KNOWLEDGE PAPERS Sustainable Financing and Policy Models for Municipal Composting Design: miki@ultradesigns.com Photos (unless otherwise indicated): Farouk Banna KNOWLEDGE PAPERS Sustainable Financing and Policy Models for Municipal Composting September 2016, No. 24 Urban Development Series Produced by the World Bank’s Social, Urban, Rural & Resilience Global Practice, the Urban Development Series discusses the challenge of urbanization and what it will mean for developing countries in the decades ahead. The Series aims to explore and delve more substantively into the core issues framed by the World Bank’s 2009 Urban Strategy Systems of Cities: Harnessing Urbanization for Growth and Poverty Alleviation. Across the five domains of the Urban Strategy, the Series provides a focal point for publications that seek to foster a better understanding of (i) the core elements of the city system, (ii) pro-poor policies, (iii) city economies, (iv) urban land and housing markets, (v) sustainable urban environment, and other urban issues germane to the urban development agenda for sustainable cities and communities. Copyright © 2016 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing September 2016 The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. Request for permission to reproduce portions of it should be sent to the Urban Development Division at the address in the copyright notice above. The World Bank encourages dissemination of its work and will normally give permission promptly and, when reproduction is for noncommercial purposes, without asking a fee. Contents Foreword vii Acknowledgements ix Acronyms x Executive Summary xi 1. Background for Sustainable Composting Project Models 1 1.1 Introduction 2 1.2 Municipal-Scale Technologies and Operator Models 4 1.3 Composting Project Investments in Developing Country Contexts 6 2. Strategies for Navigating a Dynamic Composting Market 9 2.1 Understanding the Value of Compost 11 2.2 Establishing Quality Standards 12 2.3 Selecting Feedstock 15 2.4 Distributing Products Effectively 17 2.5 Operating Cost Sustainability 19 2.6 Market Risks 20 3. Sources of Funding and Financing for Composting Projects 23 3.1 Private Funding 24 3.2 Public Funding 29 3.3 Operational Revenues and Avoided Costs 33 3.4 Financial Risks 37 4. Policies and Institutions 39 4.1 Policies 39 4.2 Planning and Institutions 46 Overview of Global Case Studies 48 5. Case Study: Decentralized Composting in Partnership with the Agriculture Sector in Austria 53 6. Case Study: Composting Market Waste in Bangladesh with a Joint Venture Company 59 7. Case Study: Promoting Organic Agriculture in Brazil 65 8. Case Study: Municipal Composting in Bangalore, India— Two Differing but Complementary Approaches 69 9. Case Study: Using a National Grant Program to Develop Composting Capacity in Sri Lanka 73 10. Case Study: A Longstanding Tradition of Organics Recycling in Europe 79 Appendices Appendix 1: Comparison of Different Scales of Composting 87 Appendix 2: Examples of Compost Project Finance Structures 89 Appendix 3: Summary of Common Compost Project Finance Instruments 92 Appendix 4: Contract Provisions for Private and Community Operators 93 A4.1 Procurement and Design 93 A4.2 Operations 94 Appendix 5: Relative Disposal Costs by Solid Waste Activity 97 Appendix 6: Estimated Emissions by Municipal Solid Waste Activity 98 References 99 Endnotes 104 Boxes Box 1. Stree Mukti Sanghatana’s Waste Management Services in Mumbai, India 6 Box 2. Market Opportunity Assessment for Single Customer Segment 10 Box 3. Survey of Common Perceptions of Compost and Reasons for Non-Use in Uganda 13 Box 4. Components of a Quality Assurance System in Europe 15 Box 5. An Example of a Community-Level Product Certification System 15 Box 6. Producing Compost from Municipal Solid Waste in Rio de Janeiro 18 Box 7. Debt Financing for a Private Sector Composting Project in Massachusetts 25 Box 8. Public Private Partnership Models in Composting 26 Box 9. Example of a Build-Operate-Transfer Public-Private Partnership in Lahore, Pakistan 27 Box 10. Strategies for Attracting Private Sector Participation in Composting 28 Box 11. California’s Tax Exempt Bond Financing Program 31 Box 12. An Integrated Waste Management Approach in Teresa, Philippines 35 Box 13. European Union’s Organic Waste Diversion Targets 41 Box 14. Seoul, Korea, a Leader in Food Waste Recycling 42 Box 15. Enriching Compost Products to Increase Market Attractiveness—Fortifer and FertiSoil Products in Ghana 44 Box 16. Multi-Pronged Approach to Develop Demand for Urban Compost in India 45 Box 17. Coordination between Ministries in Thailand 47 Box 18. Graz, Austria—An Example of Decentralized Composting 56 Box 19. Innovative Marketing Strategies 60 Tables Table 1. Key Lessons from Global Case Studies xiii Table 2. Types of Composting Technologies 4 Table 3. Operator Models for Municipal-Scale Composting 5 Table 4. Key Characteristics of Global Case Studies 48 Table 5. Distribution of Composting Facilities in Austria 54 Table 6. Main Benefits of Austria’s Decentralized Composting Strategy 54 Table 7. Waste Concern Projected Cost of Community-Based, Decentralized Composting Facility 63 Table 8. Status of Source Separation, Green/Biodegradable Waste Composting, Municipal Solid Waste/Mechanical Biological Treatment Composting and Anaerobic Digestion across EU Countries 81 Table 9. Obligations and Targets by Country that Drive Source Separation and Organic Waste Treatment 83 Composting bin. Photo credit: © piotr_malczyk | Thinkstock.com Foreword Organic waste management is a growing global concern as cities experience increasing waste generation and the associated climate impact. Traditionally, municipal waste has been managed using a range of solutions, from advanced technologies, such as well-designed sanitary landfills in high capacity countries, to open dumping and burning in low-capacity countries. However, with rising consumption, scarce land, and escalating environmental impact, alternate waste treatment mechanisms are needed—ideally by “closing the loop” on the world’s raw materials rather than allowing the negative impact of waste to compound. Composting is a sustainable organics management solution that can potentially be low cost and require less technical capacity than alternative treatment methods. While the technical solutions available for municipal-level composting are well understood, the financing models and policy environments that create a conducive atmosphere are less so. Since municipal solid waste generation is expected to continue rising, especially in low- and middle-income countries, along with the associated greenhouse gas emissions, this report attempts to understand how cities can more sustainably manage organic waste through composting. This research focuses on successful municipal-level composting models and the social, policy, and financial environments that enabled them. Starting with the pre-conditions needed in the initial planning phase to potential financing models and supportive policies that apply throughout, this report walks through the key factors a city must deliberate prior to pursuing composting as a waste management solution. The anticipated audience for this work includes practitioners and policy makers. Readers are assumed to have basic technical knowledge related to composting but are not required to be experts in technology, policy, or financing matters. There is no single model that is applicable to all cities, rather, this report presents various financing and policy trends among successful operations in low- and middle-income countries. These common themes can serve as a starting point for building a composting sector, but the specific models appropriate for waste collection, composting operations, scale, production, and distribution will differ by city. While many models of composting have been tested, the following qualities were consistent for the successful projects studied within the report. With regards to capital expenditures, all received external funding support to establish operations. However, all later became financially self-sufficient through a mix of operational revenues. While for a period of time carbon markets provided a financial incentive, the most salient revenue sources today are tipping fees, compost sales supplemented by sale of related services or goods, and importantly, avoided disposal costs. The compost produced in these cases targeted a specific customer segment and benefited from quality assurance measures that are standardized by policy. vii viii Sustainable Financing and Policy Models for Municipal Composting This report, as well as a complementary report on Financing Landfill Gas Projects in Developing Coutries has been prepared in a collaboration with the Climate and Clean Air Coalition to Reduce Short-Lived Climate Pollutants (CCAC). The CCAC is a global partnership of governments and organizations that works to reduce short-term climate pollutants in a number of sectors, including solid waste. The CCAC and the World Bank generously provided financing for the work conducted. Information in the report is based on both primary sources, including field work, practitioner interviews and public records, and secondary source materials which are cited throughout. viii Acknowledgements This paper was prepared by the Global Programs Unit of the Social, Urban, Rural and Resilience Global Practice of the World Bank with generous funding from the Climate and Clean Air Coalition to Reduce Short-Lived Climate Pollutants and the World Bank. Preparation of this guide involved a core team at the World Bank Group that included Silpa Kaza (Task-Team Leader), Lisa Yao, and Andrea Stowell. Alexandra Le Courtois provided the initial vision and supervised all field work. Marcus Lee and Farouk Banna were also part of the original team and graciously provided feedback on previous drafts. The team is thankful for management support from Ede Jorge Ijjasz-Vasquez, Senior Director; Senait Assefa, Practice Manager; Sameh Wahba, Practice Manager; and Ellen Hamilton, Lead Urban Specialist. Stephen Hammer, Practice Manager and Paul Kriss, Global Lead Sustainable City Infrastructure and Services provided strategic direction. Peer reviewers that generously provided expert comments are James Michelsen, Senior Industry Specialist at the International Finance Corporation; Henry Saint-Bris, Senior Vice President Marketing and Institutional Relations of Suez Environnement; Claudia Croce, Senior Carbon Finance Specialist; Josefo Tuyor, Senior Environmental Specialist; Daniel Hoornweg, Professor and Research Chair at the University of Ontario Institute of Technology; and the Climate and Clean Air Coalition. ix Acronyms 3R Reduce, Reuse, Recycle AD anaerobic digestion BOT Build-Operate-Transfer CDM Clean Development Mechanism CER Certified Emission Reduction CH4 methane CNG compressed natural gas CO2 carbon dioxide CO2e carbon dioxide-equivalent EU European Union GHG greenhouse gas LD landfill directive LFG landfill gas MBT mechanical biological treatment MSW municipal solid waste MT metric tons MTPD metric tons per day MTPY metric tons per year NGO non-governmental organization NQAS national quality assurance system PGS Participatory Guarantee System PPP public-private partnership QAS quality assurance system SLCP short-lived climate pollutant UN United Nations UNEP United Nations Environment Programme UNESCAP United Nations Economic and Social Commission for Asia and the Pacific UNFCCC United Nations Framework Convention on Climate Change WMA Waste Management Association x Executive Summary Composting rates have been low in developing countries but are growing slowly at all scales. Composting is being adopted as an organic waste management strategy as well as a way to address climate change and agricultural needs. However, it is a solution that has been widely unsuccessful in low and middle income countries for a number of reasons including technical, financing and policy issues. This report focuses on the financing and policy environment that could lead to successful composting projects and the preconditions that must be in place before considering composting as an option. Composting plants in developing countries operate in a fragile market. Consumers face competing products that can provide fast-acting results and are cheaper due to fertilizer subsidies. However, compost provides many advantages to the end user, varying from land restoration, moisture retention, and long-term crop nutrition. This paper discusses a number of operational strategies, reflecting on composting operations that have been succeeded and failed. These include designing an end product that fits a specific customer and end use, manufacturing high-quality compost from uncontaminated feedstock, utilizing quality assurance schemes and branding, and deploying business-savvy marketing and distribution schemes. While all steps from determining a market to distributing compost products are important, a common failure seen globally is with regards to the feedstock utilized. A lesson learned repeatedly throughout the world is that pure organic materials will result in a higher quality compost product than contaminated organic materials. Agricultural waste and market waste tend to be the cleanest, most accessible inputs; however, some cities have experimented with mixed municipal solid waste (MSW) derived compost which quickly harms the reputation and development of the sector when not managed properly. There are opportunities to utilize source-separated MSW if strict quality enforcement exists. Market considerations are only one piece of a complex puzzle. Other essential success factors for composting projects lie in the project’s financial management and the policy environment of the locality. On the financial management side, experience has shown that while grants and loans are necessary for the initial buildout of the facility, operating costs must be financially self-sufficient. Aside from gate fees and sale of compost, projects have diversified their revenues through collection fees, sales of recyclables, consulting and educational services, and while markets were supportive, carbon credits. As evident within the upcoming narratives, financing strategies vary greatly by model and region. Even if a composting project is soundly planned and financed, a plant cannot succeed without the support of an enabling policy environment. Policies that nurture the development of a composting sector include landfill taxes and organic waste disposal bans that channel feedstock to organic composting methods. In contrast, policies that stifle composting projects include those that create an uneven playing field between compost and fertilizers through subsidies xi xii Sustainable Financing and Policy Models for Municipal Composting and those that force organic waste treatment facilities to compete for feedstock. Ensuring that policies are aligned to support composters requires coordination between all stakeholders: national and municipal governments, NGOs, financiers, and the private sector. Beyond these policies, which help develop the composting sector, quality assurance of the product is a necessary mechanism to sustain operations. While municipal-scale composting has traditionally been more successful in upper-middle and high-income countries than low-income countries, tried and true models are slowly paving a path for this cost-effective organics management technique around the world. Report Approach and Structure This report will provide an overview of optimal market conditions, common financing options, and enabling policy environments for composting projects globally. In order to understand the success factors of current composting practices, field research was commissioned in seven countries and one region: Austria, Bangladesh, Brazil, Ghana, India, Sri Lanka, Uganda, and Europe. Municipal-level composting is being undertaken nationally in these countries. However, each composting project occurs within differing circumstances and incentive structures. In practice, composting projects vary as much by national directions and practices as the social, policy, and economic environment of the city or locality—these case studies highlight the interplay between national and local conditions that enable the projects’ success. This report is structured as follows: ●● Chapter 1 introduces background information on composting generally and discusses the opportunities and challenges faced in developing countries ●● Chapter 2 provides an overview of prevailing market conditions and strategies that would ideally lead to a sustainable composting sector ●● Chapter 3 details common financing mechanisms for composting projects that have been used for composting projects globally ●● Chapter 4 discusses the policy environments and incentives that promote composting production and market development Chapters 5-10 offer the commissioned case studies that provide insights into national policies and enabling environments in different geographies. These allow for learning from tangible actions taken and associated outcomes. Shorter case studies or examples are provided throughout the report to illustrate other global scenarios. ●● Chapter 5 discusses Austria’s decentralized, agricultural model of composting ●● Chapter 6 presents success factors behind Waste Concern, a private joint venture formed in Bangladesh ●● Chapter 7 features the organic farm model of composting in Brazil ●● Chapter 8 discusses a public and private composting operation in India ●● Chapter 9 describes a national grant program that powered municipal-scale composting in Sri Lanka ●● Chapter 10 highlights the history and development of organics recycling in Europe A summary of the key lessons drawn from the global case studies is included in Table 1. For ease of reading, key messages and lessons are highlighted at the beginning of relevant chapters or sections throughout. 1. Background for Financing Landfill Gas Projects xiii Table 1. Key Lessons from Global Case Studies Market Conditions Financing Mechanisms Enabling Policies and Guidelines Specific advantages of compost Common financing structures Compost guidelines ●● Compost should provide a clear ●● Capital expenditures often and standards value to the local market require external financing ●● National standards on the production, composition, and ●● Local needs differ, and may o Grants from national government marketing of compost include soil organic matter depletion, or international organizations limited landfill capacity, water o Loans for larger or established ●● Mechanism of enforcement contamination from chemical fertilizers organizations ●● Coordination between multiple stakeholders, including ministries of A customer group must be ●● Ongoing operations and agriculture, environment, finance, targeted maintenance (O&M) should be and national and local governments ●● Many potential customers for financially self-sustaining compost exist (i.e., farmers, residents, Implementation and enforcement by Projects are typically financed through ●● ●● landscapers, public works projects, local governments a mix of sources nurseries, etc.) Public sources Diversion targets ●● Customer identification should ●●National governments can spur and disposal bans employ a quantitative market activity through grants and subsidies ●● Waste recycling and landfill assessment ●● Local governments can levy taxes diversion targets Learn whether a market exists and fees, use reserve funds, issue Disposal bans ●● ●● Provide consistent, quality bonds, or provide in-kind services Source-separation ●● ●● product to a limited market User fees for disposal influences ●● requirements public behavior while increasing Product quality a key determinant ●● Supporting infrastructure and revenue, but may be difficult to of success monitoring are needed implement ●● Compost is reputation-sensitive ●● Carbon Emissions Credits have Competing policies Quality standards and branding funded projects but markets are weak ●● Uneven playing field for prices ●● can mitigate consumer fears Private sources o Subsidies for chemical fertilizers ●● Certification can occur through a ●●Development banks can provide national accreditation body or peer o Low gate fees for landfills for MBT low interest loans and grants evaluation ●● Organic feedstock channeled ●● Commercial and municipal Quality of inputs determines to other uses ●● banks may provide loans and quality of outputs project financing o Feed-in tariffs for renewable energy Marketing and distribution ●● Other institutions and investors should be strategic (e.g., NGOs) may provide loans or o Promotion of incinerators and purchase equity alternative technologies ●● Private firms can expertly market and leverage existing ●● Public-Private Partnerships Incentivizing policies distribution channels distribute risk to private operators and ●● Financial incentives include: gain efficiency ●● Products can be used on-site, sold on-site, or via secondary retailers Operational revenues o Composting subsidies ●● Co-marketing with fertilizers ●● Business revenues should support o In-kind support (i.e., land, labor) increases market access ongoing O&M, unless long-term ●● Market creation can occur subsidies are in place through mandatory co-marketing ●● Compost sales with other fertilizer and agricultural guidelines ●● Gate fees ●● Related businesses include: (a) Digestion for liquid fertilizer and energy; (b) Recycling; and (c) Other: waste collection, education, vocational training, consulting Rows of mulch at a green waste recycling plant. Photo credit: © Photoroller | Dreamstime.com 1 Background for Sustainable Composting Project Models Key Messages Compost is an increasingly relevant mechanism for organic waste management in developing countries: ●● Waste generation is estimated to reach 22 billion tons per year by 2025, driven by population, economic development, and increased consumption ●● Waste in developing countries is primarily biodegradable: up to 65–75% in low income countries ●● 45% of soils face nutrient depletion in certain areas, which is exacerbated by synthetic fertilizers ●● Organic waste accounts for 2-4% of the world’s greenhouse gas emissions The advantages of compost are many: ●● Cost: composting potentially reduces waste management costs by avoiding landfill fees, extending landfill life and reducing transportation costs ●● Agriculture: when added to soil, compost replenishes nutrients and organic matter, sustains moisture and plant growth, increases plant uptake of fertilizers, prevents soil erosion and reduces irrigation requirements ●● Environment: composting is a carbon neutral (and potentially even negative) natural degradation process. It reduces methane and toxic leachate generation from landfills as well as waste runoffs and algae blooms, which can disrupt the local ecosystem Historically, compost projects in developing countries (particularly those dependent on municipal waste feedstocks) have struggled and have experienced high failure rates. Implementation has been limited, and best practice models are only developing. Only 8% of waste is composted globally, and as low as 1.5% in low income countries. Reasons include: ●● Lack of coordinated policies, regulations, and enforcement that support composting across multiple sectors ●● Lack of market demand, unreliable feedstock supply, and unfair competition (synthetic fertilizer subsidies) ●● High operating costs due to unnecessarily complex technology poorly suited to local market conditions, often inadvertently encouraged by grants or subsidies that are provided up-front rather than based on outputs ●● Poor management of solid waste operations ●● Lack of tipping fees from the municipality and other feedstock suppliers ●● Lack of compost standards, quality control and certification systems resulting in contaminated compost and a bad reputation with end users ●● Reliance on revenues from carbon emissions credits as part of the Kyoto Protocol’s Clean Development Mech- anism, which contracted abruptly in 2012 with the expiration of the international agreements continues 2 Sustainable Financing and Policy Models for Municipal Composting Key Messages (cont.) Municipal composting models are most common in upper-middle and high-income countries. However, while each project differs based on local circumstances, elements of successful projects have been: ●● A coordinated policy environment specifically designed to encourage composting such as through organic waste diversion and regulations that encourage end-product use, coupled with strong enforcement ●● Availability of external funding (e.g., grants and subsidies) to cover some or all of the capital investment ●● Financial self-sufficiency across a mix of revenue streams (e.g., tipping fees, compost sales, sale of recycla- bles, sale of related services & goods, carbon credits) to cover operational expenditures ●● Use of low-tech options for affordable upkeep, especially where labor and land are inexpensive ●● A guaranteed stream of clean, quality feedstock, or, well-separated and processed municipal waste ●● Production of a specialized product that meets the needs of a well-targeted market ●● Existence of compost standards, quality control and certification systems that are trusted by consumers ●● An integrated waste management approach that increases the efficiency and financial viability of compost- ing by streamlining waste delivery and processing, and increasing revenue opportunities ●● Engaging external parties, such as farmers, NGOs, and the private sector to improve efficiency and credi- bility 1.1 Introduction Providing solid waste management services is costly. In developing countries, waste management services can With rapid urbanization and economic development, cities account for 20-50% of a municipality’s recurring budget, are producing more than 1.3 billion tons of municipal with 80-90% used for waste collection alone (Hoornweg solid waste (MSW) annually and expected to generate and Bhada-Tata, 2012). Often times, only a fraction of approximately 2.2 billion tons by 2025 (Hoornweg, et al., MSW is formally collected and even less is sustainably 2013). Approximately half of the global waste generated processed or properly landfilled. As a result, a great deal of consists of biodegradable organic materials, but this ratio MSW is either disposed of in poorly managed dumpsites, is typically much higher in developing countries. This burned, or indiscriminately discarded in streets and organic waste is primarily disposed of in open dumps and local waterways, endangering human health and the landfills and decomposes to produce 3-4 percent of the environment. Rapid population growth and economic world’s greenhouse gas (GHG) emissions (United Nations development across low-income countries has led to Environment Programme, 2012; Blanco et al. 2014). At increases in consumption and associated waste generation present, only approximately 8% of municipal organic rates. While simultaneously faced with inadequate waste is being utilized productively through composting, financial resources and institutional capacity constraints, a sustainable organics waste management solution governments are under significant pressure as they attempt (Hoornweg and Bhada-Tata, 2012). to manage the environmental and financial impacts of increasing volumes of solid waste. Utilizing organic waste In spite of the opportunities surrounding organic waste re- productively reduces waste volume and diverts waste from utilization, varying from simple composting to anaerobic landfills, which not only prolongs landfill life and reduces digestion (AD), MSW management is a significant costs but also typically improves the state of public health, challenge facing municipal authorities across the world. waterways, and long-term land value. 1. Background for Financing Landfill Gas Projects 3 Composting is the process of optimizing the natural in nature, rather than a net methane-emitting process, as decomposition of food, garden, and agricultural wastes occurs in landfills. into a fertilizer-like product. It is a relatively low-cost strategy for converting a portion of the municipal and Composting can be done at the household or community agricultural waste stream into a valuable material that can scale up to the municipal or even regional level. A enrich the soil on farms, public lands, and gardens. There comparison of different composting scales can be found exist a number of climate-friendly disposal strategies for in Appendix 1 and municipalities can employ a mix of organic waste, including biochar production via pyrolysis, composting strategies to achieve their goals and reduce liquid fertilizer and biogas production through anaerobic costs. However, composting has repeatedly proven digestion, and direct conversion to animal feed, with each challenging to implement at larger scales and even more so having its advantages. However, composting can entail in developing countries. Despite attempts of development relatively simple, scalable technology, and is therefore well- organizations partnering with governments over the past suited to lower capacity countries. Anaerobic digestion, twenty years to develop the composting sectors of low- for example, can be more expensive, typically requires income countries, success has been limited. On average, greater technical capacity, and has not been as popular for only 1.5% of MSW is composted in low and middle municipal solid waste management as it has for animal income countries (Hoornweg and Bhada-Tata, 2012). A waste and wastewater. study of composting facilities in the State of Pernambuco, Brazil in 2000 revealed that of 41 facilities constructed In response to the increasing demand on the global food in the late 1980s and early 1990s, only one was still supply caused by economic and population growth, operational. intensive cultivation and inadequate soil management have resulted in soil depletion and low crop yields. What is causing this shortfall? While cost is a primary Across Europe, approximately 45% of soils are severely factor, the drivers of failure are nuanced and vary from endangered by nutrient depletioni (Van-Camp, et al., a lack of targeted marketing efforts to an uncoordinated 2004). Commercial, synthetic fertilizers provide quick policy environment. While past failed models expose nutrient boosts but can be cost prohibitive, requiring points of learning, recent composting projects have government subsidies in many developing countries. At exemplified success factors as well, many of which are the same time, concerns are growing over the human discussed within this report. In reality, composting is health and environmental impacts of excessive fertilizer far from impossible; rather, it is a relatively new waste use. Groundwater pollution and the resulting explosive management model at a municipal level, and best practice growth of algae in surface waters from the runoff of models are only emerging. water-soluble elements are disruptive to ecosystems and drinking water supplies. Further, after repeated This report is focused on key financial and policy applications and crop harvests, synthetic fertilizer considerations for building a sustainable municipal-scale depletes and reduces land to sandy, inert materials. composting sector, specifically in low- and middle-income Compost, on the other hand, releases nutrients and countries. Composting projects in cities have been failing organic matter into the soil over many years, improving globally, and while the technical failures are more readily quality over the long term. In Bangladesh, the use of understood, the financial and policy environments are compost has resulted in a 30% reduction in the use of less so. In the past, carbon markets helped monetarily chemical fertilizer and a 35% reduction in irrigation incentivize development of the composting sector; required (Rashid, 2011). however, as they have become less reliable, other financing models and enabling environments should be considered From a climate perspective, composting could prevent for sustainable composting projects. This report assumes alternative waste management methods that result in that the government would have financial and technical emissions. Composting facilitates a “carbon neutral” resources available to conduct a feasibility assessment for degradation process in the presence of oxygen as occurs selecting a locally appropriate composting technology. 4 Sustainable Financing and Policy Models for Municipal Composting 1.2 Municipal-scale Technologies as aerated windrow composting. Table 2 shows five common types of composting that differ by scale. and Operator Models Operators of municipal-scale composting vary across Municipal-scale composting is most common in upper- the globe and include farmers, non-governmental middle and high-income countries where countries organizations, private companies, and municipalities are seeking to improve waste management mainly for themselves. Depending on a city’s capacity and funding environmental and financial objectives. situation, they might choose to manage organics in-house, contract with a private operator, or partner with an NGO. Composting can be carried out with varying levels The case studies chosen for this report show a range of of mechanization ranging from low-tech manually examples of different models that can be considered with turned piles, to high-tech forced aeration systems in different operators for various services, as shown in Table fully enclosed buildings or technologies equipped with 3. For example, Chapter 5 highlights an innovative model bio-filters. The advantageous choice is not necessarily in Austria where municipalities contract with farmers high-tech; depending on land and labor availability, to collect and co-process municipal organic waste with cities may prefer a lower cost, manual process of aerated agricultural waste; Chapter 6 details a joint venture in windrow composting versus an automated in-vessel Bangladesh between an NGO and international funding composter. The selection of technology will also depend and technical advisory partner that has created a replicable on the feedstock of organic waste that will be processed. composting model throughout the country; and Chapter For example, when using MSW, unless a strict source 9 highlights a government driven national initiative in Sri separation policy is enforced or pure organic waste Lanka which has incentivized development of municipal is used, in-vessel composting will not be as forgiving composting facilities. Table 2. Types of Composting Technologies Type of Composting Scale Concerns Resources required On-site Composting Composting on premises using either a bin Small Odor control and vermin Either a pit or bin or a pit in the soil Vermicomposting Sensitive to temperature Composting in bins where worms process organic Small Worm bins, worms changes materials Aerated Windrow Composting Siting requirements, zoning, Land, equipment, continual Composting outside with organic materials Large regulatory enforcement (i.e., supply of labor structured in rows and regularly turned/aerated contaminant runoff), odor Land, significant financial Aerated Static Pile Composting Siting requirements, zoning, resources, equipment Composting with static piles of organic materials Large regulatory enforcement (i.e., including blowers, pipes, that are aerated internally with blowers contaminant runoff), odor sensors and fans In-Vessel Composting Composting via a mechanized machine that Consistent power necessary, Electricity, skilled labor, processes organic materials and then requires Medium financially intensive, ongoing financial resources, compost to mature outside the machine for two technical expertise necessary small facility/land weeks Source: United States Environmental Protection Agency 1. Background for Financing Landfill Gas Projects 5 Table 3. Operator Models for Municipal-Scale Composting1 Operator Model Location System Collection Production Distribution Distributed ●● Regional organic waste ●● Farmers produce ●● Majority of compost is farm-based collected by local authorities compost on-site used on-site at farms composting and dropped at either a ●● Remainder sold on- operations central pre-treatment facility Austria site or farm for a fee ●● Farmers sometimes hired by municipality to collect organic waste Small- ●● Facility workers collect waste ●● Workers sort and ●● Partner companies scale pilot from households produce compost purchase, enrich, and facilities using low-cost distribute compost technologies through pre-existing agricultural network Large scale ●● Clean market feedstock ●● Local NGO and ●● Fertilizer company Bangladesh central historically picked up for free international purchases and sells composting recycling compost to farmers ●● Company negotiating for free facility (joint company partner through existing delivery of waste from city venture) to produce distribution network compost from clean market waste Organic ●● Cooperative members ●● Farm cooperative ●● Compost is given for farming contribute agricultural waste produces compost free to member farms cooperative alongside ●● Non-members can drop off ●● Remaining compost is anaerobic Brazil waste for a fee largely sold in bulk to digestion agricultural markets ●● Small bags sold on- site for household use State ●● Mixed municipal, household ●● Compost plant ●● Facility sells both composting and agricultural, and manure produces three own source compost facility waste dropped off for gate grades of as well as compost fee compost based on from other producers feedstock source mainly to farmers ●● Delivery cost included India in price Private ●● Mixed municipal waste ●● Firm sorts out ●● Company sells composting dropped off by the city recyclables and compost through company produces compost distributors from remaining ●● Compost sold under organics own name, and in re-branded forms Distributed ●● Door-to-door collection of ●● Facility sorts out ●● Sold to farmers in municipal mixed household municipal recyclables and eastern Sri Lanka composting waste produces compost through sales outlets facilities from remaining Sri Lanka ●● Source separated and agents organics biodegradable waste from commercial generators collected and charged if waste is not separated 1 While operator models are summarized by country, it is important to note that municipal-scale composting and related partnerships are most often led by a city or local government. 