Food waste collection CBA following CE review final 20112017.pdf

Cost Benefit Analysis Of an Organic Waste Collection
Service in Auckland
Preston Davies
Sapere Research Group

Mehrnaz Rohani
Auckland Council, RIMU

November 2017

Internal Report

Executive summary
This report contains an indication of the likely economic costs and benefits associated with
a weekly food waste collection service (the Service) for urban households in Auckland.
The service covers all food waste and on average over the 30 year study period, the
service is expected to divert almost 50,000 tonnes of food waste per year from landfills.
The kerbside food waste collection service was proposed under the Waste Management
and Minimisation Plan (WMMP) (2012) to divert food waste from landfill to reduce the
harm from waste.
The service is due to commence in March 2018, with further roll-out planned in the 2018-
2020 period. It is designed with the target of reducing household refuse per person from
160 to 110 kilograms and the overarching goal of zero waste to landfill by 2040.  In
addition, the service could assist in the achievement of Auckland Council commitments
under the Low Carbon Action Plan to reduce carbon emissions associated with waste.
A range of potential benefits is possible as a result of the service, including avoided costs
associated with landfill operation and commissioning, greater soil yields from composting,
better local air quality and less groundwater contamination. Given the scope and relevant
time period for this initial analysis, we focussed on two benefits that were most likely to be
material and that had a relatively high likelihood of occurring. These benefits relate to a
gain in consumer welfare and the avoided social costs associated with a reduction in
greenhouse gas emissions as a result of the service.
The cost categories used in the analysis relate to material collection, transport and
processing, administrative and rollout costs, and the economic costs of public expenditure
on the service. Both the costs and benefits used in this study were informed by studies
and insights from within New Zealand and overseas.
We compared the economic effects of the service against the status quo of no service,
using a 30 year assessment period and a discount rate of four per cent. We estimate that
society would be better off by between $64 million and $402 million on a present value
basis as a result of the service. Benefits exceed costs by between 19 per cent and 109 per
cent.
This range of figures represents “upper bound” and “lower bound” estimates, based on key
assumptions and parameters including household use of the service, the willingness of
households to pay for the service and the social cost of greenhouse gas emissions. There
was insufficient reliable data to calculate a robust central or medium estimate, but a simple
midpoint would suggest net benefits of $233 million would accrue (over the 30 year study
period) and benefits would outweigh costs by around 65 per cent (i.e. a benefit-cost ratio
of 1.65).
Cost benefit analysis of an organic waste collection service in Auckland
i

Results
Upper bound
Lower bound
Total benefits ($m)
$771.02
$410.17
Total costs ($m)
$369.19
$345.82
Net benefits ($m)
$401.83
$64.35
Benefit-cost ratio (BCR)
2.09
1.19

The vast majority (around 98 per cent) of estimated total benefits relate to consumer
welfare. We estimated this benefit using survey data from a previous New Zealand study
on the value households would be willing to pay for organic recycling. While not perfect,
this study represents the best available evidence relevant to the service. We also drew on
survey data following food waste trials in Auckland to calculate the proportion of
households that would be willing to pay for the service. Importantly, willingness to pay is
not strictly related to actual use of the service; people are frequently willing to pay for
things that they may never use themselves, with National Parks being a common example.
Sensitivity analysis revealed that the willingness to pay input had the greatest effect on
overall results. Adjusting a key parameter that relates changes in willingness to pay to
changes in income allows us to model different values for willingness to pay (see table
below). Assuming that household willingness to pay for the service has remained
unchanged since 2007 suggests that society would, in the worst case scenario, be made
worse off by around $52 million from the service (although a simple midpoint of the lower
and upper bounds suggests net benefits of around $73 million and benefits exceeding
costs by around 20 per cent) .
Income elasticity of
0 (2007 values)
0.5
1 (2017 values)
willingness to pay

Upper
Lower
Upper
Lower
Upper
Lower
bound
bound
bound
bound
bound
bound
Net benefits/NPV
$199.29
-$51.90
$300.56
$6.23
$401.83
$64.35
Benefit- cost ratio
1.54
0.85
1.81
1.02
2.09
1.19
Altering the discount rate used had predictable effects, given upfront capital costs and
ongoing benefits. With a discount rate of 12 per cent, the “lower bound” scenario sees
society being made slightly worse off from having the service as opposed to no food waste
collection service being in place (see table below). Altering the time period for the analysis
(i.e. truncating the analysis to 10-year and 20-year periods respectively) had similar
results. Altering the remaining parameters, predominantly around waste volumes and rates
of household service use, did not materially change the positive results achieved. This is
Cost benefit analysis of an organic waste collection service in Auckland
ii

largely due to the willingness to pay benefits category being invariant to such changes,
while costs change proportionally.
Discount
2%
4%
7%
12%
rate

Upper
Lower
Upper
Lower
Upper
Lower
Upper
Lower
bound
bound
bound
bound
bound
bound
bound
bound
Net
$563.48
$104.27
$401.83
$64.35
$252.23
$28.20
$126.52
-$0.88
benefits
($m)
Benefit-
2.16
1.23
2.09
1.19
1.97
1.12
1.77
0.99
cost ratio

While the study is indicative in nature, it supports the view that society is likely to be made
better off from a food waste collection service than the alternative of no service. As is
common in ‘exploratory’ studies of this nature, the precision with which estimates of costs
and benefits can be made could increase with further more detailed work.

Cost benefit analysis of an organic waste collection service in Auckland
iii

1.0
Introduction
A kerbside food waste collection was proposed under the Waste Management and
Minimisation Plan (WMMP), Auckland Council (2012), to divert around 40,000 tonnes
of waste from landfill, contributing to the WMMP objectives to send less waste to
landfill and reduce the harm from waste.
The service is due to commence in March 2018, with further roll-out planned in the
2018-2020 period. It is designed to divert food waste from landfill, particularly with the
target of reducing household refuse per person from 160 to 110 kilograms and the
overarching goal of zero waste to landfill by 2040.  In addition, the service could
assist in the achievement of Auckland Council commitments under the Low Carbon
Action Plan to reduce carbon emissions associated with waste.
Auckland Council (the council) is interested in better understanding the costs and
benefits of a collection service for organic/food waste in Auckland (the service).
The council’s interest is motivated by “value for money” concerns associated with
public expenditures. That is, are ratepayers/society made better off from the council
investment in such a service. The council commissioned a cost-benefit analysis
(CBA) to address this question.
As a result, this report provides an indication of the likely economic costs and
benefits associated with the service. In terms of the level of detail, this analysis falls
somewhere between a ‘preliminary’ and ‘indicative’ assessment, using the taxonomy
of analysis levels employed by PHARMAC (2004) and others.
The report is structured as follows:
•  Section 2 describes the service in more detail.
•  Section 3 outlines the nature of costs and benefits relevant to this analysis.
•  Section 4 details the estimated effects of the service and explains the basis of
those estimates, including the base case, caveats and assumptions.
•  Section 5 discusses the likely net effect of the proposal.
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2.0
The proposal
This section provides an overview of the food waste collection service, using the
most up-to-date information available.
2.1
Operational factors
The food waste collection service will operate in a similar manner as the existing
recycling and household refuse services.  The “three-bin” system will be in place by
2020, whereby households would collect food waste in a six-seven litre caddy in their
kitchen and then empty that caddy into a bespoke designed larger 23 litre bin that
would be put at their kerbside.  Collection would be on a weekly basis, using
specialist vehicles.
In addition to the specialist collection vehicles needed for collection and transport of
food waste, there are also physical capital needs in terms of processing facilities.
Historically, the lack of appropriate organic waste processing facilities has been one
of the key barriers to greater recovery of organic waste in most parts of New Zealand
(WasteNot Consulting and Eunomia, 2010). A range of generic processing methods
is possible, including in-vessel composting, windrow composting, vermicomposting,
anaerobic digestion, pyrolysis, and gasification.
The costs and other requirements associated with processing facilities are influenced
by factors such as who will be procuring the facilities, and how they will be procured
(e.g. models such as DBO: design-build-operate, BOOT: build, own, operate, transfer
at end of contract, CCO: council-controlled organisation). In addition, the
consideration of proprietary technologies is relevant.
We understand that while existing transfer stations could be used for some functions
(e.g. bulking), the remaining collection, transport and processing requirements as a
result of the food waste service would be additional to current availability.  The costs
used in this analysis reflect the limited current capacity for processing food waste (i.e.
all estimated operational costs are treated as incremental in nature).
2.2
Range of food waste included
All food waste would be included in the service.  This includes:
•  vegetable and fruit scraps;
•  meal leftovers, including meat and fish scraps, bones and shellfish cases;
•  bread, pasta and rice;
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•  paper towels and tissues;
•  dairy products and egg shells;
•  coffee grounds, tea leaves and tea bags; and
•  indoor cut flowers.
At present, food waste makes up around 45 per cent of household waste sent to
landfill.1  This material would be diverted away from landfill through the new collection
service and processed for re-use (e.g. as compost). Any fuel produced from the
process, in the form of methane, can be turned into electricity or used in vehicles.
2.3
Governance
The service would fall under the auspices of the council in the same manner as
existing kerbside recycling and refuse collections services.  As such, the council
would take a decision to tender contracts with private providers or use in-house
providers for collection services.  No direct role is envisaged for central government.
The nature and length of the contracts is not known at this time, but the working
assumption used in the analysis is that contracts would roll over on the same terms
upon expiry.  This simplifying assumption means we can apply annual contract costs
across each year in our study period (i.e. assume a single contract for the entire
study period).
2.4
Why Cost Benefit Analysis?
A cost benefit analysis (CBA) systematically compares the costs associated with
undertaking a policy option with the anticipated benefits, relative to the ‘base case.’
The ‘base case’ or status quo is the expected costs and benefits if the policy option is
not pursued. The comparative exercise determines whether the policy is expected to
deliver net benefits to society and/or which of a range of options is best (Marsden
Jacob Associates, 2014).
CBA is valued by decision-makers as it produces a clear understanding of the
economic (resource) costs and benefits of particular proposals (i.e. whether society
will be better off from the proposal). In addition, the results of CBAs are readily
comparable across a range of policy and industry areas, enabling comparison (and
prioritisation) of initiatives in a manner that is consistent and coherent.

