The Effectiveness of Taxes in Reducing Waste


A report to the Green Party on using taxes to reduce waste:
Iza Kruszewska, Clean Production Action
Several European Union countries (see below) are starting to introduce taxes on:

* different types of waste;
* on short-life products, such as one-way disposable packaging, and;
* particularly hazardous products, such as batteries, which generate intractable waste streams.

The Different Purposes of Waste Taxes

Waste taxes can be cost covering charges where the revenues are used either to pay for waste disposal services, such as the Dutch household waste tax, or to finance recycling services, such as the Swedish battery charge.

Or, they can be incentive taxes levied to change environmentally damaging behaviour. Revenues are often used to further encourage behavioural change. One example is the German toxic waste charge.

The third way that a waste tax can be used is as a fiscal environmental tax, whereby surplus revenues from the tax can be used to finance budget deficits or shift taxes from labour to resources. Such a change in the tax system which shifts taxes away from labour and capital and onto the use of resources is known as an ecological tax reform (ETR).

Clearly, these three types of taxes are not mutually exclusive; a cost-covering charge may have incentive effects, as may a fiscal tax, or revenues from a fiscal tax may be partially used for environmental purposes. The motivation for the taxes may even alter over time. However, by classifying by the main purpose of the tax helps with the evaluation of effectiveness.

Below are some examples of waste taxes introduced in different countries and their effectiveness:

United Kingdom


The UK's first green tax, the Landfill Tax, introduced in October 1996, aims to cut waste, to get more of it reused or recycled and to boost employment. It is Britain's first attempt at shifting taxation from jobs to pollution. The Landfill Tax is expected to raise pounds 450,000 a year, through a levy of pounds 7 a tonne on waste (reduced to pounds 2 for 'inert' material, such as bricks or soil).

Kenneth Clark, the UK's Chancellor of the Exchequer, said the proceeds of the tax will help to take some pounds 500,000 a year off employers' National Insurance contributions, encouraging them to employ more people. He thus endorsed the central tenet of the ecological tax reform.

Unfortunately, without a similar tax on waste incineration, the Landfill Tax is likely to shift waste to incinerators. Thus, the aim of the tax, which was to reduce or reuse waste, will not be achieved.

Denmark

Denmark applies a charge on the disposal (dumping/land-filling and incineration) of non-hazardous waste since 1987. It is a fiscal environmental tax whose purpose is to reduce waste generation, increase recycling and reuse, and ensure that a larger proportion is burnt. The tax nearly doubles the cost of waste disposal. Revenues from the waste charge go into the general budget. Since 1993, they have been used as part of the green tax reform.

Current tax rates are DKK 195 per ton for dumping and DKK 160 per ton for incineration. The difference in the rates reflects the aspiration to increase the share of waste incinerated and to reduce the share of waste for dumping.

The tax rates will be raised again in 1997. Waste incinerated with energy recovery will be charged DKK 160 per ton; without energy recovery, it will be DKK 210. Waste going to landfill will cost DKK 285 per ton.

Between 1985 and 1993, the reuse and recycling of waste has increased from 21% to 50% of the total amount of waste generated. During the same time, dumping dropped from 57% to 26%. However, with increased reuse and recycling, the proportion of waste incineration remained the same.

The financial effect of the waste charge is considerable. Landfill tariffs (excluding the waste charge) are DKK 150 - DKK 250 per ton. The waste charge of DKK 195 results in doubling the costs of waste dumping. The tariffs for incineration are between DKK 150 and DKK 300 per ton. The waste charge of DKK 160 increases the costs of incineration on average by 70%.


The Danish EPA believes that the waste tax has prompted a substantial increase in the reuse of demolition and construction waste. Total waste generated has increased by only 2% between 1988 and 1993. During this period, the reused fraction increased from 12% to 82%, which by far exceeds the target of 60% reuse set for the year 2000. Between 1985 and 1993, the recycling rate increased by some 25%.

Germany

In April 1991, the Land of Baden-Wuerttemberg in south-west Germany introduced a charge on toxic waste to tackle the increasing amounts of this waste. Hence, the tax can be regarded as an incentive tax, even though it raises substantial revenues.

The tax rates were doubled in 1993 to DM 100, DM 200 and DM 300 per ton, depending on the potential danger of the waste and the costs of its treatment. This has increased average costs of dumping and incineration by 10-30%.

The amount of toxic waste generated has dropped from 606,000 tons in 1991, to 430,000 tons in 1992 and 354,000 tons in 1993 - a 41% reduction. At the same time, revenues increased from DM 19,8 million in 1992 to DM 36,7 million in 1993.