6 Sustainable Financing and Policy Models for Municipal Composting Box 1. Stree Mukti Sanghatana’s Waste Management Services in Mumbai, India Stree Mukti Sanghatana (SMS) is a non-governmental organization that has overseen waste management operations in Mumbai since 1998. With over 3,000 wastepickers collecting, treating and disposing of waste on behalf of the municipal government in over half of Mumbai’s wards, SMS operates based on zero waste philosophies. In terms of organic waste management, SMS requires households to separate their waste into dry and wet waste and then utilizes the wet waste for composting or biogas. Wet waste in most residential areas is composted in pits on-site by the wastepickers, which reduces transportation costs, decreases emissions, and saves properties money by using the compost on-site. While services are being performed at a municipal scale, community-level composting has been chosen as an appropriate solution for Mumbai. Source: Stree Mukti Sanghatana 1.3 Composting Project waste, grass, manure and sludge are considered high nitrogen feedstocks and must be blended with much Investments in Developing greater quantities of wood, leaves and branches, which Country Contexts are high in carbon, to create an optimal composting blend. Access to a carbon source may be a limiting Municipal solid waste in developing countries is well factor when designing a composting facility, and in suited for composting given that it is mostly comprised of some cases, facility operators may be forced to purchase organic matter; however, significant challenges may arise carbon feedstocks in the form of wood chips, straw when obtaining feedstock, managing the waste, financing or sawdust. When compost products fail to meet the operations, and creating a conducive environment. nutrient requirements of the end market, operators Municipal organic waste typically includes food scraps, may also be forced to augment their product with wood and, in some cities, yard (leaves, brush and grass) nitrogen, phosphorous or potassium additives, which waste streams. Additional compostable feedstocks, such as may come at a cost. agricultural and animal wastes and sewage sludge, may be part of a jurisdiction’s waste profile but are typically collected ●● Waste management practices. Waste in low-income and managed separately from MSW. The most important countries tends to have a high organic fraction which factor influencing waste generation and composition is the is favorable for composting practices; however, the level of economic development of the area. In low-income challenge lies in the collection and quality of the countries, 65-75% of the MSW generated is organic, feedstock available for composting or other organic compared with an average of 28% in high-income countries waste management practices. Waste collection services (Hoornweg and Bhada-Tata, 2012). greatly vary by city, and even municipalities with significant waste management budgets may yield a Despite the favorable waste composition, composting program that serves less than 50% of citizens (Henry, projects globally must consider a number of factors when et al., 2006; Memon, 2010). The biggest hurdle operating in a developing country context: for many composting projects is obtaining a large volume of purely organic feedstock. The availability ●● Waste composition. The composition of incoming of uncontaminated organic materials is a critical organic materials must be appropriate to the determinant in whether a composting project has the composting process and desired end use. In order potential to succeed or not. A city’s ability to obtain to optimize the composting process, the feedstock a consistent supply of clean feedstock and enforce source must have a certain makeup including a certain ratio segregation practices within its existing waste collection of carbon to nitrogen and a moisture content of program and scope of control is paramount to whether a 50-55%, among other criteria. Broadly speaking, food composting project can proceed. It is closely linked with 1. Background for Financing Landfill Gas Projects 7 poor public perception of compost derived from MSW ●● Carbon finance and revenue streams. While composting and misalignment from what is demanded by end projects are not as popular as landfill gas projects with users. Some composting operations have integrated regards to carbon markets due to their smaller scale and composting into their greater waste management the relative cost of registration and validation, some systems, achieving economies of scale with feedstock facilities in developing countries have supplemented delivery and a holistic public engagement campaign revenue by selling carbon credits to wealthy countries around source-separation and proper disposal practices. through the Kyoto Protocol’s Clean Development Mechanism (CDM). Compost projects obtain ●● Material and labor. Many effective composting carbon credits through methane emissions that are facilities rely on manual approaches that are not as avoided through aerobic decomposition. In contrast technologically demanding. Since materials and labor with landfill gas, composting can provide consistent in low-income countries tend to be comparatively emissions reductions over a longer period of time. inexpensive, low-tech composting is appealing as a cost- The most famous example is that of Waste Concern effective waste management technique as compared to in Bangladesh, which earned revenue from both the landfilling, anaerobic digestion, or incineration among sale of compost and successful monitoring of emissions others. However, it would still be contingent on a reductions. However, the majority of composting number of factors including the operator’s capabilities, projects registered did not benefit greatly since carbon ability to maintain the facilities, and accessibility of markets have proven less profitable than initially replacement parts. expected. The actual emissions reduction have tended ●● Political, legal, and regulatory environment. Lack of to be significantly lower than anticipated levels for stakeholder coordination, policy alignment, and a composting projects; composting projects within supporting regulatory framework can derail composting the CDM must overcome more barriers than regular efforts. Since composting is a multi-sectoral issue, the landfill gas projects due to their relative to the resources municipality’s priority outcomes should be accounted regulated for compliance scale. While carbon finance for early in the dialogue and the related policies should provides an additional revenue stream, composting projects should not be dependent on this revenue be aligned appropriately. For example, agricultural source. policies promoting synthetic fertilizers would directly compete with development of a composting sector. With this introduction to composting in developing countries, the following chapters will present more detailed In terms of financing, compost projects are most easily information on factors that allow composting projects to funded in an effective, sectorally coordinated, and succeed beyond the technical considerations. Chapter transparent regulatory environment that encourages 2 provides an overview of market strategies that can be the use and thus demand for compost. Markets should used in developing a financially sustainable composting also allocate financing efficiently. Composting is not sector. Chapter 3 describes potential sources of funding an industry strongly susceptible to political instability and financing for composting projects. Chapter 4 outlines due to the need for low-cost infrastructure and high policies that commonly affect the composting sector as operational capacity. While there are many policies that well as how planning and institutional arrangements can could be beneficial to promoting the composting sector, affect the success of a project. Risk mitigation strategies in general, a predictable legal and regulatory framework are provided throughout the paper as relevant to each around solid waste management and strong contract chapter. Lastly, Chapters 5-10 offer in-depth case studies enforcement would help create a lower-risk environment to present trends and lessons from both developing and for investment. Depending on the local circumstances developed countries. The countries where detailed cases for and the government’s service provision and enforcement municipalities are provided include Austria, Bangladesh, capabilities, the city might consider partnering with Brazil, India, and Sri Lanka. The last case study focuses on operators that would not be considered as risky as private the history of composting in Europe and how the sector operators, such as NGOs or farmers. has evolved. Covered windrows at a commercial composting facility in Ougadougou, Burkina Faso. Photo credit: Farouk Banna 2. Strategies for Navigating a Dynamic Composting Market 9 2 Strategies for Navigating a Dynamic Composting Market Key Messages ●● A thorough and quantitative study of customer segments and external market factors is a critical first invest- ment for a successful composting operation ●● A consistent, high quality product is essential for customer trust and can be achieved by sourcing quality feedstock and participating in a reliable quality assurance system ●● The end product should be designed to target a specific customer market. Quality, texture, and even “look and feel” must be strategically designed ●● Distribution channels can be optimized to reach different markets and can occur on-site or through third parties. Promotion of the end product may be necessary to generate market demand Central to a successful composting operation is a targeted the method that allows their product to reach their strategy based on the local market environment in which consumers while minimizing cost and maximizing it operates. While a poorly targeted marketing strategy utilization will result in a product surplus and foregone revenues, a ●● Cost-conscious operations: The composting environ- strong go-to-market strategy can secure profit for lasting ment can be volatile and requires a risk-conscious men- operations. Similarly, a quality-oriented mentality is tality. Steps can be taken to promote success despite needed to secure consumer trust in the end-product. This variations in demand and other external contingencies chapter will discuss the key market factors that operators must consider in a municipal-level composting operation. Identifying the customer These include: Different potential customers of compost have different ●● Customer channels: Different customers have different needs. The end compost product can take on many forms needs and willingness to pay. A compost producer but must be designed to match the requirements of must first understand and then design the end product individual customer groups. For example, wealthy home to meet the requirements of specific market segments gardeners may purchase low quantities of compost at high ●● Customer perception and quality assurance: prices but require a fine grain and high nutrient content. Successful composting operations need a clear value Landscapers, on the other hand, may be more lenient in proposition over alternative soil enhancers and must nutritional content, but require bulk loads of compost as achieve consumer confidence in the quality of their a soil amendment. end product Operators should identify and evaluate each potential local ●● Sources of feedstock: A valuable end product requires market opportunity. While many potential customers exist quality inputs, which vary by cost, location, and for compost operations, some channels are more suitable nutritional quality than others; compost grade and nutritional requirements ●● Product distribution: Composters need to determine vary as well. 10 Sustainable Financing and Policy Models for Municipal Composting There are many potential customers for compost. These products do the customers use and how likely are they to include: respond positively to a new product? At what times of the growing season might the customer purchase compost? It ●● Conventional farmers, who manage long-term land is generally advantageous for a new composting operation value and nutrient depletion in addition to using soil to develop products for a limited market, upon which it supplements for crop growth can later expand. Efforts should be strictly concentrated on ●● Organic farmers, who require a nutritional alternative satisfying customer needs with consistency. In fact, if there is no suitable market in which this can be achieved, it is better to synthetic fertilizers to understand sooner rather than later. Past experiences of ●● Residents, who use compost for small-scale gardening successful or attempted efforts can shed much light. and farming ●● Landscapers and developers, who use compost to As part of a market evaluation, composters should design, develop, and refurbish landscapes on properties also consider external market factors. These include environmental and farming trends, the political ●● Public entities, who use compost to filter storm environment such as agricultural subsidies and land runoffs, control erosion, and develop parks, roads, and reforms, social attitudes and taboos, and the general public spaces economic environment. These factors may influence ●● Plant nurseries, who use compost to grow viable plant the ultimate market segment and product choice. For products that are sold to customers example, in environments in which subsidies heavily favor chemical fertilizers, compost may not be easily sold Understanding the value that compost may provide to due to its price disadvantage. In contrast, compost may the local market should be a key first investment that be particularly suitable for countries prioritizing land and any burgeoning compost operation makes. A thorough environmental reforms. market analysis will consider both qualitative factors such as customer characteristics, as well as a quantified analysis Finally, compost producers must understand patterns of the market opportunity within each potential customer of seasonality in their locality and how that may affect segment (Box 2). This includes characterizations of each demand from customers. Compost operations that process segment’s volume demand, purchasing patterns (e.g., municipal waste, market waste, or other commercial timing, frequency), segment size, and willingness to pay. feedstocks may be in operation throughout the year. Estimating these factors requires a deep understanding of However, many potential customers can only utilize the use case and decision making process of each customer compost during select times of the year. Compost operators type. Will the customer use the product at a large or a must understand the needs and preferences of offtakers small scale? Will the customers use compost for crop in their market and gain access to multiple offtakers in growth or for other restoration projects? What alternative order to diversify risk. Many centralized compost facilities Box 2. Market Opportunity Assessment for Single Customer Segment The annual market opportunity for compost is dependent on the following four factors: ●● Number of customers: size of industry, local economics, proximity to customers ●● Units per purchase: number of units anticipated for use, area of land for application, sole use vs. alongside other fertilizers, or soil structural amendments (such as mulch) ●● Frequency of purchases: customer type (farmer vs. nursery vs. household), seasonality, expected sales channel ●● Price per unit: prevailing compost prices, alternative fertilizer prices, subsidies, customer willingness to pay 2. Strategies for Navigating a Dynamic Composting Market 11 provide compost for local public works projects such as ●● Erosion control and re-vegetation: As a dense and landscaping, erosion control, and storm water filtering, or, substantive material, compost blankets effectively produce compost that is used as a daily cover for landfill. replace soil lost to erosion through natural causes or However, these use cases typically do not absorb all of the construction and has proven effective in numerous compost produced. Therefore, commercial buyers should urban settings (Classen, 2001). It prevents further not be neglected. Further, due to the seasonality of sales, erosion by absorbing water rather than allowing it storage facilities may be required and must be factored to pool and flow. Finally, compost helps to replenish into cost considerations and revenue projections. natural vegetation in damaged areas. ●● Filtration: Compost, such as when applied as a lining, 2.1 Understanding the Value can filter pollutants such as heavy metals, grease, and of Compost fuel from storm water and improve the water quality of the resulting runoff (Tyler and Faucette, 2006). Users of compost, such as farmers, households, and ●● Public health: Chemical fertilizers can cause physical landscapers have a number of alternative products available illness to people who are in constant contact, such to them. These alternatives include chemical fertilizers, as farmers, or leach into communal water supplies. animal waste (e.g., chicken droppings, manure), mulch, Compost is non-threatening to human health when and peat moss. The pull of many of these alternatives is processed properly. their widespread availability and low cost, often due to the ●● Waste mitigation and environmental benefits: support of subsidies. Further, the nutrients of fertilizers Composting diverts organic waste from landfill, can be quickly absorbed, resulting in an immediate boost reduces methane emissions, and contributes to urban in crop productivity while the nutrients in compost release over a longer period of time. However, any composter cleanliness. should identify the advantages of compost in the context The uses for compost and alternative products are also of their local market. These may include: different. Chemical fertilizers are applied during plant growth for quick nutrient realization and must be re-applied ●● Nutrient restoration: Like chemical fertilizers, whenever nutrients are required. Compost is generally applied compost is rich in critical plant nutrients such as to a soil bed before crops are planted. The early application nitrogen, potassium, and phosphorus. However, gives time for nutrients to be released, but these nutrients are these nutrients take longer to release than chemical longer lasting (Rouse, Rothenberger, Zurbrugg, 2008). For fertilizers and remain longer in the soil, therefore being land conditioning purposes, compost and alternatives such advantageous for long-term land maintenance. as peat moss and mulch differ in acidity, application method, ●● Land conditioning: The plant-based structure of and moisture retention; therefore, these products are not true compost effectively replenishes depleted soil reduced to replacements (Perry, n.d.). For example, peat moss, which is inert materials such as rocks and sand. Depletion often harvested from wetlands, increases the acidity of soils and is follows repeated applications of chemical fertilizers and often applied with lime, whereas compost is slightly basic. harvest cycles. Compost also supports root growth, Further, peat moss absorbs water more slowly than compost soil aeration, and microorganism growth and balances but has longer-lasting water retention qualities than compost. soil acidity—purposes that are not achieved through Mulch, on the other hand, is not typically mixed with soil as a chemical fertilizers (Perry, n.d.). conditioner, but rather applied as a protective cover to retain ●● Moisture management: Compost not only improves moisture and suppress weed growth (20 Minute Garden, land drainage by allowing water to percolate from the 2011). Since it is not yet decomposed (e.g., shredded leaves surface, but it also distributes and retains moisture as a and wood chips), the nutrients in mulch are not as readily spongey soil cover. available as that of compost. 12 Sustainable Financing and Policy Models for Municipal Composting Bark mulch (left) and blocks of dried peat (right). Photo credit: Thinkstock.com Despite the differences in soil additives, an integrated Zurbrugg, 2008). In this case, communicating the value plan nutrient management system is becoming of compost can even stimulate demand. increasingly common, and the use of multiple products in combination have proven to be more effective than Despite its advantages and differences from alternatives, a single product alone (Chen, 2006). Compost and the value of compost must be made clear and compelling to fertilizers can complement each other: numerous studies potential consumers who face many options and who may have shown that when compost is applied together with not be familiar with compost at all. Promotion strategies fertilizers, plant nutrient uptake is far higher than when for compost are discussed in the following sections. fertilizers are applied alone, leading to improved yields (Abedi, Alemzadeh, Kazemeni, 2010; Sikora and Azad 1993). When biofertilizers, or microorganisms that 2.2 Establishing Quality increase nutrient availability to plant roots, are added Standards as well, nutrient uptake can be increased further (Chen, 2006). The co-beneficial effects of an integrated approach Compost is a particularly reputation-sensitive product can result in financial savings for farmers by reducing the due to a general lack of precedence. Therefore, it is critical overall need for additives. It also significantly reduces to consistently deliver a quality product that mitigates nutrient runoffs and algae blooms, which sustains land consumer fears. Consumers must be confident that the quality and protects surrounding waters. In fact, the usage product is free of undesired contaminants. Substances of compost is aligned with the needs of the agricultural such as glass shards may be harmful to the customer and community. limit land use. Compost containing heavy metals or disease vectors (from hazardous, human waste, or even certain A useful way to understand the requirements and MSW waste) may contaminate groundwater and present perceptions of the end market while educating people on a health hazard. Other risks include unviable plant growth the qualities of compost itself is to communicate directly conditions due to immature compost or improper acidity, with customer groups, such as through surveys, focus weed growth from seeds, and a generally unpleasant smell groups, and site visits. In fact, compost does not always and appearance. Reliable quality standards help to achieve have a preexisting market, one key reason being a lack of consumer trust in the final product.ii awareness and knowledge of the product. In a Tanzanian survey, 60% of farmers reported not knowing how to use In established composting systems, quality standards are the compost, and many did not know what quantity to typically achieved through a trusted central accreditation use—a key barrier to purchasing (Rouse, Rothenberger, body, which may exist as part of a country’s national 2. Strategies for Navigating a Dynamic Composting Market 13 Box 3. Survey of Common Perceptions of Compost and Reasons for Non-Use in Uganda The composting sector in Uganda is still at an early stage. Compost production is suspected to be quite low although data on compost production and demand is not readily available. For reference, the nine municipalities participating in the Uganda Municipal Waste Compost Project through the World Bank Community Development Carbon Fund have a total installed composting capacity of 70 MTPD. In 2014, none of the plants were believed to be operating at full capacity yet. While Uganda has one of the highest soil nutrient depletion rates in the world, farmers in Uganda use extremely small quantities of synthetic fertilizers (Majaliwa, 2012). On average, farmers use 1.8 kg of synthetic fertilizer per hectare per year while the average usage rate across Sub-Saharan Africa is 9 kg per hectare per year (Benson et. al., 2012). The low use is attributed to the high cost of synthetic fertilizers, a lack of knowledge, limited access and issues of poor perception. As an alternative to synthetic fertilizers, farmers use a variety of practices including: crop rotation, intercropping, green manureing, cover cropping with plants that are able to take nitrogen gas from the air and store it, and land fallowing, in place of using commercial soil amendments. The World Bank commissioned a country report on Uganda in 2014, which included collection of primary data from three representative districts: Mukono for urban areas, Buikwe for semi-urban and Lira for rural. Data was obtained through inter- views with 91 stakeholders including: 20 tree nursery operators, 18 potted flower nursery operators, 46 crop farmers and 7 government/NGO staff. User perspectives of compost (Table A) and the reasons for whether or not they purchase products (Table B) illuminate the challenges of developing a robust composting market. Table A. User Perspectives of Compost Crop Farmers Tree Nursery Operators Potted Flower Nursery Operators ●● Compost remains in soil for ●● Compost quality is variable ●● Compost takes longer to longer, therefore smaller which makes its performance produce desired results quantities are needed variable ●● Compost can only be used at ●● Compost requires a labor- ●● Many tree varieties can do certain stages of growing intensive production process without compost ●● Training is needed on how to (when produced on-site) ●● Chicken manure is better than use compost ●● Compost is difficult to compare compost ●● Compost only applies to certain to other manures ●● There is competition with crop varieties of flowers ●● Compost and other manures farmers for compost ●● Artificial fertilizers work instantly are no different Compost is expensive ●● ●● Sometimes compost burns and compared to forest soil stunts seedlings when it is not ●● Compost does not produce properly stabilized desired results and works very slowly ●● Urea works better than compost in the short run Table B. Reasons Cited for Non-Use by Survey Respondents Potted Flower Growers Tree Growers Number of Percent Number of Percent Reasons for Non-Use Survey Responses of Total Survey Responses of Total Lack of Access 5 28% 10 50% Lack of Need 2 11% 7 35% Other 11 61% 3 15% Total Number of Survey Respondents 18 100% 20 100% continues 14 Sustainable Financing and Policy Models for Municipal Composting Box 3. Survey of Common Perceptions of Compost and Reasons for Non-Use in Uganda (cont.) Of the “other” reasons cited in Table B, most common responses included: ●● Lack of knowledge about the benefits of using compost ●● Lack of knowledge about the safety of MSW compost ●● Lack of information about the quality and composition of MSW compost ●● Lack of consistency across different compost batches ●● Lack of awareness about potential sources of compost ●● High transportation cost and poor road networks ●● The weight of compost and its bulky presentation compared to synthetic fertilizers Understanding market limitations offers valuable perspective on the barriers to compost sector development in Uganda. Survey results highlight the need for awareness building among end users to improve the perception of compost along with potential process improvements to increase compost quality and consistency. Source: World Bank regulatory framework or as an independent organization. A less costly option is peer evaluation. For example, in This body publishes compost guidelines and standards Brazil, small scale organic farmers use peer evaluation that operations must adhere to in order to achieve through a Participatory Guarantee System (PGS) (Box 5) certification. Accreditation bodies are typically public, but (International Fund for Agricultural Development, 2003). some are private, such as in Germany (Brinton, 2000). For Farmers organize themselves in local groups that carry example, in Austria, large scale and agricultural producers out inspections on member farms and ensure compliance are monitored under two different government entities with national standards. Representatives from each local against the standards set by the Austrian Ministry of segment form regional organizations that are accredited Environment. In addition to regular inspections, samples and audited by the national Ministry of Agriculture. Since are laboratory tested for adherence. In a more demanding these farmers use the compost for their own products, model in Bangladesh, the compost product must be incentives are aligned to comply. This is an efficient yet proven effective over two growth cycles before it can be cost-effective process that results in the official Brazilian sold. In all cases, products that achieve certification may organic seal. label their packaging with a standard symbol of quality assurance. Branding gives users the confidence that compost is at least as trustworthy as the alternative options they face. In countries with developing composting sectors, quality As in any industry, brands that customers know and trust standards on an institutional basis may not yet exist. In have a higher likelihood of selling. an optimal case, officials may consider establishing a publically trusted certification body and benchmark the Where sufficient quality standards are not achieved, standards that guide similar regions. In this situation, it the compost product is sometimes used for lower-grade is important to ensure standards are appropriate based on purposes such as landfill cover, mining site refurbishing, desired end use in the local market, as standards in some and land filler. However, these uses of compost should be developed countries may be inappropriate or too rigorous deprioritized as they are less profitable (if at all), at times (Hoornweg, Thomas, Otten, 1999). Components of an may need to be given away for free and, in a worst case advanced Quality Assurance System (QAS) from Europe scenario, may even incur disposal costs. are summarized in Box 4 and details can be obtained from the European Compost Network. 2. Strategies for Navigating a Dynamic Composting Market 15 Box 4. Components of a Quality Assurance System in Europe European quality assurance schemes are comprised of the following elements: ●● Definition of feedstock type and quality ●● Limits for contaminants (heavy metals, impurities, salt content) ●● Hygiene requirements (time-temperature regime and testing of indicator pathogens) ●● Quality criteria for nutrients and organic matter ●● Third-party inspection and controlling of the product and the production (quality management) ●● In-house control at the site for all batches (e.g., temperature, acidity, carbon dioxide levels) ●● Quality label or product certificate ●● Annual quality certificate for the site and its successful operations ●● Product specifications for different application areas ●● Recommendations for the proper use in different application areas ●● Production control and process management guidelines ●● Education and qualification requirements for facility operators ●● Partnerships with accredited laboratories for product testing ●● Process, product quality and end-use related research ●● Promotion of quality standards, compost image and use ●● Marketing tools Box 5. An Example of a Community-level Product Certification System In Brazil, small-scale peasant farmers follow an unconventional certification process known as the Participatory Guarantee System where peer farmers evaluate each other’s products rather than a third party. It is based on mutual agreement and trust between producers, traders and consumers. Peasant farmers organize themselves into local groups and then form a commission to carry out inspections on each other’s farms and verify product compliance with national standards. Within a region, all of the groups come together under an umbrella organization, which is accredited and audited by the Ministry of Agriculture. The umbrella organization is responsible for evaluating and verifying the results and issuing certification and the organic stamp to the peasant farmers. This process is less expensive than through national systems, aligns with the natural incentives of the compost producers, facilitates the efficient dissemination of information across farmer groups, and allows for a continuous certification process as farmers harvest different crops each season. Farmer participation in the program has increased from 138 families in 2009 when the participatory certification program was first implemented to 1,793 producers in 2014. Source: World Bank 2.3 Selecting Feedstock composting process is free of major contaminants that devalue the end-product. Contaminants such as glass, The quality of the inputs to a composting process plastics, heavy metals, and other hazardous chemicals is a key determinant to the quality of the outputs. cause the compost to contaminate and devalue the A challenge to composters, especially in developing land that it is applied to. Other consequences include regions, is ensuring that the organic waste entering the the inability to grow crops that meet quality standards, 16 Sustainable Financing and Policy Models for Municipal Composting Fruit and vegetable waste in a compost heap. Photo credit: maerzkind | Thinkstock.com contamination of water streams, and restrained land use If feedstock can be sourced from rural areas or if a (e.g., park spaces that contain glass). The most efficient decentralized composting operation is used, another ideal and cost-effective way to reduce contamination is at the source of input is agricultural feedstock. Agricultural source: by ensuring that the inputs are as pure as possible feedstock is waste sourced from farms, such as corn husks, upon receipt, which limits intermediate separation steps wood, grass, vegetable remains, animal by-products, needed to remove contaminants. There are a few common manures, and livestock bedding. Agricultural waste can sources of feedstock for composting, including market be obtained in significant volume but would likely incur waste, institutional food waste, commercial food waste, greater transportation costs. Where agricultural waste has agricultural feedstock, landscaping waste, and municipal been used, such as in the decentralized composting model solid waste. of Austria detailed in Chapter 5, an effective system has been to establish partnerships with the agricultural In developing country municipalities, ideal and accessible community. In these systems, composting operations are sources of pure feedstock are market waste, institutional managed by the farmers or cooperatives themselves. Not food waste, and commercial (e.g., from large restaurants and only do they process their own waste, but their income hotels) food waste. Market waste includes spoiled produce is supplemented by compost sales as well as gate fees for and other organic remains from open food markets that can additional market or household waste brought in by the no longer be sold to customers. Market waste is typically municipality. Seasonality is a strong factor for agricultural uncontaminated and comprises a large deal of organic waste since feedstock streams ebb and flow based on the matter that would otherwise be left on the streets or become harvest schedule. As alternatives, forestry and landscaping methane sources through disposal methods such as dumps waste are similarly as pure as agricultural waste, but they or landfills. Food waste from institutions, large restaurants may be less bountiful and are sourced from public and and hotels can also be substantial in quantity and easily private agencies rather than farmers. source separated. The generating entities may ordinarily pay collection and disposal fees for landfill disposal whereas Municipal solid waste is a readily available input source gate fees for composting are typically lower or negligible, for composting; however, the risk of contamination and therefore advantageous. and producing non-marketable compost is significant. 2. Strategies for Navigating a Dynamic Composting Market 17 Compost produced from municipal solid waste is often The choice of feedstock should also be based on what is not well-received by the public; therefore, when municipal socially acceptable by the target customer group. In many solid waste is used, the objective of composting may be areas, urban waste and fecal sludge are stigmatized. For geared toward waste volume reduction rather than soil example, in Arab countries, farmers are typically unwilling conditioning. Because developing countries’ waste often to use compost derived from sewage or fecal sludge (Rouse, exceeds 50% organic matter in composition (United Rothenberger, Zurbrugg, 2008). In cases like this, it is both Nations Environment Programme, 2015), composting important to select an acceptable source of organic matter urban waste is an effective way to divert organic matter and ensure that contents are well known to consumers. from landfills while reducing the amount of methane that results from the degradation of these compounds. However, to produce a viable compost product from 2.4 Distributing Products municipal waste sources, contamination must be Effectively avoided. This entails the implementation of source separation of organics, separate collection of organics, In a municipal composting system, products can reach public education, and diligent quality control—all of customers in a variety of ways depending on the market which may be costly. systems and location, and even the economic priorities of the municipality. On-site usage is most cost-effective Municipal solid waste is plentiful but the most in terms of transportation. For a centralized urban composting facility, compost may be used for local public challenging to process. Mixed municipal waste can be works projects such as landscaping, erosion control, and obtained as part of a pre-existing door-to-door collection storm water filtering. Positive externalities of this approach system or from aggregation facilities, such as community include reducing the landfill waste stream, pollution, water, waste bins and transfer stations. Since this system relies and health risks while improving the city’s infrastructure. If on the participation of many individuals and entities, an composting operations are distributed across rural sites, the ideal strategy is to employ source segregation, in which end product may be directly used by farms and cooperatives different waste types are separated at the household or and their local counterparts. organizational level. One form of source separation common in developing countries is a wet/dry separation With regards to where compost is sold, it can either be program, in which compostable, “wet” waste comprised distributed at the site or through secondary channels such of food and other organics, is collected separately from as local retailers and bulk wholesalers. On-site buyers non-compostable, “dry” waste comprised of recyclables may include local farmers, nursery operators, or home and other refuse. Source separation has been successful gardeners that pay more per unit for small amounts. in some areas but is difficult to implement where This method of sale is advantageous as it reduces collection systems are still nascent, where enforcement transportation costs of the final product. Compost may power is lacking, and where local waste culture has also be sold for redistribution by local retailers. This not yet set a precedent for community engagement. If enables composters to reach a larger portion of the market municipal solid waste is used, further separation steps through the existing relationships between retailers and are often required both for the raw materials and in later their customers. Further, retailers can support the co- processing steps, for which costs in labor, equipment, and distribution model by selling and marketing compost time must be accounted for. Compost produced chiefly alongside chemical fertilizers. Co-distribution puts the from municipal solid waste is easily fit for landscaping two competing products on par, especially when they are and urban design uses. To produce a more marketable similarly branded. For example, in India, a recent policy product, organic municipal solid waste can be mixed requires that fertilizer companies market urban compost with other waste streams or nutrient supplements. alongside chemical fertilizers (India Press Information Enrichment using fecal sludge, manure, and chemical Bureau, 2016). Finally, local retailers may provide access fertilizers is a common way to boost nutritional content. to customers who must buy on credit, such as local 18 Sustainable Financing and Policy Models for Municipal Composting Box 6. Producing Compost from Municipal Solid Waste in Rio de Janeiro Waste management in Rio de Janeiro is provided by the municipal public company COMLURB (Companhia Municipal de Limpeza Urbana), an organization with a budget of $500 million per year, 21,000 employees, and around 1000 pieces of equipment (e.g., collecting trucks, front loaders, dumpster trucks, bulldozers, sweepers). Currently the majority of the 10,000 tons per day of municipal waste generated in the city is disposed in landfills. By the end of 2016, 70 tons each day (half of which is organic matter) will be directed to a new biomethanization plant. This plant will produce 10 tons of compost per day. Approximately 9.5 tons will be used for the municipal forestation projects and the remaining 5 will be sold to farmers. Currently, COMLURB is producing about 5 tons of compost per day through an aerobic system, where the organic fraction of the MSW is decomposed in open windrows followed by a screening in a rotary trommel. The sale of compost to farms has been consistently and remarkably successful, unlike most municipal waste compost projects around the world. A driver of this success is an on-site research center at which compost is tested for quality, heavy metal composition, and adherence with national standards. While farmers were initially skeptical of compost produced from municipal waste, marketing and promotion by the city enticed farmers to conduct tests and trials. Demand increased when quality results were achieved. The compost was formerly used for growing citrus and coffee and is now mainly used for growing vegetables. The biomethanization plant will use 8 automated methanization tunnels to produce biogas and compost. The technology is simple and unsophisticated, has few moving parts, and requires minimal maintenance. Inputs are initially hand sorted before entering the tunnels for an anaerobic decomposition phase. Outputs include biogas (about 60% methane content) that will be used either for energy generation or for vehicle fuel (after purification), and the remaining organic matter will be shifted to a windrow system for curing and finally screened to the final product. The final compost product is sold at a low price to farmers (~$8/ton), of which transportation costs are a large component. Today, 100% of the compost produced is sold. Finished compost (left). Seedlings are grown for city’s reforestation program using compost outputs (right). Photo credit: Jose Henrique Penido Source: Jose Henrique Penido, 2016 2. Strategies for Navigating a Dynamic Composting Market 19 farmers whose need for upfront materials is not synced 2.5 Operating Cost Sustainability with their revenue flows. While cost management is typically an operational Composters may also sell products in bulk to wholesalers concern, decisions must be made judiciously in light of at lower per unit prices. Wholesalers may further enrich the fact that composting markets can exhibit volatility the compost, process it to different forms (e.g., pellets, and fluctuate. Poorly managed costs are where most powder), and transport it to distant points of sale. While composting operations fail; profits generated from wholesalers pay a lower price for compost per unit, and product sales and gate fees may not be sufficient to sustain sometimes even on credit, they can help composters reach an operation that is not cost-efficient. markets beyond the operation’s own capacity. A successful wholesale model has been that of Bangladesh, in which The major costs in composting are in sourcing feedstock compost produced by Waste Concern, a social business, (collection and transport), operations and maintenance, is distributed through the largest synthetic fertilizer and end-product transportation. Plants should aim to distributor in the country, Advanced Chemical Industries. source the purest possible waste streams, such as agricultural waste, since the additional sorting and processing are There are also more unique and creative ways to distribute expensive. With regard to siting, composting close to compost. If feedstock providers are also consumers of the feedstock source is most transportation efficient, compost (e.g., farmers), compost may be purchased in since input volumes are higher than output volumes. bulk at the same time feedstock is delivered, saving a trip. Composters may even seek to source feedstock, such as Retailers, such as vegetable markets, may also purchase municipal market or landscaping waste, free of cost. compost for resale when feedstock is delivered. Deliveries may also be coordinated by a single point of contact to In terms of infrastructure, developing communities distant communities. generally should opt for low-tech, labor-intensive processes rather than high-tech, mechanized solutions. For Generating compost sales almost always requires example, an open windrow system may be advantageous promotion in the form of government policies or simple to a complex in-vessel system assuming that land can be marketing. Distribution opportunities may be weak readily accessed. Labor can be less costly than acquiring due to lack of awareness of the benefits of compost and and maintaining complex infrastructure. In many cases messages working against compost that are disseminated where capital was granted to plants that started up by competitors. Consumers can become more informed with complex machinery, plants closed following the through community education programs, demonstrations, completion of the grant as infrastructure repairs and and endorsements by organizations, such as trade groups, other technical requirements surpassed their financial universities, and businesses. Operators may also consider capacity (Hoornweg, Thomas, Otten, 1999). In 1979, providing samples and efficacy guarantees. the Accra Waste Management Department constructed the Teshie Compost Plant with financing from the Swiss Relatedly, composters should ensure that the look and Government. The capital-intensive, European system was feel of the compost product is best positioned for sales. designed with a processing capacity of 38,000 TPY, but Packaging should be informative to the customer, display due to inadequate electricity, water supply, spare parts, a reliable brand and quality guarantee, and look at least and proper maintenance, the plant never reached full as compelling as that of competing soil amendments. capacity before being fully decommissioned in 2009. The product itself should also be appealing in physical appearance. For example, pellets and powder may work It is essential to plan sales according to customer demands best in communities traditionally accustomed to processed and purchasing patterns. This avoids unnecessary fertilizers, which are sold in those forms. Ultimately, transportation and excess stock. Speaking with retailers successful products need a distinctive reputation amongst themselves can be effective as they are in tune with the customers along some dimension, whether that be needs and trends of their customer market. Customers contents, quantity, or quality. themselves are a rich source of insight as well. 20 Sustainable Financing and Policy Models for Municipal Composting Finally, following core principles of financial management, While managing costs, ambitions should be balanced with composters should conduct rigorous financial forecasts realities. It is also important to keep in mind that many and especially maintain a strong capital buffer to protect of the benefits of composting are difficult to price—such against variations in demand. For risky operations as improved crop quality, reduced erosion, and better air from non-profits to banks, an adequate capital buffer is and health. recommended and even legally required at times (Dailey, n.d.; US Federal Reserve Board, 2016). Composting can be similarly volatile and operate at the margin, and a 2.6 Market Risks “rainy day fund” can help operations in slow seasons and support eclectic business needs, such as extending sales Inherent in any infrastructure project are risks. In on credit. In terms of revenue, compost prices should particular, for composting, significant risks are borne be set to provide a satisfactory margin over costs while through the market environment, whether relating to considering customer willingness to pay, the competition, customer demand, feedstock supply, or competition. and the product type. Prices should be high enough to This section will serve as a brief overview of the top risks allow for growth but not be so low that they generate encountered in composting markets and recommended doubt (Rouse, Rothenberger, Zurbrugg, 2008). mitigation measures. 