1
http://ourauckland.aucklandcouncil.govt.nz/articles/news/2017/05/three-bin-rollout-coming-to-
papakura/
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The relevant perspective taken in a CBA is that of society as a whole, as opposed to
particular groups or individuals or entities. This means that transfers (of costs and/or
benefits) with no change to the underlying level of costs or benefits are not ‘counted’
in the analysis. What CBA does count is the extent to which society is made better off
(well-being/welfare is improved) as a result of a policy proposal or action.
A distributional analysis is often undertaken in addition to a CBA. Distributional
analysis focuses on the financial impacts across various stakeholder groups, such as
local government, producers, retailers and consumers. Such analysis considers in
more detail the transfers between parties. The clear separation of efficiency and
distributional issues is important for ensuring that stakeholder perspectives are not
confused with implications for society as a whole.
CBA is also subject to limitations. A review of cost-benefit studies in the electricity
industry by the Electric Energy Market Competition Task Force (2006) provides the
following generalisable insights:
•  Assessments often overemphasised the benefits with little discussion of the
costs of restructuring proposals.
•  Models are gross simplifications of the complexity of markets and make simple
and at times misleading assumptions about market behaviour.
•  There are often data limitations necessitating assumptions, which can drive
the results of the modelling. Sensitivity analysis of assumptions made is
important.
•  Often some of the most significant benefits are difficult to quantify (and
monetise) and are therefore omitted form the studies (and reported results).
The main take-out from the review is that the criteria for decision-making should in
most cases be broader than the quantified information available from the CBA. In
other words, CBA is a useful (and often necessary) input into decision-making, but
should not be the sole determinant.
2.5
Experience elsewhere
We have reviewed a number of studies that discuss costs and benefits of
food/organic waste collection systems. We conclude that there is a relative dearth of
economic CBA studies that can be readily drawn from. Most of the studies reviewed
do not establish key costs and benefits in an economic sense, and appear to have
“too many claims chasing too few facts.” That is, the evidential basis in support of
impacts (however defined or described) is somewhat patchy. Hence, while the
Cost benefit analysis of an organic waste collection service in Auckland
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available studies were useful for background and context, we rely on ‘related’ studies
(e.g. an economic CBA of recycling) and our own enquiries for key insights.
Cost benefit analysis of an organic waste collection service in Auckland
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link to page 12 link to page 13

3.0
Impact descriptions and basis
This section introduces the key impacts (costs and benefits) likely to result from the
introduction of a food waste collection service. The major factor driving these impacts
is behaviour change; specifically moves to separate food waste from general refuse
into kerbside collection.  A stylised depiction of such behaviour change is presented
below with reference to four archetypal households (see Figure 1).
Overall, a reduction in the volume of food waste going to landfill is posited.
Obviously, for this to occur, the number of households (and consequently the amount
of food waste produced, given their current behaviour) in categories A and D would
need to exceed those in categories B and C.  Resulting cost and benefit impacts are
described more fully further below.
Figure 1 Stylised behaviour change from the service

Source: Sapere
3.1
Taxonomy of costs and benefits
There are myriad costs and benefits that could be included in the analysis, with
differing levels of granularity. Our approach is to focus on those costs and benefits
that are most relevant (i.e. are “universal” in nature as opposed to relying on specific
design features), and where there is useful data or proxies that improve robustness.
Overview descriptions and comments on the main cost components for the proposed
food waste collection service are outlined in

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link to page 13
Table 1. Detail on the calculation basis and cost estimates is included further below,
but it is clear that costs associated with provision of infrastructure for processing and
collection of food waste material are the major cost components of the service.

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link to page 15
Table 1 Cost descriptions
Costs
Components/drivers
Comment
Collection costs
Upfront capital costs for:
Kerbside collection costs
•
Kerbside bins and
essentially bundled into single
kitchen caddies
collection rate per tonne (i.e. no
•
Trucks
separation of capital and operating
Operating costs of the collection
costs)
service
Capital costs for provision of bins

and kitchen caddies (including
renewal) identified separately
Processing
Capital (plant) and operating
Capital costs separated from fixed
costs
(inputs) costs resulting from a new  and variable operating costs
service
Uniform constant cost per tonne
Consolidation costs associated
used for consolidation costs
with aggregating material in most
efficient manner
Transport costs
Haulage costs associated with
Weighted average cost per tonne
moving tonnages of consolidated
across regional areas used
material from processing facility
Administrative
Implementation/roll-out costs,
High-level, guesstimate basis used
costs
including marketing and education
materials
Staff time involved in
administration and oversight
Deadweight
Costs associated with distortions
Nets out private costs associated
costs
due to raising of public funds used  with capital provision
for proposal
Source: Authors
The potential categories of benefit for the food waste collection service are shown in

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link to page 15
Table 2 below. This table is largely expositional, designed to outline possible
beneficial impacts. Unlike the cost categories above, not all of the benefits listed are
fully estimable, in terms of quantification and monetisation, either through lack of data
or imprecision. Nevertheless, for completeness, we include those benefit
components here and discuss them qualitatively further in the report.

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Table 2 Benefit descriptions
Benefits
Components/drivers
Comment
Avoided social
Reduced greenhouse gas
Both direct and indirect impacts
costs
emissions, including from
estimated in some categories (i.e.
transport
externalities are included to the
Reduced incidence of ground
extent possible)
water contamination
Market (paid) and non-market
Reduced costs of landfill
(volunteer) costs included
construction and management
Welfare gains
Households’ wil ingness to pay
Estimate derived from 2007 study
for food waste collection
for the Ministry for the Environment
Value of
Food waste collected and
Market conditions for compost and
materials
processed has value in use as
fertiliser need to be clearly
collected and
compost
understood to determine
processed
incremental impact from the new
service
Indirect and/or
More efficient source of energy
Energy supply not main purpose of
co-benefits
production as a result of
food waste collection
methane capture
Only efficiency gains to service
Lower collection volumes for
providers are relevant to the
general refuse
analysis.
Source: Authors
3.2
Baseline context
In any CBA a strong understanding of the ‘counterfactual’ is required. The
‘counterfactual’ is essentially what would happen in the absence of a food waste
collection service. It can be thought of as the status quo or baseline option.
Incremental effects (costs and benefits) of the proposed service are measured
against this ‘counterfactual’ situation.
At present there is no kerbside collection service specifically for domestic/household
food waste in Auckland. The vast majority of such food waste is collected as part of
the kerbside refuse collection system, for disposal at landfills in the region. However,
some food waste is composted at home by householders. While we are not able to
identify with any precision the extent of such activity, this is not a major concern
given the assumptions used in the analysis. In particular, we assume that home
composting activity continues after the introduction of the kerbside collection service,
but that there is some use of the dedicated kerbside collection service by home
composters at times (i.e. the kerbside collection system and home composting are
complements as opposed to substitutes). This is consistent with results from
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link to page 18
previous food waste collection trials for North Shore, Papakura and Manurewa in
2014.
3.2.1
Predicted food waste amounts diverted
The main source of our estimates of food waste diverted from landfill is the 2014
trials mentioned above, and subsequent research on the trial undertaken in 2016.
These sources gave rise to a range of parameters used in this analysis. In particular,
the:
a)  rate at which households use the service was originally 72 per cent, rising to
80 per cent two years later;
b)  rate at which households indicated they would use the service in future was 90
per cent;
c)  average weekly weight of food waste put out by households using the service
was 3.8 kilograms; and
d)  rate at which households set out their bin each week was 50 per cent.
The number of households (eligible properties) is the other factor in the calculation of
potential food waste amounts diverted from landfill. These numbers, which relate
specifically to urban households for our analysis, were derived using the medium
projections from the Auckland Transport Model, growth scenario I11.
Table 3 calculates the total predicted food waste that would be collected by the new
service (and hence diverted from landfill) on an annual basis. It shows that, on
average, around 49,000 tonnes of food waste would be collected on an annualised
basis, starting from almost 39,000 tonnes in 2020 and rising to almost 59,000 tonnes
in 2049.2 As there is no current food waste collection service, these figures represent
the incremental effect of the new service.

2
Note that this table presents annualised figures, assuming full operation of all collection and
processing facilities. More realistic figures are used further in the analysis to reflect timing of facilities
completion and speed of take-up assumptions.
Cost benefit analysis of an organic waste collection service in Auckland
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Table 3 Predicted food waste amounts diverted (tonnes thousand) on annualised basis 2020- 2049

2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
Total households
491,405   500,465   509,593   518,720   527,848   536,976   546,103   555,249   564,394   573,540
Households participating
393,124   400,372   407,674   414,976   422,278   429,581   436,883   444,199   451,515   458,832
Average bins set out
196,562
200,186
203,837
207,488
211,139
214,790
218,441
222,100
225,758
229,416
Tonnage collected
38,841
39,557
40,278
41,000
41,721
42,443
43,164
43,887
44,610
45,333
Source: Auckland Transport Model, Gravitas (2016) and Authors’ estimate

Cost benefit analysis of an organic waste collection service in Auckland
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Table 3 Predicted food waste amounts diverted (tonnes thousand) on annualised basis 2020- 2049 (continue)

2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
Total households
582,685   591,831   600,924   610,018   619,112   628,206   637,300   646,664   656,028   665,392
Households participating
466,148   473,464   480,740   488,015   495,290   502,565   509,840   517,331   524,823   532,314
Average bins set out
233,074  236,732  240,370  244,007  247,645  251,283  254,920  258,666  262,411  266,157
Tonnage collected
46,055
46,778
47,497
48,216
48,935
49,653
50,372
51,112
51,852
52,593

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Table 3 Predicted food waste amounts diverted (tonnes thousand) on annualised basis 2020- 2049 (continue)

2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
Total households
674,756   683,336   691,242   699,238   707,328   715,511   723,788   729,703   735,666   741,678
Households participating
539,805   546,669   552,993   559,391   565,862   572,408   579,030   583,762   588,533   593,342
Average bins set out
269,902
273,335
276,497
279,695
282,931
286,204
289,515
291,881
294,266
296,671
Tonnage collected
53,333
54,011
54,636
55,268
55,907
56,554
57,208
57,676
58,147
58,622

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4.0
Estimated effects
This section presents estimates of the costs and benefits relevant to the analysis.
When estimating these costs and benefits we acknowledge that the annualised
predicted volumes of material diverted from landfill identified above will take time to
be fully realised. For relevant costs and benefits we apply a ramped approach over
four years (following the first year in the study, which is exclusively construction-
related) to cost and benefit accrual. In particular, we assume that achievement of
predicted collection volumes (and the resulting costs and benefits associated with
such volumes) is as follows:
•  2020  30% (however, given the construction period, 15% is assumed)
•  2021  50%
•  2022  70%
•  2023  100%

4.1
Cost
This section presents the estimated costs of the proposed service. The costs in this
section are presented in non-discounted (actual) terms. All of the estimates
contained in this section are relative to a counterfactual of “no food waste kerbside
collection.” The majority of costs used in the analysis come from a costing model
developed by Auckland Council, with key inputs from private providers of key aspects
of the proposed service. As such, this report contains information that is
commercially sensitive and therefore is not to be made public.
4.1.1
Collection costs
Collection costs as we have characterised them entail two separate costs- kerbside
collection costs of private service providers and the provision of bins to households to
essentially ‘store’ collected material and transfer that material to the kerbside for
collection. A seven litre kitchen caddy as well as a larger 23 litre kerbside bin (into
which the caddy is emptied as required) will be provided to households.
The kerbside collection costs are calculated by multiplying the tonnage collected by
the cost per tonne of collection estimated by service providers in a process
undertaken by Auckland Council. A contingency of 20 per cent is added to this
estimate to reflect uncertainty.
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As mentioned earlier, the cost per tonne is effectively a ‘bundled’ rate. It does not
identify capital costs (e.g. costs of purchasing vehicles) as distinct from operating
costs such as labour, fuel and the like. Nor does the cost rate used distinguish fixed
and variable costs. Nevertheless, we are confident that the information used is the
best available at this time and that the use of such information does not materially
detract from, or call into question the robustness of the results of this analysis.
Based on the tonnages estimated in the previous section and the constant unit cost
assumed of $273.08 per tonne ($227.57 per tonne plus the contingency of 20 per
cent), total annualised kerbside collection costs for the 30-year study period were
estimated to be around $387 million (annualised kerbside collection costs start at
$10.61 million in 2020 and total $15.88 million in 2048). Additional detail, including
the actual costs per year used in the overall calculations taking into account the
assumed phase-in period are contained in further sections below.
The second element of cost relates to the kitchen caddy and disposal bin being
supplied to households by the council. The kitchen caddy is a small bin to be used
inside the home to collect food waste, before transferring the waste to a larger bin
that then gets set out on the kerbside for weekly collection. The key assumptions and
parameters used to calculate capital and distribution costs for bins and kitchen
caddies are as follows:
•  Unit price for kitchen caddies is $3.68 ($3.20 plus a contingency of 15%)
•  Unit price for kerbside collection bin is$17.25 ($15.00 plus contingency of
15%)
•  Costs to distribute bin and kitchen caddy is $5.11 per household
•  Kerbside collection bins and kitchen caddies have a useful life of 10 years
•  Kerbside collection bins and kitchen caddies require replacement for loss
and/or damage at a rate of 3 per cent per year
•  All kerbside collection bins and kitchen caddies will be replaced after 10 years3
•  Kerbside collection bins and kitchen caddies have no net residual value once
replaced4