However, according to a 1994 study, carried out by Eco-Institute in Darmstadt, only half of the 250,000 tons of reduced toxic waste can be regarded as prevented. The other half has disappeared due to tax evasion and industrial recession. the tax has reduced the planned capacities of incineration. Because consultants still see a huge potential for further waste prevention, they are demanding that incineration residues also be taxed. This will also hamper attempts at tax evasion.

The Netherlands

Some Dutch municipalities have moved away from charging a flat rate for household and commercial waste collection and have introduced differential charges. There are three main types of systems:
* one or two municipalities actually weigh the contents of the dustbin at the point of collection and charge accordingly;
* a few villages apply a "pay by bag" system;
* some municipalities base the municipal waste charge on the size of the household or frequency of collection.

With charge bills increasing rapidly, the motivation for variable charge rates is primarily to promote a fairer distribution of waste management costs across households. However, it seems that variable rates also have an incentive impact on households.

Municipalities with a 'pay-by-bag' system generated 10-20% less waste per capita than comparable municipalities with traditional systems. Illegal dumping was reported to be of no major problem, provided that the price per waste bag did not exceed NFL 2.

Sweden

In 1991, Sweden introduced charges on the sales of lead batteries over 3kg and small batteries containing over 0.025% mercury or cadmium. Revenues from the charges are used to cover the costs of separate collection and disposal, and to provide information.

Lead Batteries
The charge rate is SEK 40 per kg. Extended producer responsibility legislation places a statutory duty on those selling lead batteries to take back used batteries. A special company was formed to administer the revenues from this charge. The target for collection was set at 95%. In 1991 and 1992, the number of used batteries collected exceeded the number of new batteries sold. In 1993, the collection rate was 95%.

Since the charge is only 6-8% of the price of batteries and consumers have no other alternatives, the charge has not influenced consumption of batteries. This is a user charge and its policy effectiveness has to be measured in terms of the success of the collection system, which is very good. Moreover, the charge renders the recycling of lead batteries economically feasible.

Mercury (Hg) and nickel-cadmium (NiCd) Batteries
Charge rates are SEK 23 per kg for Hg batteries and SEK 25 per kg for NiCd. Revenues are used for covering the costs of disposal, for supporting NiCd battery recycling and for providing information. However, revenues are dropping as battery producers reduce the amount of Hg and Cd in batteries. Below a certain threshold of Hg or Cd, batteries are not liable for tax.

The collection rate for Hg batteries was 89% in 1991, but only 49% for NiCd, which is less than the 75% target set by government. NiCd batteries have long durability and many are built into consumer goods, thus avoiding registration and tax. A collection premium for these batteries is under consideration.

The charges are too low to influence demand for batteries. Moreover, the reduction in heavy metal content of new batteries is due more to increased environmental awareness and international developments than it is to price incentives. Although the policy effectiveness is still good, in future with revenues falling further, battery disposal costs may not be covered by the charge.

Conclusion

The OECD's first review of economic instruments used for environmental purposes identified some 150 instruments in use in 1987, or 100 if purely administrative charges and liability are excluded. In 1987, OECD member countries were still relying on command-and-control policies with some economic add-ons. Most of these environmental taxes had little incentive impact.


By 1994, the number of instruments had increased by over 50%, with the most growth in product charges and deposit-refund systems. Although this paper has focused on waste taxes, many countries have also introduced taxes on short life or particularly hazardous products, such as the battery charges in Sweden.

Deposit refund schemes encourage re-use and are used in many countries on returnable glass bottles. Many countries have introduced product charges to change consumer behaviour and/or to cover the cost of disposing of used product. For example, Austria has product charges on refrigerators, Sweden on cars and Hungary on refrigerators, packaging and tires.

Economic instruments can never totally replace regulatory and other non-fiscal measures. They are only one set of instruments that will move our production and consumption patterns to Clean Production. Ultimately, it is impossible to 'price' clean air, clean water, species biodiversity and human/wildlife health. While the use of non renewable energy and materials should be taxed to reduce their consumption, toxic and genetically engineered materials must be banned.

References

"Environmental Taxes - Implementation and Environmental Effectiveness",
European Environment Agency, Copenhagen 1996.

"OPEN denounces the shortcomings of the new EU strategy for waste management
proposed by the Commission - suggestions for improvement", Agence Europe,
Brussels, 25 September 1996.

"Recycling everything but the paperwork", The Daily Telegraph, 30 September
1996, p 29.

"Waste not, want not - at last a tax everyone likes", Geoffrey Lean, The
Independent on Sunday, 29 September 1996, p 7.