Don't the council make money from the compost? Couldn't this find the scheme?

No. The City Council is a ‘collection authority’ in law, so it only organises the collections. The County Council is the ‘disposal authority’, which means that they have a duty to arrange for the disposal. In this case it means that they tender the work of making compost, and unfortunately the end product is low value. Neither the City Council nor the County Council receives an income from the waste.