3 We understand that the costs of tracking which bins have been replaced and their date for
replacement is prohibitive. Thus, all bins, regardless of age will be replaced at the same time.
4 Implicitly this assumes that any disposal costs for the replaced bins equals any residual value that
the bins would have at the time of replacement.
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Based on these assumptions and inputs, annualised capital and distribution costs for
kerbside collection bins and kitchen caddies are estimated to total around $62.2
million over the 30-year study period, comprising:
•  $12.8 million in 2020
•  $15.2 million in 2030
•  $17.6 million in 2040
Replacement costs of around $0.638 million on average per year in the intervening
years ($0.566 million initially, rising to $0.648 million at the end of the study period).
4.1.2
Offsetting reduction in refuse collection costs
Overseas jurisdictions where a food waste collection service is in place suggest that
cost savings may arise with respect to general kerbside refuse collection services, as
operators are collecting far less refuse in total once food waste has been diverted. To
the extent that there are cost savings to the council that are reflected in the
contracting arrangements they are able to negotiate with service providers, there is
an offsetting reduction in revenue to such providers. From an economic perspective,
that process is essentially a transfer between parties and thus is not relevant to a
CBA.
However, if the diversion of food waste material as a result of the introduction of a
food waste collection service gives rise to productivity improvements (i.e. efficiency-
based impacts), those effects are relevant and should be included in the CBA.
While we acknowledge the potential for offsetting reductions in refuse collection costs
to come about as a result of a new food waste collection service (e.g. through route
re-optimisation, and better resource utilisation and allocation as well as the potential
for less frequent collection) we do not have the necessary information at hand to
estimate the existence and magnitude of such impacts. Therefore, at this stage,
reductions in collection costs elsewhere in the economy are not included in the
analysis.
4.1.3
Processing costs
Processing costs are comprised of both capital and operating elements. Capital costs
are largely ‘one-off’ in nature and relate to the provision of buildings, plant and bins,
while operating costs are ongoing in nature. The life span of buildings is assumed to
be 30 years, meaning there is no residual value at the end of the study period. Plant
renewal (e.g. machines to move waste) is captured in the respective unit costs used
through the study period and no residual value is assumed.
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Operating costs have fixed and variable elements. The former do not change with
volumes of food waste processed and typically include salaries for permanent
employees, ground lease, repairs and maintenance, corporate
overhead/administration and the like. Variable costs do change based on the volume
of material processed and include electricity and other fuel costs, casual labour costs
and production supplies.
While economic CBA does not distinguish between capital and operating
expenditures (i.e. costs are costs if they consume resources that have a value in use
elsewhere), what is important is the timing of such costs. Capital costs to construct
buildings or buy plant and machinery are incurred prior to actual processing
operations taking place and are usually incurred in a short space of time. Operating
expenditures occur throughout the course of processing activity.
Processing costs (including consolidation) are calculated by multiplying the expected
amount of food waste collected (i.e. tonnage diverted from landfill) by the combined
fixed and variable costs of processing. Using the tonnages contained in Table 3
above and a combined processing cost of $23.55 per tonne results in a total
annualised cost across the study period of around $33.36 million, from an initial cost
in 2020 of around $0.915 million to around $1.37 million in 2048.
Upfront capital costs of $38.2 million arise in years 2019 and 2020 (i.e. before the
service is fully operational). For simplicity, we assume these costs are split evenly
across the two years.
Consolidation costs are estimated to be $10 per tonne, which results in total
annualised costs across the 20-year study period of almost $14.2 million, from an
initial annualised cost in 2020 of around $0.39 million to around $0.58 million in 2048.
4.1.4
Haulage costs
Haulage costs are estimated separately in the relevant cost modelling so we present
them separately in this report. Again, the basic calculation involves multiplying
tonnages by the cost of haulage per tonne. Doing so yields an estimate of total
annualised costs across the 30-year study period of $30.3 million, from an initial cost
in 2020 of around $0.83 million to around $1.11 million in 2048.
4.1.5
Administration costs
There are costs associated with the roll-out of the food waste collection service,
marketing and education around the service and the council staff time costs for
monitoring, enforcing and reviewing the operation of the scheme. On an annualised
basis, we estimate costs relating to roll out and marketing/education of $15.7 million
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across the 30-year study period. This cost is comprised of an initial $1million roll out
cost and almost $0.68 million marketing cost in the first year of operation, and an on-
going marketing cost of $0.5 million annually.
Staff time costs have not yet been specifically included in the analysis. Anecdotally,
these costs are thought to be in the range of $100,000 per year (half of which relates
to consent compliance and monitoring and the other half to oversight and contract
negotiation). It is thought that the rollout and marketing cost estimates (which are not
granular in nature) are sufficient to capture the possibility of such staff costs, so no
specific allowance is made at this stage.
4.1.6
Deadweight costs
Deadweight costs, otherwise known as the ‘excess burden,’ are costs associated
with the distortions that result from a tax being in place to raise necessary funding for
public projects. In the absence of a tax, consumption choices would differ from what
they would be with a tax. That is, people move away from things that are taxed and
towards things that are not. This reduces economic welfare.
For the purposes of this analysis, no distinction is made between taxes and rates.
The Treasury recommends that 20 per cent be added to project costs that are funded
by taxation and we apply this deadweight cost to all costs funded from public
sources. As the initial capital outlay of $38.2 million is to be half-funded by the private
sector, we deduct $19.1 million from project costs for which deadweight costs apply.
Annualised deadweight costs across the entire 30-year study period are estimated to
total $112.3 million, comprising:
•  $1.9 million relating to the initial capital outlay of $9.7 million in 2019
•  $7.4 million in the following year
•  $6.16 million in 2030
•  $7.11 million in 2040
•  $3.45 million on average in the intervening years ($2.8 million initially, rising to
$4.0 million at the end of the study period)
Table 4 shows the total estimated costs by category by year. The figures are
presented on an annualised basis (i.e. not taking into account the projected ramp-up
of volumes until full realisation in year four).
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Table 4 Total costs ($m) on an annualised basis 2019- 2048

2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
Capex
$19.11
$31.90
$0.57
$0.57
$0.58
$0.59
$0.59
$0.60
$0.60
$0.61
Processing cost- total

$0.91
$0.93
$0.95
$0.97
$0.98
$1.00
$1.02
$1.03
$1.05
Haulage

$0.83
$0.85
$0.86
$0.88
$0.89
$0.91
$0.92
$0.94
$0.95
Consolidation

$0.39
$0.40
$0.40
$0.41
$0.42
$0.42
$0.43
$0.44
$0.45
Collection cost

$10.61
$10.80
$11.00
$11.20
$11.39
$11.59
$11.79
$11.98
$12.18
Other costs- marketing, rollout

$1.68
$0.50
$0.50
$0.50
$0.50
$0.50
$0.50
$0.50
$0.50
Deadweight costs
$1.91
$7.35
$2.81
$2.86
$2.91
$2.95
$3.00
$3.05
$3.10
$3.15
TOTAL
$21.02
$53.67
$16.85
$17.14
$17.43
$17.72
$18.02
$18.31
$18.60
$18.89
Source: Information provided by Auckland Council’s waste solutions department and authors’ calculations

Cost benefit analysis of an organic waste collection service in Auckland
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Table 4 Total costs ($m) on an annualised basis 2019- 2048 (continue)

2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
Capex
$0.62
$15.17
$0.63
$0.63
$0.64
$0.65
$0.65
$0.66
$0.67
$0.68
Processing cost- total
$1.07
$1.08
$1.10
$1.12
$1.14
$1.15
$1.17
$1.19
$1.20
$1.22
Haulage
$0.97
$0.98
$1.00
$1.02
$1.03
$1.05
$1.06
$1.08
$1.09
$1.11
Consolidation
$0.45
$0.46
$0.47
$0.47
$0.48
$0.49
$0.50
$0.50
$0.51
$0.52
Collection cost
$12.38
$12.58
$12.77
$12.97
$13.17
$13.36
$13.56
$13.76
$13.96
$14.16
Other costs- marketing, rollout
$0.50
$0.50
$0.50
$0.50
$0.50
$0.50
$0.50
$0.50
$0.50
$0.50
Deadweight costs
$3.20
$6.16
$3.29
$3.34
$3.39
$3.44
$3.49
$3.54
$3.59
$3.64
TOTAL
$19.18
$36.94
$19.77
$20.06
$20.35
$20.64
$20.93
$21.22
$21.52
$21.82

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Table 4 Total costs ($m) on an annualised basis 2019- 2048 (continue)

2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
Capex
$0.68
$17.57
$0.68
$0.66
$0.67
$0.68
$0.69
$0.70
$0.64
$0.64
Processing cost- total
$1.24
$1.26
$1.27
$1.29
$1.30
$1.32
$1.33
$1.35
$1.36
$1.37
Haulage
$1.12
$1.14
$1.16
$1.17
$1.18
$1.20
$1.21
$1.22
$1.23
$1.24
Consolidation
$0.53
$0.53
$0.54
$0.55
$0.55
$0.56
$0.57
$0.57
$0.58
$0.58
Collection cost
$14.36
$14.56
$14.75
$14.92
$15.09
$15.27
$15.44
$15.62
$15.75
$15.88
Other costs- marketing, rollout
$0.50
$0.50
$0.50
$0.50
$0.50
$0.50
$0.50
$0.50
$0.50
$0.50
Deadweight costs
$3.69
$7.11
$3.78
$3.82
$3.86
$3.90
$3.95
$3.99
$4.01
$4.04
TOTAL
$22.12
$42.68
$22.67
$22.90
$23.16
$23.42
$23.69
$23.95
$24.07
$24.26

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5.0
Benefits
This section presents the estimated benefits of the food waste service. The benefits
in this section are presented in non-discounted (actual) terms. The estimates
contained in this section are relative to a counterfactual of “no food waste kerbside
collection.”
We have identified a range of possible benefits (see

