Deposit-Refund Systems in Practice and Theory
AbstractA deposit-refund system combines a tax on product consumption with a rebate when the product or its packaging is returned for recycling. Deposit-refunds are used for beverage containers, lead-acid batteries, motor oil, tires, various hazardous materials, electronics, and more. In addition, researchers have shown that the approach can be used to address many other environmental problems beyond waste disposal. By imposing an up-front fee on consumption and subsidizing “green” inputs and mitigation activities, a deposit-refund may be able to efficiently control pollution in much the same way as a Pigovian tax. Theoretical models have shown that alternative waste disposal policies, such as virgin materials taxes, advance disposal fees, recycled content standards, and recycling subsidies are inferior to a deposit-refund. These results have been corroborated in calibrated models of U.S. waste and recycling. And in theoretical models that consider joint environmental problems and product design considerations, the deposit-refund continues to have much to recommend it as a component of an overall socially optimal set of policies. More empirical research into deposit-refund systems is needed, particularly the upstream systems used for many products. In these systems, the processors or collectors of recyclables—rather than consumers—receive the refund. Upstream systems may have lower transaction costs and better environmental outcomes than traditional downstream systems.
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Bibliographic InfoPaper provided by Resources For the Future in its series Discussion Papers with number dp-11-47.
Date of creation: 23 Nov 2011
Date of revision:
deposit-refund; waste disposal; recycling; source reduction; illegal dumping; Pigovian tax; advance disposal fee; upstream pollution; design for environment;
Find related papers by JEL classification:
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-03 (All new papers)
- NEP-ENV-2012-01-03 (Environmental Economics)
- NEP-RES-2012-01-03 (Resource Economics)
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