2. Strategies for Navigating a Dynamic Composting Market 21 Risk Description Mitigation techniques ●● Conduct an extensive market feasibility study: though an upfront expense, invest in thoroughly and preemptively understanding market conditions, including customer types, potential end uses, forecasted sales volumes, and competition. Quantify expectations. Speak to target customers to confirm hypotheses. Gather data. Study past or attempted operations ●● Market products: Sometimes, demand can be created. Experiment with novel marketing methods, such as through focus groups, pamphlets, on-site demonstrations, and media advertisements to raise community awareness Product sales and Lack of customer demand ●● Adjust the product: Products may not appeal to customers for specific reasons. market do not generate Changing the nutritional contents or simply the “look and feel”, such as texture demand enough revenue to (e.g., pellets) or packaging, may have a significant effect sustain operations ●● Start small: Begin by developing a high quality product at low volumes for a limited target market, then scale up. Avoid producing a low quality product that is difficult to sell and that leads to compounding losses ●● Establish quality assurance systems: Avoid poor product quality or contamination issues by obtaining facility and product certifications and developing product quality control and testing programs ●● Set enabling policies: Ensure that policies encourage compost demand, such as through subsidies, agricultural guidelines and organics disposal bans ●● Use contracts: Negotiate binding contracts with the agricultural, hospitality, or market sectors for a guaranteed amount of high-quality feedstock. In return, offer favorable rates on compost products Quality feedstock ●● Diversify feedstock sources: Avoid reliance on a single source of supply, while supply is limited minimizing transportation costs Unreliable or cut off, which feedstock Understand the sources: Map and prioritize all local sources of feedstock, potential stresses operations ●● supply quantity, and key contract information to quickly reference when needed. This may and affects product quality be useful even in simple scenarios, such as a poor growth cycle ●● Set enabling policies: Ensure that municipal policies, such as landfill diversion targets and taxes, direct waste streams to composting rather than landfills and dumps (discussed in Chapter 4) ●● Market: Launch a targeted marketing campaign (see above) ●● Focus on the advantages: In marketing and publicity efforts, make clear the advantages of compost over alternative products, including health and Competitors to environmental impacts compost, including other compost ●● Target priority customers: Reach out to customers most likely to purchase compost, Competition plants, synthetic including those with depleted land and long-term land owners is strong fertilizers, and ●● Adjust prices: If there is room in the profit margin, use promotions and competitive alternative products pricing to gain customers dominate the market ●● Lobby for favorable policies: If government subsidies favor competitive products, form interest groups and coalitions to develop more favorable conditions for compost. Emphasize environmental and health benefits Farmer raking soil and dry leaves to produce nutrient-balanced organic compost in Thailand. Photo credit: © Bidouze Stéphane | Dreamstime.com 3. Sources of Funding and Financing for Composting Projects 23 3 Sources of Funding and Financing for Composting Projects Key Messages ●● Capital costs are often accounted for by a large upfront investment by an external organization, including grants from national governments and from development agencies ●● Operational costs should be self-sustained through operational revenues, namely gate fees and compost sales, and may be supplemented by subsidies and tax agreements ●● The private sector can be involved in any phase of composting and provides financing and risk mitigation in exchange for opportunities to earn a return ●● Developmental assistance and national funding are often included in a compost project’s funding scheme ●● There is no magic bullet for financing; most composting projects in developing countries are financed by 2-4 sources in combination Unlike traditional waste disposal methods, composting development agency or a central government transfer or produces a commercial product for revenue. The pro- grant. Facilities that have financial stability through asso- duction process involves a variety of costs, which can be ciation with a larger private organization or municipality roughly split into capital expenditures, or upfront costs, may have access to loans. Smaller facilities are more reliant and operational expenditures, or recurring costs. on grants and transfers since their profits can be uncertain and slow to achieve. Capital costs account for the land on which the facility is located, construction of the facility, and equipment. Operational expenditures, on the other hand, must be Other costs that must be paid upfront include planning financially self-sustaining. Countless failed composting and feasibility studies, which improve the likelihood of projects began with tremendous amounts of grant funding success of the project, as well as permitting and market re- but ultimately collapsed due to inability to support their search activities. Operational expenditures are associated operational costs. Often, this results when the selection of with the operations and maintenance of a facility. These technology is too complex and repairs and maintenance include labor, utilities, ongoing facility costs, transporta- costs become unmanageable. Operational expenditures tion, business development, marketing, and equipment can be managed through traditional methods of improv- repairs and upgrades. ing businesses’ processes and maximizing revenue streams, including gate fees and compost sales. These costs can be Financing mechanisms vary, and a typical composting alleviated through long-term government support, such project is financed through a combination of two to four as through per-unit subsidies on compost sales, as used in sources. Examples of hybrid financing schemes are de- India (Box 16), or tax benefits. tailed in boxes throughout this chapter, and summarized in Appendix 2 and Appendix 3. Before seeking funding, it is crucial for composting operations to accurately estimate their upfront and A large upfront investment is required to finance initial operational and maintenance costs. Many composting capital expenditures. This is typically achieved through a projects fail due to poorly estimated operational 24 Sustainable Financing and Policy Models for Municipal Composting expenditures that are too optimistic. Further, while schedule often on a short- or medium-term basis, interest composting projects may operate as a business, they also payments, as well as a steady revenue stream. This is serve as a basic municipal waste management service challenging for small organizations that have unpredictable which is traditionally costly. Therefore, composting can cash flows, require time to become profitable, and need to be beneficial even if it is not independently profitable, as invest their profits in the operation itself. Established private it may reduce municipal service costs as a whole. organizations or municipalities that conduct composting alongside larger waste operations have increased access to When a municipal composting operation divides assets loans and ability to repay them in a timely manner. and operational ownership across multiple stakeholders, such as with privately contracted or distributed systems, Further, lenders seek counterparties that are creditworthy. costs and revenues may be borne by multiple entities. In countries without developed credit rating systems, While finances must be sustainable for each entity, this a mechanism to garner trust is through providing key chapter discusses general means of financial sustainability documents such as a comprehensive business plan with for the holistic composting operation, not focusing on detailed assumptions, market and feasibility studies, any one party. feedstock supply agreements, product offtake agreements, and financial forecasts. Cities commonly fund composting through three main sources, or a combination thereof: private corporations, A soft loan is a form of debt that is particularly appropriate public donors, and the composting plant’s own operations. to composters (Hoornweg, Thomas, Otten, 1999). These loans are offered below the market rate of interest and often provide other benefits such as long payback periods, 3.1 Private Funding grace periods in which only interest or service fees are due, and interest holidays. To improve debt availability, smaller The private sector is a useful source of funding as it facilities may also seek a syndicated loan—a loan issued can have more capacity to invest than the public sector. by multiple financial institutions for a single project using Private entities tend to make efficient use of time and identical terms. Here, the risk of each participating lender is resources. The most common way the private sector plays reduced. Banks may also provide project financing, in which a role in composting projects in developing countries is the terms of a loan are contingent on project revenues, and in operations through a public-private partnership (PPP); general obligation financing, in which the creditworthiness most composting projects have some form of private of the local or central government secures the loan. organization involvement. However, private organizations may also provide loans, grants, equity, and venture capital. Private sector participation The private sector is incentivized to invest in composting when there is a clear mechanism to recoup costs and earn Another way to finance a project is by including the private a return. There are steps both municipal and national sector. Private organizations can participate in a variety governments can take to encourage private sector of capacities, from concept and design, to construction, participation—these are discussed further in this section. operations and maintenance. They can also provide financing to a greater capacity than the public sector and Banks and financial institutions relieve governments of borrowing constraints. The simplest form of funding from the private sector is Private organizations can provide an advantage to through debt—simply borrowing money from a bank or municipal projects by reducing the time to completion other financial institution. An advantage of debt financing of projects, offering specialized skills, and utilizing their is that it does not relinquish control of the operations and established business networks and resources. However, strategy to the lender as occurs when a facility is financed by assuming financial risk in the composting project, the through equity. However, not all composting operations private sector requires confidence in an expected return. have ready access to loans, which requires a strict repayment 3. Sources of Funding and Financing for Composting Projects 25 Box 7. Debt Financing for a Private Sector Composting Project in Massachusetts In the late 1990s, KeyBank, a US commercial bank, debt financed two privately owned and operated composting facilities in Nantucket and Marlborough, Massachusetts. KeyBank evaluated the projects across the following basic criteria: ●● Was the composting technology well established and currently operating at other facilities? ●● Was the investment adequate in size to be attractive to KeyBank (minimum $5 million investment required)? ●● Was the team comprised of strong and reputable team members? ●● Had permits been approved or were they forthcoming? ●● Did owner equity reach 20-30% of the total project cost? ●● Was the projected annual operating cash flow at least 1.5 times the amount of the loan? ●● Based on an independent valuation of the project’s income, was the loan amount less than or equal to 75% of the total project cost? In order to evaluate these criteria, KeyBank required the loan applicants to submit a loan package comprised of a business plan including construction plans, budget, company history, the qualifications of top management professionals, and a pro-forma financial analysis. The financial projections were expected to reflect existing supply and offtake agreements (including minimum tipping fees, minimum and maximum monthly feedstock quantities, feedstock quality requirements) and local market factors, along with detailed, well-justified assumptions. An independent engineer was required to review and verify all plans, at a cost incurred by the applicant. Construction bonds, construction advances and performance bonds were also required of the applicant to ensure that the plant was built according to the construction plans and to cover any additional costs to modify the plant post-construction in order to comply with output requirements. The financed composting facilities in Nantucket and Marlborough are still in operation today. Source: Graydon, 1999 The private sector typically partners in the municipal their compost quality. Further, a privately-owned compost composting process in two ways—a traditional PPP, in operation can be transferred back to public ownership, or which a private company conducts some combination vice versa. For example, the Temesi Recycling Center that of the designing, building, financing, maintenance, composts organic waste in Bali was established as a pilot or operation of the facility on an extended basis, or in 2004 by the local Rotary club. However, the ownership engagement in a short-term or limited capacity. The was eventually transferred to a municipal foundation, municipality may also build an ecosystem that nurtures Yayasan Pemilahan Sampah Temesi, after which the growth of fully private composting operations, where expansion efforts increased the processing capacity by 15 the public sector does not claim any ownership, such as times (École Polytechnique Fédérale de Lausanne, 2016). in Austria. Another Build-Operate-Transfer example in Pakistan is detailed in Box 9. Increasing integration with a private In a traditional PPP model, a significant portion of the operator can realize more cost savings through continuity development project is owned by the private sector for and efficiencies (National Council for Public and Private an extended period of time. The relationship can take on Partnerships, n.d.). For example, assigning one company many forms, which are detailed in Box 8. Even if a private to both constructing and operating a compost plant can company is deeply involved in the operation of a facility’s be more efficient than conducting this process through assets, the public company retains oversight throughout two separate entities, and often, the private sector will the process and may contribute to the project’s success. participate in the design, build, and operation of the For example, Waste Concern’s privately-owned compost facility. However, municipalities should be cautious since plant in Bangladesh benefits from a pure market waste the more the private sector is involved, the less control the stream guaranteed by the municipality. This contributes to public entity retains over the project. 26 Sustainable Financing and Policy Models for Municipal Composting Box 8. Public Private Partnership Models in Composting Traditional public-private partnership structures vary in degree of ownership, from nearly full ownership on the part of the municipality to full operation on the part of the counterparty. Short term service models include: ●● Contract: Through a competitive procurement process, a private firm is hired to deliver composting services for a finite period of time. The government pays this entity, rather than sharing revenue. An example of this service is a site study or a source-separated organics collection program. ●● Concession: The government grants a private firm the opportunity to invest in and provide services for a period of time, in exchange for rights to profit. ●● Lease: A private operator pays the municipality for the use of composting assets. Profits, such as through compost sales, tax benefits, or carbon credits, can be shared between the government and the private operator. The private operator is responsible for maintenance and repair, while the municipality is responsible for upgrades and investments. ●● Management: The government hires a private operator to manage a facility, sell a product and collect revenues, but pays the operator a fee. This is a less common model for composting. Longer term service contracts include: ●● Design-Build-Operate: Private operator will design, build, and operate a facility and is sometimes responsible for maintenance. These include feasibility and market assessments, systems design, construction, and project management. Funding can be supplemented, and operations should be financially self-sustaining. ●● Design-Build-Finance-Operate: This form of contracting requires the private operator to take responsibility over financing the project from design to operation. Since the private operator is required to source funding, the municipality may need to offer risk mitigating measures such as credit guarantees. The municipality can further reduce risk by providing a feedstock supply and offtake agreements. ●● Build-Operate-Transfer: A private operator takes either full or partial responsibility over financing the construction, operations, and maintenance of a facility, and therefore owns rights to outputs and revenues through which they are compensated for their investment. The operation will eventually be returned to public control at which point the municipality is responsible for operations and maintenance and long-term financing. These contracts are risky, as control over the success of the operation is in the hands of the contractor for an extended period of time. Further the condition of the operation at the time of transfer must be carefully monitored and enforced. ●● Build-Own-Operate: In this structure, the private sector is responsible for an operation end-to-end, and there is no obligation to transfer to the private sector. Many composting operations are privately owned but may receive external funding. Sources: United States General Accounting Office, 1999; UNEP, 2005 Many models of composting engage the private sector at Additionally, cities may use their existing private waste discrete phases of the project. This might be in collection hauler to collect organic waste or engage them in waste of waste, marketing and branding, or distribution. For separation and processing. For example, in Kampot, example, Waste Concern’s pilot and joint venture facilities Cambodia, a local NGO operates an integrated resource in Bangladesh have utilized private distributors, Map recovery center that processes compost. However, source- Agro and Advanced Chemical Industries, to market and separated waste is delivered by a private corporation, sell their compost, respectively. These companies provide Global Action for Environment Awareness, which is expertise in branding and marketing compost and are contracted by the municipality (United Nations Economic able to leverage their existing distribution network. and Social Commission for Asia and the Pacific, 2015). 3. Sources of Funding and Financing for Composting Projects 27 Box 9. Example of a Build-Operate-Transfer PPP in Lahore, Pakistan In 2003, the Solid Waste Management Department of the City District Government of Lahore (CDGL), Pakistan issued a public tender for a private sector company to design, built, operate, and transfer a 1,000 MTPD composting facility at the Mehmood Booti Landfill. The Safi Group, a leading industrial corporation in Pakistan was awarded the tender and established the Lahore Compost Ltd. to undertake the work. Under the contract, the CDGL provided land at no cost and guaranteed the delivery of waste from residential areas and fruit and vegetable markets. The facility became operational in 2006 with a processing capacity of 300 MTPD and was gradually scaled up to 1,000 MTPD by 2009. The total project cost was estimated at $5.52 million with an initial investment of $3.11 million, which was financed through a combination of long-term debt from the parent company ($2.87 million) and equity ($2.65 million). Revenues from carbon credit sales as part of the United Nations Clean Development Mechanism were expected to cover annual operating costs, while compost sales were to cover debt service. The project will be transferred back to the CDGL after a period of 25 years. Source: Energy Sector Management Assistance Program, 2010 Finally, a municipality may engage the private sector Development Bank, Inter-American Development Bank, by facilitating an entrepreneurially friendly economic 2014). Investors that face fewer risks are more willing to environment by providing compelling incentives and assume responsibility and provide capital in exchange support. For example, private for-profit agricultural for a likely profit. Municipalities that issue investment composting plants in Brazil have taken off in the wake of a guarantees should be careful to accurately estimate their national solid waste policy to divert organics from landfill, financial exposure and diversify their risks by implementing which guarantees a feedstock stream, as well as favorable a comprehensive investment strategy. Strategies to attract tax and financial incentives from local governments. A the private sector are further outlined in Box 10. municipality may set up an agreement to deliver feedstock from the city to farm-composters, such as in Austria, and When a private organization is delegated by a municipality, encourage farmers to use compost on site, thereby saving one way to ensure success is through performance bonds. fertilizer costs. It may also provide financial incentives Performance bonds are an insurance system in which in the form of tax breaks and holidays. For example, a contracted entity issues bonds that are turned over Bangladesh has issued a 5-10/year tax holiday on waste to the municipality in order to guarantee financial and plants in addition to reduced import taxes and no value operational success of the project. The bonds, which are added tax or sales tax. With the right incentives from local commonly mandated at 1-3% of the contract value, are and national governments, an independent composting paid out if a contractor does not deliver on the contract sector can bloom. to the quality and criteria outlined within (JW Surety Bonds, n.d.). This was used in Prince William County, Municipalities should be deliberate in encouraging private Virginia, USA when a private composting operator sector involvement if it is desired, and there are multiple issued performance bonds to ensure compliance with the ways to achieve this. They may provide a capital grant contract, prevent site abandonment and cover any site for initial fixed costs to operators engaged in extended restoration costs (Prince William County, 2005). This ownership and construction, such as for feasibility studies system delegates some financial risk and responsibility to and plant property and equipment. They may also offer the operator and helps to ensure that the project will be tax abatements, land provisions, guaranteed tipping fees, completed within budget. and product offtake agreements. Finally, municipalities can encourage private sector investment by providing Engaging private operating models requires solid contract financial guarantees to the private investors such as on structures in which the key roles and responsibilities of product demand (as a percentage of forecasted revenue) the contractor and the municipality are clearly outlined. or costs (by providing feedstock) (World Bank, Asian Example provisions are detailed within Appendix 4. 28 Sustainable Financing and Policy Models for Municipal Composting Box 10. Strategies for Attracting Private Sector Participation in Composting Market and demand ●● Lack or limits on subsidies for chemical fertilizers, or equivalent benefits for compost ●● Requirement for fertilizer companies to sell or market compost ●● Strong incentives for farmers to use compost ●● A robust organics market, along with organics labeling / certification, that drives organic compost demand ●● Subsidies for the compost product and promotion by the government ●● Clear value-add of compost to improve competition with chemical fertilizers Policies and regulatory environment ●● Presence of supporting policies, such as organic waste diversion, soil requirements, co-marketing requirements and source separation programs ●● Controls on organic waste disposal from commercial entities (e.g., restaurants, stores, hotels) ●● Publically accepted standards and guidelines that establishes compost quality standards (grades) and appropriate use cases for each quality grade ●● Certification system for the compost product as well as the operator ●● Product testing requirements by either the compost facility or third party ●● Strong enforcement mechanisms of all policies Financing and cost recovery ●● Indicators of financial recovery for the private operator, including clear revenue opportunities, and investment guarantees ●● Financial support by the government or banks and intuitions to cover initial capital costs and output-based support for operational costs ●● Government guarantees on minimum compost offtake amounts, product pricing, or feedstock pricing ●● Multiple product offtake agreements for the final compost product at an acceptable price, preferably from creditworthy entities ●● Diverse supply of feedstock associated with a tipping fee or high quality feedstocks (e.g., market waste, agricultural waste, manure) that can be obtained at little or no cost. Agreements with municipalities and other entities for long-term supply at established prices are ideal ●● Favorable tax incentives, including on value add, import, sales, and favorable utility rates Operations ●● In-kind support, such as provision of land for facility building and of quality feedstock ●● Capacity building to increase the technical capabilities that enable success ●● Adequate baseline information on organic waste in the city, which helps operators understand the market readiness for compost Source: Hasnat and Sinha, 2012; Michelsen, 2016 3. Sources of Funding and Financing for Composting Projects 29 Philanthropic institutions plant owners and operators, plantation owners, and other businesses involved in activities related to land such as While less common, municipal compost plants may reforestation, municipal infrastructure and construction, seek funding from private or institutional donors, who and agricultural livelihood support (Tuyor, 2016). contribute funding on a philanthropic basis. These organizations—such as high net worth individuals, Finally, compost projects that take place in cities with companies, and NGOs, typically invest in projects a developed private sector may be sponsored by private aligned with their goals or beliefs. For example, in Quy companies as part of their Corporate Social Responsibility Nhon, Vietnam in 2007, the UN funded an integrated commitments. Companies are increasingly taking action resource recovery center in partnership with the NGO, to achieve social and environmental good by making Environment and Development Action in the Third expenditures outside of their normal lines of business or World (ENDA), which also provided local technical to offset negative impacts their business may have on assistance and promoted source separation (Storey, et al., the community. These vary from sponsoring programs 2013). Donor entities may be involved in the operation that benefit the poor to environmental cleanup of the company, offer skills and information, or provide efforts. Outside of donating to compost operations, assistance in-kind, such as in the form of consulting companies may purchase compost for their corporate services and equipment. However, this assistance may social responsibility work. If companies require soil come with terms and provisions that limit the control of amendments for their day-to-day operations, they the municipality over outcomes. may commit to purchasing recycled organics rather than virgin fertilizers. Finally, companies may donate Other forms of private funding skills or materials in kind. Donations from the private Additional sources of private funding include equity sector were a significant success factor for the Integrated issuance, such as through a private equity investment, Solid Waste Management Facility in Teresa, Philippines venture capital, angel investments, sale of company, (Growth Revolution Magazine, 2009). The project’s and financial partnerships or joint ventures (Kessler and social awareness campaign was supported with fliers and Seltzer, 2009). These forms of financing are advantageous bins donated by a marble company, the building received in that repayments depend on the success of the project. donated bamboo fencing from farms, and each week, the However, these forms of financing also typically require facility receives 20 bags of cement from a cement firm as the project owner to officially relinquish partial or full an ingredient for their hollow brick product, in which control over the strategy and earnings. These methods of recyclables are repurposed as a structural filler. financing are traditionally used in high-income settings where financial markets are mature and developed. For smaller-scale composting projects in low- and middle- 3.2 Public Funding income countries, these methods may be less feasible and therefore they are not discussed in depth. Public funding is a universal source of funding for compost plants. It is also a relatively inexpensive source of capital The private sector may not only participate as operators and for a municipally-managed project that does not delegate funders but also as buyers of the product. A partnership ownership to private operators and investors. Almost all arrangement with the private sector for the purchase of municipally-run compost systems have benefitted from compost not only ensures that consistent quality compost international, national, state, or local funding to some is produced but also that a ready market exists for the degree, from the most developed models in high-income product. Offtake agreements with companies do not only countries to burgeoning and innovative models in low- secure a revenue source for the compost project but makes income countries. Grants from international development the project more appealing to external sources of funding. agencies are extremely common as one component of Companies that may purchase compost for their business funding. While public funding can be limited due to local operations include land developers, mall owners, power resource constraints, having some public backing can 30 Sustainable Financing and Policy Models for Municipal Composting result in compounding benefits since it serves as a signal That is, it is easier to obtain funding when composting is of confidence to potential external investors. aligned with national agendas for environment and urban sustainability. A successful example is in Sri Lanka, where Public funding may originate from the national govern- a 2008 $40 million government grant promoting urban ment, local government, or international development waste management reform led to the construction of 115 agencies. locally-administered compost facilities. Similarly, funding may be more accessible if sought as part of a larger city Development organizations planning project or if a case is made to achieve larger end goals such as improved community health, urban safety, Developmental assistance is an extremely common source or air and water sanitation. In some areas, interest groups of funding for finance and infrastructure demanding and coalitions have been formed to make these cases clear. projects. International development agencies and NGOs commonly fund environmentally-oriented projects Increasingly, operational and fiscal responsibility for public in the form of Official Developmental Assistance or programs have been widely pushed from the national to generic grants. Performance-based transfers have also the sub-sovereign level, creating a strain on local budgets. become increasingly common, where aid is given based For a sector such as composting with little precedence on the results achieved through the program. These and knowledge base in developing countries, the project agencies commonly issue a grant or low- interest loan may fall lower in priority in local budgets than traditional that funds capital costs and occasionally operational and services, and the need for national investments is great. maintenance costs in a limited capacity. For example, the This is particularly relevant in low-income countries with UN Economic and Social Commission for Asia and the significant local resource constraints. Pacific has funded numerous projects in the Asia-Pacific region, supplementing funding from NGOs and even Local government national grants (Storey, et al., 2013). Local governments, tasked with providing a variety of services Since development funding will inevitably terminate, it to the urban population ranging from public transportation is critical to ensure that the selection of technology and to sewage treatment and basic waste management, often methodology is fitting for long-term sustainability based have limited resources to support composting. However, on local constraints. For example, before 2008, many there are a variety of financing sources that a municipal composting projects in Sri Lanka were funded by a team government can access. These channels include taxes and of development organizations, but when grants dried up, fees directly charged from users, a revenue source, as well most plants closed because they were not financially viable. as bond issuance, a debt source. Cities may also provide Therefore, it is necessary to accurately forecast financials in a favorable tax incentives to composting operations, such realistic manner and plan for long-term operations beyond as through California’s Pollution Control Tax Exempt the funding period. Finally, to maximize the likelihood of Bond Financing Program detailed in Box 11, or subsidize success, recipients should seek technical capacity building compost, whether inputs or the end-product. Finally, local from development agencies in addition to capital. governments can supplement financial incentives with in- kind provisions, such as land, feedstock, and equipment. National government Below, direct charging of user fees as well as bond issuance are elaborated in further detail. Funding from the national government typically occurs in the form of grants and subsidies. Governments may Direct charging provide cash transfers to local governments, direct investments in compost projects, or offer low-interest Taxes and fees from households are a form of municipal loans. National funding is most viable in countries own-source revenue that follow the producer or polluter committed to sustainable methods of waste processing, pays principle. This is achieved by charging variable rate for which composting of organic wastes plays a role. fees to households or institutions based on their organic 3. Sources of Funding and Financing for Composting Projects 31 Box 11. California’s Tax Exempt Bond Financing Program California’s Pollution Control Tax-Exempt Bond Financing Program (CPCFA) provides California businesses with a lower- interest alternative to conventional debt financing. The program serves as an intermediary to issue bonds as a creditworthy institution and provides this financing to eligible projects. Businesses may use the funds for the acquisition, construction, or installation of equipment, land, cost of bond issuance, soft costs (engineers, attorneys and permits), and buildings associated with waste disposal and recovery facilities. Prospective borrowers submit an application to the California Debt Limit Allocation Committee. If approved, a detailed review of the project’s technical and financial plans and obtainment of all necessary certificates ensues. Successful borrowers may then request an “allocation.” Once a project receives an allocation, the State Treasurer sells the bonds and disperses payment. Restrictions include the following: ●● 95% of proceeds must be used for the defined project ●● 2% of bond proceeds can be used for costs of issuance ●● 25% of bond proceeds can be used for land costs in certain cases ●● The average life of the bond issue cannot exceed 120% of the weighted average of the estimated useful life of the assets being financed In November 2013, Zero Waste Energy Development Company LLC, a company formed in 2011 by GreenWaste Recovery Inc. and Zanker Road Resource Management, Ltd., commenced operations at the world’s largest dry anaerobic digestion facility in San Jose, CA. The company obtained $103 million of bond financing through the CPCFA to finance site improvements, additional equipment, and vehicles and to repay bonds that were previously issued. The organics management system is currently comprised of 16 dry digestion tunnels and 4 in-vessel composting units, which can process 90,000 tons per year. The complete project is expected to include three times this capacity. Among seven applicants, Zero Waste Energy Development Company LLC was the only CPCFA bond recipient in 2013. Sources: California State Treasurer Website, 2016; California Pollution Control Financing Authority, 2014; United States Environmental Protection Agency, 2014 waste production, implementing fees and fines in excess a month at a 50% collection rate—which is the lowest in of a threshold, or through a flat fee that is jointly billed the country (United Nations ESCAP, 2015). with utilities. In 2010, Korea implemented a volume- based waste fee that now diverts 95% of household waste Other common models of financing include landfill taxes to animal feed, biofuels, and composting, leading to both that are used to finance waste diversions to alternative saved disposal costs and additional revenues (Innovation treatment sources, increasing landfill tipping fees, and Seeds, 2012). In Maputo, Mozambique, the World Bank charging fees for different volumes of household and and GIZ helped the city initiate a joint billing structure institutional organic waste. It is becoming more common that combined solid waste fees with a household’s electricity for municipalities to charge for waste destined for landfills bill. This program increased waste collection rates from but waive the fee on source-separated organics disposal. 