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link to page 15 link to page 30
Table 2 and Error! Reference source not found.). However for reasons of
tractability and efficiency of effort, for this high-level/initial CBA, we have focussed on
two major benefit categories:
•  the avoided cost of greenhouse gas emissions; and
•  the gains in welfare to householders
Before detailing our calculation process and resulting estimates, we first describe the
range of possible benefits not included in the analysis.
5.1
Potential benefits not included in calculations
This section discusses some of the main benefits that we didn’t analyse due to their
relative immateriality and/or data availability constraints.
5.1.1
Landfill cost saving
The kerbside food waste collection service could potentially extend the life of current
landfills by diverting food waste from landfill. This could potentially result in avoidance
of costs associated with creating a new landfill were existing capacity to be
exhausted within the time period of the analysis. The food waste collection service
could also save some of the operational cost of managing any closed landfill(s) in the
study period as well.
The result of the primary consultation with waste management experts indicated that
while this benefit could have a high magnitude impact, it would have a moderate
likelihood of occurring. Auckland Council has a policy to progressively achieve zero
waste by 2040 and available information does not suggest there would be a lack of
capacity by then (see Table 5). Further, we understand that the amount of food waste
diverted from landfills from the service would represent less than five per cent of total
waste to landfill in a given year.
In relation to the potential for cost savings as a result of lower costs of managing
closed landfills, there is insufficient evidence available for us to make a
determination. Therefore, we have not included any potential benefits relating to
landfill requirements and/or management in the analysis.
Table 5 Auckland’s Landfill lifespan
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Opening
Closing
Landfill
Comment
date
date
Redvale
1993
2028
WMNZ5 applied for extension until 2049,but
Landfill
this was declined (on appeal), so 2028 date
(Waste
stands, with stricter air discharge conditions
Management)
Hampton
2005
2030
Waikato Regional Council website states it
Downs
obtained a 25 year consent in 2005, though
(EnviroWaste)
EnviroWaste states it will operate for 100
years, therefore it could operate well beyond
2040
Whitford
1970s?
2024
It has recently been extended to 2041 and
Landfill
will likely only continue to take relatively small
(WDS)
quantities of municipal waste.
Claris Landfill  Informally
2027
Old unsanitary landfill. Only takes small
(The council)
>50 years
amount of waste from Great Barrier Island
Puwera
2003
2038
35 year consent obtained in 2003, though
landfill
likely to get an extension beyond 2040
(Northland
Waste)
Source: Information provided by Auckland Council’s waste solutions department

5.1.2
Energy production
Methane is produced from decomposition of organic waste at landfills. The methane
can be collected and used as biogas for generation of electricity (or used directly as a
fuel in motor vehicles). In New Zealand, landfill is the source of about 70 per cent of
utilised biogas used for electricity generation6 (Bioenergy Association of New
Zealand, 2011). Table 6 shows the key landfills biogas sites in Auckland and their
power ration in 2015.
The anaerobic digestion (AD) process, which would be used in the food waste plants,
is the most common method of biogas production to generate electricity. While it is
mandatory that landfills be designed to capture methane and it is estimated that
between 50 to 90 per cent of the gas is captured, it is likely that the net generated
electricity as the result of the service is minor.

5 Waste Management New Zealand
6 Captured methane could be upgraded to natural gas quality and can substitute for reticulated natural
gas used by residential, commercial and vehicles.
Cost benefit analysis of an organic waste collection service in Auckland
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Table 6 Landfill biogas generation sites in Auckland (2015)
Landfill
Owner
Power Rating kW
Greenmount
EnviroWaste services
1,200
Rosedale
EnviroWaste services
500
Redvale
Transpacific Industries
12,000
Whitford
Transpacific Industries
3,000
Source: Bioenergy association of New Zealand (2015)
5.1.3
Compost benefits
Organic compost is the final product of both compost and AD processes. There
would be some benefits associated with compost production including the reduced
need for chemical fertilisers, higher crop yields and revitalization of poor soils, United
States Environmental Protection Agency (EPA), (2013).
The nature and the characteristics of nutrient release of chemical fertilisers and
compost are different, and each type of fertilizer has its advantages and
disadvantages with regard to crop type and soil fertility. Hence, the value of compost
is contingent on many unknown factors such as the quality of the finished compost,
the type of crop and soils quality, the degree to which fertilisers are used in
agriculture, and the proportion of fertilisers that could be replaced by compost in
order to maintain crop production levels.
5.1.4
Groundwater pollution
Organic waste in landfills is one of the main sources of toxic leachate, as it can
dissolve after rain. This toxic leachate collects at the base of the landfill and any
leakage can result in serious contamination of the local groundwater, albeit that the
risk is longer-term rather than more immediate in nature. Auckland landfill owners
have stated that their monitoring shows that there is little/no groundwater penetration.
Given the 30-year timeframe for this study, we do not include any potential benefit
from a reduction in groundwater pollution in this study.
5.1.5
Cultural benefits
Measuring and monetising intangible benefits is difficult. However, the way the
project will help maintain separation between waste streams and the food chain is
another source of potential benefit from cultural perspectives. For example; it
contributes to the cultural importance Māori place on human health and well-being
(Pauling and Atria, 2010). It is this holistic view that upholds the obligation of
Cost benefit analysis of an organic waste collection service in Auckland
Page 26

kaitiakitanga for te Taiao (the environment); through guardianship of these taonga
tuku iho (sacred gifts passed down from one generation to the next) the mana
(authority) of the iwi, hapu or whanau is retained within their rohe (region).
Te Ao Turoa (intergenerational resource sustainability) of taonga tuku iho requires
the exchange of these treasured resources to be passed from one generation to the
next with an uplifted state of mauri of the environment, providing for the cultural
practices that previous generations enjoyed. Another example of this is the Para
Kore ki Tamaki is a Māori initiative with a vision for all marae to be working towards
zero waste by 2020.
5.2
Welfare gains from a food waste collection service
We use the concept of consumer’s surplus to estimate the gain in welfare
households would receive from the presence of a food waste collection service
(relative to the ‘counterfactual’ of there being no such service). Consumer surplus is
often used to measure changes in societal well-being from proposed changes to
policy and regulatory settings in industries such as electricity, aviation (particularly
airports), and more generally in competition matters.
A consumer surplus is the benefit someone derives in excess of the price they would
willingly have paid for the good or service that they use. As indicated above, the
willingness of householders to pay for a food waste collection service is integral to
estimation of consumer surplus.
Available survey evidence suggests that in 2007, New Zealand households were
willing to pay $1.50 per week per household (i.e. $78 per year) for an organic waste
collection service (Covec, 2007). This is an average value across all households
nationwide, including those who already composted. Households were asked to
consider how much it would be worth to them to ensure their garden and kitchen
waste was recycled in an environmentally responsible way.
As some households already composted, the question was prefaced in a way to elicit
an estimate of the marginal willingness to pay of these households by considering
the situation where they could not do it themselves, and had to pay a separate
charge, what would it be?
The question was worded this way in an attempt to better understand whether survey
respondents were reading the question as being additional to, or instead of, what
they already did (by way of recycling food waste in an environmentally responsible
way). For households that do not already compost, that question is less relevant (as
they do not currently pay for, or undertake activities consistent with, environmentally
responsible recycling of food waste). However, the costs of sorting waste would need
Cost benefit analysis of an organic waste collection service in Auckland
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to be subtracted from their identified willingness to pay (see further below for how we
estimated these sorting costs). For households that compost already, the situation is
less clear. That is, we are not able to tell the extent to which such respondents
answered the question thinking that the service meant they no longer used their own
compost bin or whether it was additional to their own bin. Other survey evidence from
trials in Auckland suggests that the service would be a complement to existing
household composting activities (see explanation further below).
The same study provided the basis for an estimate of willingness to spend time on
relevant recycling activity over and above the time they currently spend as a means
of determining a measure of willingness to pay. Households were prepared to spend
an additional 10.1 minutes per week on recycling over and above the time currently
spent on such activities, which translates to a value of $0.88 per household per week
(i.e. $45.76 per year) using an opportunity cost of time spent on such activity of $5.20
per hour, Eunomia (2010).
Determining what respondents actually meant (or how they thought in relation to the
question asked) is obviously crucial in determining willingness to pay estimates.7
While the main author of the study acknowledges that the survey could have been
improved (in order to better understand the exact meaning and thought process of
survey respondents in relation to their willingness to pay),8 we are comfortable that
the figures used represent the best available evidence of willingness to pay for the
service. In particular, using the estimated values as an upper bound (as opposed to a
central estimate), and the use of willingness to spend time recycling organic matter
figure, which is a familiar and commonly understood metric for householders, as a
lower bound appropriately avoids spurious accuracy concerns.
We wish to express the $1.50 per week per household derived in 2007 in 2017 dollar
terms. We did this by adjusting the value in accordance with changes in wages
between 2007 and 2017. Wages are a proxy for incomes, and income is known to be
influential (though not necessarily the sole or most important determinant) in peoples’
willingness to pay. The Reserve Bank of New Zealand inflation calculator showed
that wages of $1 in the second quarter of 2007 would be $1.31 in the second quarter
of 2017 (i.e. there was a 31.5% change in the period). For convenience, we assume
that the willingness to pay figure adjusts in direct proportion to changes in wages.9
This means that the 2007 figures of $1.50 and $0.88 per household per week equate
to $1.97 and $1.19 per household per week in 2017, respectively. Annual figures per

7 Personal communications with main author of the study.
8 Personal communications with main author of the study. Also, see section 4.2 of Covec (2012).
9 That is, unit elasticity in the willingness to pay with respect to income.
Cost benefit analysis of an organic waste collection service in Auckland
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household are therefore $102.57 and $60.17 respectively. Given the importance of
these figures in the calculation of benefits, we consider the effects of different values,
including the possibility that the dollar values do not change between 2007 and 2017,
in the sensitivity analysis further below.
As there is no household kerbside food waste collection service that would recycle
waste in an environmentally responsible way at present, consumers do not currently
pay anything. In such circumstances, the whole willingness to pay can be considered
as consumer surplus (Covec 2007). However, in order to gauge the actual/true
consumer surplus, an estimate of time that would be spent on the activity is needed
(i.e. the consumer surplus, a direct benefit to consumers, is the difference between
the time costs of participating in the service and the willingness to pay).
Despite some disagreement in the literature around whether or not to include the
costs to households of participating in the service (i.e. sorting food waste and placing
their bin at the kerbside and then recovering it when emptied), our preference is to
account for such costs as much as possible. Our approach is to follow that taken in
the Covec (2007) analysis to determine a value of time used in relevant activity. Key
assumptions/parameters used are:
•  the value of time spent participating is $7.08 per hour;
•  households spend on average four minutes per week on food waste collection
(around 20 seconds per day sorting, six days per week, and two minutes per
week setting out and retrieving the kerbside bin), leading to costs of $0.47 per
week or $24.54 per year per household;
•  the proportion of households willing to pay for food waste collection services is
92 per cent;
•  the rate at which households use the service is 80 per cent; and
•  the rate at which participating households set their bin out each week is 50 per
cent.
The value of time spent participating comes from the Economic Evaluation Manual
published by the New Zealand Transport Agency. It refers to a passenger in a car or
motorcycle undertaking travel for a non-work purpose. In essence, by spending time
sorting food waste, transferring the waste from the kitchen to the bin and then setting
out and retrieving their kerbside bin, householders give up the opportunity to partake
in a ‘drive in the country’ which is worth $5.20 an hour. This is the value used by
Covec and Eunomia studies cited earlier.
We wanted to express this value in 2017 dollar terms, as the $5.20 figure was
derived in July 2002. The Reserve Bank of New Zealand’s inflation calculator for
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link to page 38
general inflation (CPI) showed that a basket of goods and services that would have
cost $5.20 in the second quarter of 2002 would cost $7.08 in the second quarter of
2017 (i.e. there was a 36.2% change in the period). CPI was chosen as the most
general category of change, given the general nature of the value of time under
study.
The assumption that 92 per cent of households would be willing to pay for a food
waste collection service is based on survey results following the trials mentioned
earlier in this report. In particular, follow-up surveys revealed that 93 per cent of the
feedback was positive, and that only eight per cent of respondents thought that not
continuing with the service was a good/very good idea. Furthermore, in 2014 just
eight per cent of respondents indicated they were unlikely to/definitely wouldn’t use
the service in future; this proportion rose to 10 per cent in 2016 (Gravitas, 2016).
Importantly, willingness to pay is not necessarily related to actual utilisation. People
are often willing to pay for services (usually those of a public good nature such as
national parks) that they themselves may never use. The willingness to pay is based
on a preference for something to be present rather than not be (i.e. an existence
value) and/or a desire for that thing to be available for use by future generations (i.e.
a bequest value) or for use by others now (i.e. an altruistic value).
Using the array of assumptions and parameters and the household numbers shown
earlier we estimate direct consumer benefits (surplus) of $1,515.3 million on an
annualised basis over the entire 30-year study period. Willingness to pay totalled
$1,691.3 million on an annualised basis, while participation costs totalled $176.0
million on an annualised basis (see Table 7 for further details).
Obviously these impacts are significant, and we note that willingness to pay surveys
have been brought into question in terms of producing over-stated benefits. It has
been claimed that respondents either do not fully understand the context of the
question and more importantly claim values that are greater than what they would
actually pay as they don’t believe there is a strong possibility that they will be faced
with having to pay. Primary research, by way of a survey, is not feasible for this
study. In the absence of this additional insight, we have been conservative in how we
measure and reflect such willingness to pay estimates.
A further question that has been raised in relation to the type of direct consumer
benefits under study here is whether they are additional to the other benefits. Covec
(2007) questioned whether there is a benefit that households are receiving that is not
accounted for elsewhere? Their view was that there is and that including the
consumer surplus (the difference between their willingness to pay and current costs
of litter reduction) can be added to other avoided cost-related benefits. On the basis
Cost benefit analysis of an organic waste collection service in Auckland
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of this, and the analysis of the survey used in the Covec (2007) analysis, we are
comfortable with both the inclusion of such benefits and the estimation process used
to measure them.
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Table 7 Estimated consumer surplus benefits on an annualised basis ($m) 2019- 2048

