Local governments are typically involved in collection and disposal of municipal and household waste. To what extent are local communities required to participate in the full product lifecycle and how can this occur?
There are several ways that local governments can help create markets for recycled waste.
Developing policies and regulations that require businesses and residents to recycle certain materials, such as plastic or cardboard. This creates a demand for recycled materials and encourages businesses to invest in recycling infrastructure.
Providing financial incentives for businesses that recycle, such as tax credits or grants, to encourage them to invest in recycling technology and infrastructure.
Working with local organizations and businesses to identify and create new markets for recycled materials. This could include partnering with manufacturers who use recycled materials in their products, or working with retail businesses to sell recycled products.
Promoting the use of recycled materials through marketing and outreach efforts, to educate the public about the benefits of recycling and encourage them to support businesses that use recycled materials.
Providing infrastructure and resources to support recycling, such as collection and processing facilities, to make it easier for businesses and residents to recycle their waste.
Collaborating with regional and national organizations to facilitate the exchange of recycled materials and create larger markets for recycled products.
To what extent is your local government participating in these approaches?
Following the NSW Government’s released of an independent review of its resource recovery framework and implications for the circular economy, three key takeaways struck me:
The review identified friction between the environment and safety objectives of the existing NSW waste and resource recovery framework and the need for flexibility to support innovation and a smooth transition to a circular economy.
A key criticism of the EPA was their handling of the revocation of the mixed waste organic material (MWOO) exemption in 2018. This led to recommendations for the resource recovery regime to be put on a similar footing to environmental and planning approval regimes.
The debate over the definition of waste continues, as the broad interpretation in the case of EPA v Grafil has potentially slowed the advancement of the circular economy.
The Review made a recommendation that the EPA should investigate a pathway to enable an “end-of-waste” outcome for suitable common, low-risk recovered materials to better enable reuse and promote circularity.
There were many other matters raised in the review, highlighting the challenges of both resource recovery and closing the loop between waste and input to future production processes.
The balance between environmental protection, regulation to achieve that and innovation to drive the emergence of the circular economy is still being worked out.
How do you think this is being played out in other jurisdictions? What tradeoffs have to be made between effective environmental regulation and commercial innovation to achieve the circular economy?
Mid afternoon snap of LA traffic. Usually at this time of day it would be bumper-to-bumper. The Governor of California has ordered the State’s 40 million citizens to stay home, restricting non-essential movements. Source: The Mercury News, CA.
The coronavirus pandemic will have significant impacts on how we design, develop, fund and operate infrastructure. As the pandemic evolves, the nature of these impacts will emerge, creating increasing risks. There is a stark difference between the impact of the Global Financial Crisis (GFC) and this pandemic. The former was initially a financial liquidity impact that affected cash flows around infrastructure investment and operation.
The pandemic’s first impacts are likely to be around the loss of human capacity in the systems that support this complex sector. The near term impacts are likely to be more associated with loss of certainty, affecting planning, operation and funding of infrastructure.
There is a range of considerations; which will have varying degrees of impact on governments, communities, organisations and people.
i) Demand-based assets are vulnerable because of the drop in use as with the coronavirus takes away discretionary spending. This particularly so for transport infrastructure, which directly engages with end consumers. Supply chains for these assets will be affected.
ii) Contracted assets have some increasing counterparty risk. Energy assets, for example, depend on the continuing creditworthiness of their counterparties. Many utility services may be called on by state actors to contribute to the overall effort to address the economic impacts of coronavirus.
iii) Merchant infrastructure potentially faces higher volatility in commodity prices and heightened uncertainty of demand. This kind of infrastructure operates at the margin of markets, rather than profiting from significant baseload provision at low, guaranteed margins. It will vary across markets for infrastructure services.
iv) Some specialised infrastructure has exposure to sports. This group of assets has both contracted and demand-based revenues. In Australia, we see the challenges facing our principal football codes with the loss of stadium revenues. It has exposed football codes that have not been developing multi-year contracts for stadiums and areas, and cannot defer refunds and provide credits for future ticket purchases. Some infrastructure owners have not undertaken sufficient risk analysis to determine the financial reserves for significant events.
v) Expect construction delays and cost increases as labour and material shortages occur, as well as the introduction of appropriate occupational health and safety processes are developed to address coronavirus.
vi) Expect the possibility of some operating underperformance of infrastructure assets associated with possible labour and material shortages. As operating environments are adjusted, with some delays in scheduled maintenance, this should only be a short-term impact. Retaining the capacity to do critical maintenance is essential.
vii) Contractual triggering of force majeure declarations may become more likely. The effectiveness of these declarations will depend on the specific wording in each contract, which may create many disputes around non-performance.
viii) Policy exclusions in business interruption insurance may affect the ability of infrastructure asset owners and operators to respond. Management teams are going to have to think more about internal liquidity policies and how to structure their cash flows in both infrastructure transactions and operations.
ix) The debt position infrastructure owners and operators will be compounded by refinancing challenges. More volatile credit markets mean more considerable uncertainty about the costs of refinancing when it is needed. Understanding debt maturation profiles and alternatives will be essential. Assets with long concession periods or very long useful lives possibly have a better ability to manage their short term debt profiles.
Some of these risks might be mitigated in part by the following:
i) Government intervention is more likely to occur. While some government actions might have adverse impacts. Across a range of infrastructure classes, governments might take interaction to support the overall performance of the economy.
ii) Infrastructure businesses are more protected at the enterprise level. Many firms operate in multiple markets and hold multiple sets of infrastructure assets. Also, many infrastructure businesses operate long-live assets with capex plans that can be modified and significant management discretion on operational tempo and allocation of surpluses.
iii) Infrastructure projects typically have strong capital structures. How cash flows are applied is tied to contractual requirements and ensuring funds flow to relevant parties. This is the core of traditional project financing. Infrastructure projects without recourse to full cash-funded debt reserves are exposed to prolonged delays and a slow economic recovery.
Our response to coronavirus is only limited by our understanding of it and our ability to imagine and execute solutions.
Lytton Advisory 