250 TPD to 600 TPD and cost recovery from less than This secures revenues from non-compliant behavior while 40% to 62% between 2004 and 2010 (GIZ, 2012). While increasing the organics waste stream. A relevant example effective for cost recovery, these fees may be challenging to is in Ghana, where Jekora Ventures offers a 20% service implement in low-income countries where waste fees are fee discount to large commercial generators who separate already uncommon, disposal services are inadequate, and their organic wastes. Municipal own-source financing may where communities are especially resistant to additional also come from traditional sources of local revenue, such public utility fees (Ren and Hu, 2014). For example, in Kon as land taxes, property taxes, and public fines; however, Tum, Vietnam, operation and collection costs have been these funds must be re-allocated from existing budget unsustainable due to the low fee charged to households—$1 priorities. Where municipalities are able to fund their own 32 Sustainable Financing and Policy Models for Municipal Composting composting operations, they gain the benefit of greater Public banks control over the operations and timeline while reducing the need for debt. Public banks are another source of publically-owned funding that may be accessible to composting projects. Bonds Public banks are owned by a government entity, can exist from the local to international level, and are focused Where municipalities are unable to fully fund their own on serving the growth of the local economy. Funding operations, they may also seek to raise money by issuing from public banks is typically cheaper than from private bonds. Municipal bonds are debt obligations issued by a banks because revenues are directed back toward public public entity to fund public facilities and infrastructure. projects rather than private shareholder profits. Public In structure, bonds are similar to traditional loans but banks provide a variety of product services served by diversify risk to multiple stakeholders, the purchasers of traditional private banks, such as loans, advisory services, the bond. Bonds typically follow a structured interest bond issuance, and equity underwriting. To access this repayment schedule and may allow for more favorable funding, municipalities may acquire direct loans or pool interest rates than a common bank loan. Advantages of multiple composting or other urban development projects public bonds include favorable rates or exemption from to diversify their risk and increase access to capital. Small- national taxes, a longer maturity time period, and lower and medium-sized municipalities may even look to pool interest rate. Disadvantages include the transaction costs, resources with other cities and governments. administrative hassles associated with issuance, and a need for proven creditworthiness to potential buyers. To achieve Carbon markets efficiency and scale, bonds for composting projects may be issued as part of a larger public financing project, of Lastly, carbon markets have historically been a supplementary which composting is one component. source of income for projects that reduce greenhouse gas emissions through carbon credits, taking off in the One example of a bond-financed composting project is a 1990s and early 2000s. Carbon markets generate funding new composting facility to be constructed in Hilo County, through sales of carbon offsets or credits (e.g., tons of CO2 Hawaii, USA through a $10.6 million bond (Lauer, 2016). reductions) in open markets. Through composting, carbon A private contractor, Hawaiian Earth Recycling, will collect is offset by diverting organic waste from landfills, where it and process green waste and in turn determine the price would otherwise produce methane resulting from anaerobic at which to sell compost to the public. Mulch, which is digestion. Composting is considered carbon neutral, and also produced, will be given away for free to residents. The even carbon negative. At downstream stages of the compost facility is anticipated to increase landfill diversion by one- lifespan, carbon is sequestered in soil as organic solids third and the composting project will be aided by a ban rather than released into the atmosphere, and the associated on polystyrene food containers which requires substitution reduction in related land inputs, such as fertilizer, herbicides, with compostable or recyclable containers. and water irrigation, also reduces carbon emissions (Lal, 2004; Ozores-Hampton, 1998). However, obtaining carbon credits An emerging form of bond financing is the “green bond”. is time and resource intensive. Not only is it costly to register While identical to traditional bonds in structure, they within the carbon market, but the process of calculating are committed to financing environmental or climate- and validating greenhouse gas emissions reductions requires friendly projects and appeal to institutional investors consultation and validation with a third party. Therefore, that prefer to move their funds toward green projects, using the carbon markets to fund composting projects may all else equal. Green bonds have been used to address a only be feasible when done on a large scale and may generally variety of projects in developing countries, from building be more appropriate for middle-income countries than in infrastructure to divert methane emissions from a pig farm low-income countries. in Mexico to increasing irrigation efficiency in Indonesia (World Bank, 2013, 2015). Since mid-2015, the World As of 2012, only 46 composting projects had received Bank has applied green bonds toward 77 projects globally. carbon emissions reduction credits as part of the 3. Sources of Funding and Financing for Composting Projects 33 Clean Development Mechanism (CDM), the largest In some instances, governments can supplement basic international compliance market operating under the revenues with long-term policies and support, such as tax United Nations Framework Convention on Climate abatements and subsidies on product sales. Change (UNFCCC) (UNEP, 2016). Further, carbon markets fluctuate: while they may be effective in one Operational revenues time period, they may be less effective during others. Operational revenues occur as a product of the composting The efficacy of carbon markets has waned over the years, operation. Direct revenues from the sale of compost is a with prices peaking at €30 per ton in 2006 and 2008, but primary source of revenue for most operations. However, dramatically lowering to less than €10 per ton since then operators may need to hedge their risks associated (Benthem and Martin; 2015). In 2016, prices have been with compost sales, such as fluctuating prices driven significantly less than even half of that. by production costs, prices of competing products, seasonality, and policies around subsidies. Revenues can Composting projects that have received funding through be maximized by generating demand through strong the CDM include Waste Concern in Bangladesh, earning marketing initiatives. $1.5 million in carbon credits, and the Temesi integrated resource recovery center in Bali. For the latter, while a Another form of operational revenues is tipping fees paid by $1.5 million revenue in credit sales was expected, $70,000 entities disposing of waste, which is often the municipality was invested in fees for quantification, certification, itself. Organics tipping fees are most effective in middle- and registration in the CDM program (Mitchell and income countries where landfill tipping fees not only Kusumowati, 2013). exist but are typically lower for compost facilities than for landfills, making composting a more cost effective way to In response to the weakening carbon credit market, the dispose of organic waste. In low-income countries, tipping World Bank developed an innovative climate finance fees may not be effective, especially where open dumps are model called the Pilot Methane Auction Facility. The common and the general waste disposal budget is limited. facility is a payment mechanism that sets a floor price on As a rule of thumb, tipping fees should be high enough to the future price of carbon through a public auction. The help sustain operations but lower than competing disposal agreement is facilitated through a tradeable put option, options. If a city is establishing a system for organics waste which provides buyers the right, but not obligation, to tipping, it will save time and money by accepting only sell carbon at the agreed-upon price at a future date. The source separated waste (as opposed to mixed municipal auction encourages private sector investment in methane waste requiring further segregation and processing). reduction projects while efficiently disbursing limited public funds. In the first round of the auction in July Reallocated costs 2015, 8.7 million tons of carbon dioxide were sold at $2.40 per credit. Fund are distributed on a results basis While there are many opportunities for a composting when final results are proven (World Bank, 2015). project to be profitable, composting should be viewed not only as a business, but as a form of waste disposal and a municipal service. Alternative methods of waste disposal 3.3 Operational Revenues and most often do not fully achieve cost recovery but result in Avoided Costs large expenditures by the government. In comparison to these traditional methods, composting can be a relatively Operational revenues must sustain every composting cheaper way to dispose of organic waste and can result plant. In fact, ongoing operations and maintenance costs in significant long-term financial savings in the form should be fully supported by revenues earned through of avoided costs. The money saved by reducing waste the composting business; many models have failed when treatment through costly activities can then be reallocated they relied too heavily on grants and loans. Revenues to composting. Therefore, a composting operation that are generally comprised of gate fees and compost sales. requires sustained government support may still be 34 Sustainable Financing and Policy Models for Municipal Composting The Integrated Solid Waste Management Facility in Teresa, Philippines operates a Learning Resource Center where waste management training is offered to local government units and interested parties for a fee. Photo credit: Teresa Municipal Environment and Natural Resources Office worthwhile if the expenditures for composting are less a single-source or integrated facility to separate comingled than how waste would otherwise be disposed. waste and finally process compost all require upfront investment. There are a number of conditions that As shown in Appendix 5, composting is generally increase the potential for cost savings by composting. significantly cheaper as a disposal method than alternatives, These include (Michelsen, 2016): including landfilling and waste-to-energy. With the potential to divert half of the municipal waste stream to ●● Willingness of customers to pay an attractive price for organics recycling in low- and middle-income countries, compost, which reduces the capital and operational significant savings are possible. Composting also tends to expenditure burden of the municipality lead to other financial savings through bypassing private landfill tipping fees, avoiding costly technology buildout ●● Regulations and enforcement that exist to either limit and maintenance, achieving deferred capital expenditures through policies or discourage through taxes, the from extended landfill life, and potentially shortening disposal of organic waste in landfills, which results in a delivery routes if composting facilities are closer to the high tipping fee for compost facilities waste generation source than are alternatives. It also helps ●● High land costs which makes landfilling an expensive reduce landfill operation costs, such as the one associated alternative with leachate management by removing organics which ●● Siting a new landfill which is difficult, impossible, or have a high water or moisture content. Unlike many waste expensive due to cost or social limitations treatment facilities that require large areas of land, create odor issues, and generate public fear of environmental ●● Transportation to transfer or end-disposal sites that is toxins, composting can feasibly be operated locally. not economical In Ghana, Jekora Ventures saved between $0.21-0.31 ●● A life-cycle assessment, where the future cost of man- per ton per km by delivering organic waste to a nearby ufacturing, processing and disposal of materials will be composting plant rather than a more distant landfill. high, rendering composting a worthwhile investment in the present While composting has the potential to reduce costs in the long term, there may be additional costs in the ●● Local conditions and unique circumstances that lend short- and medium-term related to the establishment themselves to composting, such as on-farm compost- of the composting sector. For example, adopting source ing, a strong organics market, and community partic- separation, establishing separate collection, and building ipation 3. Sources of Funding and Financing for Composting Projects 35 Related business models be most cost efficient to deliver mixed waste to materials recovery facility, where organics, dry recyclables, and other Finally, composting plants may operate other revenue- residuals can be separated. When this is the case, there generating functions alongside organics waste management, are many other marketable products that can be derived thereby diversifying the revenue streams for the operation. from waste. For example, the Integrated Solid Waste In fact, composting is often conducted alongside other Management Facility in Teresa, Philippines, detailed in waste management operations that process recyclables Box 12, not only sells compost but has diversified its and other residuals in an integrated approach. To a large revenues by selling nets made of coco husk, paving blocks, extent, the viability of a compost operation can depend and hollow blocks made by reinforcing concrete with on how the operator manages these other opportunities. shredded recyclables, pillows made from recycled plastics, A major revenue source lies in the sale of dry recyclables and charcoal from recycled paper and cardboard (Buena, that are collected or dropped off alongside organics. For 2008; Santos, 2014; Tuyor, 2016). Other general revenue example, in Sri Lanka, the Balangoda Urban Council’s opportunities include operating a landfill at the compost compost project collects, sorts, and sells recyclables at a site, conducting municipal waste collection services, and profit in order to supplement revenues from compost sales offering the facility as a learning or training center for and tipping fees. When composting is operated as part a fee. These activities are all exemplified within the case of a comprehensive waste management program, it may studies further in this report. Box 12. An Integrated Waste Management Approach in Teresa, Philippines Teresa is a municipality in the Philippines located 50 km from Manila in the province of Rizal. It is one of 61 municipalities located in the Laguna Lake watershed, which feeds the largest lake in the Philippines and the second largest freshwater lake in Southeast Asia. Waste in Teresa has traditionally been managed haphazardly through open dumps and open burning. In 2000, the Ecological Solid Waste Management Act in the Philippines mandated the closure of dumpsites. In 2006, a major 2,000 square foot dumpsite in Teresa was closed. In 2007, an Integrated Solid Waste Management Facility was built where the dump once lay. The Laguna Lake Development Authority (a quasi-governmental entity that promotes sustainable development) had begun a project called Laguna de Bay Institutional Strengthening and Community Participation Project (LISCOP). This project was funded by the World Bank and the Netherlands Ministry of Development and targeted environmental renewal projects within the Laguna Bay Watershed, which had been suffering from the impacts of increased human impact. The materials recovery facility in Teresa was one such component of LISCOP. The LISCOP project received a $5 million loan from the World Bank and another $5 million through a grant. The facility in Teresa was funded through a PHP 8.2 million total (PHP 3.27 million grant, PHP 3.68 million loan, and a 15% equity split between the Laguna Lake Development Authority and the Local Government Unit). Further, the World Bank Community Development Carbon Fund enhanced financial security is financing the purchase of carbon credits for greenhouse gas emis- sions reductions associated with the project’s waste reduction, recycling, and composting through the Clean Development Mechanism. The Teresa Integrated Solid Waste Management Facility is a multi-waste stream materials recovery facility that processes mixed waste from the municipality. The facility has a number of distinct components, beginning with a segregation center where waste is sorted and recyclables are gathered. In a plastics recycling area, a hammermill pulverizes waste and a densifier consolidates plastic fragments into tiles, traffic barriers, tables, and other products. There is also a hollow brick manufacturing area in which sand, gravel, and cement are mixed with shredded plastic and residuals to produce concrete blocks for local builders. Organics are sent to the composting area where materials are first shredded and then composted through a bioreactor and windrow system and finally treated to final quality using a sifter and grader. The compost prod- uct is tested by growing vegetables and other seedlings on site and is sold for PHP 120 (~$3.20) per 50-kg bag—less continues 36 Sustainable Financing and Policy Models for Municipal Composting Box 12. An Integrated Waste Management Approach in Teresa, Philippines (cont.) than half the prevailing market price for compost—and farmers are prioritized in the sale of this compost. Other products further diversifying revenues include nets produced from coconut husks and charcoal produced from pulverized paper. Social behavioral transformation was a key component of this project. Residents were encouraged to conduct home com- posting, to source segregation, and maintain general cleanliness. A competition was conducted between barangays (neigh- borhoods) and local schools on their performance and results were both posted in the central square and announced at Catholic mass services. Cash prizes were given to the winners at the end of the year. Much of the success of this project is attributable to an effective partnership strategy with the private sector. Companies sponsored fliers directing residents to source separate and recycle their waste and provided bins and tarps for the publicity campaign. Farms supplied bamboo for fencing for the facility. A cement firm supplied free bags of cement each week for the manufacturing of hollow bricks. Finally, a tile manufacturer provided the salaries for local green advocates for the first six months. This integrated effort has not only diverted 38% of waste in two years but also increased municipal revenues from recycled product sales and has provided new employment opportunities to the local community. The facility continues to educate cit- izens and ensure financial sustainability through its newly established Integrated Solid Waste Management Training Center that trains other local government units and community groups on managing solid waste in an integrated manner. The Integrated Solid Waste Management Facility at Teresa, Philippines produces multiple products from recycled waste, including: paper charcoal (left), coconut husk netting (middle), and hollow concrete bricks filled with shredded plastic (right). Photo: Teresa Municipal Environment and Natural Resources Office. Source: Philstar, 2009; Buena, 2008; Growth Revolution Magazine, 2009; Santos, 2014 3. Sources of Funding and Financing for Composting Projects 37 3.4 Financial Risks financial sustainability must be achieved for long-term continuity. Many of the drivers of financial sustainability Whether the ultimate goal of a composting operation are in the control of the operator. Some risks are easier to is financial profitability or environmental remediation, mitigate than others. Risk Description Mitigation techniques Unsustainable Daily ●● Choose simple technology: Opt for simple, yet labor intensive mechanisms over project revenues are complex technologies. Often, though capital grants may fund technologies, the technical economics not sufficient knowledge and maintenance costs may exceed revenue capacity. Ensure that operations to cover and maintenance is fully covered by ongoing revenues operations and ●● Diversify revenues: Reduce reliance on product sales and tipping fees, which are subject maintenance to market fluctuations, by implementing additional revenue generation activities such as costs, leading sales of recyclables and waste collection to a negative margin ●● System optimization: Ensure composting process is efficient (e.g., turning frequency of piles and volume of water added) to reduce utilities and fuel consumption. Technical assistance and knowledge sharing can inform best practices. Operator does Contracted ●● Conduct due diligence: fully research potential contractors and confirm a track record not deliver on party does of success in similar contexts and sufficient operational and financial capacity to take on objectives not execute project. Request operational and financial documents; interview previous clients on planned or expected ●● Pay based on results: Use an output based payment contract to ensure that results are objectives achieved in a timely manner. For example, compensate waste haulers based on the tons of feedstock delivered to the facility. Adopt penalty provisions when daily waste quotas are not met and ensure penalties are enforceable. Similarly, vary private operator payments based on amount of compost produced or sold, such as by assigning rights to product sales directly the private operator ●● Diversify operators: Assign operational responsibility to multiple actors. Using contracts, delegate discrete responsibilities to different operators (e.g., building the plant, delivering the feedstock, producing the compost). Using contracts, mandate each contractor to deliver a complete, ready-to-go product or system and assume financial responsibility until adequate delivery. This can be a useful way to assign and motivate operators to complete the set task as quickly and effectively as possible ●● Require performance bonds: Require contractors to assume financial risk by issuing performance bonds to insure against unforeseen roadblocks ●● Confirm incentive structure: Ensure that the contractor is properly incentivized to perform in each required area as per the contract structure ●● Write sound contracts: Ensure that contracts properly detail roles and expectations, ownership of end products,and terms that can be renegotiated versus not. continues 38 Sustainable Financing and Policy Models for Municipal Composting (cont.) Risk Description Mitigation techniques Difficulty Funding ●● Improve creditworthiness: Ensure outstanding debts and obligations are paid on time and obtaining is scarce; in full, following priority payment schedules funding investors are hesitant ●● Provide documentation: Prepare comprehensive market and feasibility studies, business to provide plans, financial documents, and contracts for potential investors. Enter into long-term capital to feedstock supply and product offtake agreements project ●● Seek investment insurance: As a municipality, insure against the investor risk in the project, or seek external investor guarantees, such as through the World Bank Multilateral Investment Guarantee Agency (MIGA) ●● Consider relinquishing control: Consider more compelling terms of funding that may result in providing more rights to operational decisions and even outputs to investors Funding is lost Investors ●● Diversify funding: Ensure a mix of funding instruments and sources – for example, withdraw municipal funding vs. developmental assistance capital from project Sales are Product sales ●● Use offtake agreements: create offtake agreements to be used with potential customers to volatile are volatile, guarantee a constant market at either a preset or variable price affecting the revenue stream Unexpected Large and ●● Hold an operating reserve: Save a percentage of profits to serve as a “rainy day fund” financial unexpected for adverse financial events. There is no hard and fast rule, but 3-6 months of ongoing losses financial expenses is recommended for many institutions (Dailey, n.d.) losses are incurred ●● Purchase insurance: Insure the operation against external factors beyond operator control, such as natural disasters, political unrest, and economic fluctuations 4. Policies and Institutions 39 4 Policies and Institutions Key Messages ●● Be aware that composting is a crosscutting issue that could be affected by policies related to solid waste management, agriculture, environmental, land-use, and planning. Therefore, negotiate and work with stake- holders accordingly ●● Strategically navigate policies that promote synthetic fertilizers or alternative organic waste management technologies that might stunt the development of the composting sector ●● Align regulatory measures and product quality standards with the buyer’s needs ●● Ensure that incentives are aligned for stakeholders such that the end product has market demand ●● Complement policies (i.e., diversion targets) with sufficient infrastructure One of the prevailing challenges of the policy and facility operator, waste collector, contractee, or buyer of institutional environment around the composting end products. National governments, on the other hand, sector is the number of stakeholders involved. While set broad policies that guide municipalities and typically environment and agriculture ministries typically play the have more funding to transfer. They have the ability largest role in establishing a comprehensive framework, to liaise with other national entities and international composting cuts across many urban issues including development agencies for additional financial or technical municipal solid waste management, environment, resources. However, if national policies are absent or weak, health, labor, agriculture, land use, urban planning, municipal and regional governments may also act as policy and at times, even trade. Beyond sectoral boundaries, a makers. While the municipal or national government’s variety of stakeholders, including national and municipal overarching goals tend to be the main determinant of government, agricultural institutions, non-governmental policies, integrating the buyer’s needs and wants into the organizations, interest groups, and industry associations, regulatory planning process improve the likelihood of play an integral role to the success of a compost market. success of the compost sector. These groups can be critical to technical capacity building, product testing, outreach, and education and may also This chapter focuses on the policies and institutions that serve as third party monitoring and certification entities. affect the composting sector—either those that lead to Coordinating across the range of stakeholders can allow development of it or prevention of it. harmonized efforts and a conducive atmosphere. Beyond the complex network of stakeholders, it can also 4.1 Policies be difficult to align parties at both the local and national Solid Waste Management Policies levels to create an enabling environment for development of the compost sector. Municipal governments are typically As a national mandate, solid waste management laws can tasked with providing solid waste management services at provide motivation for development of the composting the local level. Municipal services generally include waste sector. However, there are many instances where collection, transportation, and treatment and/or disposal. countries have solid waste management laws that are not A municipal agency may also be a project developer, implemented or enforced at the local level due to limited 40 Sustainable Financing and Policy Models for Municipal Composting Fresh compost in a farmer’s hands. Photo credit: Stacy Speckman 4. Policies and Institutions 41 capacity. Because composting is executed at the municipal followed by commercial, and finally single-family and level, it is critical for national directives to be achievable multi-family residential areas. Implementation strategies and supportive to local governments. for waste targets are typically flexible. The case studies discussed in this paper showed four Mandatory recycling policies differ from source separation common themes around policies, although several others mandates in the affected party. Mandatory recycling can be employed to support the composting sector. The first policies are binding on municipalities and their service policy is around quality standards for compost in addition to providers while source separation mandates are binding an enforcement mechanism of those standards. The second on generators. Mandatory organic waste recycling policies driving policy theme is focused on either waste diversion typically require that organic materials be processed targets or disposal bans. These diversion or disposal policies through composting or anaerobic digestion. In order are primarily motivated by financial concerns such as rising for mandatory organics recycling policies to direct high disposal costs or decreasing landfill space. Third, policies quality feedstock to composting facilities, they must be incentivizing other organics processing technologies or combined with a source separated collection program. alternative products hurt composting producers unless Outreach, education, and enforcement is necessary to the municipality enforces mandatory composting. Lastly, garner public support and participation, as generators policies that directly subsidize compost production or sales may ultimately bear the added cost of new collection help build and sustain the sector through public, private, routes and the construction of new composting facilities. and social sector operators. Disposal bans Organic waste recycling and landfill diversion targets Disposal bans prohibit the landfill disposal of specific types of materials or beyond a certain quantity. For a ban on Governments may have organic waste recycling or landfill diversion targets due to environmental, financial, organic materials to be effective, composting or organics agricultural, or spatial concerns. If enforced, targets can processing infrastructure and end markets must be in be an effective means to develop an organics recycling place to absorb the diverted feedstock. Similar to bans, sector by guaranteeing a feedstock source. However, they disposal limits place restrictions on the amount of organic should be supported by relevant programs, educational material that can be landfilled by a jurisdiction. Detailed initiatives, and infrastructure. Targets may be defined in in Box 13, the European Union (EU) adopted a limit- terms of an absolute quantity of organics to be diverted or oriented policy that incorporates a phased approach that a percentage of organics to be separated and recycled. This allows infrastructure and markets to adjust more slowly to approach requires substantiated waste composition data the influx of organics. Outside of a policy-oriented ban in order to assess compliance and would be meaningless that fines organics disposal in landfills, increasing landfill unless verification is possible. Commonly, yard waste taxes relative to composting gate fees can economically streams are subjected to targets and mandates first, disincentivize landfilling and increase organics separation. Box 13. European Union’s Organic Waste Diversion Targets The European Union issued the Landfill Directive in 1999 that requires its member countries to reduce the quantity of biode- gradable municipal waste being sent to a landfill based on set targets. Each member country must reduce the biodegradable waste landfilled to 35% of 1995 levels by 2016, or 2020 for a selected group of countries. This policy is being driven by environmental concerns due to the GHG emissions being produced by food waste decomposing in landfills. Since the Land- fill Directive must be followed in order to be a part of the EU, even countries aiming to join the EU are gradually preparing to comply with the policy. Source: European Union Landfill Directive (1999/31/EC) 42 Sustainable Financing and Policy Models for Municipal Composting Box 14. Seoul, Korea, a Leader in Food Waste Recycling In the 1980s, Korea’s waste generation and treatment was relatively unremarkable on the global front. However, today, the coun- try boasts one of the highest municipal solid waste recycling rates amongst OECD coun- tries: 84.4%. Food waste comprises roughly 36% of municipal waste, and even though waste generation is rising, 100% of food waste was recycled in Seoul in 2012—a city with 10.5 million residents within 605 km2. This remarkable success was propagated by a series of legislations restricting the disposal of food waste and enabled by the develop- ment of advanced treatment technologies. In 1995, a volume-based fee was established Seoul, Korea. Photo credit: Pixabay on waste, although landfilling remained the predominant treatment mechanism. In 2005, food waste was fully banned from landfills and source separation was re- quired. Finally, in 2013, a food waste reduction plan was established and powered by a volume-based disposal fee. In 2013, ocean dumping of food waste leachate was also prohibited—a formerly intuitive strategy for a country surrounded by sea. With a large volume of food waste no longer destined for landfill, and restrictions on disposal tightened, backlogs of food waste ensued and a need for new technologies and systems was clear. The city turned to a pay-as-you-throw strategy for food waste reduction in which citizens are charged for the amount of waste they dispose. A system proliferating in urban areas is the high-tech central community bin. These bins identify individuals using RFID chips, weigh individuals’ drop-offs, and automatically charges a fee. Municipalities are also testing home waste bins identifiable by chips, household disposers connected to the central sewage system (organic matter serves as feedstock for biogas), and central reducer bins that use heat and air to cut waste volume before the organic matter is processed to compost or animal feed. On the treatment end, large investments are supporting the build-out of new treatment facilities. In Seoul, approximately 44% of food waste is treated by public facilities and 56% by private. By 2018, Seoul plans to nearly double the treatment volume by public facilities by building four new facilities. A budget of KRW 252.5 billion (approximately $220 million) for 2014-2018 was anticipated for this purpose (as of 2014). However, food waste management principles dictate that food should be used for feed or compost before treatment. Com- munity composting has been heavily promoted—through partnerships with NGOs, district competitions, and urban farms. In Korea, leadership at various levels collaborate to manage waste. The central government sets the 10-year plan and research and development goals, prioritizes technologies, and promotes campaigns for waste reduction. The Seoul Met- ropolitan Government establishes and implements city policies and supports operations. Districts are each responsible for building a waste management plan and collecting fees and penalties. Source: Seoul Metropolitan Government, 2014 4. Policies and Institutions 43 In the absence of markets for banned or limit-constrained the composting sector such as tax exemption for a period materials, and stringently enforced laws on dumping, of time. Ghana coped with distorted fertilizer prices by waste can be hauled outside of the ban’s boundaries or creating higher quality compost products, as detailed in be illegally dumped, creating even larger problems for Box 15. a community. Education as well as enforcement and monitoring, such as the inspection of incoming truck Another competing policy includes some type of a feed- loads at the landfill, are essential to assessing compliance in tariff for electricity or subsidies for renewable energy. by generators and waste collectors alike. When solely considering organic waste management, this would incentivize investment into landfill gas While bans and limits can be a powerful driver for directing infrastructure or anaerobic digestion facilities instead of organics to composting facilities, they must be combined composting since both create a byproduct that can be with a strict source separation strategy in order to be converted to electricity. Depending on the anticipated effective for municipal solid waste. Without a combined capacity of cities, availability of clean organic feedstock, approach for source separation, large quantities of low- energy needs, and funding situation, this might be an quality organics may be directed to composting facilities, appropriate strategy for the country. For example, in creating operational challenges for facility operators and Austria, a large number of biomass incineration facilities flooding the marketplace with low-value end products. was established using wood from energy forests and bulky Minimizing contamination can be improved by revising green waste. This led to a considerable redirection of regulations on food packaging. Packaging, such as plastic, bulky green waste from composting to heat and energy contaminates waste streams when not fully removed and recovery facilities, resulting in significant financial and prevents corporations and vendors from fully participating product quality challenges across the composting sector. in source separation. This is due to a combination of market forces in addition to renewable energy targets that Austria set for the country Bans and limits also have the unintended effect of directing and is a clear case of how policies may conflict with the feedstock to other types of processing facilities (e.g., waste development of a thriving composting sector (European to energy) rather than composting plants given that they Commission, 2010). typically do not specify a required destination for the diverted waste streams. Without proper source segregation Agriculture and Environment schemes, waste-to-energy solutions become more attractive Agricultural and environmental policies that could affect since they do not have the same waste quality requirements compost production include subsidies on fertilizer versus despite costing more. Therefore, when combined with compost, rules on how agricultural waste is reused, organic waste separation mandates, landfill bans and limits guidelines on land use, and pollution control measures. can be more effective at diverting waste to organic recycling For example, in Nigeria, there is a common practice of facilities than when implemented alone. burning agricultural waste in preparation for planting (Federal Republic of Nigeria, 2012). However, this leads Competing policies to air pollution and, in particular, emissions of particulate The success of the composting sector can also be matter. Repurposing this agricultural waste for composting