2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
Total households

491,405 500,465 509,593 518,720 527,848 536,976 546,103 555,249 564,394
Relevant households WTP

452,093 460,428 468,825 477,223 485,620 494,018 502,415 510,829 519,243
WTP total at $102.57 per annum

$46.37
$47.23
$48.09
$48.95
$49.81
$50.67
$51.53
$52.40
$53.26
Participation costs (80%

$4.82
$4.91
$5.00
$5.09
$5.18
$5.27
$5.36
$5.45
$5.54
participation, 50% weekly set out,
$24.54 cost per annum)
Total consumer surplus benefits

$41.55
$42.31
$43.08
$43.86
$44.63
$45.40
$46.17
$46.94
$47.72
Source: Auckland Transport Model, Authors’ calculations

Cost benefit analysis of an organic waste collection service in Auckland
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Table 7 Estimated consumer surplus benefits on an annualised basis ($m) 2019- 2048 (continue)

2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
Total households
573,540 582,685 591,831 600,924 610,018 619,112 628,206 637,300 646,664 656,028
Relevant households WTP
527,656 536,070 544,484 552,851 561,217 569,583 577,950 586,316 594,931 603,546
WTP total at $102.57 per annum
$54.12
$54.98
$55.85
$56.71
$57.56
$58.42
$59.28
$60.14
$61.02
$61.91
Participation costs (80%
$5.63
$5.72
$5.81
$5.90
$5.99
$6.08
$6.17
$6.26
$6.35
$6.44
participation, 50% weekly set out,
$24.54 cost per annum)
Total consumer surplus benefits
$48.49
$49.26
$50.04
$50.81
$51.58
$52.34
$53.11
$53.88
$54.67
$55.47

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Table 7 Estimated consumer surplus benefits on an annualised basis ($m) 2019- 2048 (continue)

2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
Total households
665,392 674,756 683,336 691,242 699,238 707,328 715,511 723,788 729,703 735,666
Relevant households WTP
612,161 620,776 628,669 635,942 643,299 650,741 658,270 665,885 671,327 676,813
WTP total at $102.57 per annum
$62.79
$63.67
$64.48
$65.23
$65.98
$66.75
$67.52
$68.30
$68.86
$69.42
Participation costs (80%
$6.53
$6.62
$6.71
$6.79
$6.86
$6.94
$7.02
$7.11
$7.16
$7.22
participation, 50% weekly set out,
$24.54 cost per annum)
Total consumer surplus benefits
$56.26
$57.05
$57.77
$58.44
$59.12
$59.80
$60.49
$61.19
$61.69
$62.20
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5.3
Reduction in emissions
Any reduction in greenhouse gas (GHG) emissions is beneficial to society through
the avoidance of costs that are imposed by GHGs. These costs usually include
market and non-market impacts and cover health, environment, crops and other
property damage potential and wider social aspects. Thus, the calculation of benefits
for this analysis requires an estimate of the possible impact on GHG emissions as a
result of the food waste collection service and an estimate of the social cost of GHG
emissions. The product of these two factors is the benefit to society.
The ways through which a kerbside food waste collection service could change the
level of GHG emissions, relative to the ‘counterfactual’ situation of no service can be
summarised as follows:
• Landfill: Diverting food waste from disposal avoids potential methane
emissions. This is beneficial even if landfills have bio-gas capture systems.
• Transport: Food waste collection trucks are smaller than refuse collection
trucks because food waste could be more compacted and in total takes less
space in the collection trucks. The smaller trucks and most likely hybrids would
produce less GHG emissions.
5.3.1
Estimating the volume of GHG emissions avoided
A four-step process was used to derive estimates of GHG emissions avoided as a
result of the introduction of a kerbside food waste collection service.
Step 1: The net change in the landfill GHG level was estimated using the potential
landfill production of GHG under both the status quo and when the food waste
collection service was in place. We also accounted for GHG that would be produced
in the process of either 100 per cent compost or 100 per cent anaerobic digestion
(AD). The emission factors (tonne CO2e/tonne waste) for landfill, compost and AD
were used to estimate the GHG level before and after the intervention. Table 8
shows the data used for estimating emission factors and the data sources.
Step 2: emissions produced by food waste were calculated using the tonnage of food
waste and the emission factor for each of the landfill, composting and AD for each
year of the project life.
Step 3: net changes in GHG production was calculated for composting and AD
separately by subtracting GHG produced by each of them from the net landfill’s GHG
production.

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Table 8 Data assumptions and sources for GHG emissions reduction
estimation
Factor
Measure
Source
R factor (Fraction recovered
0.75
R factor of 75% based on
CH4)
maximum methane capture
rate achieved in best
practice landfills in Europe.
UK Department for
Environment Food and
Rural Affairs (2014).10
DOC (degradable organic
0.15
carbon)
DOCF (fraction of DOC
0.5
dissimilated)
MfE (2016)
F (fraction of CH4 in landfill
0.5
gas)
Ox (oxidation factor)
0.1
GWP of methane CH4
28
Carbon to CO2 convertor
16/12
Emission factor for landfill  1.26
Estimated using MfE (2016)
(tCO2e/t waste)
formula:
CO2-e emissions (kg) =
((MSWT x DOC x DOCF x F
x 16/12) x (1– R) x (1-OX)) x
28 11
Emission factor for
0.19
C40: Adapted from IPCC
compost (tCO2e/t waste)
(2006), default values
Emission factor for AD
0.056
C40: Adapted from IPCC
(tCO2e/t waste)
(2006), default values

10 Landfill operators report 90% and MfE suggests New Zealand average of 61%.
11 Where: MSWT = total Municipal Solid Waste (MSW) generated (kg); DOC = degradable organic
carbon (0.15 for garden and food waste); DOCF = fraction of DOC dissimilated (0.5); F = fraction of
CH4 in landfill gas(0.5); R = fraction recovered CH4 (0.606 where landfill gas systems are in place
otherwise 0 ; OX = oxidation factor(0.1); 28 = GWP of methane (CH4). 16/12 converts carbon to CO2.
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Step 4: reduction in GHG in each year of the project life as the result of the reduced
number and trip frequency of heavy diesel trucks due to the use of smaller hybrid
trucks, estimated based on the potential food waste that would be diverted from
landfill to the processing plant. The reduction in the level of GHG as a result of waste
transport was calculated using on the following equation:
𝑁𝑒𝑡 𝐺𝐻𝐺 𝑅𝑒𝑑𝑢𝑐𝑡𝑖𝑜𝑛, 𝑡𝑟𝑎𝑛𝑠𝑝𝑜𝑟𝑡 = 𝑁𝑇𝐿 × 𝑉𝐾𝑇𝐿 × 𝐶𝑂2𝑒𝐿 −  𝑁𝑇𝑃 × 𝑉𝐾𝑇𝑃 × 𝐶𝑂2𝑒𝑃
Where:
NTL = Reduction in annual number of round trips to landfill as the result of
potential reduction in the refuse tonnage after the food collection service
compared to status quo
VKTL= Vehicle kilometre round trip to landfill
CO2eL = Emission factor per kilometre travelled by heavy diesel trucks (>17
tonnes)
NTP = Number of round trips to plant to deliver the annual tonnage of food
waste
VKTP = Vehicle kilometre round trip to plant
CO2eP = Emission factor per kilometre travelled by hybrid vehicles
Table 9 summarises the key data assumptions and parameters used in relation to the
reduction in GHG emissions from transport.

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Table 9 Key data for measurement of transport-related GHG emissions
reduction

Option 1  Option 2
Source
Tonnage of total waste per
8.00

Auckland Council, Infrastructure
vehicle before and after policy
and Environmental services
VKT per round trip (km)
100

Auckland Council, Infrastructure
and Environmental services
CO2e emission factor tonne
0.000583  0.00094
Option 1_ VEPM5.2.1 (Diesel
per km (Diesel HCV >17 t)
HCV 20-25 t)=583.17 g/km
Option 2_ C40: For HGV (all
diesel) Rigid (> 17 tonnes) 50%
laden (assuming trucks are empty
on the way back  (Defra, 2014)
Tonnage of food waste per
2.75

Auckland Council, Infrastructure
vehicle after policy
and Environmental services
VKT per round trip (km)
60

Auckland Council, Infrastructure
and Environmental services
CO2e emission factor tonne
0.000070
VEPM5.2.1 (Hybrid)=70.05g/km
per km (Diesel HCV <7 t)

Table 10 shows that across the entire 30-year study period, on an annualised basis
we estimate total net GHG emissions reductions to be 37,621 tonnes.

