Reducing plastic pollution in food packaging: Should we tax virgin plastic consumers or producers?

A key feature of circular economy is the economic connection between virgin firms and recycling firms. We develop a conceptual framework to study the impact of taxing virgin plastic consumers with money back policy (TCMB) and, separately, taxing virgin plastic producers (TP) on total social welfare in the U.S. plastic market under two scenarios (virgin and recycling plastic firms economically connected (scenario I) vs independent (scenario II)). We find that taxing consumers with money back (TCMB) policy is superior to taxing producers (TP) to reduce the landfill quantity in both scenarios. For example, under 10% tax (in both TCMB and TP) policy and the assumption of 10% of the used virgin plastic returned to collection centers and 30% of tax amount being returned to consumers in TCMB policy, we find that the landfill quantity is 64% and 62% of virgin plastic produced in scenario I and scenario II, respectively under TCMB policy. However, in TP policy, the landfill quantity is 74% (scenario I) and 74.6% (scenario II) of produced virgin plastic. Accounting the environmental damage cost associated with production of virgin plastic, taxing either consumer or producer increases the total social welfare (TSW) in the U.S. plastic market compared to the no policy scenario. Under scenario II, TCMB and TP generate 23% and 15.67%, respectively, additional total social welfare in the plastic market compared to the benchmark scenario.