challenged by policies that force technologies to compete through legal guidelines would reduce pollution. Another for feedstock. Policies specifically targeted to incentivize pollution source is concentrated livestock sewage, which alternative products or alternative technologies can hinder can contaminate local water bodies. Measures that restrict development of the compost sector. A common policy how agricultural waste can be managed could directly directly hurting composting is a subsidy for synthetic impact the development of the compost sector. or chemical fertilizers. This requires governments to be strategic in balancing short-term crop yields with long- As previously discussed, contradictory policies and term land maintenance. In Bangladesh, synthetic fertilizer competing priorities determine whether users will subsidies exist, but there are other financial incentives for choose compost. In many developing countries, policies 44 Sustainable Financing and Policy Models for Municipal Composting Box 15. Enriching Compost Products to Increase Market Attractiveness—Fortifer and FertiSoil Products in Ghana Compost has experienced a challenged past in Ghana. Given that municipal source separation programs do not exist, compost products have been typically manufactured from mixed MSW. A 2006 survey of farmers revealed that 40% of respondents did not use MSW compost because of poor product quality, and 35% said that it was too costly (Danso, et al., 2006). Crops sold in urban markets, especially exotic vegetables, have a short growth period and require more nitrogen than what is available in MSW-derived compost. Additionally, farmers prefer synthetic fertilizers, due to their tenancy agreements with landowners and the need for immediate boosts in crop productivity. Further distorting the market, synthetic fertilizers were subsidized by the national government in Ghana between 2008 and 2013. As a result of these challenges, compost manufacturers in Ghana have pursued enrichment techniques in order to increase the nutritional value of their compost products and appeal to agricultural and horticultural end markets. Today, companies are co-composting mixed MSW with a variety of animal and agricultural wastes and are pursuing innovative strategies to compete with other locally available products. The International Water Management Institute (IWMI) in Accra has boosted the nutrient value and attractiveness of its MSW compost through: (i) Co-composting MSW with dewatered fecal sludge; (ii) Blending compost with synthetic fertilizer or urine to create a ‘fortified’ product; and (iii) Pelletizing compost to reduce its bulkiness and create a product similar in appearance and handling to a synthetic fertilizer (Adamtey, et al. 2009; Nikiema, et al. 2014). The branded name of this product is Fortifer. With funding from the Bill and Melinda Gates Foundation, the UK Department for International Development, Grand Challenges Canada, and the From Waste to Food program, IWMI is developing a national marketing plan for product commercialization. As of October 2015, IWMI was also supporting the construction of a new low-cost, open air composting facility to produce 500 MTPY of Fortifer in Tema (Smith, 2015). DeCo!, an NGO in Tamale Ghana, also composts mixed MSW with other nitrogen-rich sources of waste such as fruit waste, vegetable waste, neem tree leaves, shea butter processing waste, corn cobs, groundnuts and poultry manure to improve the quality of its end product, which is called FertiSoil and was launched in 2013. In 2014, DeCo! processed 3,000 MTPY of wastes and supplied compost to 3,000–4,000 farmers. A large portion of DeCo!’s compost is sold to partner NGOs, such as Advance and Abokobi Society of Switzerland and research institutions, such as the Savanna Agricultural Research Institute (SARI), that distribute product free of charge to farmers, while a smaller portion is sold directly to end users. Due to extensive field testing, product refinement to align with farmers’ needs and promotional campaigns by SARI and the Ghanaian Ministry of Agriculture, demand for FertiSoil is increasing. The group has plans to build two additional facilities with projected earnings of $1.8 million. To further this plan and build upon the need for high nutritional value waste streams, DeCo!, in partnership with the Com- munity Life Improvement Programme (CLIP), a community development organization, piloted the country’s first household separation program in Northern Ghana in 2015. Ten households in each of 15 communities were provided with two waste bins; one for organic waste and another for non-organic waste. Organics were collected by CLIP every other day to prevent odor and vermin issues, totaling four MT per week and were processed at the company’s composting facility. While DeCo! engaged in an education campaign with participating households, they discovered that when an entire family was not pres- ent for the training, individuals were susceptible to making separation errors and even using the bins to store and transport water, instead of for their intended purpose. These results highlighted the need for further education (DeCo!, 2015). Source: World Bank 4. Policies and Institutions 45 do not favor the use of compost in agriculture and but land use or urban planning related policies guiding sustainable land management. Instead, direct subsidies the construction and operation of compost facilities to farmers, promotional campaigns and tax incentives should still be in place to ensure a safe composting for synthetic fertilizers are common—implemented for sector. Constraints on where facilities can be built, such the purpose of rapid harvests. While India has subsidized as avoiding residential areas, may also strengthen the fertilizers over decades, it has more recently adopted a composting sector. measure requiring that chemical fertilizer companies co-market and distribute organic compost along with Composting standards their chemical product lines. The latter policy has forced acceptance of the compost sector in India and is further Governments can set standards from the type of organic detailed in Box 16. feedstock used for compost to the production and distribution of it. In Karnataka, India multiple grades Such contradictory policies suppress the attractiveness of compost are produced and labeled based on the type of compost by communicating government preference of feedstock used. For example, there is one product for synthetic products. However, the shortfalls of made of MSW which is of the lowest value, one created promoting chemical fertilizers include depleted land and from minerals and manures, and one processed into environmental health concerns when these fertilizers vermicompost from household and agricultural waste. contact water sources. For example, when a chronic kidney Some governments then have standards to verify the disease spread throughout several farming communities quality of the compost, ranging from peer evaluation in Sri Lanka, farmers suspected that chemical fertilizer between farmers in Brazil to a third-party certification runoff contaminated the drinking water supplies. process in Sri Lanka. Lastly, when it comes to distribution of compost, there could be guidelines or requirements Quality compost avoids many of the health and around the specifications used on labeling or the environmental risks associated with synthetic fertilizers, dissemination process itself. Box 16. Multi-pronged Approach to Develop Demand for Urban Compost in India The Government of India is forcing the development of the composting sector in cities with four approaches: (1) The central government requires that all urban governments process biodegradable waste by “composting, ver- mi-composting, anaerobic digestion or any other appropriate biological processing for stabilization of wastes” (Government of India’s Municipal Solid Waste Rules, 2000). Quality standards are also established in the Rules to provide guidance on the proper makeup of compost. (2) The central government is offering market development assistance to incentivize scaling up the production and distribution of compost products. There is a payment of Rs.1500 per tonne of city compost offered for sector devel- opment. (3) Fertilizer companies are required to co-market compost with their fertilizer products through their dealers’ network. The market development assistance could be channeled to these companies since they are marketing and distribut- ing the products. In anticipation of complications ahead, the Government of India is planning to set up a mechanism between the Department of Fertilizers, Ministry of Urban Development, Department of Agriculture and the fertilizer marketing companies to solve coordination issues as needed. (4) The Department of Agriculture, Cooperation and Farmers Welfare will lead an education campaign with regards to urban compost for farmers and the Ministry of Urban Development is planning to increase construction of compost facilities across all states. Sources: Government of India, Municipal Solid Waste Rules 2000 46 Sustainable Financing and Policy Models for Municipal Composting A vegetable market in India. Photo credit: Pixabay Trade Solid waste management typically falls under the purview of the Ministry of Environment or Ministry of Depending on the domestic and international markets Urban Development. As shown in the range of policies where the compost will be sold, there may be requirements that could affect the development and promotion of related to registration and quality assurance of the composting, it is beneficial for the relevant ministries product. In Canada, all compost products, whether they to coordinate, with Agriculture being a crucial one, to are produced in the country or abroad, must adhere to ensure complementary policies and action. When system strict guidelines. Amongst numerous requirements, complexities are overlooked and policies adopted in a some include assurance that additional ingredients were fragmented way, frameworks can be incomplete and even not incorporated after completion of the composting present competing agendas. process; that the composition and label claims comply with Canadian standards; and that it is a solid substance Of all of the deficiencies that are found in composting produced in accordance with the Plant Protection Act and experiences around the world, one of the greatest reasons Health of Animals Act. Some countries do not allow fecal why composting systems fail is that they are conceived matter or sewage in their compost; however, imported shortsightedly by solid waste management agencies compost often has this as an additive without disclosure. as a purely solid waste management solution. While This could lead to further development of domestic composting projects may be attractive because of their markets with more stringent guidance than import multiple benefits to agriculture, employment, and the requirements (Rouse, Rothenberger, Zurbrugg, 2008). environment, they are often developed within a siloed system that lacks inputs from other impacted stakeholders. 4.2 Planning and Institutions Many constraints that are shared in this chapter cannot be addressed by the solid waste sector alone and require While the national policies in developing countries the involvement of other sectors, from the national to may broadly state that MSW be recovered, treated, or the local level. When stakeholders are not coordinated, recycled, many fall short in adopting the complementary mixed-price incentives may occur or waste streams may regulations and implementation mechanisms to facilitate be sourced to produce energy instead of compost. When their solid waste management goals. Policy frameworks the agricultural community and other potential users are can fail for a variety of reasons such as a lack of stakeholder not convinced about the strategic benefits of compost, a coordination or inadequate planning. supporting framework will not be put in place, and the 4. Policies and Institutions 47 Box 17. Coordination between Ministries in Thailand Since 1998, several ministries in Thailand have taken the initiative to strengthen solid waste management practices related to organic waste management. Composting was being seen both as an alternative disposal method as well as a way to develop an export-oriented agro-food industry. The Ministry of Natural Resources and Environment is driving and initiating many composting projects nationally. This work is also complemented by composting-related research efforts being undertaken by domestic universities. Simultaneously, the Ministry of Agriculture and Cooperatives set quality standards in 2005 for compost and fertilizers derived from organic materials to ensure high quality products are being generated. Creating even more demand, the Ministry of Industry began promoting composting as an alternative disposal technique in 1998. Lastly, the Ministry of Energy and the Ministry of Interior signed an agreement in 2007 to encourage mutually beneficial solid waste management practices. Their objective is to ensure that organic waste is being used productively through various technologies that would allow for compost creation and fuel production in addition to fish feed production. Source: Institute for Global Environmental Strategies potential for developing a successful composting sector monitor, and enforce new policies. Technical support will lessen considerably. from industry experts, multilateral development banks and governments that have successfully developed a Due to the multisector nature of composting, it is composting sector may aid in institutional capacity essential for the driving government entity to coordinate building for longer-term sustainability of the sector. across stakeholder groups to achieve project development goals. Sectors and stakeholder groups should be engaged Just as important as stakeholder coordination across to determine policies, processing requirements, desired different sectors and agencies is coordination between inputs and end products, financial expectations, and the the national and local levels of government. Local types of supporting source separation, collection, and government policies are typically required to be consistent distribution systems required. First and foremost, a clear with national guidelines. However, local policies have the objective must be identified in order for complimentary power to encourage or stifle a composting sector beyond policies to be set across stake holder groups. Objectives the drivers at the national level. For example, if the that support composting may be to improve land quality, financial viability of composting is predicated on recyclable reduce landfill costs, and achieve cleaner streets and sales as a supportive revenue streams, plastic disposal neighborhoods. To strategize toward this goal, stakeholder bans may need to be in place. In the United States, the coordination can be facilitated through the creation of a Environmental Protection Agency is responsible for setting working group with the key implementation entities and national waste management standardsm, but each state the end users of compost. Tasked with setting goals and crafting policies to support the unified goal, a composting and many localities can set regulations and drive activities working group can help ensure that a policy framework is around organics and plastics recycling (Environmental holistic and comprehensive. Protection Agency, 2016). Local governments should remain aware of national policies that affect composting. Institutional fragmentation, different cultures, lack While uncommon, mandatory composting at a national of political will, and limited technical knowledge and level may result in a glut of products on the market. capacities may all undermine a collaborative approach. In contrast, favorable export policies for compost, as is Even when stakeholder coordination is optimized and forming through the EU’s proposed Circular Economy comprehensive regulatory frameworks are in place, package, will create new market opportunities (European institutions may still lack the capacity to implement, Commission, 2015). 48 Sustainable Financing and Policy Models for Municipal Composting Overview of Global Case Studies quality guidelines from both the European Union and the national government. In contrast, composting in The following six chapters feature the commissioned field Bangladesh occurs in a much less mature market. However, research on composting projects in five countries and one a creative business model involving pilots, a municipal region: Austria, Bangladesh, Brazil, India, Sri Lanka and feedstock agreement, and a distribution partnership have Europe. The success factors for each project vary based paved the path for success. on the local context and demonstrate that municipal-level composting does not have a one-size-fits-all model. For For ease of comprehension, the following table example, widespread composting in Austria is facilitated summarizes the actors, policies and financial structures by a distributed model on farms and benefits from strict that characterize each composting project’s success. Table 4. Key Characteristics of Global Case Studies Country or Region Key Actors Key Characteristics and Context Policy Features Financial Structures Austria ●● On-farm cooperatives ●● 308,000 MTPY processed on farms ●● Austrian Compost Ordinance development and equipment paid for by ●● Site (292) composting for both ●● Decentralized with strict quality, production combination of municipality, regional waste ●● Municipal (89) home and municipal waste and marketing guidelines association, provincial government, and operator ●● Mandatory source separation ●● Operator pays 25-50% of capital expenditures, ●● Industrial (73) ●● Useof compost on farms (65%) reduces need for marketing and ●● Ban on organic waste disposal rest paid through subsidies quality monitoring ●● Supportivenational and EU ●● Gatefees paid to operator for municipal solid policy framework waste (~45 euros per MT) ●● Farmers sell or use compost on site ●● Farmerscontracted and paid for curbside collection in some areas Bangladesh ●● Waste Concern (main ●● 2phases: small scale pilots and ●● 15-year contract with municipal Pilot: actor) a joint venture (65-90 MTPD, authority that guarantees free from consulting fees, private investors, and ●● Funding ●● World Wide anticipated 50,000 MTPY) market waste feedstock UNICEF (though 50% plants closed) Recycling (joint venture utilizes clean market ●● Joint ●● Taxexemption for 5-10 years, ●● MAP Agro enriched and distributed compost venture partner) feedstock and exemption from VAT and through pre-existing fertilizer network ●● Map Agro (distributor ●● Extensivepartnerships (for sales tax Joint venture: during pilot phase) feedstock, distribution) compost standards ●● Strict ●● World Wide Recycling helped build large scale ●● Advanced Chemical was tested and replicated in ●● Pilot established by Ministry of facility in Dhaka industries (distributor 23 cities at 47 sites Agriculture (requires 2 growing composting project registered with the United ●● First during joint venture cycles of testing) Nations Clean Development Mechanism ~ $1.5 phase) ●● Large subsidies for chemical million carbon credits sold but market declined in ●● Additionally,many fertilizers create uneven playing 2012 small-scale operators field ●● Equityinvestment by World Wide Recycling BV, Entrepreneurial Development Bank of the Netherlands, and High Tide Investment ●● Soft loan from High Tide Investment ●● Conventional loan from Dutch Bangla Bank of Bangladesh ●● Grantfrom Dutch Ministry of Economic Affairs Development Finance Company ●● Advanced Chemical Industries markets and distributes compost through existing sales network 4. Policies and Institutions 49 Table 4. Key Characteristics of Global Case Studies (cont.) Country or Key Characteristics and Region Key Actors Context Policy Features Financial Structures Brazil ●● Ecocitrus ●● Ecocitrus produces ●● National solid waste policy to divert 53% of organics from ●● Financially sustainable through gate (Cooperative 48,000 M3/year of landfill by 2031 fees from non-member feedstock of 100 farmers compost ●● Power given to national, state, and muni governments to grant providers and product sales producing organic ●● Clean agricultural tax and other financial incentives ●● Regional development bank orange juice and feedstock from organic financed a biogas facility ●● Source separation schemes are rare but developing essential oils) farms is sourced through (composting capital expenditure ●● Large-scale composters must follow quality standards and ●● Other private the cooperative and other funding is unknown) for-profit agro- nearby sources register with the Ministry of Agriculture, Livestock and Food ●● Past investments in Brazil from industrial Supply ●● Compost product targets development banks failed due to composters ●● Small-scale farmers use peer-evaluation for quality assurance high-end organic markets operational and financial issues ($900 million market size) through a Participatory Guarantee System (in which local and is also used on-site authorities are audited by a central body) ●● General movement toward decentralized composting in Brazil India ●● Karnataka Compost ●● KCDC: produces 22,600 ●● Mandated co-marketing of municipal waste compost for KCDC: Development MTPY of compost per fertilizer companies ●● Government subsidizes compost Corporation year in 3 grades: “city ●● National and state subsidies for agricultural compost use prices (KCDC; state compost” from mixed ●● Company sells products from other ●● National capital subsidies to municipal governments to owned) municipal solid waste, 50 Sustainable Financing and Policy Models for Municipal Composting improve solid waste management compost producers in the state ●● Terra Firma vermicompost from ●● National Ministry of Environment mandates local composting ●● No gate fees for feedstock Biotechnologies household and agricultural (private) waste, and AgriGold and anaerobic digestion for organic waste, though Terra Firma: which uses mineral and enforcement and is funding weak ●● Profitable through gate fees, manure additives ●● Fertilizer Control Order sets quality and operating standards compost sales, and recyclable sales ●● Terra Firma: processes ●● Local agency provides compost sales licenses based on lab ●● Sells compost to other distributors, 15,000 MTPY of waste test certification education and consulting services ●● Majority of public ●● Purchased land and equipment composting plants have using equity (no debt) failed, leading to private General: sector business model ●● Jawaharlal Nehru Urban Renewal (270 new sites) Mission provided grants to 60 cities ●● National shift toward to improve SWM, leading to PPPs integrated plant nutrient ●● Shortage of long-term debt management due to depletion of soil humus ●● Market is highly seasonal Table 4. Key Characteristics of Global Case Studies (cont.) Country or Key Characteristics and Region Key Actors Context Policy Features Financial Structures Sri Lanka ●● Balangoda ●● BalangodaCompost Plant ●● Guidelines for Pilisaru Project prevent most lending for ●● CentralEnvironmental Authority Compost Plant produces 148 MTPD operations and maintenance, requiring long-term financial and provincial council funded (municipal) are enriched with ●● Products sustainability plant construction at $300,000 ●● 115 municipal animal and fecal sludge ●● Quality standards for municipal waste and agricultural Project provided capital for ●● Pilisaru facilities (from ●● Uses agents and sellers to waste compost is issued by the Sri Lanka Standards Institute expansion and subsidized salaries Pilisaru Project; 12 reach markets (100% is (certification not required to sell compost) ●● Land Reform Committee provided large scale) sold) ●● SLS Marks Scheme provides third party compost certification free land ●● Country had many of Agriculture invested $710,000 in on-farm ●● Ministry ●● Operationsand maintenance costs compost plant failures composting are $1,340 per month, covered despite widespread ●● No programs exist to promote adoption of MSW compost by Balangoda Urban Council until international aid, which profitable led to new $40 million ●● Cost recovery through garbage national Pilisaru Project tax and door-to-door collection ●● Land has very low organic (no charge for source separated matter content due to waste), recyclable sales, vocational fertilizer overuse training and certification, compost ●● Health issues have arisen sales, and gate fees from waste due to fertilizer use and drop offs runoffs Europe ●● Estimated2500 ●● 27million MTPY of waste ●● EU Landfill Directive sets ambitious recycling landfill diversion ●● EU offers several grants for compost plants are treated targets for member states member states, totaling €174 within European ●● 42% of all biodegradable ●● Theoverarching Waste Framework Directive (2008) sets a million for allocation between Union waste is recycled through household recycling target of 50% by 2020 2014 and 2020 ●● Additional 800 composting or anaerobic ●● European Investment Bank provides ●● TheLandfill Directive (1999) requires organic waste landfill small-scale, on- digestion diversion of 35% of 1995 levels by 2016 for most states, and loans and financial products with farm facilities ●● Seven countries in Western 2020 for others favorable terms for investments in concentrated Europe account for 2/3 of organics recycling ●● Each member state can develop individual strategies and in Austria and all composting activity ●● Nationalgovernment funding enforcement methods to comply with overall EU directives, Germany opportunities vary ●● Scaleranges from large leading to source separation requirements, landfill taxes and centralized facilities to bans, and recycling targets ●● National funds obtained through on-farm composting and ●● National quality assurance systems drive demand and are landfill taxes often used to support home composting integrated into national regulations in 6 states and exist in some other waste infrastructure projects ●● Pushfor waste disposal form in 15 states ●● Household fees are common, reform originally driven by ●● TheEuropean Compost Network established harmonizing including a Bio-Bin fee based land scarcity and cost standards in 2008 and support national governments in on collected waste volume and developing their own standards frequency (€25 – 120), and pay- as-you-throw based on residual ●● Newly proposed Circular Economy Package outlines targets for waste volume 4. Policies and Institutions waste management, including a 65% municipal waste recycling rate and 10% landfilling rate by 2030 51 52 Sustainable Financing and Policy Models for Municipal Composting Small-scale community compost bins at a local farm. Photo credit: © Ian Keirle | Dreamstime.com 5. Case Study: Decentralized Composting in Partnership with the Agriculture Sector in Austria 53 5 Case Study: Decentralized Composting in Partnership with the Agriculture Sector in Austria Key Success Factors ●● The promotion of home composting, which reduces the overall quantity of organics in the waste management stream ●● The use of small-scale, low cost windrow composting technologies as opposed to capital intensive in-vessel systems ●● A supportive national and European policy framework that mandates source separated collection, requires organic waste diversion from the landfill and ensures high quality compost production through a recognized quality assurance scheme ●● High materials processing and compost quality standards imposed by the farmers managing the waste because they are using 70 – 90% of the product on their own crops (Amlinger, 2012) ●● Limited need for marketing and product sales Austria is a leader in solid waste management across Context: Austria is home to 8.4 million inhabitants Europe and the world due to its long history of progressive and in 2010, generated 4.96 million MT of MSW. In policies and unique, decentralized approach to organics 2009, approximately 751,900 MT of municipal organic management. Since the 1990s, Austria has employed a and green waste were collected and treated separately, system that 1) promotes home composting, 2) mandates 1,505,000 MT were processed through home or on-farm source separated collection of organic municipal waste composting, and 550,000 were treated on privately owned and 3) places municipal waste collection and composting property or non-registered facilities (European Compost in the hands of the local agricultural sector in rural and Network, 2016). Austria’s landfill ban on untreated waste semi-urban areas. Municipal organics from urban areas requires that 100% of MSW be treated prior to landfill are managed by local authorities and processed in either disposal. All MSW disposed in residual waste bins are municipal or private sector composting or anaerobic processed through one of sixteen mechanical biological digestion facilities. As a result, the country has surpassed treatment (MBT) facilities before being biologically the landfill diversion requirements set forth by the treated, recycled or converted through waste to energy. EU Landfill Directive. The amount of biodegradable municipal waste going to a landfill is below 3% of the As of 2012, 454 composting plants were installed across 1995 baseline with nearly 1,000,000 MT of organics Austria (Table 5), of which 64% were on-farm facilities treated in composting facilities each year (European treating a total of 308,000 MTPY. Unlike large-scale, Environment Agency, 2013). centralized municipal and industrial composting facilities, the average facility processes 1,100 MTPY of feedstock and Initiated by local farmers due to their need for high quality can serve an approximate population of 14,500. Because soil products for on-site use, the Austrian compost sector of this captive system, only 35% of the compost produced has become a best practice for collaboration between nationwide in on-farm, municipal, and industrial facilities municipal authorities and the agricultural sector. is sold into local markets while the rest is used on-site 54 Sustainable Financing and Policy Models for Municipal Composting by farmers (Amlinger, 2012). Reflecting the high quality Policy/Regulatory Framework: Austria has a supportive requirement associated with on-farm use, 94% of all and comprehensive policy framework for composting that compost is derived from bio-waste or green waste, and includes source separation mandates, landfill organics only 6% is produced from sewage sludge and mixed waste diversion measures including targets, bans and taxes, (ORBIT and European Compost Network, 2008). and compost quality assurance schemes. A mandatory source separated collection policy was successfully The benefits of this system are numerous and have led to adopted in 1992 followed by the implementation of the its widespread success (table 6). All single family homes Austrian Compost Ordinance in 2001, which regulates are encouraged to undertake home composting which compost quality, production, marketing, and labeling decreases the amount of organics entering the solid waste for the purpose of limiting environmental impacts and management system and reduces downstream transport increasing product competitiveness in local markets. and treatment costs. Home composters may opt out of While approaches vary across Europe, the Austrian organics collection, which is facilitated through a bio-bin Compost Ordinance was Europe’s first “end of waste” program. Through the bio-bin program, waste generators regulation and clearly defines the inputs, processes, and pay based on the quantity of organic waste that is being finished product criteria by which organic waste becomes disposed of. Depending on the bin volume and collection a saleable product. In addition, it designates three quality frequency, a bio-bin fee ranging from €25-120 per year classes of compost and articulates the corresponding labels is assessed. Home composters avoid this fee and produce and potential application sites for each product type compost that can be used for gardening. Generators that (European Compost Network Website, n.d.): are not willing or able to participate in home composting are required to source separate their kitchen and yard ●● Class: A+, Label: “Quality Compost Class A+”, waste, according to Austrian law. Application: Suitable for use in organic production of agricultural products Table 5. Distribution of Composting Facilities in Austria On-Farm Municipal Industrial Facilities Facilities Facilities All % of % of % of Facilities No. Total No. Total No. Total Number of Composting Facilities 454 292 64% 89 20% 73 16% Total Organic Waste Composted in Austria (MTPY) 976,000 308,000 32% 237,300 24% 431,000 44% Average Facility Capacity (MTPY) 2,800 1,100 2,700 5,900 Source: Amlinger, 2012 Table 6. Main Benefits of Austria’s Decentralized Composting Strategy Promotion of Home Composting Source Separated Collection On-Farm Composting ●● Reduced transport ●● Generation of clean, organic ●● On-site application of compost to ●● Sustainable garden management feedstock for composting facilities improve soil ●● Low implementation cost to the ●● Reduced organic waste in residual ●● High quality standards imposed by municipal waste management system waste stream, thereby reducing farmers due to internal incentives residual waste collection and Reduced synthetic fertilizer use ●● Reduced municipal hauling and ●● treatment costs waste treatment costs ●● Additional income for farmers (paid for waste collection services, compost ●● Low to no cost to citizens sales) ●● High levels of transparency for participants Source: Amlinger, 2012 5. Case Study: Decentralized Composting in Partnership with the Agriculture Sector in Austria 55 Fresh organic waste is added to windrows at an Austrian farm composting facility. Photo credit: 100-First Zero Waste & Organic Cycle Organisation ●● Class: A, Label: “Quality Compost Class A” or and 35% by 2016 (with an extension to 2020 for certain “Quality Sewage Sludge Compost”, Application: Member States), Austria successfully met the 2016 target Conventional Agriculture, prior to 2008. ●● Class: B, Label: “Compost”, Application: Non- agricultural use (e.g., Land reclamation, landscaping) Large scale and agricultural compost producers participate in different quality assurance systems (QAS). Large- ●● Class: N/A, Label: “MSW Compost”, Application: scale producers are most commonly associated with Cannot be marketed freely and must be transported the Austrian Compost Quality Society (KGVO) while directly to end-user. May be used as a landfill cover. agricultural producers are associated with the Austrian MSW Compost is not considered compost in Austria, Compost and Biogas Association (ARGE). Both systems and therefore is not assigned a class. rely on the Austrian Compost Ordinance and the Austrian Guideline for State of the Art Composting issued by the An Austrian landfill tax was introduced in 1989, and Ministry of Environment. All composting plants undergo rates were differentiated in 1996 to account for the regular inspection, and compost samples are tested in variation in technical quality of different landfills one of several independent, authorized laboratories to and different waste streams. The fee for landfilling ensure compliance. The European Compost Network has biodegradable waste rose from €44/ton in 2001 to €87/ a separate quality assurance scheme to help harmonize ton in 2006. Most recently, in 2009, Austria issued an existing national initiatives. Their scheme has two labels outright ban on the landfill disposal of waste with a total that they award: 1) a conformity label for compliant organic carbon content over 5% and lowered the landfill national quality assurance schemes and 2) a quality label gate fee for biodegradables to €29.8 in 2012 (European for compliant composting and digestion plants. KGVO Environment Agency, 2013). This is predicated on the and ARGE are two of four national QASs across Europe fact that all biodegradable waste must be processed at to have received the conformity label. a MBT facility prior to landfilling, thereby increasing total processing costs. The ban has allowed Austria to Program Structure: The predominant technology in use be the first country in Europe to exceed the EU Landfill across Austria’s decentralized compost sector is a low-cost Diversion targets. While the targets require Member windrow system, with some farmers choosing to operate States to reduce the amount of biodegradable waste open windrow systems and others utilizing synthetic landfilled to 75% of 1995 levels by 2006, 50% by 2009, covers. This technology is possible given land availability, 56 Sustainable Financing and Policy Models for Municipal Composting high-quality feedstock, and relative distance from odor ●● Model 4: Food waste is pre-treated at a large centralized sensitive areas. Depending on the operating model, pre- pre-treatment plant in a city and then transported to a sorting may or may not occur on-site. The four different cooperative of farmers for composting and direct use. decentralized organic waste management operating models in use across Austria are (Amlinger, 2012): Financial / Economic Features: In most cases, the on- farm composting facility enters into a contract with ●● Model 1: Two farmers cooperate as partners carrying the municipality or the regional Waste Management out source separated collection and composting of Association to manage a specified quantity of organic waste organic waste streams in a rural area. and/or garden/park waste, presuming feedstock does not contain more than 2% impurities. Gate fees at on-farm ●● Model 2: A group of 20 farmers operate as partners of facilities range between €45-€60/MT of organic waste the regional waste authority to provide the collection and €15-€45/MT of garden/park waste (Amlinger, 2012). and composting of residential organic waste. These are well below the cost of MBT plus landfilling and ●● Model 3: A small group of 3-5 farmers receive source of incineration which can exceed €150/MT. Generators separated organic waste from an entire county in pay a general waste fee along with an annual organics fee alternating fashion with bulky yard waste supplies by to support collection and processing costs. The classical areas immediately surrounding the farm. model includes contracts for composting only with Box 18. Graz, Austria—An Example of Decentralized Composting The municipality of Graz serves a population of 356,000 people in the city and surround- ing villages. The Graz municipal authority is responsible for the collection and pre-treatment of approximately 30,000 MTPY of organic waste. Source separated waste is pre-treated with sorting, screening to remove inert materi- als, shredding, and homogenization in a cen- tralized facility. The pre-treated raw material is then transported from the centralized facility to 18 decentralized on-farm composting fa- cilities. The contracted farmers, who process between 200 and 3,000 MTPY of feedstock, operate open windrow composting systems and are responsible for covering all on-site capital and operating expenses. The local authority is responsible for guaran- teeing the quality of compost produced. On Aerial view of Graz, Austria. Photo credit: Pixabay behalf of the town administration, compost samples are taken one time each year from agricultural composting plants to be tested at an external, independent labora- tory. If the test results comply with the Austrian compost standards for agricultural use, for the farmer can use the compost on their agricultural lands or market it. In other instances, the municipality becomes the owner of a portion of the compost product for public use and distribution to residents. There are periodic inspections in Graz to ensure compliance with the quality standards. If the compost product does not comply with national standards, it is used by the city of Graz for non-ag- ricultural purposes, such as for land reclamation. Source: Amlinger, 2012 5. Case Study: Decentralized Composting in Partnership with the Agriculture Sector in Austria 57 collection performed by either the municipal solid waste Moving Forward: Austria’s organic waste management authority or their contracted service provider. However, in system continues to function with outstanding success some rural areas, farmers are also contracted to carry out the and has been evaluated for replication in other countries, curbside collection of organic waste. Collection receptacles including Bulgaria. Even if proposed revisions to the (bags, buckets, or bins) are tailored to the specific needs of current EU Landfill Directive to phase out the landfilling the jurisdiction, as are receptacle capacities. This minimizes of biodegradable waste by 2025 move forward, Austria investment and operating costs for waste collection. is well ahead of meeting that target in addition to targets it has already achieved. The National Ministry In Austria, the financing of a new decentralized composting of Agriculture, Forestry, Environment and Water facility is typically done through a cooperative investment Management introduced a waste prevention program model whereby the municipality, the regional Waste Management Association, the provincial government, in 2011 aimed at minimizing organic waste production and the compost facility operator all contribute to the from industries and households and the food sector, site development and equipment costs. The compost including food production, retail and large-scale catering facility operator traditionally finances 25-50% of the total establishments. Activities included under the expected capital expenditures with the remaining funds provided program are: dissemination of best practice examples, by the aforementioned government entities in the form of the establishment of networks, and removal of legislative subsidies (Figure 1). barriers (European Environment Agency, 2013). Figure 1: Cooperative Investment Model Waste Management Association Coordination, consulting, plant planning, advertisements, subsidies Municipalities Contracting party, subsidies Province Consulting, subsidies Contracts Farmers Finances 25-50% of Capex for construction and machines Collection + controlling Compost production Quality assurance working group 58 Sustainable Financing and Policy Models for Municipal Composting Excavator shovel working on a large heap of organic fertilizer. Photo credit: Maren Winter 6. Case Study: Composting Market Waste in Bangladesh with a Joint Venture Company 59 6 Case Study: Composting Market Waste in Bangladesh with a Joint Venture Company Key Success Factors ●● Revenues from the sale of carbon credits until 2012, when the market price for carbon declined significantly ●● Sourcing of large volumes of clean, organic feedstock from a vegetable market ●● Proof of concept established through pilot projects and several years of relationship building and model development ●● Innovative partnership model that leverages established national distribution networks through a partnership with Advanced Chemical Industries (ACI), the largest synthetic fertilizer distributor in Bangladesh, and for- eign direct investment through a joint venture with World Wide Recycling Waste Concern, a social business enterprise based in became the first successfully registered composting project Dhaka, has become a critical player in building local through CDM. capacity around biodegradable waste management in Bangladesh, where the environment around composting Context: Bangladesh is home to 166 million people has traditionally been challenging. The adoption of based on a 2014 estimate. Per capita MSW generation compost products has been low due to prevailing rates range from 0.25-0.30 kg daily in rural areas to 0.47- subsidies for synthetic fertilizers and poor marketing. 