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Table 10 Estimated net GHG reduction from food waste collection service (000’s) 2019- 2048

2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
Number of trips to land fill before policy

64.7
65.6
66.6
67.5
68.5
69.4
70.4
71.3
72.3
GHG before policy (transport to landfill) tonne

6.1
6.2
6.3
6.3
6.4
6.5
6.6
6.7
6.8
Number of trips to land fill after policy

54.9
55.7
56.5
57.3
58.0
58.8
59.6
60.4
61.1
GHG after policy (transport to landfill) tonne

5.2
5.2
5.3
5.4
5.5
5.5
5.6
5.7
5.7
Number of trips to plant after policy

28.2
28.8
29.3
29.8
30.3
30.9
31.4
31.9
32.4
GHG after policy (transport to plant) tonne

0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
Net GHG Reduction, Tonne

1.0
1.1
1.1
1.1
1.1
1.1
1.1
1.2
1.2
Source: Information provided by Auckland Council’s waste solutions department and authors’ calculations

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Table 10 Estimated net GHG reduction from food waste collection service (000’s) 2019- 2048 (continue)

2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
Number of trips to land fill before policy
73.2
74.2
75.1
76.1
77.1
78.0
79.0
80.0
80.9
81.8
GHG before policy (transport to landfill) tonne
6.9
7.0
7.1
7.2
7.2
7.3
7.4
7.5
7.6
7.7
Number of trips to land fill after policy
61.9
62.7
63.4
64.2
65.0
65.8
66.6
67.4
68.1
68.8
GHG after policy (transport to landfill) tonne
5.8
5.9
6.0
6.0
6.1
6.2
6.3
6.3
6.4
6.5
Number of trips to plant after policy
33.0
33.5
34.0
34.5
35.1
35.6
36.1
36.6
37.2
37.7
GHG after policy (transport to plant) tonne
0.1
0.1
0.1
0.1
0.1
0.1
0.2
0.2
0.2
0.2
Net GHG Reduction, Tonne
1.2
1.2
1.2
1.3
1.3
1.3
1.3
1.3
1.4
1.4

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Table 10 Estimated net GHG reduction from food waste collection service (000’s) 2019- 2048 (continue)

2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
Number of trips to land fill before policy
82.7
83.6
84.4
85.1
85.8
86.6
87.3
88.0
88.5
88.9
GHG before policy (transport to landfill) tonne  7.8
7.9
7.9
8.0
8.1
8.1
8.2
8.3
8.3
8.4
Number of trips to land fill after policy
69.5
70.2
70.9
71.4
72.0
72.6
73.2
73.7
74.1
74.4
GHG after policy (transport to landfill) tonne
6.5
6.6
6.7
6.7
6.8
6.8
6.9
6.9
7.0
7.0
Number of trips to plant after policy
38.2
38.8
39.3
39.7
40.2
40.7
41.1
41.6
41.9
42.3
GHG after policy (transport to plant) tonne
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.2
Net GHG Reduction, Tonne
1.4
1.4
1.4
1.5
1.5
1.5
1.5
1.5
1.5
1.5

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5.4
Estimating the value of avoided emissions reductions
The economic damage caused by a tonne of carbon dioxide emissions is often
referred to as the “social cost” of carbon (SCoC). It could be measured through
damage cost avoidance of the marginal decrease in GHG emission as a result of the
service in its life span.12 As indicated above, the GHG social cost usually includes
market and non-market impacts and covers health, environment, crops and other
property damage potential and wider social aspects.
A wide range of values have been estimated for the SCoC, In the New Zealand
context, Covec (2010) suggest $50 per tonne of GHG as the best guess for 2020.13
MBIE (2016) used a range of $56 to $152 per tonne of GHG for a 2030 scenario in its
electricity demand and generation scenario analysis. NZTA (2016) suggests a $40
per tonne value, in 2004 prices.
International estimates from a review of available literature by Dobes et al. (2016)
show a range between USD4.4 to USD126.6 with mean and median of USD56 and
USD39 respectively. The results covered five European countries, Japan, UK, USA,
Australia and New Zealand.
An US government study in 2013 concluded, based on the results of three widely
used economic impact models, that an additional tonne of carbon dioxide emitted in
2015 would cause a range between USD11 to USD109 worth of economic damages.
These damages are expected to take various forms, including decreased agricultural
yields, harm to human health and lower labour productivity, all related to climate
change.
In this report, the primary SCoC we use is $63/tonne , based on figures used in
Austroads (2012) and Rohani and Kuschel (2017).14 We also use$53/tonne which is
the value suggested by NZTA (2016) adjusted to 2017 prices.

12
There are three other approaches to measure the carbon cost including abatement cost (cost
of achieving a given level of CO2, e.g. under Paris agreement, New Zealand has to reduce its GHG
emissions by 30% down 2005 levels in 25 years.), market price of carbon (the cost that is used to
inform policy decision and is usually less that actual social cost of carbon due to political
considerations) and willingness to pay estimates that use revealed or stated preference methods.
13 Under ‘Medium Ambition’ when there are international agreements for at least some countries in the
world to stabilise GHG levels in the atmosphere at 550 ppm CO2-e.
14 This is a figure converted to NZD 2017 from Australian dollar using change in CPI in Australia and
New Zealand and exchange rate from following sources respectively:
  http://www.rba.gov.au/calculator/annualDecimal.html
  http://www.xe.com/currencyconverter/convert/?Amount=483%2C392.89&From=AUD&To=NZD
  http://www.rbnz.govt.nz/monetary-policy/inflation-calculator

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Multiplying the predicted reductions in emissions by the SCoC results in annualised
total benefits across the entire 30-year study period of $36.98 million (see Table
11). Consistent with the Covec (2007) national cost-benefit analysis of recycling, we
treat these benefits as additional to the direct consumer welfare benefits. It is
possible that household responses in the willingness to pay survey used to determine
the direct consumer welfare benefits above accounted for the possible GHG impact
(and consequent benefits). If that is the case, including reduction in GHG emissions
as a separate benefit would be double counting.
There are arguments for and against the ‘double counting’ hypothesis. There is not
sufficient evidence to determine whether or not survey respondents had such GHG
emission reductions in mind when indicating their willingness to pay. We examine the
possibility that the willingness to pay includes householders’ expectations of GHG
emissions reductions in sensitivity analysis below. That is, we show the impact on our
results from removing the GHG emissions reduction benefit from our calculations.

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Table 11 Estimated avoided emission benefits on an annualised basis ($m) 2019- 2048

2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
Greenhouse gas reduction, compost

$0.65
$0.67
$0.68
$0.69
$0.70
$0.71
$0.73
$0.74
$0.75
Greenhouse gas reduction, AD

$0.74
$0.75
$0.76
$0.78
$0.79
$0.80
$0.82
$0.83
$0.85
Greenhouse gas reduction waste transport

$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
Total GHG benefits, compost

$0.65
$0.67
$0.68
$0.69
$0.70
$0.71
$0.73
$0.74
$0.75
Total GHG benefits, AD

$0.74
$0.75
$0.76
$0.78
$0.79
$0.80
$0.82
$0.83
$0.85
Source: Authors’ calculations

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Table 11 Estimated avoided emission benefits on an annualised basis ($m) 2019- 2048 (continue)

2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
Greenhouse gas reduction, compost
$0.76
$0.78
$0.79
$0.80
$0.81
$0.82
$0.84
$0.85
$0.86
$0.87
Greenhouse gas reduction, AD
$0.86
$0.87
$0.89
$0.90
$0.91
$0.93
$0.94
$0.96
$0.97
$0.98
Greenhouse gas reduction waste transport
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
Total GHG benefits, compost
$0.76
$0.78
$0.79
$0.80
$0.81
$0.82
$0.84
$0.85
$0.86
$0.87
Total GHG benefits, AD
$0.86
$0.87
$0.89
$0.90
$0.91
$0.93
$0.94
$0.96
$0.97
$0.98

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Table 11 Estimated avoided emission benefits on an annualised basis ($m) 2019- 2048 (continue)

2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
Greenhouse gas reduction, compost
$0.89
$0.90
$0.91
$0.92
$0.93
$0.94
$0.95
$0.96
$0.97
$0.98
Greenhouse gas reduction, AD
$1.00
$1.01
$1.02
$1.04
$1.05
$1.06
$1.07
$1.08
$1.09
$1.10
Greenhouse gas reduction waste transport
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
Total GHG benefits, compost
$0.89
$0.90
$0.91
$0.92
$0.93
$0.94
$0.95
$0.96
$0.97
$0.98
Total GHG benefits, AD
$1.00
$1.01
$1.02
$1.04
$1.05
$1.06
$1.07
$1.08
$1.09
$1.10

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6.0
Net effects
This section compares the benefits to the costs over the study period, in order to
derive the net benefit to society from the proposed food waste collection service. In
order to make this information most useful for decision-makers, costs and benefits
are expressed in present value terms. The time period for this analysis is 30 years.
Consistent with available Auckland Council CBA Primer, the discount rate applied is
4%.
A four year phase-in period is assumed for the majority of costs and benefits, except
for capital costs associated with the kerbside bins and kitchen caddies, which apply
straight away, with replacement/replenishment of the kerbside bins at 3 per cent per
year and full replacement of bins after 10 years. In addition the capital costs of
required plant and buildings accrue in two years (half in each of the first two years)
and no replacement is included in the timeframe for the analysis.
Table 12 shows that the range of estimated net benefits (i.e. the extent to which
society is made better off as a result of the service) is around $401 million in present
value terms. Benefits are over twice the costs.
It is important to note that these results do not include indirect or qualitative impacts.
Our assessment is that the effect of including such impacts would be to raise the net
benefits.
Table 12 Summary CBA results

Present value ($m)
Total benefits
$771.02
Total costs
$369.19
Net benefits
$401.83
Benefit-cost ratio (BCR)
2.09
Source: Authors’ estimates
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7.0
Sensitivity and scenario analysis
In addition to the summary results shown above, this section considers the impacts
of adjusting key assumptions and testing alternative scenarios. This is particularly
important when the benefit estimate is heavily reliant on a single impact, in this case
welfare gains. We also derive alternative scenarios based on known parameter
values that differ from those used in the main analysis. All other factors remain the
same.
7.1
Alternative scenarios
While somewhat conservative in nature overall, the results above might reasonably
be considered “upper bound” in nature, as a range of assumptions and parameters
have known values that are different (lower) than those used above.
Table 13 Alternative parameters
Parameter
Current
Alternative
Participation rate (proportion using service)
80%
72%
Annual replacement rate for bins
3%
5%
Households willing to pay for service
92%
90%
Willingness to pay per household per week
$1.97
$1.16
CO2 Emissions factor
0.00094
0.000583
Social cost of carbon per tonne
$63
$53
R Factor (proportion of CH4 recovered)
0.75
0.90
Source: Authors’ estimates
To derive what might be considered “lower bound” estimates (and hence a range
when considered alongside the “upper bound” estimates) we make use all of the
alternative parameters at once. Table 14 shows that society would still be made
better off by around $64 million and benefits exceed costs by 19 per cent after
introducing a food waste collection service with the alternative parameters used in
the analysis. Clearly, benefits were more adversely affected by the alternative
parameter values. Benefits dropped by around 47 per cent, while costs were around
six per cent lower.

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Table 14 “Lower bound” CBA results, using alternative parameters

Present value ($m)
Total benefits
$410.17
Total costs
$345.82
Net benefits
$64.35
Benefit-cost ratio
1.19
Source: Authors’ estimates
The results on the existing “upper bound” estimates of using the alternative
parameter values individually are contained in Table 15. Not surprisingly, it shows
that the willingness to pay parameter is the biggest driver of the reduction in the BCR
using the combined alternative parameters. On its own, the alternative value of $1.16
per household per week (as opposed to $1.97) is enough to reduce the BCR from
2.09 to 1.14. The combined effect of the other parameters combined is to raise this to
the level shown in Table 14.
For interest, the “break even” willingness to pay value (i.e. the willingness to pay
value that results in a BCR equal to one, while holding all else constant) is $1.0351
per household per week (or $53.83 per household per year).
Table 15 Individual impacts of alternative parameters (PV, $m)
Total
Total
Net
Parameter
BCR
benefits
costs
benefits
Existing “upper bound”
$771.02
$369.19
$401.83
2.09
Participation rate
$778.47
$341.31
$437.16
2.28
Annual replacement rate for bins
$771.02
$373.70
$397.32
2.06
Households willing to pay for service  $752.64
$369.19
$385.45
2.04
Willingness to pay per household per  $421.52
$369.19
$52.34
1.14
week
CO2 Emissions factor
$771.02
$369.19
$401.83
2.09
Social cost of carbon per tonne
$768.89
$369.19
$399.70
2.08
R Factor (proportion of CH4 recovered  $762.96
$369.19
$393.78
2.07
Source: Authors’ estimates
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There was insufficient reliable data to calculate a robust central or medium estimate,
but a simple midpoint would suggest net benefits of $233 million would accrue (over
the 30 year study period) and benefits would outweigh costs by around 65 per cent
(i.e. a benefit-cost ratio of 1.65).
7.2
Sensitivity analysis
In addition to the known alternative value changes above, we also undertake more
traditional sensitivity analysis by altering key inputs and assumptions, such as the:
•  discount rate used;
•  amount of waste set out by households;
•  timeframe for the analysis;
•  rate at which households set out their bins weekly;
•  proportion of households who would be willing to pay for the service;
•  ramp-up period to full effect;
•  time period for the study;
•  amount that households would be willing to pay for the service; and
•  removal of GHG emissions reductions.
We show the effect of these changes for both the “upper bound” and “lower bound”
cases.
7.2.1
Discount rate
The effect of altering the discount rate is shown in Table 16. As expected, the higher
the discount rate the lower the net benefit and BCR. The “break even” discount rate
(i.e. where the BCR=1) for the upper bound case is around 38 per cent, while the
equivalent in the lower bound case is around 11.6 per cent. Neither of these discount
rates are plausible in the context of (largely-public) investments of this nature, though
for many years from 1971through to 2008 the discount rate for public projects was 10
per cent (Young, 2002).
Table 16 Alternative discount rates (PV, $m)
Discount rate
2%
4%
7%
12%

