advantage of the cheaper public fill levy by sorting C&D waste. As discussed earlier, however, this economic incentive may not sustain in the long run if the government does not revise the charging scheme based on changing economic scenarios. For example, if the cost of labour or waste-sorting technology increases, it may be cheaper for contractors to landfill all C&D waste despite the extra CWDCS charge because it would be more expensive to hire labour or purchase technologies to sort it. It should also be noted that these budgets would be more accurate if the on-site sorting costs of C&D waste in Hong Kong were available rather than using the sorting costs in Shenzhen, China as a proxy. Furthermore, transportation costs of bringing C&D waste to

10 10 disposal sites were ignored in this analysis because of lack of information. If these numbers were available, then the variable costs and net return calculations would offer a more accurate depiction of real industry budgets. In the third empirical test, it was determined that the WENT landfill would be exhausted in 0.72 years if all C&D waste was landfilled compared to 4.02 years if it was sorted and separated into landfill and public fill material. This is important for the government to consider when deciding how stringent the CWDCS should be in its attempts to reduce landfill waste because creating and maintaining additional landfills is extremely costly. In 2004, the operating cost of all three existing landfills was HK$ 432 million and it cost HK$ 6 billion to construct them (EPD, 2005). On average, this would mean a new landfill would cost approximately HK$ 2 billion which is a significant cost for taxpayers to satisfy especially in 0.72 years. When C&D waste is sorted, however, collecting the funds necessary for a new landfill can be distributed over 4.02 years which although is still a short time period is still good reason for the government to maintain the long-term effectiveness of the CWDCS. In reality, HK$ 2 billion is probably an underestimation of the cost for a new landfill. It is expected that 400 hectares of additional landfill space are needed to satisfy Hong Kong s disposal needs, which is 172 hectares more than all three existing landfills combined (EPD, 2005). If it cost HK$ 6 billion to build the existing landfills, then it will likely cost much more to develop 400 hectares of new landfill space. As such, strengthening the effectives of the CWDCS to drastically reduce C&D waste is not only beneficial to the environment, but also to Hong Kong taxpayers. Ultimately, this paper finds that the CWDCS has demonstrated its ability to reduce C&D waste in landfills and the potential to provide economic incentives for contractors to change their

11 11 wasting behaviour. To ensure the continued effectiveness of the CWDCS, the Hong Kong government must constantly evaluate and revise the disposal charges to match the changing economic circumstances of the construction industry. Further studies should also determine the optimal levy rates that would provide the most economic incentive for contractors to sort and recycle C&D waste while deterring illegal dumping activities. Despite the economic focus of this paper, addressing Hong Kong s C&D waste problem will also require further research on the social norms surrounding C&D waste and education programs to teach contractors about waste reduction. References Construction Industry Council, Construction Expenditure Forecast. [online] Available at: < [Accessed 16 October 2014]. Hao, J.L., Hills, M.J., Tam, V., The effectiveness of Hong Kong s Construction Waste Disposal Charging Scheme. Waste Management and Research, 26, pp HKEPD, A Policy Framework for the Management of Municipal Waste: Chapter 2. [online] Available at: < [Accessed 9 October 2014]. HKEPD, Construction Disposal Waste Charging Scheme. [online] Available at: < [Accessed 9 October 2014]. HKEPD, Introduction to Construction Waste. [online] Available at: < [Accessed 9 October 2014].

12 12 HKEPD, Problems and Solutions: WENT Landfill. [online] Available at: < [Accessed 12 October 2014]. HKEPD, Waste reduction statistics and data. [online] Available at: < [Accessed 10 October 2014]. HKSAR Census and Statistics Department, Key statistics on business performance and operating characteristics of the building, construction and real estate sectors in [online] Available at: < > [Accessed 11 October 2014]. Lu, W. and Tam, V., Construction waste management policies and their effectiveness in Hong Kong: a longitudinal view. Renewable and Sustainable Energy Reviews, 23, pp Poon, C.S., Management and recycling of demolition waste in Hong Kong. Waste Management and Research, 15, pp Poon, C.S., Yu, A., and Jaillon, L., Reducing building waste at construction sites in Hong Kong. Construction Management and Economics, 22, pp Poon, C.S., Yu, A., Ng, L.H., On-site sorting of construction and demolition waste in Hong Kong. Resources, Conservation, and Recycling, 32, pp Wong, E. and Yip, R., Promoting sustainable construction waste management in Hong Kong. Construction Management and Economics, 22, pp

13 13 Yuan, H.P., Shen, L.Y., Hao, J., and Lu, W.S., A model for cost-benefit analysis of construction and demolition waste management throughout the waste chain. Resources, Conservation and Recycling, 55, pp Yu, A., Poon, C.S., Wong, A., Yip, R., Jaillon, L., Impact of Construction Waste Disposal Charging Scheme on work practices at construction sites in Hong Kong. Waste Management, 33, pp XE, XE currency charts (CNY/HKD) [online] Available at: Appendix < [Accessed 17 November 2014]. Table 1: Waste data from (HKEPD, 2007) waste in tonnes per day (tpd) Year C&D waste public filled C&D waste landfilled total solid landfill waste

14 14 Figure 1. Propor;on of landfilled C&D waste rela;ve to total landfilled waste Percent of landfilled C&D waste Year Figure 2. Total C&D waste (including landfill and public fill waste) Amount of waste (tpd) Year

15 15 Figure 3: Composi;on of total C&D waste Total C&D waste (tpd) landfill public fill Year Figure 4: Aggregate budget with C&D waste sorting Total waste per tonne Revenue $ E+11 $ Variable Costs disposal charge $ $ waste sorting cost $ $ Margin $ Fixed Costs labour cost $ $ materials, supplies, and utilities $ $ sub-contract work $ E+11 $ operating costs $ $ Net Returns $

16 16 Figure 5: Aggregate budget with no C&D waste sorting Total waste per tonne Revenue $ E+11 $ Variable Costs disposal charge $ $ waste sorting cost $0.00 $0.00 Margin $ Fixed Costs labour cost $ $ materials, supplies, and utilities $ $ sub-contract work $ E+11 $ operating costs $ $ Net Returns $