0.50 kg daily in urban areas, with urban areas producing National policies have been developed in recent years, but around 4.86 million MT of MSW each year. 75-85% of they lack infrastructural support mechanisms to be fully MSW comes from households, while 15-20% comes from implemented. commercial generators. Waste collection typically occurs in two steps: 1) residents, community waste collectors, or Founded in 1995, Waste Concern is the first entity to NGOs transport mixed waste from a home or business take a step towards the successful implementation of a to a centralized drop off center and then 2) the local composting industry in Bangladesh. It has evolved into authority transports waste from the drop off center to a a multi-faceted organization that develops and operates disposal site. Some cities have implemented door-to-door waste collection and processing infrastructure, provides waste collection for which they pay a service fee. Tipping consulting services to local and international clients, and fees are not customary at disposal sites across Bangladesh. operates a recycling training center and compost laboratory. Waste Concern has become an internationally recognized Although source separation does not occur formally, NGO for their unique and successful community-based, recyclables are separated at the household and sold to decentralized composting model that has been replicated traveling buyers and recovered by informal recyclers at across Bangladesh and other countries in Asia including drop off centers and disposal sites. Biodegradable waste Sri Lanka, Vietnam, and Pakistan. A 2005 joint venture is an estimated 70-85% of the total MSW generated. between Waste Concern and a Dutch recycling company Despite this, as of 2012 only 2% of the total MSW named World Wide Recycling led to the operation of a generated in Bangladesh was composted (Bangladesh 130 MTPD capacity composting project. This project Municipal Development Fund, 2012). Low composting 60 Sustainable Financing and Policy Models for Municipal Composting rates are the result of a variety of factors including: The majority of composting plants in Bangladesh are agricultural practices that favor nationally subsidized decentralized and small in scale (1-5 MTPD). Together, the synthetic fertilizers, competition with locally available private sector and NGOs operate an estimated 60% of the and less expensive products such as cow dung and poultry country’s composting facilities, with municipal authorities litter, and sharecropping agreements that encourage quick managing the rest (Waste Concern, 2016). In 1995, crop yields and neglect long-term soil health. Waste Concern, an NGO promoting the development of community-based composting plants, was established. Farmers in Bangladesh generally rely on chemical They launched a successful pilot that year, expanded to fertilizers for intensive crop production, which the cities of Sylhet and Khulna in 2000, and then to 14 deteriorate soil conditions. It is estimated that 83% of additional cities in 2002 with funding from The United cultivated lands in Bangladesh have less than 2% organic Nations Children’s Fund. Half of these facilities were matter content. Beginning in the 1960s, the country operated by municipal authorities, which lacked trained underwent a green revolution that included programs operators, leading eventually to decommissioning. The aimed at increasing food production and fostering remaining facilities were operated by NGO’s and the self-sufficiency. Thus began the use of high yield seeds, private sector and still function today. As of March 2016, chemical fertilizers, pesticides, mechanical plowing, and the Waste Concern model has been replicated across 56 sites large-scale irrigation. The program included a widespread throughout Bangladesh, including the country’s only large- campaign promoting the use of chemical fertilizers, scale facility in Bulta, Narayanganj, which has an installed increased accessibility to loan and credit facilities for capacity of 130 MTPD (Waste Concern, 2016). Recently, farmers, and tax incentives to import chemical fertilizers the Department of Environment of the National Ministry and to build fertilizer factories. of Environment and Forests launched a program to develop composting in 64 districts in Bangladesh. Initially, the Organic waste composting is relatively new in Department of Environment will establish 4 composting Bangladesh, only beginning to emerge in the early facilities ranging in capacity from 12 to 20 MTPD with 2000s. Municipalities, NGOs, community organizations funds from the national Climate Change Trust Fund. and private companies are all active in the production, marketing, and sale of compost products. Several project Compost prices in Bangladesh are very high relative development structures exist involving varying degrees of to alternative local products and compost prices in municipal support. A municipality may own and operate other parts of the world. RUSTIC, a private compost a facility, own the facility and contract with a private manufacturer sells compost on a wholesale basis for company for daily management, or provide feedstock for BDT 7/kg ($90/MT)iii while manufacturers in Faridupr, a privately owned and operated plant. Gaibanda and Mymensingh sell compost for BDT 8–25/kg ($100 – 320/MT). By comparison, cow dung Box 19. Innovative Marketing Strategies The composting market in Bangladesh is limited. Compost manufacturers are successfully producing compost but fail to sustain operations due to a lack of demand and poor marketing strategies (Ali 2004; Zurbrugg 2003). Innovative cam- pagins are underway to increase confidence levels in compost. Innovision, a private company, has been promoting com- post among farmers by highlighting its benefits, including improved crop yield and soil amelioration. In partnership with Annapurna Agro Service, a private composting company, Innovision using a mobile van equipped with a movie screen, to educate farmers on the benefits of compost. Innovision conducted 240 screenings in 7 months time, reaching more than 16,000 farmers and effectively changing consumer mindsets toward reducing dependency on chemical fertilizers and applying more compost. Source: Rashid, 2011 6. Case Study: Composting Market Waste in Bangladesh with a Joint Venture Company 61 and poultry manure sell for BDT 0.50/kg ($10/MT) clean organic feedstock for composting facilities planned and synthetic fertilizers for BDT 6.59/kg ($80/MT). for development in the cities. Although markets for compost are currently limited to nurseries and vegetable growers, organic farming is a A host of national policy documents exist in Bangladesh growing market across Bangladesh with approximately to varying degrees of implementation. The National 177,700 hectares, or 2% of the total agricultural lands Solid Waste Management Handling Rules was drafted being managed organically (International Federation of in 2010 highlighting financial and technical capacity Organic Agriculture Movements & Research Institute of building measures; however, as of 2014, it was still pending Organic Agriculture, 2006). However, without significant ratification. Incentives have been implemented at the education on the benefits of compost, along with incentive national level to promote organic waste recycling. For structures similar to those for synthetic fertilizers, the example, the National Ministry of Finance has given all compost sector in Bangladesh can expect to remain small waste treatment and recycling plants, including composting and dependent on niche markets. facilities, a tax exemption for five to ten years and compost products are excused from value-added tax and sales tax. Policy/Regulatory Framework: In Bangladesh, In addition, import duties on environmentally friendly municipal authorities are responsible for managing MSW technologies have been reduced. While the government and ensuring that the principles of waste reduction and encourages integrated nutrient management and the recycling are followed. In 2008, the Ministry of Agriculture blending of compost with synthetic fertilizers, no specific adopted the Fertilizer Act 2006, which includes compost purchasing incentives exist and, in fact, fertilizers still standards, along with facility registration and product benefit from product subsidies (BDT 7500/ton of urea), certification requirements. In practice, the certification creating an uneven playing field (Waste Concern, 2006). process is time consuming and complex, involving laboratory analyses and field-testing. Unlike other Asian Technical Features: Today, approximately 16 million countries that require field testing for one growing season people live in Dhaka and generate 5,000 MTPD of MSW. and issue temporary permits in the interim, Bangladeshi Dhaka City Corporation (DCC) is responsible for providing composters undergo field testing for two growing seasons. waste management services but is only able to collect 60% They must also undergo certification for each product of the waste produced, of which 80-85% is dumped and they manufacture and are prohibited from marketing 15% is recycled (Financial Express, 2016). Waste Concern compost commercially until certification is achieved. This has become an important player in the collection and has been a major barrier to the growth of community-scale management of organic waste in Dhaka, beginning with composting in Bangladesh. As of 2016, 70 composters a pilot composting facility erected in 1995. The initial had achieved certification (Waste Concern, 2016), with pilot employed four workers to collect waste from 800 many more composters still in queue. households, had a processing capacity of three MTPD, and could produce 600 kg/day of finished compost. Four to six The Department of Environment ratified a National 3R additional workers sorted incoming feedstock to remove (Reduce, Reuse and Recycle) Strategy in 2010, directing inert materials and managed the composting process. The local governments to develop action plans that include site utilized a box composting technique due to its low cost, organic waste recycling through composting, bio-gas and low level of mechanization (reduced turning requirements refused derived fuel. While the strategy also made source compared to traditional windrow systems) and suitability segregation mandatory, implementation and enforcement to Bangladesh’s climate conditions. The process took 40 was weak because local governments struggled to provide days for decomposition and an additional 10-15 days basic waste services, let alone segregated waste collection. for maturation. The compost product was then screened A source separation pilot has been rolled out in Dhaka and to produce different grades and sold through a partner Chittagong, where the Department of Environment has company, MAP Agro, who purchased the compost and distributed three bins to households for refuse, organics, enriched it with micronutrients before distributing it to and recyclable wastes. The pilot is intended to generate a their pre-existing agricultural customers. 62 Sustainable Financing and Policy Models for Municipal Composting Organic waste collected from vegetable markets and other sources (left). Matured compost pile in the shed at Waste Concern’s Bulta facility (right). Photo credit: Waste Concern Waste Concern partnered with Dutch recycling company, television advertisement), enhancing brand awareness WWR, in 2005 to develop a large scale composting (farmers’ meetings and demonstration farming), and facility in Dhaka. Through a joint venture called WWR facilitating product launches and meetings with the BioFertilizer Ltd. Bangladesh, the company successfully Department of Agriculture Extension. According to ACI, registered the first composting project through the there is high demand for the product. Clean Development Mechanism of the United Nations Framework Convention on Climate Change in 2008. Financial / Economic Features: During the first three The composting project initially had a planned capacity years of piloting and developing their preliminary of 700 MTPD, spread across three processing sites. composting model in 1995, project costs totaled BDT However, due to the collapse of the carbon market in 700,000, which they obtained through consulting fees 2012, only a single site was constructed in 2009. This and private investors. During operation, the pilot facility’s facility located in Bulta, Narayangaj (greater Dhaka) compost production costs were BDT 1.80/kg. The has an installed capacity of 130 MTPD and is currently product was sold to MAP Agro for BDT 2.50/kg; MAP operating at 60% capacity due a lack of carbon revenues Agro would then enrich the product and sell it for BDT and current negotiations with the DCC around the 6/kg (Rahman, 2010). supply of organic feedstock. To date, the facility has processed a total of 102,183 MT of waste from food In 2011, typical capital costs for replicating three sizes of markets and produces between 2,200 and 3000 MTPY Waste Concern’s decentralized, community based com- of compost (Waste Concern, 2016). posting model ranged from $14,609 in capital expendi- tures for 3 MTPD to $73,043 for 20 MTPD (Table 7). Incoming waste undergoes a pre-sort process to remove inert materials. The plant then uses static pile composting The total investment cost of the joint venture’s (WWR with forced aeration followed by maturation. The site BioFertilizer Ltd. Bangladesh) first facility was $3.6 million consists of eight composting cells and a maturation (Center for Clean Air Policy, 2013). The project was area, weigh bridge, drum screen, wheel loader, blowers, financed through a combination of grants, equity, loans, measuring equipment for temperature and moisture, a and carbon credits. At its inception, the International crusher, and a bagging machine. The product has been Business and Cooperation of the Dutch Ministry of approved and certified by the Ministry of Agriculture. Economic Affairs provided a €500,000 grant. WWR ACI, a partner company and the largest synthetic fertilizer Bio Holdings financed the joint venture through three distributor in Bangladesh, distributes compost through equity investments from World Wide Recycling BV, the its established network in addition to undertaking Entrepreneurial Development Bank of the Netherlands, promotional branding (leaflets, posters, stickers, and and High Tide Investment, a Dutch investment firm. High 6. Case Study: Composting Market Waste in Bangladesh with a Joint Venture Company 63 Table 7. Waste Concern Projected Cost of Community-Based, Decentralized Composting Facility Items Capacity 3 MTPD 10 MTPD 20 MTPD Land Required per plant (ft2) 5,040 14,400 25,200 Fixed cost per plant (USD) 14,609 41,739 73,043 Operating cost per plant (USD) 4,348 14,493 28,986 Workers per plant 4 12 25 Compost produced per day (kg) 750 2,500 5,000 Source: United Nations Development Program, 2011, Currency in USD 2011 Tide Investment also provided a soft loan. Finally, the Dutch farmers through its distribution network (up to 500 km Bangla Bank of Bangladesh provided a conventional loan in from the plant) (Asian Development Bank, 2013, Waste local Bangladeshi Taka. These investors were attracted by Concern, 2016) for a higher price, which includes storage, a strong jointly-prepared business plan by Waste Concern transportation, and promotional costs. The estimated and WWR. This business plan assumed a compost sale amount of GHG emission reductions over the life of the price of BDT 6000/ton and carbon emission reduction project is estimated at 386,236 MT CO2 equivalent. credits of $8 per CO2 equivalent. During the first reporting period dating from August 2010 to December 2012, a measured 22,786 MT CO2 According to the project design document issued to the equivalent were reduced (CDM Monitoring Report, 2013). UNFCCC, the project would not have been financially viable without revenues from the sale of carbon credits Moving Forward: Waste Concern continues to operate having a net present value of $ -1,439,067, assuming a discount rate of 12% and an internal rate of return of 1% a successful social enterprise business having undertaken (Waste Concern Fact Sheet). Up until 2012 when the the development of countless composting facilities, facility ceased receiving revenues from the sale of carbon consulting studies, and technical assistance endeavors credits, 55% of the project revenues came from the sale around the globe. The company’s understanding of of compost, with the remaining 45% coming from the the unique challenges of developing and maintaining sale of carbon emission reduction credits. Today, 100% of composting operations in low-income environments project revenues come from the sale of compost. have resulted in a replicable model that can be applied in urban and rural settings, and at small, medium or The production cost of compost, including the waste large scales. Waste Concern operates a recycling training collection, is approximately $63/MT. Waste Concern has center in Dhaka that was built in 2006 with support been responsible for collecting and transporting market from the United Nations Development Program and the waste to their site according to a 15-year waste collection Bangladesh Ministry of Environment and Forests that is a agreement with the DCC that began in 2007 and therefore, destination for waste practitioners from around the world. the facility does not receive a tipping fee. However due to Waste Concern is currently exploring alternative ways to a lack of carbon revenues, and the National 3R Strategy decrease system costs in the absence of carbon revenues which stipulates that municipal authorities should deliver and is advocating for incentives such as the free delivery of waste free of charge to recycling facilities instead of landfills, the CDM board under the office of the Prime Minister waste, land allocations for compost facility development, is currently evaluating whether the DCC should supply additional tax incentives, soft loans, leveling the playing feedstock for the Bulta facility at no cost to Waste Concern. field regarding subsidies for synthetic fertilizers and export permissions, as other countries are demanding compost ACI purchases bags of the finished compost from the products at a higher price than that in Bangladesh (Waste facility for $79/MT.iv ACI then sells the compost to the Concern, 2016). Students visit a screening and composting plant in Brazil. Photo credit: www.guarani.mg.gov.br 7. Case Study: Promoting Organic Agriculture in Brazil 65 7 Case Study: Promoting Organic Agriculture in Brazil Key Success Factors ●● Utilization of high quality, low contaminant agro-industrial feedstocks from cooperative members and other nearby industries ●● Production of a quality end product that meets national requirements for use in conventional and organic agricultural markets while satisfying a growing domestic demand for certified organic compost ●● Derivation of revenues from a mix of gate fees received from non-member feedstock providers and product sales Ecocitrus (Cooperativa dos Citricultores Ecológicos do Social (BNDES), Fundação Nacional de Saúde and mul- Vale do Caí Ltda.) is a successful organic citrus farmers’ tilateral development banks such as the World Bank, the cooperative located in the small town of Montenegro, majority of MSW composting facilities were decommis- Brazil, 60km from Porto Alegre, the capital city of the sioned due to operational or financial failures. In a recent State of Rio Grande do Sul. In the early 1990s, a group effort to stimulate the composting sector, the Brazilian of 14 citrus producers decided to invest in organic fruit government established a National Solid Waste Policy production and founded the cooperative with the support (NSWP) in 2010 (Federal Law 12.305/2010, regulated of the Secretary of Agriculture and Food Supply of the by Federal Decree 7.404/20100) mandating the closure of State of Rio Grande do Sul and the Deutsche Gesellschaft all uncontrolled dumpsites by 2014 and outlining a grad- für Technische Zusammenarbeit (GTZ). Since then, uated plan to divert 53% of organics from landfill disposal Ecocitrus has been growing rapidly, and the cooperative by 2031. The NSWP requires state and municipal gov- now has 100 members managing 500 hectares of farm- ernments and other commercial/industrial generators to land. EcoCitrus operates a facility that produces certified establish and adhere to solid waste management plans as organic fruit juice for domestic and international markets a condition for obtaining access to federal resources such and organic essential oils for the cosmetic industry in as financing from federal credits entities and other incen- France. Waste from approximately 200 nearby industries tives. The policy also grants national, state, and municipal along with waste products from the cooperation’s primary governments the authority to create and deploy tax, fi- business operations are used as feedstock for an on-site nancial or credit incentives (Brazilian National Policy on composting and biogas facility. Solid Waste, 2010). Criminal penalties and administrative provisions for non-compliance were established previous- Context: Brazil was home to 201.4 million people in 2013 ly by Law Number 9,605, February 12, 1998, and are with an estimated 183,482 million MT of MSW collected binding on all activities deemed harmful to the environ- daily (IGBE, 2010; IBGE, 2014). Although approximate- ment outlined in the NSWP. ly 51.4% of the collected MSW is biodegradable waste, only 1.2% is processed in composting facilities (MMA, Despite this significant step towards improved solid waste 2012). Brazil has experienced a technically challenged management practices, many municipalities have proven past with composting. Despite significant investments in ill equipped to respond to the NSWP due to crippling in the 1980s and 1990s from the national development financial and technical constraints. This has raised wide- bank, Banco Nacional de Desenvolvimento Econômico e spread concern over their ability to meet future organics 66 Sustainable Financing and Policy Models for Municipal Composting diversion requirements and led to a call for additional biodegradable wastes. The city’s decentralized processing government support. approach includes constructing 8 small scale, 50 MTPD composting plants by the end of 2016 for processing Brazil is an important producer of grains, sugarcane, waste from 833 markets, installing 3 mechanical biologi- and meat and therefore agricultural demand for com- cal treatment plants by 2019, and gradually integrating 4 post products is high with agribusinesses responsible for larger scale composting facilities by 2023 (ISWA, 2015). 23% of GDP. The organic agriculture market in Brazil, which is well suited to organic-based soil products such as Policy / Regulatory Framework: The Brazilian Govern- compost and biofertilizers, is growing at a rate of 15-20% ment has put a supportive policy framework in place to each year with an estimated market size in 2014 of $900 help create a market for compost. The framework includes million (CI Orgânico). In 2012, 76 Brazilian companies minimum quality standards and maximum contaminant exported $129.5 million in certified organic products in- limits for products sold into conventional agricultural cluding food, beverages, cosmetics, ingredients, cleaning markets as well as more stringent versions for products products, and textiles through a joint initiative between sold into organic agricultural markets. the Instituto de Promocao do Desenvolvimento (IPD) and Apex-Brazil of the Brazilian Ministry of Trade and For compost products to be sold into organic agricultural Industry, called Organics Brazil.v markets, they must meet the following conditions: According to a 2008 study, 211 or 3.8% of Brazil’s 5,564 ●● Biodegradable wastes are separated at the source; municipalities were operating composting facilities; how- ●● Compost is stable and avoids contact with the edible ever, of those processing MSW, none were producing parts of the plant; and compost that met the national regulations and norms for ●● Compost is applied according to regional use guide- use in agriculture. This compost was relegated to low val- lines to avoid possible negative environmental impacts. ue end-uses such as reforestation, erosion control and as a soil amendment in parks, which in many cases was given Although compost derived from MSW is permitted for away free of charge. Bolstered by supporting legislation use in organic agriculture, it is currently not occurring and certification schemes for organic projects, generators due to a general lack of source separation programs. of agro-industrial wastes have begun developing private for-profit organics processing facilities to manage their According to Brazilian legislation, all compost producers, own waste products while at the same time, producing a as well as their traders, exporters and importers must for- valuable end product that can be utilized on-site or sold to mally register with the Ministry of Agriculture, Livestock the country’s growing, higher value end markets. and Food Supply (MAPA). Large-scale producers of or- ganic products must also register with MAPA and certify Recognizing past failures, some municipalities in Brazil their products according to the norms and regulations of are beginning to move away from mixed waste collection the Brazilian Organic Conformity Evaluation System. and centralized, MSW composting. Composta Sao Paolo Products must bear the official organic seal, the name of was initiated in 2014 to promote home composting, in the certifying body, and contact information for the pro- addition to the city simultaneously pursuing the adoption ducer on their packaging. of a decentralized organic waste processing system. With savings realized through reductions in waste hauling and Small-scale peasant farmers follow a different product processing costs, Composta Sao Paolo has provided 2,000 certification process known as the Participatory Guar- homes with free composting boxes and educational ser- antee System. Unlike traditional third party certification vices. Once it is expanded across the city, the program is schemes, this system is based on mutual agreement and expected to reduce household biodegradable waste gener- trust between producers, traders, and consumers. Peasant ation by 33% by 2033. By 2023, the City plans to roll out farmers organize themselves into local groups, called Lo- the source-separated collection of all remaining household cal Social Control Organizations (OCS), and then form 7. Case Study: Promoting Organic Agriculture in Brazil 67 a Commission of Ethics to carry out inspections on each fields. Technical staff ensure that end products meet reg- other’s farms and verify compliance with national stan- ulatory requirements while marketing staff disseminate dards. A Participatory Organic Evaluation Organization, information about the nutritive value of organic compost which is accredited and audited by MAPA, is comprised and its suggested uses. of representatives from all OCS’s within a region. The Organizations undertake the evaluation and verification Financial / Economic Features: Project capital and oper- of forms submitted by the OCS’s and issue certification ating costs are not known. Financing for the pilot biogas and an organic stamp to the peasant farmers. Certification facility was provided by regional development bank, Ban- through the Participatory Guarantee System is less expen- co Regional de Desenvolvimento do Extreme Sul. sive, facilitates the efficient dissemination of information across farmer groups, and allows for a continuous certi- According to Ecocitrus, the composting system is fi- fication process as farmers harvest different crops each nancially sustainable with gate fees paid by neighboring season. Farmer participation in the program has increased agro-industrial waste generators and revenues from selling from 138 families in 2009 when the participatory certifi- compost and liquid bio fertilizers. A portion of the com- cation program was first implemented to 678 families in post produced is given away free of charge to cooperative 2011 and 900 in 2012 (IFAD, 2013). members, depending on the results of the soil analysis from each farm and with the technical supervision of an Technical Features: The Ecocitrus composting facility agronomist. The majority of the compost is sold to or- began operations in 1995 with a capacity of 3,400 MT/ ganic and conventional agricultural markets. Average bulk month as a means to reduce chemical fertilizer use across sale prices are: its members and assume control of the entire production chain. The facility initially operated as an open windrow ●● To certified organic producers: BRL 50/MT system but underwent an upgrade in 2008 to expand ●● To non-organic producers: BRL 80/MT processing capacity and incorporate new pre-sorting and ●● To forestry industry: BRL 40/MT forced aeration technologies to decrease composting time and improve the quality of their end product. In 2012, Ecocitrus’ Class B compost is also sold in smaller bags on- Ecocitrus and Naturovos, a local chicken farmer, with site for household use. Prices range from BRL 3 per 3 kg support from Sulgás, a methane distributor, established bag to BRL 13 per 40 kg bagvii. the Verde Brasil Consortium to produce GNVerde, biogas derived from biodegradable waste. The consortium co-lo- Moving Forward: Ecocitrus continues to treat agro-indus- cated a pilot-scale digester with the composting facility trial waste from its members and other nearby industries. producing 1,000 m3/day of biogas comprised of 96% The consortium is now undertaking steps to advance its methane, which is currently being used as a replacement pilot-scale biogas facility into a commercial phase. Pend- for natural gas to operate several vehicles owned and oper- ing the release of biofuel use guidelines from the Nation- ated by the consortium. Today, the solid waste processing al Fuel Agency, the project is expected to soon generate facility occupies 13 hectares and has a licensed processing 20,000 m3/day of biogas for vehicle use for sale into local capacity of 192,000 MTPY of Class II industrial organ- markets. Assuming biogas is produced 365 days/year, that ic wastes (NBR 10004/2004). It is large in comparison the biogas is 50% methane and is upgraded to compressed to MSW composting facilities which process an average natural gas, and that a vehicle can conservatively drive 20 of 5,106 MTPY (adapted from MCIDADES/SNSA, km per kg of the compressed natural gas, the facility can 2014vi). Ecocitrus currently produces certified class A, B, power 50 million km per year.viii Sulgas will be responsible and D (IN 25/2009) compost totaling 48,000 m3/year for the distribution and marketing of GNVerde. in addition to 24,000 m3/year of liquid bio fertilizer and 6,000 m3/year of ash, which can be used as a soil condi- tioner. The facility employs 25 people with skill sets span- ning technical, operational, marketing and administrative Rows of compost maturing in the sun. Photo credit: Photoroller 8. Case Study: MSW Composting in Bangalore, India—Two Differing but Complementary Approaches 69 8 Case Study: MSW Composting in Bangalore, India—Two Differing but Complementary Approaches Key Success Factors ●● Utilization of low-cost, low-tech composting equipment ●● Subsidies in the form of gate fees per tonne (Terra Firma) and compost subsidies from the state government (KCDC) ●● Production of differentiated end-products that match local market demand ●● Diversification of revenues streams across tipping fees, compost sales and recyclables sales (Terra Firma) ●● Well-developed distribution networks ●● Willingness to sell product manufactured on-site in addition to acting as a distributor of products produced by other composters (KCDC) Karnataka State in India has been a pioneer in MSW company also promoted franchises, establishing 38 MSW Management by establishing the only successful state- processing facilities across India. owned composting corporation in the country while also encouraging the involvement of the private sector. The Context: India is home to 1.24 billion people (2014 est.), Karnataka Compost Development Corporation (KCDC), with more than one-third of the population residing in located in Bangalore, has achieved long-standing success urban areas. The per capita MSW generation rate is 0.45 by utilizing a combination of indigenous, low-cost kg/person/day with an estimated 48.5 million MT of composting technology and an efficient marketing system MSW generated in 2013. Municipal corporations, who for the sale of MSW-derived compost. Established in 1975 bear responsibility for providing waste collection and as a state-owned corporation, KCDC has been operating treatment/disposal services, collect approximately 36.5 continuously for 40 years and in 2012, produced 15,000 million MT/year with 28% of the collected MSW being MT of their three compost products: “city compost”, treated across 480 waste recovery facilities. The remaining “vermi-compost” and “AgriGold”. Bangalore generates collected waste is disposed of either in a dump or landfill 4,000 MTPD of MSW, of which KCDC receives 200 without treatment. MTPD. In 2011, 42.51% of the MSW delivered to processing A second operator, Terra Firma Biotechnologies, is a facilities was biodegradable waste although very little private company also located in Bangalore and was of it is collected in a source-separated manner (Indian established in 1994 by a group of professionals with Planning Commission, 2014). With a vibrant informal chemical engineering and agriculture expertise. The recycling sector in place, recyclables are positively sorted company constructed a vermicomposting facility and at the curb and throughout the waste collection process, successfully operated it from 1995 to 2007, after which it removing inert materials from the waste stream and scaled up operations to include a new 42 hectare integrated increasing the relative proportion of organic material solid waste management facility processing more than arriving at composting facilities. Urban planners and 500 MTPD of mixed MSW. Between 1998 and 2003 the policy makers have long supported composting as a 70 Sustainable Financing and Policy Models for Municipal Composting means for managing MSW in an environmentally management and away from synthetic sources of nitrogen, friendly way. In the mid-1970s, twelve government-run phosphorus and potassium, combined with state subsidies MSW composting facilities were established across India, for agricultural end users of compost and co-marketing but only KCDC is operational today. Sixty additional strategies with synthetic fertilizers have resulted in a plants were constructed in the 1990s and early 2000s, of modest increase in demand for MSW compost products. which six are still in business. Since 2005, a shift away However, awareness building is needed to educate farmers from composting as a public sector waste management on the long-term benefits of compost use in order to solution to a private sector business model has resulted in realize a more measurable increase. the development of more than 270 new sites. Today there are a total of 279 composting and 172 anaerobic digestion Policy/Regulatory Framework: In 2000, the National facilities in operation across India with the majority of Ministry of the Environment and Forests established the municipal-scale composting facilities processing between MSW Management and Handling Rules 2000 mandating 200 and 400 MTPD of MSW, while larger facilities that local bodies use composting and anaerobic digestion for process between 500 and 750 MTPD of MSW. Despite the treatment of organic waste; however, implementation the growing number of organic waste processing plants, has been challenging due to funding constraints and several challenges still exist. The lack of awareness around lack of enforcement. The national government has the benefits of MSW compost, high transportation costs, provided support by issuing compost product subsidies comingled waste streams, challenges managing non-value, to farmers, capital subsidies to municipal government inert waste components, inability to access long-term for the development of composting, vermicomposting debt, and seasonal market demand for compost have left and sanitary disposal facilities, along with grants through the Indian composting sector operating at less than 10% the Jawaharlal Nehru Urban Renewal Mission, whereby of its potential capacity. 