Upper
Lower
Upper
Lower  Upper
Lower  Upper
Lower
bound
bound
bound
bound  bound
bound  bound
bound
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Discount rate
2%
4%
7%
12%
Net
$563.48
$104.27
$401.83
$64.35
$252.23
$28.20
$126.52
-$0.88
benefits/NPV
Benefit-cost
2.16
1.23
2.09
1.19
1.97
1.12
1.77
0.99
ratio
Source: Authors’ estimates
7.2.2
Amount of waste set out
The effect of altering the average amount of food waste produced by households
using the service from the existing 3.8 kilograms per week is shown in Table 17. We
continue to use the “upper bound” and “lower bound” labels, despite the fact that
altering the assumed food waste volume essentially creates new bounds. It is
obvious from the table that a reduction in food waste set out by households improves
the BCR and net benefit to society, regardless of the scenario.
This somewhat counterintuitive finding is a function of the cost structure of collecting
and processing food waste in the model. Given a unit cost of collection and
processing, the greater the volume set out the higher the costs. However, the
benefits are only marginally affected, as household willingness to pay (and
consequently consumer surplus benefits) is invariant to changes in volume of
household waste. Only the emissions side of the benefits equation changes with food
waste volumes and the share of benefits accounted for by emissions reductions is
modest.
Table 17 Alternative food waste volumes (PV, $m)
Food  per  HH  per
1.9kg
3.8kg
7.6kg
week

Upper
Lower
Upper
Lower
Upper
Lower
bound
bound
bound
bound
bound
bound
Net benefits/NPV
$534.51
$187.76
$401.83
$64.35
$136.49
-$182.48
Benefit- cost ratio  3.33
1.85
2.09
1.19
1.21
0.69
Source: Authors’ estimates
7.2.3
Weekly bin set-out rate
When we look at the rate at which households set out their bins on a weekly basis we
see a similar pattern, although the magnitude of changes is less than that relating to
food waste volume (see Table 18). Again, the overwhelming majority of benefits
Cost benefit analysis of an organic waste collection service in Auckland
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included in the analysis are invariant to changes in the kerbside bin set out rate.
Costs however, change directly in line with the set out rate (by virtue of collection and
processing costs being related to volume, which in turn is related to set out rate).
Table 18 Alternative household set-out rates (PV, $m)
Weekly set out rate
40%
50%
60%

Upper
Lower
Upper
Lower
Upper
Lower
bound
bound
bound
bound
bound
bound
Net benefits/NPV
$472.50  $129.55  $401.83  $64.35
$331.17  -$0.85
Benefit- cost ratio
2.51
1.44
2.09
1.19
1.78
1.00
Source: Authors’ estimates
7.2.4
Proportion of households willing to pay
We saw above that the dollar amount households are willing to pay has a material
influence on the results of the analysis. It is the main driver of estimated benefits, and
is likely to remain in that position even if we were to quantify and monetise further
benefit categories. We based our estimation of the willingness to pay on known
survey results.
Similarly, the proportion of households assumed to be willing to pay for the service
(regardless of whether or not they intend to use the service) was based on survey
data. However, the assumption was made that only those eight- ten per cent of
households who expressed the sentiment that stopping the trial service was a good
or very good idea would not be willing to pay. As well as the 81 per cent of
households who said they thought stopping the service was a poor or very poor idea,
there was also up to 11 per cent who were either unsure or neutral about stopping
the trial service.
Here we test the sensitivity of the study results to the assumption about including
those households who would be willing to pay for the service. In particular, we
assess the results assuming that all of the neutral/unsure group would not be willing
to pay for the service. That is, we assume that only 81 per cent would be willing to
pay for the service, rather than the 92 per cent used in the original case. For
completeness we also look at the case where 100 per cent of households would be
willing to pay.
Table 19 shows that while the proportion of households willing to pay for the service
has a relatively strong influence on the overall results, even in the lower bound
situation, benefits still outweigh costs following the strong assumption that all those
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households who were neutral or unsure about stopping the trial service would not be
willing to pay for the service.
Table 19 Proportion of households willing to pay for the service (PV, $m)
Proportion of HH’s
81%
92%
100%
willing to pay

Upper
Lower
Upper
Lower
Upper
Lower
bound
bound
bound
bound
bound
bound
Net benefits/NPV
$300.73
$15.82
$401.83
$64.35
$475.36
$118.27
Benefit- cost ratio
1.81
1.05
2.09
1.19
2.29
1.34
Source: Authors’ estimate
7.2.5
Ramp-up to full effect
As mentioned earlier, we assume that operations take some time to achieve their
maximum potential. This means costs and benefits manifest over time rather than
instantaneously, reflecting the need to account for the construction period for new
facilities and plant as well as a gradual take-up of a new service by households. The
profile of costs and benefits included in the calculations assumes full service would
not be achieved until 2023. It was:
•  2020  30% (however, given the construction period, 15% is assumed)
•  2021  50%
•  2022  70%
•  2023  100%
The effect of a more aggressive assumption in relation to the time to full effect is
shown in Table 20. The new profile maintains the 2020 proportion but assumes that
75 per cent of the costs and benefits would accrue in 2021, and 100 per cent in 2022.
There is very little difference in all the key metrics from a more aggressive ramp-up,
as the adjustment applies equivalently to costs and benefits. This suggests the
choice of the ramp-up to full operations is best made by reference to what is more
realistic.
Table 20 CBA results, aggressive ramp-up (PV, $m)

Upper bound
Lower bound
Total benefits
$791.83
$421.24
Total costs
$377.05
$352.96
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Upper bound
Lower bound
Net benefits
$414.78
$68.29
Benefit-cost ratio (BCR)
2.10
1.19
Source: Authors’ estimate
7.2.6
Time period for the study
The effect of truncating the time period is to reduce the estimated net benefits of the
service,  largely reflecting the profile  of  “upfront” and “one off” costs associated with
capital infrastructure,  although some of  that impact  is mitigated by the avoidance of
kerbside bin replacement costs which occur in the year immediate following (see
Table 21).

Table 21 Alternative time periods (NPV, $m)

10 Years
20 Years
30 Years

Upper
Lower
Upper
Lower
Upper
Lower
bound
bound
bound
bound
bound
bound
Total benefits
$259.65
$138.13
$548.04
$291.55
$771.02
$410.17
Total costs
$152.11
$144.43
$274.80
$258.28
$369.19
$345.82
Net benefits/NPV
$107.54
-$6.30
$273.24
$33.28
$401.83
$64.35
BCR
1.71
0.96
1.99
1.13
2.09
1.19
Source: Authors’ estimate
7.2.7
Value of willingness to pay
The weekly value for households’’ willingness to pay for the service was adjusted to
reflect 2017 values using changes in wages (income). For convenience, we assumed
that  the  income  elasticity  of  willingness  to  pay  (i.e.  the  percentage  change  in
willingness to pay relative to percentage changes in income) is one. This means that
the willingness to pay moved in direct proportion with changes in income.   Table 22
shows the effect of lower values for this elasticity, including the case where it is zero
(i.e. there is no change in willingness to pay from the 2007 values). We hold all other
variables  constant. The results confirm the previously made observation around the
materiality  of  the  willingness  to  pay  value.  The  effect  of  using  the  2007  values  for
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willingness to pay is to turn the lower bound estimate of net benefits from positive to
negative.
Table 22 Value for willingness to pay for the service (PV, $m)
Income elasticity
of willingness to
0 (2007 values)
0.5
1 (2017 values)
pay

Upper
Lower
Upper
Lower
Upper
Lower
bound
bound
bound
bound
bound
bound
Net benefits/NPV
$199.29
-$51.90
$300.56
$6.23
$401.83
$64.35
Benefit- cost ratio
1.54
0.85
1.81
1.02
2.09
1.19

7.2.8
Removal of GHG emissions reduction benefits
As mentioned earlier, there is a possibility that the willingness to pay estimates used
to derive direct consumer benefits included the potential for GHG emissions
reductions. That is, householders accounted for the possibility that the service would
reduce GHG emissions (and hence the avoided social costs of such emissions) in
their willingness to pay figure, and therefore to include such effects separately would
overstate the benefits by double-counting.
There are arguments for and against the ‘double counting’ hypothesis and the
available evidence does not allow to determine which is correct. Consistent with the
treatment of GHG emissions reduction impacts (and consequent benefits) in the
Covec (2007) source study, we include such benefits in the core analysis, but
examine the impact of removing them on our overall results here.
The effect of removing the GHG emissions reduction benefit estimate is shown in
Table 23. As might be expected the effect is negligible in both scenarios. Total
benefits (and net benefits, given costs do not change) are reduced by $4.07 million in
the lower bound scenario and $13.43 million in the upper bound scenario. The BCR
remains strong in both scenarios.
Table 23 CBA results, removing GHG emissions reduction benefits (PV, $m)

Upper bound
Lower bound
Total benefits
$757.59
$406.10
Total costs
$369.19
$345.82
Cost benefit analysis of an organic waste collection service in Auckland
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Upper bound
Lower bound
Net benefits
$388.40
$60.28
Benefit-cost ratio (BCR)
2.05
1.17
Source: Authors’ estimate

Cost benefit analysis of an organic waste collection service in Auckland
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8.0
Conclusion
The assessment of likely economic costs and benefits associated with a weekly food
waste collection service for urban households in Auckland shows that society would
be made better off as a result of the service.
While a range of potential benefits are possible as a result of the service, our initial
analysis focussed on two benefits that were most likely to be material and that had a
relatively high likelihood of occurring. These benefits relate to a gain in consumer
welfare and a reduction in greenhouse gas emissions as a result of the service.
While we acknowledge the possibility of double counting (i.e. that the willingness to
pay of households already factors in possible reductions in greenhouse gas
emissions (and the associated benefits), we follow the practice of the source material
used and include both benefit estimates in our totals. We consider the impact on our
results of removing the reductions in greenhouse gas emissions from benefit
estimates in the sensitivity analysis.
The cost categories used in the analysis related to material collection, transport and
processing, administrative and rollout costs, and the economic costs of public
expenditure on the service. Both the costs and benefits used in this study were
informed by studies and insights from within New Zealand and overseas.
Over a 30 year assessment period, using a discount rate of four per cent, we
estimate that society would be better off by between $64 million and $402 million on
a present value basis as a result of the service. Benefits exceed costs by between 19
per cent and 109 per cent.
This range of figures represents “upper bound” and “lower bound” estimates, based
on key assumptions and parameters including household use of the service, the
willingness of households to pay for the service and the social cost of greenhouse
gas emissions. There was insufficient reliable data to calculate a robust central or
medium estimate, but a simple midpoint would suggest net benefits of $233 million
would accrue (over the 30 year study period) and benefits would outweigh costs by
around 65 per cent (i.e. a benefit-cost ratio of 1.65). The vast majority (around 98 per
cent) of estimated total benefits relate to consumer welfare.
Sensitivity analysis revealed that:
•  The willingness to pay input had the greatest effect on overall results. The
main driver of the lower net benefits in the “lower bound” scenario was the
change in willingness to pay per household per week from $1.97 ($1.50
adjusted to 2017 dollars) to $1.16 ($0.88 adjusted to 2017 dollars). The
proportion of households willing to pay for the service is also influential.
Cost benefit analysis of an organic waste collection service in Auckland
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•  Altering the discount rate used had predictable effects, given upfront capital
costs and ongoing benefits. With a discount rate of 12 per cent, the “lower
bound” scenario sees society being made slightly worse off from having the
service as opposed to no food waste collection service being in place.
•  Altering the time period for the analysis (i.e. truncating the analysis to 10-year
and 20-year periods respectively) had similar results.
•  Altering the remaining parameters, predominantly around waste volumes and
rates of household service use, did not materially change the positive results
achieved. This is largely due to the willingness to pay benefits category being
invariant to such changes, while costs change proportionally.
•  Removing the benefits associated with reductions in greenhouse gas
emissions had a negligible effect on the overall results.

