Growing the Cap Limit for Waste to Energy Projects in Victoria

Introduction

The Victorian Government has recently released an exposure draft of the Circular Economy (Waste Reduction and Recycling) (Waste to Energy Scheme) Amendment Regulations 2025 (Draft Regulations) for consultation. The Draft Regulations propose to increase the ‘cap limit’ of permitted waste that can be processed by waste to energy facilities, from 2 million tonnes to 2.5 million tonnes per financial year.

The Regulatory Impact Statement (RIS) accompanying the Draft Regulations evaluates the suitability of three different limits:

1. Retaining the existing cap limit at 2 million tonnes per financial year (2 Mtpa)     
2. Increasing the cap limit to either:

• 2.5 million tonnes per financial year (2.5 Mtpa)
• 3 million tonnes per financial year (3 Mtpa)

Public consultation on the proposal to increase the cap limit is open until 17 April 2025.

Background to the cap limit on permitted waste

The Circular Economy (Waste Reduction and Recycling) Act 2021 (Vic) established Victoria’s ‘Waste to Energy Scheme’. An important component of the Waste to Energy Scheme is a prescribed limit set in the Circular Economy (Waste Reduction and Recycling) (Waste to Energy Scheme) Regulations 2023 (Vic) on the total amount of permitted waste that can be processed in a year across all waste to energy facilities that have a cap licence (Cap Limit).¹ The Cap Limit is currently set at 2 Mtpa.

The RIS notes that the Cap Limit minimises the risk of over-investment in waste to energy infrastructure, which could result in underutilisation of facilities or require operators to import waste from other jurisdictions. In addition, the Cap Limit is designed to prevent over-reliance on waste to the detriment of investment and growth in recycling and material recovery systems.

Proposal to increase the cap from 2 Mtpa

The RIS highlights the following reasons as to why the Cap Limit should be increased from 2 Mtpa:

Decreasing landfill capacity over time

The Victorian Government aims to divert 80 per cent of waste from landfill by 2030, but Victoria’s waste production is progressively increasing and available landfill capacity is reducing. Increasing the Cap Limit will alleviate landfill inputs, so extending the life of landfill sites.

Based on current predictions, waste to energy facilities with existing operator licences (total capacity of 1.055 million tonnes) could result in 25 million fewer cumulative tonnes of waste going to landfills by 2050.

Recovering valuable by-products

Waste to energy processes capture valuable metals and aggregates such as incinerator bottom ash aggregate (IBA) that would otherwise be lost in landfill. The RIS notes that increasing the Cap Limit will likely increase the recovery of these products, promoting a circular economy. These aggregates can then be processed and recycled into materials which assist the formation of concrete, pavement or roads.

Addressing emission impacts from the waste sector

Victoria aims to achieve net zero greenhouse gas emissions by 2045. Landfills can emit a potent greenhouse gas, methane, over long timespans. Waste to energy facilities, on the other hand, emit carbon dioxide, which is a less potent greenhouse gas. Accordingly, reducing inputs to landfill will ultimately reduce Victoria’s net emissions.

Diversifying energy production

Waste to energy facilities can provide an additional source of energy generation at a lower emission production than other energy generation sources. They also provide a source of heat for industrial processes, which can replace fossil fuels or natural gas. Increasing the Cap Limit may provide greater energy production and security.

Additional economic benefits

The Victorian Government highlights that waste to energy facilities will increase opportunities for employment and investment, such as through the construction and maintenance of facilities.

The RIS provides three potential Cap Limit options

Reasons for the proposed 2.5 Mtpa cap limit

The RIS concludes that 2.5 Mtpa is the preferred option, based on a cost benefit analysis and evaluation of forecasts on:

1. Waste feedstock availability
2. Cumulative tonnes of materials to be recovered
3. Waste diverted from landfill (and landfill capacity saved)
4. Greenhouse gas emissions until 2050

Waste feedstock availability and maximising the diversion of waste from landfill, were weighted the highest in the RIS’ evaluation.

Balancing benefits of diverting waste from landfill, with avoiding underutilisation of Waste to Energy facilities

As the Cap Limit increases, landfill savings increase but these gains diminish as the cap size grows. Reducing the amount of waste transferred to landfills provides extra airspace for waste (i.e. hazardous waste) that cannot be diverted to thermal waste to energy facilities. Nonetheless, a Cap Limit aims to “ensure facilities are appropriately scaled to the long-term availability of residual waste”, so that there is enough permittable waste to avoid facilities having to reduce or cease operations.

Under a 2.5 Mtpa option, the RIS projects that 74,406,200m³ of permitted waste will be diverted from landfill to waste to energy, saving 10.6 per cent more landfill space than 2 Mtpa. Under a 3 Mtpa option, the RIS projects that there will be 17.3 per cent more airspace capacity saved than under the current Cap Limit.

However, while 3 Mtpa maximises waste diversion from landfills, it is estimated that there would be insufficient waste to meet the aggregate waste to energy capacity under this option, for seven years after the number or scale of facilities are expected to come online. There is no expected deficiency under the 2 and 2.5 Mtpa options under a central projection.

To ensure the available permitted waste feedstock is sufficient to avoid the potential underutilisation of waste to energy facilities, the RIS concludes that a proposed Cap Limit of 2.5 Mtpa is likely to be more appropriate than a proposed Cap Limit of 3 Mtpa. However, it is important to note that the RIS feedstock modelling assumes that the waste generation per capita will remain constant, increasing only with population growth. Accordingly, these projections will need to be frequently updated to remain relevant.

Increasing valuable waste recovery, minimising greenhouse gas emissions and providing a cost benefit analysis

The RIS notes that under the 2.5 Mtpa option, the net present value of valuable materials (metals and IBA recovery) recovered in comparison to the current Cap Limit of 2 Mtpa is $79.6 million, 60 per cent lower than the 3 Mtpa option ($126.6 million). By contrast, the 2.5 Mtpa Cap Limit scenario is estimated to produce a net emission benefit of $8.1 million, while the 3 Mtpa Cap Limit scenario only produces a slightly higher value of $10.4 million.

In an overall cost benefit analysis, whilst the net benefit for 3 Mtpa was higher, the RIS concludes that the cost benefit ratios remained similar when considering all factors, such that a 2.5 Mtpa Cap Limit is the preferred option.

Timing and next steps: Consultation on proposed increase to cap

Public consultation is now open until 17 April 2025 to provide feedback and comments on the proposed increase to the Cap Limit.

How we can assist you

If you would like more information on how the increase of the Cap Limit might affect your organisation or would like assistance with preparing a submission on the Draft Regulations or the RIS, please contact a member of our Environment and Planning team.