60 cities received funds to improve their solid waste management systems. The result has been an increase In 2005, demand for soil amendments in India was in public private partnerships whereby the municipal estimated at 270 million MT/year, which is currently authority either constructs a composting facility and being met with a variety of synthetic fertilizers, composts, then contracts operations to a private company or a and locally available products such as cow dung and private company constructs the facility and the municipal poultry litter (Indian Ministry of Urban Development, authority provides a per tonne tipping fee. 2005). Even if 100% of the MSW generated in India were collected and the biodegradable fraction converted to The Fertilizer Control Order (1985, 2003, 2013) sets compost, it would only supply 2% of the current market. compost quality standards, provides operating guidelines However, under present conditions, MSW compost for composting facilities, and criteria for registration production supplies only 350,000 MTPY or 0.1% of the (called a certificate of registration) for manufacturers, total demand. Demand in urban areas for home use is dealers, wholesalers and importers. State and municipal marginal due to prices ranging from $160 to $200 per facilities and those producing less than 50 MT/year via MT. Agricultural end users represent 95% of the total vermicomposting are exempt from obtaining a certificate demand, although purchases are concentrated between of registration. A certification of registration is valid for May and July, prior to monsoon season, and between a period of three years. Product licenses are required to October and December, which precedes the second sell compost and are issued by a local authorizing agency, annual crop season. Prices paid by famers range from $30 typically the state department of agriculture. In Karnataka, to $65 per MT (delivered). a compost manufacturer must obtain a certificate from an authorized lab indicating that the product meets The excessive use of commercial fertilizers and intensive criteria, along with providing details about the facility agricultural production has led to a decrease in plant and and its operating practices. The authority approves the animal matter content in Indian soils. In recent years, a application and issues a license, which must be renewed national shift in focus towards integrated plant nutrient annually. An Inter-Ministerial Task Force on Integrated 8. Case Study: MSW Composting in Bangalore, India—Two Differing but Complementary Approaches 71 Plant Nutrient Management was convened and a report sourced from other composting facilities across the state issued in 2003. One significant recommendation was that (KCDC, 2016). chemical fertilizer companies be required to co-market and distribute organic compost along with their chemical The Terra Firma solid waste management facility occupies product lines to open up product distribution channels for 52.6 hectares and is comprised of a windrow composting compost. The measure was adopted and today, numerous facility, testing laboratory, recycling center, landfill, and chemical fertilizer companies are either producing their biogas facility. Terra Firma also receives more than 500 own compost for sale or acting as distributors. The MTPD of mixed MSW from the BBMP and other companies procure compost product from numerous waste producers. Incoming MSW undergoes upfront producers, perform quality testing, package it in a branded manual and mechanical sorting to separate organics from bag and transport it to end-users. Two of the companies, inert recyclable materials. Terra Firma has developed Coramandel Fertilizers and Nagarjuna Fertilizers are a network of local buyers in the city of Bangalore for thought to trade more than 200,000 MT/year of compost. processed plastics and other recyclables while the rejects While compost manufacturers that sell to distributors are disposed in a landfill on-site. Organics are then mixed receive a lower price for their compost products, they with an additive and composted in an aerobic windrow avoid the capital and operating costs associated with system, followed by a 4 mm screen. Terra Firma produces distributing product to end users. and sells over 15,000 MT of compost each year. With established distribution channels in place across the states Technical Features: The KCDC facility sits on 11.7 of Karnataka, Andhra Pradesh, Tamil Nadu and Kerala, hectares of land and receives 200 MT per day of MSW the company sells compost under its brand name directly from the administrative body responsible for municipal to end users in addition to supplying compost to other services in the Greater Bangalore metropolitan area, companies for re-branding and sale. Bruhat Bangalore Mahanagara Palike (BBMP). MSW is sent directly to aerobic windrow composting where it is Financial/Economic Features: KCDC is jointly owned sprayed with an additive to speed up decomposition and by the Karnataka Agro Industries Corporation, the Bruhat reduce odors. The windrows are turned once per week with Bangalore Mahanagara Palike and the Karnataka State a front-end loader for 7 to 8 weeks. Following treatment Co-operative Marketing Federation Limited, with 52%, the product undergoes screening to produce multiple 24%, and 24% ownership stakes respectively. Facility grades of compost with the rejected materials being sent revenues at KCDC are solely from the sale of compost. offsite for landfill disposal at a BBMP owned facility. The KCDC does not receive tipping fees from the BBMP compost production rate stands between 15% and 20% or revenue from the sale of recyclables. Reject disposal of the total incoming feedstock (KCDC). costs are incurred by the BBMP. Compost is available to agricultural end users at a subsidized price of Rs 3800/ MT KCDC produces multiple products including: “city ($56/MT) for “city compost”, Rs 4050/MT ($60/MT) compost” from mixed MSW, “vermi-compost” from for “Vermi-compost”, and Rs 8800/MT ($130/MT) for household and agricultural wastes and AgriGold, a AgriGold, including delivery. Prices for non-agricultural granulated product comprised of a variety of manures buyers are Rs 3200/MT ($47/MT) for city compost, Rs and mineral additives.ix Compost is sold to farmers 3400/MT ($50/ MT) for Vermi-compost, and Rs 8800/ in Karnataka at a rate subsidized by the Government MT ($130/MT) for AgriGold and are exclusive of the of Karnataka. The company also procures additional cost of delivery (KCDC Website).x KCDC is able to sell compost from other compost producers in the state to its product throughout the year, with the majority of the meet the demands of their buyers. From April 2013 to sales occurring between May and July. KCDC sells its March 2014, KCDC sold approximately 45,000 MT product to state agricultural extension farmers in various of product. 10,000 MT of “city compost”, ~2,600 MT districts in the state of Karnataka. Because compost sales are of vermi-compost and 10,000 MT of AgriGold were facilitated in collaboration with government departments, produced at the KCDC facility while the remainder was the composting subsidy is provided directly to KCDC. 72 Sustainable Financing and Policy Models for Municipal Composting Operating costs incurred by KCDC are attributed to Challenges: KCDC and Terra Firma have both encountered labor (40 workers plus 10 management staff), electricity challenges to their ongoing success and future expansion. and fuel, packing materials, additives, administration Both companies have experienced negative sentiments expenses, taxes, bank charges, contract service charges, from the surrounding communities, and KCDC’s potential and marketing expenses. Operating costs total Rs 2,700 for expansion has been limited as a result. Moreover, as a (~$40) per MT of compost manufactured and are covered state-owned company, management of KCDC changes by revenues generated from the sale of compost. A regularly, causing discontinuity in vision and operational minimum net profit of Rs 100 ($1.5) per MT of compost management and threatening the overall financial and is achieved with higher margins received on compost managerial performance of the company. Terra Firma and traded by KCDC from other producers. KCDC have both had to adapt to the changing composition of MSW by modifying their processing requirements and Terra Firma’s business model is built upon revenues from technology. Terra Firma has also felt pressure from the tipping fees, the sale of compost, and the sale of recyclables. municipal body to accept more waste than it is capable of The company also provides a variety of educational and processing, which they have strived to accommodate. The consulting services. Terra Firma owns the land and receives company has also recognized that solid waste management waste from BBMP and other major waste generators for projects become unviable if they have to service debt which it receives a per tonne tipping fee. The primary cost resulting from high capital costs and has therefore deployed components are labor, fuel, electricity, and transportation, simple technologies and purchased land and all equipment which account for more than 60% of the company’s annual with equity rather than debt. operating costs of Rs 3,100 (~$46) per MT of compost produced. The company employs 230 workers at the Moving Forward: KCDC and Terra Firma have survived facility, including 10 management and 15 administration various challenges over the years, but both continue to staff. Earned revenues are almost equally spread across operate financially sustainable businesses. In 2014, the different sources: compost sales, recyclables sales and Government of Karnataka and the Karnataka Urban tipping fees paid by the BBMP and other waste producers. Infrastructure Development Finance Corporation Ltd The company has been profitable since operations began earmarked funds for the development of nine additional in 1995, except for a few years where capital investments MSW processing facilities, including a 500 MTPD plant were made, through a diversification of revenue streams adjacent to KCDC. KCDC requested Rs 600 Crore to and keeping costs low through the selection of low cost, expand the composting center to process a total of 700 labor-intensive composting technologies. MTPD. 9. Case Study: Using a National Grant Program to Develop Composting Capacity in Sri Lanka 73 9 Case Study: Using a National Grant Program to Develop Composting Capacity in Sri Lanka Key Success Factors ●● Grants from the national government for initial plant construction and ongoing facility upgrades thereby eliminating debt service ●● Access to a variety of organic feedstock, including fish, slaughterhouse waste and dried fecal sludge that enrich the end product ●● Utilization of product distribution partners to reach markets in Eastern Sri Lanka ●● Revenue diversification through the sale of recyclables in addition to tipping fees from waste received from other authorities In 2008, Sri Lanka initiated the US $40 Million Pilisaru Context: In 2014, Sri Lanka was home to 21.9 million Project for the purpose of maximizing the utilization of people with 16.3% of the total population residing in resources and managing waste in an environmentally urban areas and 83.7% in rural areas (Wijerathna, 2012). sustainable way. Increasing composting across the Waste collection services are provided in urban areas while country was a key focus area of the Pilisaru Project. households with land are expected to manage waste on Despite funding from a variety of international aid their premises. In rural areas, it is common to burn non- organizations, numerous composting projects failed degradable waste and use food waste for animal feed and across Sri Lanka in the years prior to 2008. This was home composting purposes. Due to these practices and due in large part to grants that covered capital and consequently the low percentage of generated waste under operating expenses for a period of time. Once grant formal management, the total amount of MSW generated in Sri Lanka is not well understood; however, estimates funds were extinguished, the facilities floundered. suggest 6,400 MTPD of MSW are produced. In learning from these failures, the Pilisaru Project redefined lending practices, in most cases, excluding On average, 62% of the waste collected is biodegradable. ongoing subsidies for operations and maintenance, The majority of urban waste in Sri Lanka is disposed of which required composting facilities to achieve in open dumps, which are usually located close to water financial viability on their own. Today, more than 115 streams, marshy lands, and forest areas, creating adverse municipal-level composting facilities are in operation impacts on the environment and public health. In 2014, in Sri Lanka, 76% of which are constructed at capacities only one engineered landfill existed in Sri Lanka. Local less than or equal to 5 MTPD. Numerous facilities are authorities are responsible for solid waste management, successfully selling compost products and some are even and generators are typically not charged a fee for service. generating a profit. One such facility is the Balangoda MSW is collected as mixed waste, with the exception of Compost Plant located in the Sabaragamuwa Province. a few cases where source separation programs have been Owned and operated by the Balangoda Urban Council, implemented to create a clean feedstock for composting the facility processes 14 MTD of mixed MSW, source facilities. Many initial attempts at implementing source separated commercial organics, dried fecal sludge, and segregation failed, so local authorities have enacted animal wastes to produce a nutrient rich compost. different strategies to promote segregation. The most 74 Sustainable Financing and Policy Models for Municipal Composting Woman tending plants in Sri Lanka. Photo credit: Lakshman Nadaraja | World Bank 9. Case Study: Using a National Grant Program to Develop Composting Capacity in Sri Lanka 75 successful strategies are (a) to refuse to collect mixed waste ●● Capacity building and awareness building through or (b) to introduce a fee to collect mixed waste, while media campaigns and targeted events extending the free service for source-segregated waste. ●● Technical assistance for local authorities ●● A legal framework to address non-compliance Agricultural soils in Sri Lanka have a 1-2% organic matter content, compared to typical agricultural soils, which have ●● Monitoring requirements around 5% (Sri Lanka Department of Agriculture, 2014). ●● Provision of home composting bins to local authorities High subsidies for synthetic fertilizers have led to their at a subsidized price prolific use which has reduced the organic matter content ●● Construction of low-cost, regional sanitary landfills for retained in the soil. Subsidies vary by crop type and reach waste disposal 90% of the total product cost for some farmers, such as rice growers. However, the excessive use of chemicals has By 2013, 115 composting plants had been constructed. created widespread environmental and health concerns. With one-third of the country’s 355 local authorities having For example, a chronic kidney disease of unknown origin access to composting facilities (CEA 2013), the Project has spread throughout several farming communities in Sri was extended through 2018 and allocated additional Lanka. While the root cause is still unknown, farmers suspect funds from the national treasury. Unlike previous grant that agro-chemical runoff in drinking water supplies is to programs, Pilisaru provided capital grants directly to blame, creating negative perceptions of synthetic fertilizers. local authorities and public institutions for composting facility buildings, access roads, equipment, and training Due to poor overall waste management practices and for workers. In order to incentivize the construction of high quantity of organics in the Sri Lankan waste stream, large-scale composting plants that serve more than one organic waste management is a priority of the National local authority, they can receive subsidies to cover the cost Government. Prior to 2008, numerous international aid of operations and maintenance for a period of one year, agencies including the World Bank, Asian Development but small-scale plants that serve one authority cannot. Bank, Japanese International Cooperation Agency, the So far, 12 of the 115 composting plants are large-scale, United Nations Industrial Development Organization, regional facilities. Because the Pilisaru composting plants the World Health Organization, and the United Nations are owned and operated by local authorities, the national Environment Program, along with the Sri Lankan government does offer a form of an indirect subsidy by Ministry of Local Governments, provided funding for the paying the salary of some of the plant workers. Each local construction and operation of several composting plants. authority is designated an approved number of subsidized Capital costs were provided in the form of a grant, and workers, so some composting facilities employ some operations and maintenance were subsidized for an agreed subsidized workers while paying others directly. upon period. Nearly all of these plants were abandoned when the subsidies ended due to an inability to achieve Nearly all of the existing composting plants in Sri Lanka were financial sustainability through the sale of end products. funded through the Pilisaru Project. With a total installed capacity of 640 MTPD and with 400 MTPD of MSW In 2008, a $40 million national solid waste management being organic, the facilities have the potential to treat 10% project named Pilisaru was launched with the goal of of the total waste generated in Sri Lanka. Compost prices promoting resource utilization and environmentally ranged from $0.05-$0.12/kg in 2014. While the majority sustainable waste management. In addition to providing of facilities are operating at or even above their installed financial resources for the establishment of composting capacities, high waste processing ability has not necessarily facilities, the project also includes, amongst others led to high compost production rates or product sales. (Dassanayake, 2011): Assuming that 50% of the organic stream is reduced during the composting process, operating facilities should be able ●● Data collection on waste generation and management to produce 200 MTPD of compost, however, compost practices production efficiency is 25% less than what was expected at 76 Sustainable Financing and Policy Models for Municipal Composting 148 MTPD of compost produced nationwide. It is unclear Sri Lanka does have a third-party compost certification why this is occurring. The average cost recovery across scheme, known as the SLS Marks Scheme, and in 2003, operating facilities is also one third of the annual operating the governing body, the Sri Lanka Standards Institute, costs (with variances from 3 to 106%), highlighting the fact issued compost quality standards (Standard number: SLS the debt repayment would not have been possible in many 1246:2003) for MSW and agricultural waste compost. cases and threaten the long-term sustainability of the sector. The Institute has the authority to issue certificates for This is attributed to the low demand for end products, with compliant products; however, the standard is not legally the nutrient value of MSW compost often falling short of required to sell product in Sri Lanka since participation is meeting national voluntary compost standards and the need entirely voluntary. to compete with subsidized synthetic fertilizers and other less expensive soil amendments (Rostami, et al., 2012; Central Technical Features: The Balangoda Compost Plant is Environmental Authority, 2013). Actual product sales range currently owned by the Balangoda local authority, the from 1 to 100% of the compost produced, depending on Balangoda Urban Council (BUC), and is located in the the facility (Fernando, et al., 2014b) with some compost Sabaragamuwa Province. The population of the urban area manufacturers having adopted methods to increase the is 23,220. The plant became operational in 2000 at which nitrogen, phosphorus and potassium levels in their end time it only processed waste from a weekly festival. Due to products through co-composting and product blending.xi public outcry over poor management of waste in Balangoda and the associated contamination of local rice paddy fields, The Ministry of Agriculture (MoA) is actively involved the Balangoda Compost Plant was turned over to a private in promoting the purchase of organic fertilizers through company for a short time in 2002. However, the company training and awareness programs targeted to different user reduced the salaries of its workers, and following a second groups, conducting field demonstrations and regular testing public outcry, the BUC ultimately resumed control of the of compost products, encouraging source separation and facility again later that year. Beginning in 2005, a series of formulating product application rates. Through these site development improvements were made to the facility and other initiatives, the MoA expects to reduce synthetic and a training center was established. In 2009, an excreta fertilizer imports by 25% and increase the use of organic cleaning system was co-located with the composting plant manure and organic fertilizer by 100% (Sri Lankan Ministry with a processing capacity of 10,000 liters/day. Water from of Agriculture Website, 2012). The MoA also promotes on- the system is used to maintain moisture levels in the compost site composting of agricultural waste and in 2012, had spent piles and nutrients are used to enrich the compost. By 2010, $ 0.71 millionxii advancing on-farm composting systems. As the BUC had formalized a garbage tax and introduced door- a result, farmers participating in this program had produced to-door collection, including source-segregated collection for 34,191 MTPY of compost for their own use. commercial generators. Commercial generators currently receive source-segregated collection free of charge while Policy / Regulatory Framework: Solid waste is regulated mixed waste is collected for a fee. at the national level and managed at the local level in Sri Lanka. Provincial government plays an oversight role in Today, the facility receives 20 MTPD of waste. Four certain provinces more than others. National regulations MTPD are recovered as recyclables through hand sorting embrace the “polluter pays” principle, which entails the and 2 MTPD are disposed of in an open dumpsite. With waste generator paying based on the quantity produced. a 14 MTPD capacity, all remaining wastes are treated The governments emphasized a commitment to reduce, via composting. The waste is predominantly comprised reuse, and recycle through the National Policy on Solid of mixed MSW from households and source separated Waste Management (2007). To date, no mandatory source biodegradable waste from commercial generators but also separation or organics diversion policies exist although includes fecal sludge, fish waste, and slaughterhouse waste. the MoA reportedly encourages the practice (Sri Lankan As a result of product blending and co-composting with Ministry of Agriculture Website, 2012) along with local high nutrient waste sources, the facility is able to produce compost manufacturers. nutrient-rich compost, which is sold into local markets. 9. Case Study: Using a National Grant Program to Develop Composting Capacity in Sri Lanka 77 Once the composting process beings, piles remain totaled $ 81,296.xiii The National Land Reform Commis- untouched for a period of 6 weeks. Leachate collected sion provided land for the project at no cost. Operation from the piles is blended with water and re-circulated and maintenance costs are estimated at around $1,340 through the piles. After 6 weeks, the piles are turned, per month. The BUC covered initial operating costs until and then turned again in another 2 weeks. Following the project achieved break even. Total tipping fees paid by this active composting period, the material is cured for other local authorities are unknown but when combined a minimum of one to two weeks. Compost is screened with other revenue streams, allow the facility to cover their through a 6 mm sieve when a purchase order is received, annual operating and maintenance costs (Balangoda Waste leading to extended maturation periods. Management Center). To add nutritional value to the compost product, Compost products are sold to farmers in eastern Sri Lanka additional strategies are applied during the composting through sales outlets and agents. Soil in this region is sandy, process: making synthetic fertilizers ineffective. Frequent tests are conducted at an on-site laboratory to ensure the quality of (a) Animal waste is buried in the middle of the pile, the end product and results are communicated to buyers. (b) Partially-charred rice husks are incorporated, MSW compost sells for $0.08/kg, and a compost product blended with 13% dry fecal sludge sells for $0.11/kg. One (c) Rock phosphate is added to increase the phosphorous hundred percent of the compost is sold, and in 2011, content, and cost recovery was achieved with a very nominal profit of $162/kg. In addition to selling compost, the BUC sells (d) Finished compost is blended with dried fecal sludge. recyclables to material processors for double the cost of collecting and sorting them. The composting site is located eight meters away from households, and therefore it is important to adhere to Moving Forward: The success of composting projects strict processes to avoid odors. Plant operators pay close in Sri Lanka seems to be dependent on political attention to turning piles at appropriate intervals, keeping commitment, which was very strong in the case of the the site clean and removing mixed waste from the site. At present, citizens are very satisfied with these achievements, Balangoda Compost Plant, an ability to increase the and due to the success of the venture, BUC is now nutritional value of MSW compost, and a diversification accepting waste from other local authorities for a nominal of revenue streams so that plants are not 100% dependent gate fee. The composting plant employs 17 people and on the sale of compost. operates a vocational training center on-site. The center offers a certificate in waste management and recycling While Sri Lanka has numerous successful, small- and includes comprehensive exposure to field-work. The scale composting facilities in operation thanks to the course is offered by the BUC in collaboration with the government’s Pilisaru Project, the long-term financial National Vocational Training Authority and the Learn sustainability of these plants is still uncertain. By extending Asia Organization. The BUC received the President’s the program, the Sri Lankan government has signaled their Award for SWM in 2008 and the Green Job Award in continued support for improving solid waste management SWM Waste Management and Pollution Control in 2009 systems; however, markets for compost must be further and 2010. developed to achieve the long-term, desired outcomes. Existing subsidies for synthetic fertilizers will suppress Financial / Economic Features: The Central Environmen- adoption, as will the lack of binding compost quality and tal Authority and the provincial council funded construc- standards. Efforts to address these barriers will increase tion in 1999 at a cost of $300,000. Expansions were funded the likelihood of developing a vibrant composting sector through the Pilisaru Project between 2005 and 2009 and in Sri Lanka. Steam rises as warm, maturing compost is turned. Photo credit: 100-First Zero Waste & Organic Cycle Organisation 10. Case Study: A Longstanding Tradition of Organics Recycling in Europe 79 10 Case Study: A Longstanding Tradition of Organics Recycling in Europe Key Success Factors n Aggressive and binding biodegradable waste recycling targets set by the European Commission n National compost standards and legislation including technical requirements (best available technology documents) for construction and operation of composting plants n National quality assurance systems for compost (e.g., Germany, Belgium, Austria, Italy, The Netherlands, Hungary) n Cost prohibitive alternatives due to environmental taxes n Freedom to develop individual strategies by each Member State to comply with EU legislation, which has allowed for different approaches. Most successful countries have adopted mandatory source separation programs in combination with landfill taxes or bans Europe has achieved tremendous success in creating a Organics recycling rates vary considerably across robust organic waste recycling sector over the past 40 Member States with Austria having recycled 151 kg of years. The European model combines ambitious landfill biodegradable waste per capita in 2010, while Cyprus, diversion targets for biodegradable waste with supporting the Czech Republic, Estonia, Hungary, Latvia, Lithuania, national policy frameworks that instill confidence in Malta, Poland, Slovakia, Slovenia, Bulgaria, and Romania compost products. Member States have adopted differing collectively treated 11.9 kg per capita. Seven member approaches to organics recycling; some have embraced states, Austria, Belgium, France, Germany, Luxembourg, mandatory source separation while others have focused Italy and the Netherlands, represent nearly 2/3 of Europe’s on the development of MBT facilities that process mixed total biodegradable waste treatment capacity. Composting waste streams. The combined effect is that 42% of all is by far the leading method for biodegradable waste organic MSW generated in Europe is recycled through recycling due to its relatively low cost and long history composting and anaerobic digestion. in Europe. In 2009, the European Compost Network estimated that the sector had 2,500 composting plants Context: The European Union (EU) is home to 503 with a total annual waste input of 27 million MT. Forty million people (2015) spanning 27 Member States. In percent of the composting plants manage only garden 2011, Member States produced 2.5 billion MT of waste. waste. An additional 800 small-scale, on-farm composting Daily per capita waste generation rates vary dramatically plants are in operation throughout Europe, primarily between countries, ranging from 0.75 kg in Romania to concentrated in Austria and Germany. 2.04 kg in Denmark in 2013 (EuroStat, 2015). Up to 80% of the waste produced has the potential for reuse Member States have developed different approaches to or recycling with the most prominent fractions being organics recycling. In the Netherlands, large centralized kitchen waste (25%), paper and cardboard (18%), and facilities with an average waste input of 45,000 MTPY plastics (12%) (Zero Waste Europe, 2012). In some are favored, while Austria has developed a decentralized Member States, compostable organics can be up to 45% system of small-scale facilities averaging 3,000 MTPY, of the total waste stream. led by the agricultural sector. Home composting is also 80 Sustainable Financing and Policy Models for Municipal Composting an integral aspect of some Member States’ biodegradable collection schemes began to spread and programs were waste management strategies. The EU allows countries replicated across Europe. By 2015, 13 member states to count home composting towards their 2020 recycling conducted door-to-door collection of all biowaste, 2 targets. In countries with advanced biodegradable waste member states collected garden waste only, and 13 did not recycling schemes, it is estimated that between 35% and collect biowaste separately as part of primary collection 60% of the entire biodegradable waste stream is processed systems (Seyring et al., 2015). As sensitivity to the through home composting. preservation of soil quality and healthy food production increased, MSW composting facilities were converted Anaerobic digestion is growing across Europe due to the to source separated biowaste composting sites, or MBT added benefit of energy production and related renewable facilitiesxiv, as a means to manufacture products that met the energy incentives. In 2014, 244 large-scale AD facilities needs of agricultural and horticultural end users. Between were in operation with a capacity of ~8 million MTPY. An 1990 and 2000, national standards and regulations on additional 7,500 agricultural biogas facilities processing compost quality, along with supplemental quality assurance energy crops, manure, and some organic waste from schemes were developed, establishing a policy framework restaurants and the food processing industry also exist. that would become the foundation for a robust and growing Germany and Spain have the largest installed capacities, composting sector. Once renewable energy regulations and in the Netherlands, the government has launched a were adopted in the late 1990s, the market was able to plan to replace 15–20% of natural gas with a methane- support the production of compost products made from based gas by 2030, further catalyzing the development of higher-cost technologies such as anaerobic digestion, which anaerobic digestion (De Baere and Mattheeuws, 2012). required less land and had the added benefit of capturing and utilizing methane for electricity and/or heat. Initial History of Europe’s Composting Sector: Economic pilot projects processed manure and crop residues and after development and population growth led to rapid increases 2005, began incorporating municipal biodegradable waste. in MSW production through the 1950s and 60s, causing Today, anaerobic digestion is most common in northern Europe’s landfills to quickly fill up. With limited space European countries where winters are long and cold and to construct new disposal sites, countries began exploring require a supply of commercial heat, which increases the ways to reduce waste volumes. Beginning in the late economic viability of the technology. 1960s and continuing on into the early 1980s, countries experimented with mixed waste composting technologies Not all countries in Europe have followed a similar such as open windrow and forced aeration. In the mid- trajectory. While many Member States, particularly those 1970s piles were moved inside enclosed buildings and air in Western and Northern Europe, have adopted source filters were incorporated to ameliorate odor issues and separated collection and the composting and/or anaerobic increase waste volume reduction. Given that composting’s digestion of household and commercial biodegradable primary function at that time was waste volume waste, France, Greece, Portugal and some regions of reduction, the resulting end product was poor in quality Spain have continued their tradition of mixed waste and typically disposed of in a landfill after processing. As and/or green waste composting (table 8). Reasons for facility operators began viewing compost as a marketable this are manifold: concerns that dedicated organic waste end product, they introduced sorting technologies to collection will increase overall collection costs, a lack of remove metal and plastic contaminants; however, with few regional policy or regulatory drivers for source separation, exceptions, negative perceptions around MSW-derived a lack of restrictions on low quality compost use, a lack of products and potentially harmful pollutants prevented the market demand for high quality compost, and a fear of development of a market for compost. low participation rates from citizens. Pilot source separation programs began in Germany Policy/Regulatory Framework: EU Framework: The and Switzerland in 1983 and in Austria in 1986. News EU follows the principles of the waste hierarchy, which of successful separate household biodegradable waste emphasizes a reduce-reuse-recycle approach to waste 10. Case Study: A Longstanding Tradition of Organics Recycling in Europe 81 Table 8. Status of Source Separation, Green/Biodegradable Waste Composting, MSW/MBT Composting and Anaerobic Digestion across EU Countries MSW Composting Anaerobic Digestion (MSW-C) and MBT Green Waste of household composting (MBT-C) Composting (GWC) and commercial with use regulations and / or Biowaste biodegradable/ food for compost-like- Country Source Separation Composting (BWC) waste output ✓ MBT-C Austria ✓ GWC/BWC (ca. 10 %) landfill + biofilter Belgium (Flanders) ✓ GWC/BWC ✓ Ø Denmark ✓ GWC AD (marginal) Ø Finland ✓ GWC Ø Ø Ø households: Ø MSW-C France GWC only few projects commercial: ✓ agriculture MBT-C Germany ✓ GWC/BWC ✓ (ca. 15 %) landfill ✓ MBT-C Hungary GWC/BWC Ø partly landfill + restricted use MSW-C Greece Ø GWC Ø agriculture ✓ green waste & ✓ Ireland GWC/BWC Ø commercial biowaste (? %) waste only ✓ ✓ MBT-C Italy GWC/BWC depending on province (ca. 5 %) landfill + restricted use ✓ Luxemburg ✓ GWC/BWC Ø (? %) ✓ MBT-C Netherlands ✓ GWC/BWC (ca. 5 %) restricted use (marginal) ✓ Norway ✓ GWC/BWC Ø (ca. 25 %) MSW-C Portugal Ø GWC Ø agriculture in minority of autonomous states; ✓ MSW-C and MBT Spain GWC/BWC obligation only in (ca. 50 %) agriculture Catalonia ✓ Sweden ✓ GWC Ø (ca. 95 %) ✓ Switzerland ✓ GWC/BWC Ø (? %) ✓ MBT-C UK ✓ GWC/BWC (? %) landfill + restricted use Ø Not implemented or applied. (a) Estimated digested percentage in relation to biodegradable waste composting. Where data was available, estimated portion of source separated domestic and commercial biowaste. (b) MSW-C: traditional mixed waste composting produces a compost product for use on farmlands. MBT composting refers to stabilization and volume reduction of the organic fraction in MSW prior to landfilling. 82 Sustainable Financing and Policy Models for Municipal Composting management. The EU Commission has established a the European Compost Network established a Europe-wide number of binding directives that establish recycling and QAS (ECN-QAS) to harmonize existing standards and landfill diversion targets for Member States including the support national governments in the development of their Waste Framework Directive 2008/98/EC (WFD), the own systems. Under the ECN-QAS, NQASs first achieve Industrial Emissions Directive 2010/75/EU (IED), the certification. Composting and AD facilities, monitored by Animal By-Products Regulation No 1069/2009, and the NQASs can apply for a quality label from the ECN-QAS Landfill Directive 1999/31/EC (LD). Member State and in addition to receiving a product quality label for their local-level governments determine the desired strategies by end products. Today, four NQAS’ and four composting which to comply with the directives and adopt supporting facilities have been certified by the European Compost policies and enforcement mechanisms to facilitate their Network (European Compost Network). chosen strategies. National Framework: In Europe, Member States adopt The WFD was first established in 1975, amended in 1991, guidelines, standards, and regulations at the national level and again in 2008. It provided the legislative framework while waste management is carried out at the local level. for waste collection, transport, recovery, and disposal, Regulations are commonly a part of national solid waste and set a household recycling target of 50% by 2020 laws; however, some member state consider biodegradable (excluding Turkey and Switzerland) and required Member waste an organic fertilizer product and regulate it under States to have devised waste reduction programs by 2013. fertilizer legislation. Types of organic waste legislation typically include: The LD obligated Member States to reduce the amount of biodegradable municipal waste sent to landfill to 75% 1) General obligations or binding targets for separate of 1995 levels by 16 July 2006, 50% by 16 July 2009 collection of biodegradable waste; and 35% by 16 July 2016, with exceptions for some countries, which have until 2020 (European Commission 2) Quality criteria for compost; Website, 2016). EU legislation does not currently include 3) Technical requirements of composting plants (best biodegradable waste recycling targets. Compliance with practice techniques); the LD is evaluated through a European Commission-led review of Member State policies and practices. A failure to 4) Standard implementing structure and functions of a comply results in legal action against the Member State. national QAS for compost; The Commission first issues a written warning to the state requesting a response to its allegations. The Commission 5) Standards/national guidelines for the proper use may then choose to issue a final warning stating a clear of compost and digestate resulting from anaerobic violation of EU law. If the Member State fails to address digestion in various application areas; the violation within a specified period, the Commission 6) Enforcement mechanisms to ensure the strategic can bring the case before the European Court, potentially goals of the WFD are met; resulting in fines (European Commission, 2007). 7) Landfill restrictions or bans for biodegradable waste; National quality assurance systems (NQAS) have been established across Europe to drive market demand for 8) Financial drivers such as a landfill tax compost and digestion products. QASs are typically comprised of quality criteria, product declaration and Member States employ a variety of obligations and targets labeling guidelines, and recommendations for proper use pertaining to source separation and biological treatment. by different sectors. Fifteen Member States either have a Obligations are mandatory in nature, while targets are QAS for compost or are in the process of preparing one; aspirational and must be supported by additional policy six Member States embedded their QAS in national measures to fulfill. Obligations and targets set by select regulations, although to a varying statutory extent. In 2008, Member States are listed in Table 9 (CEWEP, 2014). 10. Case Study: A Longstanding Tradition of Organics Recycling in Europe 83 Table 9. Obligations and Targets by Country that Drive Source Separation and Organic Waste Treatment General OBLIGATIONS for source separation and biological treatment Compulsory separate collection for garden and kitchen waste since 1995 where organic waste Austria treatment (composting or anaerobic digestion) is available. Exemption: home composting. Landfill ban on waste with a total organic carbon content over 5% in 2009. Compulsory separate collection of organic household waste for all municipalities with a population greater than 5000 mandated since 1995 and recently extended to cover all municipalities; Additional Catalonia / ES targets include treating 40% of total biodegradable waste produced by 2003 and 55% by the end of 2006. Landfill ban on untreated household waste; Landfill Tax: 31.70 – 84.89 €/t (depending on public/ Belgium/Flanders private and combustible/noncombustible waste). Compulsory schemes for separate collection and biological treatment of vegetable, fruit and garden waste. Compulsory separate collection and treatment of all garden and park waste from public greens maintained by a public entity. Obligation for all commercial entities producing organic waste to set Bulgaria up a separate collection system and organize biological treatment and recycling in an approved composting or anaerobic digestion plant. Landfill Tax: 1.53 €/t (landfills compliant with Landfill Directive), 3.06 €/t (landfills not compliant). Schemes for separate collection went into effect between 2011 to 2015; Energy recovery via biomass Germany incineration is only allowed for materials with an energy value of more than 11,000 kJ per MT. Landfill ban for untreated MSW since 1.6.2005. Compulsory source separation and biological treatment for commercial food waste since 2010. Small Ireland businesses that produce less than 50 kg of food waste per week were exempted from complying for one year. Landfill Tax: 75€/t. Separate collection of garden and park waste is compulsory in four regions (Lombardia, Piemonte, Italy Veneto, Sicily). Landfill Tax: 1–10€/t inert waste, 5–10 €/t other waste 10–25 €/t MSW, depending on Region. Compulsory schemes for separate collection and treatment of vegetable, fruit and garden waste, and The Netherlands pure garden and park waste. Landfill Tax: 17 €/t. Separate collection of garden and park waste since 2006, source separated collection of organic Slovakia household waste since 2010. Compulsory separate collection for garden and kitchen waste since 1990. Exemption: home Switzerland composting. Landfill Tax: 2.3 €/t in inert landfills, 13 €/t for stabilized waste. Specific TARGETS for source separation and organic waste treatment Phased targets for introducing separate collection and biological treatment of biodegradable waste. Bulgaria The targets are defined as a percentage of the biodegradable waste generated in 2014: 25% treated (in preparation) by 2016; 50% treated by 2020 and 70% treated by 2025. Organics recycling targets to be fulfilled by each Province are set at: Italy 15% by March 1999, 25% by March 2001, 35% by March 2003. Fines are charged to those provinces where organics recycling targets have not been met. England: Combined recycling and composting target of household waste: 40% by 2010, 45% by 2015 and 50% by 2020. Wales: Combined recycling and composting target for all sectors including businesses, households and the public sector: 70% by 2025. United Kingdom Scotland: Combined recycling and composting target: 40% by 2010, 50% by 2013, 60% by 2020 and 70% by 2025. Northern Ireland: Combined recycling and composting target: 35% by 2010, 40% by 2015 and 45% by 2020. 