Greening policy of production and recycling in Taiwan

Social concern with appropriate disposal and recycling of E-waste and scrap has been increasing for decades in Taiwan and elsewhere. In Taiwan, to prevent environmental pollution and promote appropriate recycling, the Environmental Protection Administration (EPA) has introduced a government-managed recycling system dubbed the Recycling Fund Management (RFM) system. Under the RFM system, producers (manufacturers and importers) have an obligation to pay recycling fees to the RFM committee of the EPA. There are 33 targeted items in 13 categories, such as home appliances, IT equipment, tires, motor vehicles, dry batteries, and so on. Recyclers who participate in the recycling system are subsidized by the RFM committee according to their recycling performance. To enter the recycling fund system, recyclers are required to meet standards for proper operations, and must have obtained authorization to treat and recycle wastes. Additionally, to get the subsidy, recyclers have to establish weighing and monitoring facilities and maintain a recycling rate of at least 75%. In recent years, the EPA has promoted the greening of producers by differentiating environmentally-friendly goods from others by setting different recycling fee rates for goods in each category. The quality standard that recyclers must meet to obtain the subsidy has become gradually more severe. Encouraging the greening both of production and recycling processes is desirable, and producers may be able to follow the greening path. Recyclers also need to satisfy a quality standard under the RFM system. However, it is sometimes hard for recyclers to meet the required quality because it depends on several factors beyond their control, such as original state of discharge and transportation and storage conditions. If recyclers need to take full responsibility not only for their own faults but also for stochastic risk which affects the quality of their recycling and which is beyond their control, the RFM system will become less attractive to them. That means strengthening the regulation on recyclers may prompt them to exit from the RFM system, increasing the risk of environmental pollution caused by uncontrolled treatment of potential pollutants. In this paper, using a theoretical model, we examine the effects of the greening policy of the Taiwan government on the amount of recycled E-waste, the scale of the recycling market, the risk of environmental pollution, and the social welfare of Taiwan. To this end, we build a simple model including two markets: production and recycling under a deposit-refund system like the RFM system in Taiwan. The E-waste that is not treated under the RFM system has a negative impact on the environment in this model. We also set differentiated tax and subsidy rates as is characteristic of the recycling system in Taiwan. The approach we employ in this model is comparative statics. With theoretical analysis, we find some implications of the greening policy in Taiwan.