Cost benefit analysis of an organic waste collection service in Auckland
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9.0
References
Auckland Council (2012).Auckland Waste Management and Minimisation Plan
(WMMP). Auckland, New Zealand.
Austroads (2012). Guide to Project Evaluation Part 4: Project Evaluation Data.
Austroads, 06 August 2012. Available from:
http://www.austroads.com.au/road-construction/planning-
evaluation/publications-resources/guide-to-project-evaluationBarnes
2003Bioenergy Association of New Zealand, 2011)
Bioenergy Association of New Zealand (2015). Overview of biogas in New Zealand
(WB06), July.
C40 Cities Climate Leadership Group (2017). Auckland- diversion of organic waste.
Results version 2. Report to Auckland Council.
Covec (2007). Recycling: Cost Benefit Analysis. Final report to the Ministry for the
Environment.
Covec (2010). Carbon Price forecasts. Paper for, Parliamentary Commissioner for
the Environment. Final report, July. Available at:
http://www.pce.parliament.nz/media/pdfs/Covec-Final-Report-19-07-10.pdf
Covec (2012). Economic Factors of Waste Minimisation in New Zealand. Report
prepared for the Ministry for the Environment. Available at:
http://www.mfe.govt.nz/sites/default/files/media/Waste/economic-factors-of-
waste-minimisation%20-final.pdf
Department for Environment Food and Rural Affairs (Defra) (2014). Energy recovery
for residual waste A carbon based modelling approach. February 2014.
Available at: www.gov.uk/defra
Dobes L. Leung J. and Argyrous G. (2016). Social cost-benefit analysis In Australia
and New Zealand. Australian National University, PRESS.
Eunomia Research and Consulting Ltd (2016). The Real Economic Benefit of
Separate Biowaste Collections. A Business Case. Report to Renewable
Energy Association.
Gravitas (2016). Organics Collection Service Follow Up Research, Executive Report.
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Intergovernmental Panel on Climate Change (IPCC) (2006). 2006 IPCC Guidelines
for National Greenhouse Gas Inventories. Prepared by the National
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Greenhouse Gas Inventories Programme, Eggleston H.S., Buendia L., Miwa
K., Ngara T. and Tanabe K. (eds).Published: IGES, Japan.
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http://epa.tas.gov.au/documents/marsden_jacob_-_final_report_-
_tasmanian_cds_cost_benefit.pdf
Ministry for the Environment (2016). Guidance for voluntary greenhouse gas
reporting - 2016: Data and methods for the 2014 calendar year. Wellington,
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http://www.mfe.govt.nz/sites/default/files/media/Climate%20Change/2016-
guidance-for-voluntary-corporate-greenhouse-gas-reporting.pdf
Ministry of Business Innovation and Employment (MBIE) (2016). Electricity demand
and generation scenarios: scenario and results summary. MBIE, August.
New Zealand Transport Agency (2016). Economic evaluation manual. First published
2013, republished 2016 (amendment 1).NZ Transport Agency, Wellington.
Pauling C. and Atria J. (2010). Tiaki Para: A Study of Ngai Tahu Values and Issues
Regarding Waste. Landcare Research Science Series No. 39. Lincoln,
Canterbury, New Zealand.
Pharmaceutical Management Agency (2004). A Prescription for Pharmacoeconomic
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https://www.pharmac.govt.nz/assets/_generated_pdfs/pfpa-1975.pdf
Rohani, M and Kuschel, G (2017). An assessment of potential impacts of different
growth scenarios on Auckland’s natural environment. Auckland Council
technical report, TR2017/022.
Singhal N. (undated). Organic Waste Diversion from Landfill. Report to Auckland
Council.
Singhal N. and Prendergast N. (2014). Environmental Impact of Diverting kerbside
Collected Organic Waste to Landfill. Presentation to Auckland Council.
SLR (2017) Waste Management Options Review and Modelling. Report for Auckland
Council. Unpublished.
The Electric Energy Market Competition Task Force (2006). Report to Congress on
Competition in Wholesale and Retail Markets for Electric Energy.
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The Electric Energy Market Competition Task Force (2006). Report to Congress on
Competition in Wholesale and Retail Markets for Electric Energy.
United States Environmental Protection Agency (EPA), (2013). Anaerobic Digestion
of Food Waste in New England. Summer 2013 Report.
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21/twp02-21.pdf

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Appendix A : Overview and initial assessment of benefits
Stakeholders
Benefits/
Benefits description
Significance
Reason for significance
Indicator
Proxy
Dis-
(materiality)
benefits
Likelihoo
Magnitude
Likelihood
Magnitude
unit
source
unit
source
d
Auckland
+Cost
+ Extending the life of
Moderate
High
Depends  on  the
A  new  landfill  A new landfill

Cost  of  a
Council
saving
current landfills.
capacity
of
the
is a major cost  (in  the  future
new
Management  cost  of
current landfills and
for the city.
of the project
landfill
in
landfill goes down
estimate  of  future
life)
future  (in
waste  (based  on
the  project
population growth)
period)
Households
- Time
-  Time  is  spent  to
High
Moderate
households have to
It  is  not  major  Minutes

separate the waste

to low
spend some time to
because
as  spent  to  get

make  sure  their
soon  as  they  organic
organic
food
is
get  used  to  it  waste
to
separated,  sorted
they would sort  kerbside less
into
relevant
it  out  without  any
time
container
and
spending
saving  from
taken to kerbside
much  of  their  less
time
time.
spent
on
general
waste
+ Improved
+  Home  composting
High
Low
When  households
They
would

soil
would increase
have to pay for their
use
the
organic waste to be
compost
in
collected  they  will
their gardening
be  encouraged  to
that
means
save  some  money
greener
and
by  composting  the
healthier
waste  rather  than
garden  without
putting  it  in  the
spending
for
kerbside.
any
fertiliser.
But this benefit
is
not
significant
in
magnitude
compared
to
other benefits.
Cost benefit analysis of an organic waste collection service in Auckland
Page 62

Stakeholders
Benefits/
Benefits description
Significance
Reason for significance
Indicator
Proxy
Dis-
(materiality)
benefits
Likelihoo
Magnitude
Likelihood
Magnitude
unit
source
unit
source
d
+Cost
Households
would
Low
Moderate
Pure  “pay  as  you  Need  to  cover

savings
have lower volumes of
throw”  model  does  fixed costs   so
general  refuse  as  a
not
exist
(i.e.
weight-based
result  of  diversion  of
targeted  rate is  not
portion  would
organic waste
based on volume)
not  operate  on
total  volumes-
reducing
the
impact  in  non-
linear manner
+  Welfare
Consumer
surplus
Moderate
Moderate
Some  debate  on
Lack
of  Willingness
Covec

gain
from
increased
to high
inclusion  of  such  specific
data  to  pay  for
(2007);
recycling
volume
effects in CBA
means
additional
Australia
relative to status quo
conservative
recycling
n  studies
approach
for  CDS
preferred
in 2012.
Aucklanders
-
- More heavy vehicles
Low
Low
The
collection
Even
if
the

(including  the
Congestion
on road

could  be  done  off-
collection
is
local

peak.
on-peak,
the
environment

new
vehicles
components)
would
be
substituted
with  some  of
the
waste
collection
vehicles
compared
to
counterfactual.
-  Decrease  - More heavy vehicles
Low
Low
They
would
be
They  would  be  Particulate
Vehicle

Local
air
on road

substituted
with
substituted
matter  (PM10  Emission
quality

some  of  the  waste
with  some  of  and PM2.5)
Predictio

collection  vehicles
the
waste  Oxides
of
n  Model
compared
to
collection
nitrogen
(VEPM),
counterfactual.
vehicles
(NOx
–
from
compared
to  includes NO2  Emission
counterfactual.
and NO)
Impossibl
e, RIMU
Cost benefit analysis of an organic waste collection service in Auckland
Page 63

Stakeholders
Benefits/
Benefits description
Significance
Reason for significance
Indicator
Proxy
Dis-
(materiality)
benefits
Likelihoo
Magnitude
Likelihood
Magnitude
unit
source
unit
source
d
+  Avoided
+  The  current  landfill
Moderate
Low
A new landfill has to
Additional  air

transport
capacity  will  be  freed

be  built  outside  of
quality
and
cost
(air
out.  There is no  need

Auckland
region
congestion
quality/
to  add  a  new  landfill

but  it  depends  to
cost  would  not
congestion
site (in the project life).
the  capacity  of  the
be  significant
)  to  new
A new landfill is further
available landfills.
compared
to
land  fill  in
away  and  has  higher
other  benefits
the future
transport
external
and  costs  of

costs for Aucklanders
the project.
+
Less
+
Less
use
of
Moderate
Low
to
High
volume
of
The magnitude

groundwat
chemical fertiliser
moderate?
cheaper
fertiliser
depends
on
er

(compost)
the  impact  of
contaminat
compared
to
the
chemical
ion
chemical  fertiliser
fertiliser
vs.
would  be  available
compost
on
in
market
waterbodies
especially  for  rural
(literature)
Auckland  it  very
likely
to
be
substituted.
+ Less Leachate
Moderate
Low
to
Food  waste  is  the

moderate?
main source
Landfill
-
Less  - They would lose the
Moderate
??

operators/own
energy
main
source
of
ers
Produced
energy.
Refuse
+ Efficiency
+Productivity
and
Moderate
Moderate
Existing  contracts  Collection

Commer
General

collectors
benefits
capital

utilisation
in
place
may
contracts
not
cially
proportion
opportunities
as
a
negate
the
based
on
sensitive
of
cost
result
of
lower
possibility
of
volumes
at
material
savings
volumes
of
refuse
significant  change
present.
In
may  not
possible
being  collected  (time
in
timeframe
of
addition,
be
could
be
savings  from  fewer
analysis
changes
to
released
inferred
trips  to  empty,  less
frequency
of
from  CDS
labour  input  required,
collection
work  and
extended vehicle life)
could
offset
other
any
potential
studies
gain  (i.e.  gain
Cost benefit analysis of an organic waste collection service in Auckland
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Cost benefit analysis of an organic waste collection service in Auckland
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Find out more: phone 09 301 0101,
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