84 Sustainable Financing and Policy Models for Municipal Composting Biodegradable Waste Recycling Costs: Due to qualifying criteria. The European Investment Bank also environmental taxes, composting is nearly always cheaper offers loans with attractive financial conditions and than incineration, MBT, and landfilling. Tipping fees, recently launched new financing products dedicated to otherwise known as gate fees, reflect the price paid by small-scale investments in organics recycling, including a local authority to process one tonne of waste. While composting and biogas plants, in order to support local tipping fees are a common point of comparison across resource efficiency. technologies and facilities, they are not always an accurate representation of cost. Composting facility tipping fees in National governments also provide funding opportunities central and western European countries range from €35/ for waste management although national financing tools MT to €70/MT for biodegradable waste, depending on vary by member states. Funds obtained through landfill taxes the technology in place. When AD is integrated as a first are commonly used to support other waste infrastructure step in the process, facility tipping fees range from €70 projects, such as source separate collection programs and to €120/MT. In comparison, incineration facility tipping recycling facilities. Local governments adopt different fees in Europe are above €100/MT, frequently exceeding household fee structures to support the development of €150/MT in Austria, Switzerland, Germany, and Italy.xv their biodegradable waste recycling sectors. The most In some Member States, landfill taxes are assessed on top frequent model, which has been adopted in Austria and of tipping fees and range from €10 to €85/MT. In some Germany, charges a household collection fee for the use of cases, the tax effectively doubles the landfill tipping fee, the Bio-Bin. Fees vary depending on volume and collection making the cost of landfilling comparable to incineration. frequency and range from €25-120 per household per year. Households who want to home compost their Organics processing costs are highly impacted by the biodegradable waste must apply for an exemption to the type of collection system and processing technology in collection program. Programs that charge based on residual place, as well as the size of the composting facility. A waste volume collected, known as pay-as-you-throw, are 2002 survey revealed net processing costs for in-vessel also common across member states. systems on the order of 20,000 MTPY of Euro 40-60 per tonne (Eunomia Research and Consulting Ltd., 2002). Moving Forward: It is likely that the biodegradable While the assumption that source separated collection waste recycling sector will continue to grow in Europe programs lead to overall increases in biodegradable waste as we approach the upcoming 2016 and 2020 deadlines recycling costs, several examples in Austria show that set in the LD. The countries that have progressed the source separated collection can decrease overall MSW furthest towards meeting or exceeding the requirements processing costs when residual MSW disposal volumes of the LD are Austria, Germany, Belgium, Denmark, the are reduced. Three programs across Austria revealed cost Netherlands, Sweden, and Switzerland. It is not surprising savings ranging from €20-€45/household per year due that these are also the countries that have mandated to decreased frequency of residual waste collection and national source separation programs, landfill taxes reduced landfilling costs, which are higher on a per tonne (excluding Germany) and bans, and ambitious recycling basis than composting in Europe.xvi goals (Eunomia Research and Consulting Ltd., 2014). These countries are expected to maximize biodegradable Financial Mechanisms: Public financing options are also waste recycling rates while also adopting more stringent a key aspect of Europe’s biodegradable waste recycling waste minimization measures. sector. The EU offers several grant instruments that Member States can access including the Environment While significant gains have been made by many, it is and Climate Action Fund, the Cohesion Fund of the predicted that 15 Member States will exceed the amount Economic Social and Territorial Cohesion Program, and of biodegradable waste they are allowed to landfill in the the European Agricultural Fund for Rural Development. target year, with Slovakia, Romania, Latvia, and Cyprus The three funds collectively have ~€174 million for likely to miss the target by a significant margin (Eunomia allocation between 2014 and 2020, each with different Research and Consulting Ltd., 2014). Common across 10. Case Study: A Longstanding Tradition of Organics Recycling in Europe 85 all lagging countries is that solid waste management ●● 65% recycling of municipal waste by 2030 infrastructure was not nearly as advanced when joining ●● 10% landfill rate for municipal waste by 2030 the EU. A strong pre-existing dependency on landfill disposal, coupled with a lack of biological waste processing ●● Landfill ban on separately collected waste infrastructure, have made it difficult for these Member ●● Revised regulation on fertilizers States to catch up. Mixed MSW collection services covered 63% of the population in Romania in 2013 and 80% in The European Commission has proposed a roadmap Latvia, with little to no emphasis on source separated to revise the current fertilizer regulation with emphasis collection. In many countries, priorities have focused on on boosting recycling of organic matter and increasing increasing basic services, including closing uncontrolled market access through cross-border trade. The Circular dumps and bringing landfills into compliance, rather than Economy Package will be supported by funding from on devoting resource to composting and AD programs. the European Structural and Investment Funds (EU main policy investment facility), 650 million euros To help close this gap and to promote a more sustainable, from Horizon 2020 (EU funding program for research resource-efficient economy, the European Union and innovation), and 5.5 billion euros from structural proposed a Circular Economy Package in December funds for waste management. There will also be circular 2015, a legislative proposal outlining quantitative targets economy investment at the national level to enable local to “close-the-loop” on product lifecycles. Targets outlined success. around waste management include: Peat mining. Photo credit: Thinkstock.com Appendix 1: Comparison of Different Scales of Composting 87 Appendix 1: Comparison of Different Scales of Composting Financing Model Objectives Planning Requirements Quality Assurance Opportunities Home ●● Promotes municipal ●● Does not require ●● Does not have to meet ●● Governments may Composting waste minimization specific equipment commercial compost offer subsidy programs goals ●● May not be suitable in requirements to incentivize the ●● Generates compost for warm, humid climates ●● Consumer confidence purchase of compost home use ●● May attract vectors is not required equipment, or offer ●● Reduces waste ●● Difficult to process given that product is other economic management costs to feedstocks like meat produced and used incentivizes to drive municipality ●● Requires space for on-site waste minimization materials processing (i.e., variable rate and curing pricing) Internalized ●● Generates compost for ●● Feedstock is available ●● Does not necessarily ●● Typically self-funded Composting on-site use on-site have to meet ●● Running costs (On-farm, ●● Reduces waste ●● External feedstock may commercial compost internalized with the Other Large management costs be required to meet a requirements operator Generator) to municipality (only suitable compost mix ●● Consumer confidence ●● Labor and own when waste was (C:N) is not required given equipment that can be previously managed that the compost is used for other purposes by the authority) processed and used ●● Offset waste on-site (familiarity with management costs product) ●● Compost purchases Community ●● Addresses waste ●● Requires a dedicated ●● No need for a national ●● Limited. Running Composting collection challenges community or NGO policy framework costs usually covered in a specific ●● Feedstock is readily however, facilities may by grant to facility neighborhood ( available within close be subject to local operator i.e., a slum) proximity operating and product ●● Reduces municipal ●● Quality can be difficult standards waste collection and to ensure ●● Driven by the local treatment costs community and potentially those directly involved in compost production Municipal ●● Manages MSW in ●● Capital cost intensive ●● Requires ●● Financial incentives Composting an environmentally ●● Feedstock comprehensive policy necessary due to sustainable manner transportation framework high capital cost. ●● Reduces waste volume costs and product ●● Driven by regional Combination of and results in landfill distribution costs may buyers. Influenced grants, loans, and diversion be prohibitive by product quality, equity. Running costs ●● Mitigates GHG ●● Requires consistent outreach and covered by avoided emissions supply of feedstock education and ability costs, waste fees, to comply with product sales, product standards, and QASs subsidies, and/or ●● Product quality and tipping fees consumer confidence may be low due to the use of MSW derived feedstocks, if no source separation in place 88 Sustainable Financing and Policy Models for Municipal Composting Financing Model Objectives Planning Requirements Quality Assurance Opportunities For profit ●● Creates valuable end ●● Capital cost intensive ●● Requires ●● Financial incentives composting products that can ●● Requires long-term comprehensive policy help, but profitable sustain profitability feedstock supply and framework businesses may ●● Likely to improve soil offtake agreements ●● Driven by regional also bear all capital health and productivity buyers. Influenced and operating by product quality, costs, depending outreach and on the market price education, and of compost and ability to comply with additional revenue standards and QASs. streams ●● Confidence may be higher given the selectivity of inputs and emphasis on high quality end products Appendix 2: Examples of Compost Project Finance Structures Country & Facilities and Capital Operations and Other Key Financial Income Level Activity Name Ownership Expenditure Financing Maintenance Financing Characteristics Ghana ●● Jekora Ventures ●● PPP (Owned by the ●● Constructed with grant ●● Avoided landfill ●● JVL provided MSW (Low) Limited (JVL) Pilot Community of James money from CHF transportation cost of collection services to Composting Plant Town and operated by International $19-28/MT the community and JVL) ●● Compost sales (70% sold, therefore was able to offer 30% given free of charge commercial generators a to NGOs, schools and 20% discount on waste fees farmers for field trials) for source separating which increased the value of their compost and reduced on- site pre-processing costs Pakistan ●● Lahore Compost ●● PPP (City of Lahore and ●● $3.1 million financed ●● Unknown ●● Carbon credits were (Lower-middle) Ltd. (Subsidiary of Lahore Compost Ltd) – by combination of long- expected to cover Saif Group) Build-Operate-Transfer term debt from parent operating expenses and (BOT) with 25-year company ($2.87 million) compost sales were concession and equity ($2.6 million) expected to cover debt ●● Land provided by city service Bangladesh ●● WWR BioFertilizer ●● Private (Joint Venture ●● Equity investment by ●● Sale of carbon emission ●● First composting project (Lower-middle) Limited between Waste Concern World Wide Recycling reduction credits through registered through the and World Wide BV, Entrepreneurial 2012 (45% of total Clean Development Recycling) Development Bank of the revenues) Mechanism Netherlands, and High ●● Sale of compost through ●● No tipping fees received Tide Investment. fertilizer distributor although Waste Concern ●● Soft loan from High Tide is currently negotiating the Investment free delivery market waste ●● Conventional loan from to compensate for the loss Dutch Bangla Bank in carbon revenues of Bangladesh with commercial interest ●● Grant from Dutch Ministry of Economic Affairs Development Finance Company of €500,000 ●● Total costs ~$3.5 million Appendix 2: Examples of Compost Project Finance Structures 89 Country & Facilities and Capital Operations and Other Key Financial Income Level Activity Name Ownership Expenditure Financing Maintenance Financing Characteristics Indonesia ●● Temesi Recycling ●● PPP (between village ●● Initial investment by ●● Sale of compost (below ●● Significant expenditures (Lower-middle) foundation and the Rotary Club of Bali 100% due to 90% in the Clean Designated Regency of Gianyar Ubud and Bali Fokus subsidy on chemical Mechanism’s registration (administrative Foundation (NGO) fertilizers) and validation process, subdivision)) ●● $1.5 million in carbon totaling $70,000 credits through clean ●● Initial cash flow development mechanism challenges—carbon credit (theoretical) revenues are initially low ●● Land provided by ●● International organizations government (closed (Department for Water and landfill) Sanitation in Developing Countries (SANDEC) and Swiss Federal Institute of Technology) provide technical assistance ●● Local administration, Regency of Gianyar, provides free health care to employees Sri Lanka ●● Balangoda ●● Public ●● National grant program ●● Sale of compost and ●● Composting facility is co- 90 Sustainable Financing and Policy Models for Municipal Composting (Lower-middle) Urban Council (Pilisaru Project) provided recyclables located with an excreta Composting Plant capital for initial ●● Tipping fees received processing unit which construction and facility from neighboring supplies inputs (water and upgrades municipal authorities for nutrients) to the composting composting waste process, reducing costs and increasing the value of end products Brazil ●● EcoCitrus ●● Private Farm Cooperative ●● Composting capital ●● Gate fees from non- ●● Clean agricultural feedstock (Upper-middle) expenditures unknown, member feedstock directly sourced from citrus associated biogas facility providers farm waste funded by regional ●● Sale of compost development bank Country & Facilities and Capital Operations and Other Key Financial Income Level Activity Name Ownership Expenditure Financing Maintenance Financing Characteristics Austria ●● Decentralized ●● Cooperative Financing ●● Farmer finances 25-50% ●● Gate fees ranging from ●● Either the farmer is (High) Composting in Model of capital expenditures €45 to €60/MT of contracted to process Partnership with ●● Remainder capital biowaste and €15 to source separated municipal Local Agricultural expenditures paid for €45/MT for garden/park biowaste and collection Sector through municipal, waste services are provided by regional, and provincial ●● Avoided costs from the municipality or an government subsidies synthetic fertilizer independent waste hauler ●● Regional and provincial purchases (semi-urban areas) OR the governments provide ●● In some cases, compost farmer is contracted to consulting services and sales for a small portion both collect and process project support of end product municipal biowaste (rural areas) ●● In some instances, farmers use majority (70-90%) of compost on-site and can sell the rest, in others the municipality retains ownership of a portion of the compost for public use United States ●● Zero Waste Energy ●● Private corporation ●● Privately funded $11.8 ●● Sale of biogas and ●● Facility was sited on an (High) Development million on facilities, power unclosed landfill. $11.8 Company LLC equipment, and landfill ●● High quality compost million financed landfill closure sales closure and infrastructure ●● Bond issuance (amount development, which served unknown) as lease prepayment ●● $203 million in tax-free ●● Tax-free bonds issued bonds through California’s Pollution Control Tax- Exempt Bond Financing Program Appendix 2: Examples of Compost Project Finance Structures 91 92 Sustainable Financing and Policy Models for Municipal Composting Appendix 3: Summary of Common Compost Project Finance Instruments Financing Structure Lending Institution Lender Requirements Additional Details Equity Banks, private ●● Share of profits proportional to ●● VC funds may require majority individual investors, ownership in entity (performance- ownership and major involvement venture capital, NGOs, based), though principle does not need in operations for-profit companies, to be repaid ●● Decision-making authority and business partners ●● Clear revenue potential (market decreases as external ownership of analysis, carbon credit value, feedstock the company increases supply, offtake agreement, diversified revenues), such as through a business plan Debt Banks, credit unions, ●● Typically require 20-30% owner equity ●● Lender may require borrower to Financing savings institutions (cash, stocks, bonds, inventory, land/ demonstrate cash flow to debt ratio equipment, angel investor or venture of 1.5 times the value of the loan capital fund (if project is high capital)) ●● Personal guarantees of debt repayment by business officers and owners (e.g., pledged assets) ●● References, credit rating, detailed pro-forma and business plan, financial statements ●● Signed feedstock and offtake agreements (letters of intent or contracts) diversified across multiple customers International International ●● Promotion of economic development ●● International grants should only Aid and multilateral and welfare be used to support capital costs; development banks, ●● May require co-investment by recipient operational and maintenance costs national development government require a clear path to sustainably agencies, NGOs, ●● Alignment of objectives with recipient other humanitarian policy environment organizations ●● Clear metrics for success ●● Political stability Government Tax credits (equipment ●● Mission alignment to national policy ●● Grants typically cover capital costs Financing tax credit or objectives and are not used to cover annual property tax credit), ●● Proof of long-term financial O&M grants, direct loans sustainability through business plan and ●● Government guaranteed loans can through a third contracts be more expensive than traditional party intermediary, ●● Social and environmental benefits, financing and be more onerous to repayment guarantees including jobs, carbon reductions, cost obtain and manage on bank loads, issuing mitigation bonds (for public sector projects) Own Source N/A ●● N/A ●● Enabling factors include: Revenue supportive market for tipping fees, strong demand for compost at a reasonable price, ability to sell other outputs (recyclables, biogas, training, etc.) Appendix 4: Comparison of Different Scales of Composting 93 Appendix 4: Contract provisions for private and community operators Public-private partnerships are a common and effective ●● Are there economic, agricultural, or other seasonal way to operate a sustainable composting plant. Contracts fluctuations that may impact timing? outlining this collaboration structure are a key determinant ●● Does a market analysis demonstrate a potential for to the success of the partnership. At a high level, contracts profitability for the private entity (this may be provided should clearly outline the responsibilities of the government by the bidder)? entity versus the responsibilities of the contracted party, ●● What design aesthetic preferences does the municipality the construction and/or operations process to be followed, envision for the facility? quality standards, and the timeline. In addition, ownership and payout provisions, such as payment type (upfront ●● Are multiple waste management or resource recovery versus results based) and rights to final assets should be activities occurring concurrently (for example, clearly delineated. A well-constructed contract will naturally composting with anaerobic digestion) and if so, can incentivize a contracted operator to deliver quality outputs. economies of scale be achieved? Will the municipality be taking an integrated waste management approach, Below is an overview of considerations that should be and if so, must mixed waste be considered along with taken when choosing to engage the private sector as well landfilling and recycling? as common provisions that are included in an operator contract. These are mainly presented in the form of Scope of service: guiding questions. This overview is not intended to be Before engaging the private sector, the government must comprehensive, nor does it suggest optimal contract identify the scope of responsibility the private sector will structures. The final contract should be developed based take. The private sector may take responsibility for the on the unique needs of the project and the parties involved, end to end process of designing and operating a facility, under the counsel of professional legal advice, and include be solely involved in the design or build, or conduct other appropriate provisions to cover legal risks as per laws in discrete activities. Contracting a private entity for a larger the relevant country. scope of responsibilities relinquishes control. However, greater efficiency and economies of scale can be achieved. For example, operations may begin in part before the A4.1 Procurement and Design facility is completed. Criteria and needs: ●● Permitting: The scope at which the private sector will be engaged will ●● Will the private sector be responsible for permitting, depend on the goals and limitations of the local context will the municipality be responsible, or a combination and the project plan. of the two? ●● Design – Build: ●● Will the facility operate at a regional or a local scale? ●● Will the private sector be solely responsible for the ●● Is there sufficient availability of public land for the design and build of the facility? facility, or will private land be needed? ●● Is the municipality prepared to operate the facility ●● What assets are needed from the contracted party? and market the product? These may include land, equipment, and skills, such ●● Will operation and marketing be conducted by a as marketing. second entity? 94 Sustainable Financing and Policy Models for Municipal Composting ●● Design-Build-Operate: ●● Are renewal options in place? ●● Will the private sector be responsible for both the ●● What are backup disposal sites and how will waste be design and build of the facility as well as daily oper- disposed of if there are delays in the construction or ations and marketing of the product? operation of the facility? ●● Does the private operator have a pre-existing market ●● Are the capital costs of improvement over time, or of presence that can be leveraged? repairs and maintenance, considered? ●● Other roles: ●● What are the expected channels of feedstock and are ●● What other roles will be contracted to one or more there any risks around quality or availability of this entities? Collection? Sorting? Transportation? Sales feedstock? and marketing? ●● What criteria should be in place in performance guarantees during facility development and Firm evaluation: construction? These include schedule, cost, design The criteria for evaluating bids should go beyond price. standards, throughput, environment, product quality, This enables the government to select an appropriate firm quantity of residuals, disposal practice, and product other than the lowest bid. price ●● What is the anticipated project schedule and is it realistic? A4.2 Operations ●● What staff or company qualifications are needed based on the requirements of the project? Feedstock ●● Does the bidding entity have a track record of success? A component of a contract should discuss the ●● Is the proposed approach viable based on technology responsibilities around sourcing and processing feedstock, availability, climate, waste composition, staffing, and the type of feedstock accepted, and any fees involved. other proposed factors? Properly assessing responsibilities around feedstock are critical to the project’s success. ●● Are the appropriate environmental considerations in place? ●● Sourcing ●● Does the proposed approach align with the government’s ●● Who will collect and weigh the waste? Will the goals and business guidelines? waste be collected, aggregated and delivered by the ●● Does a detailed financial analysis exist? Are the municipality, or will it be sourced on-site or in the projected costs and revenues accurate and feasible? community by the contracted party? Is a community ●● Do the proposed sales channels coincide with drop-off model relevant? preferences for compost end-use? ●● What changes are needed in waste collection from the status quo? Risks: ●● Who is responsible for the quality of the incoming feedstock? Before engaging a contractor, it is essential to be aware of the risks and limitations of the anticipated project. ●● Materials ●● What feedstock materials can be used in the com- ●● What environmental controls are needed? For example, posting operation—agricultural waste, market those surrounding location, noise, odor, air, and water waste, park and yard waste, source or processed mu- and storm water channels. nicipal solid waste? ●● Do the design parameters allow for the option to ●● In what proportions can these waste streams be used? expand, account for non-organic waste disposal, and ●● Will any pre-mixing or treatment occur at a central include buffer zones? locality before waste streams are delivered to the Appendix 4: Contract provisions for private and community operators 95 composting facility? If not, how is the composting ●● Who is responsible for providing equipment (and facility to manage this waste? back-up equipment) along the production chain ●● What are upfront quality requirements of the feed- (e.g., trucks will be supplied by the municipal waste stock input, and are there moisture, composition association, but windrow turners, tractors by com- (e.g., wood, animal by-products), or contamination posting cooperative or farmer)? guidelines? ●● What other assets and equipment will be used, and ●● Is the technology proposed consistent with the an- who will provide them (scales, trailers, appliances, ticipated feedstock characteristics (e.g., moisture, tools, labor, fuel, and storage)? nutritional content)? Will additional processing or ●● What technology that should be used, for example, additives be required? open windrow composting vs. in-vessel technology (cost of equipment, maintenance, and complexi- ●● Fees ty should be considered here—typically simpler is ●● If the composter will be accepting feedstock from more sustainable)? the municipality or communities, are there gate fees ●● Is a clean and secure storage area available for excess to be paid by the municipality to the contracted par- feedstock and compost? ty and what price will be paid per ton? Will there be ●● Final processing steps a fixed amount? ●● Who will weigh outputs? Who will dispose of reject materials and where will Production ●● it go? ●● Amount Sales and End Use ●● How much of each type of compost should be pro- duced each year (as a total amount or fraction of ●● Quality assurance and final product testing inputs)? ●● Who is responsible for output quality? ●● How often will progress be measured? ●● What are requirements around final screening and ●● Incoming materials trash removal? What is the required screen / maxi- mum particle size? ●● What are the guidelines for receiving incoming or- ●● What are requirements around percent organic mat- ganic materials, unloading, sorting, debagging and ter, percent moisture, maturity, and weed content? grinding, screening, and removal of excess waste ●● What does a clean, market-ready compost product materials? look like in appearance? ●● Which roles should the owner be responsible for vs. ●● Who will submit a sample of the compost for test- the operator? ing? ●● What is the maximum hold period for feedstock de- ●● Who pays for testing? livered, that is, should feedstock be processed within ●● What certified facility should conduct the testing? a certain time period of receipt? ●● What national or local certification, seals, or labels ●● Process and hygiene must be issued? ●● What are the timing requirements around product ●● What are the requirements on incubation vs. turn- testing? ing (and other technical standards)? ●● How often will product testing occur? ●● What is the frequency of temperature monitoring ●● What happens to compost that does not pass stan- and maximum temperatures that can be reached in dards (e.g., supplement with nutritional add-ins, use the piles? as filler, discard)? ●● What additional steps should be taken to maintain ●● What are the nutritional standards of the end prod- compost hygiene and safety, such as material mix- uct? ture, odor control, and pile fire avoidance? ●● What percent dry matter is required per unit of ●● Equipment compost? 96 Sustainable Financing and Policy Models for Municipal Composting ●● Ownership of the end product ●● Performance and deliverables ●● If a private company is exclusively sourcing, operat- ●● How quickly should incoming feedstock be pro- ing, and producing the compost, do they have full cessed? rights to the end compost project? ●● What is the maximum end-to-end processing time ●● If the compost operation distributed between the for compost? municipality and the composter, what is the split ●● What are details around the payment structure, in- ownership structure (e.g., 40% at the discretion of cluding terms, amount, frequency, invoicing, and municipality, 60% for farmers own use and sale)? renewal process? ●● Marketing ●● What process should be followed if results are not up to quality and quantity standards? ●● Any guidelines on marketing, such as co-sale with chemical fertilizers, packaging requirements and ●● Labor quality assurance labels? ●● What are rules around hiring and firing of personnel ●● Are there any use cases that the compost will not taking into consideration cyclicality and labor needs? quality for? ●● How will employees be paid, and what is the mini- ●● Sales mum wage? ●● Who is responsible for processing payroll? ●● What sales channels / customers are permitted ●● What are legal requirements around labor that must (e.g., sale on site vs. through secondary retailers and be adhered to? wholesalers)? ●● Who will perform loading operations for customers ●● Record keeping and who will transport to end points of sale? ●● Who will keep records of materials amounts, sales ●● Who owns the revenue and under what conditions quantities and revenues, and operational records? (e.g., by site of sale, method of sale, channel of sale)? ●● How this information will be shared between the ●● Waiting period for grazing / harvesting contractor and the municipality ●● Is there a grazing hold period necessary for compost ●● Permits, insurance, safety, and other spread on lands, and for what input materials does ●● What permits must be acquired to process waste and this apply to (e.g., EU Agricultural Byproduct regu- compost in the local area based on national stan- lation requires a 21 day holding period for compost dards (e.g., Bulgaria requires a RIEW waste permit made from animal byproducts)? for recycling and recovery facilities)? ●● What environmental regulations pertain to the com- Legal, Administrative, and Other posting plant’s build and operation, such as dust Considerations control, water runoffs, erosion, and other regula- ●● Basic Provisions tions such as fire codes and labor laws? ●● Are all parties and entities, including the municipal- ●● Should insurance be purchased of any kind? ity, officials, and contractor, as well as the terminol- ●● How should safety be ensured in terms of signage, ogy used clearly defined? procedures, equipment standards and inspections? ●● Are basic “housekeeping” items included? Such as the contract period and terms of renegotiation and ●● What are the anticipated utilities requirements, and renewal, the contract amount and how and when who is responsible for procurement? payment will occur, a broad summary of the scope Source: City of Palo Alto, 2012; Amlinger, 2012; Prince of services William County, 2005 Appendix 5: Relative Disposal Costs by Solid Waste Activity 97 Appendix 5: Relative Disposal Costs by Solid Waste Activity Solid waste activity Low-income Lower-middle Upper-middle High-income (Cost in USD/ton) countries income countries income countries countries Collection 20-50 30-75 40-90 85-250 Open dumping 2-8 3-10 NA NA Composting 5-30 10-40 20-75 35-90 Sanitary landfill 10-30 15-40 25-65 40-100 Anaerobic digestion NA 20-80 50-100 65-150 Waste-to-energy incineration NA 40-100 60-150 70-200 Source: Hoornweg and Bhada-Tata, 2012 Notes on methodology: ●● All values provided in the table are exclusive of any potential carbon finance, subsidies, or external incentives. Costs included are for purchase (including land), operation, maintenance, and debt service. ●● Collection includes pick up, transfer, and transport to final disposal site for residential and non-residential waste. ●● Composting excludes sale of finished compost (which ranges from $0 to $100/ton). ●● Anaerobic digestion includes sale of energy from methane and excludes cost of residue sale and disposal. ●● Includes sale of any net energy; excludes disposal costs of bottom and fly ash (non-hazardous and hazardous). 98 Sustainable Financing and Policy Models for Municipal Composting Appendix 6: Estimated Emissions by Municipal Solid Waste Activity Emissions Disposal Practice (million tonnes CO2e) Landfill with no methane capture 5.2 Open dump (unmanaged, >5m deep) 4.6 Recycling all paper/cardboard, metal, glass, and plastic (assuming remaining waste is sent to landfill) 2.9 Composting all food waste, yard waste, and wood (assuming remaining waste is sent to landfill) 2.9 Landfill with 50% methane capture 2.6 Anaerobic digestion of all food waste, yard waste, and wood (assuming remaining waste is sent to landfill) 2.6 Open burning 1.7 Incineration (continuous with stoker) 1.5 Composting all food waste, yard waste, and wood and recycling all paper/cardboard, metal, glass, and plastic (assuming remaining waste is sent to landfill) 0.6 Waste Composition (Rio de Janiero, 2014) Percent Organic Waste 53% Food Waste 48% Yard Waste 5% Paper/Cardboard 18% Plastics 16% Glass 7% Textiles 2% Other 2% Metal 2% Rubber and Leather 1% Wood 1% Notes on methodology: ●● These emissions estimates were calculated using the tool CURB: Climate Action for Urban Sustainability developed by the World Bank in partnership with AECOM Consulting, Bloomberg Philanthropies, and the C40 Cities Climate Leadership Group ●● Emissions are primarily calculated using the Intergovernmental Panel on Climate Change methodologies ●● Emissions are calculated for a proxy city: Rio de Janiero, Brazil using waste composition and generation data collected by the World Bank in 2014. 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SLS Marks Scheme Standard Number is of professional customers expect “a uniform, high 1246:2003 quality product that is independently monitored and accompanied by product use specifications” xii Assuming 1 USD = LKR 130 iii Exchange rate 3/2016: 1 BDT = $0.013 xiii Total over 5 years = LKR 11,775,000. Exchange Rate used: LKR/USD = 144.84022 iv Reported price by Waste Concern, March 2016 was 6200 BDT/MT. Exchange rate used: 1 BDT = 0.01 xiv By design, a MBT facility separates organic from USD non-organic wastes streams. Non-organic materials are recovered for recycling, while organic materials v The program brings growers together with are further processed by composting or anaerobic manufacturing and processing companies and digestion. MBT facilities fulfill the requirements of provides help to farmers through training, business the EU Landfill Directive 1999/31/EC, stating that all management, marketing and promotional support. wastes must be treated prior to landfilling. Stabilized vi Based on a survey of 47 MSW composting facilities MBT output, also known as compost-like-output can operating in 2012 be co-incinerated in a cement plant, landfilled or used under certain restrictions, such as for landscaping but vii Bulk price, freight not included not for agriculture. viii Conversion rate: 1 m3 CH4 = 0.6802 kg xv Reported prices include environmental taxes and do ix Includes poultry litter, rock phosphate, muriate of not necessarily reflect actual treatment and disposal potash, dolomite, gypsum, neem cake, zinc sulphate costs. and borax xvi Reference communities: Rohrback, Freistadt and x Exchange rate in March 2016: 1 USD = 0.015 Rs Gaenserndorf Previous knowledge papers in this series Lessons and Experiences from Mainstreaming HIV/AIDS into Urban/ Water (AFTU1 & AFTU2) Projects Nina Schuler, Alicia Casalis, Sylvie Debomy, Christianna Johnnides, and Kate Kuper, September 2005, No. 1 Occupational and Environmental Health Issues of Solid Waste Management: Special Emphasis on Middle and Lower-Income Countries Sandra Cointreau, July 2006, No. 2 A Review of Urban Development Issues in Poverty Reduction Strategies Judy L. Baker and Iwona Reichardt, June 2007, No. 3 Urban Poverty in Ethiopia: A Multi-Faceted and Spatial Perspective Elisa Muzzini, January 2008, No. 4 Urban Poverty: A Global View Judy L. Baker, January 2008, No. 5 Preparing Surveys for Urban Upgrading Interventions: Prototype Survey Instrument and User Guide Ana Goicoechea, April 2008, No. 6 Exploring Urban Growth Management: Insights from Three Cities Mila Freire, Douglas Webster, and Christopher Rose, June 2008, No. 7 Private Sector Initiatives in Slum Upgrading Judy L. Baker and Kim McClain, May 2009, No. 8 The Urban Rehabilitation of the Medinas: The World Bank Experience in the Middle East and North Africa Anthony G. Bigio and Guido Licciardi, May 2010, No. 9 Cities and Climate Change: An Urgent Agenda Daniel Hoornweg, December 2010, No. 10 Memo to the Mayor: Improving Access to Urban Land for All Residents – Fulfilling the Promise Barbara Lipman, with Robin Rajack, June 2011, No. 11 Conserving the Past as a Foundation for the Future: China-World Bank Partnership on Cultural Heritage Conservation Katrinka Ebbe, Guido Licciardi and Axel Baeumler, September 2011, No. 12 Guidebook on Capital Investment Planning for Local Governments Olga Kaganova, October 2011, No. 13 Financing the Urban Expansion in Tanzania Zara Sarzin and Uri Raich, January 2012, No. 14 106 Sustainable Financing and Policy Models for Municipal Composting What a Waste: A Global Review of Solid Waste Management Daniel Hoornweg and Perinaz Bhada-Tata, March 2012, No. 15 Investment in Urban Heritage: Economic Impacts of Cultural Heritage Projects in FYR Macedonia and Georgia David Throsby, Macquarie University, Sydney, September 2012, No. 16 Building Sustainability in an Urbanizing World: A Partnership Report Daniel Hoornweg, Mila Freire, Julianne Baker-Gallegos and Artessa Saldivar-Sali, eds., July 2013, No. 17 Urban Agriculture: Findings from Four City Case Studies July 2013, No. 18 Climate-resilient, Climate-friendly World Heritage Cities Anthony Gad Bigio, Maria Catalina Ochoa, Rana Amirtahmasebi, June 2014, No. 19 Results-Based Financing for Municipal Solid Waste July 2014, No. 20 On the Engagement of Excluded Groups in Inclusive Cities: Highlighting Good Practices and Key Challenges in the Global South Diana Mitlin and David Satterthwaite, February 2016, No. 21 Results-Based Financing for Municipal Solid Waste Mona Serageldin, with Sheelah Gobar, Warren Hagist, and Maren Larsen, February 2016, No. 22 Financing Landfill Gas Projects in Developing Countries Claire Markgraf, September 2016, No. 23 KNOWLEDGE PAPERS For more information about the Urban Development Series, contact: Global Programs Unit Social, Urban, Rural & Resilience Global Practice World Bank 1818 H Street, NW Washington, DC 20433 USA Email: gpsurrkl@worldbank.org Website: http://www.worldbank.org/urban September 2016, No. 24