WP/19/283

Disposal is Not Free: Fiscal Instruments to Internalize the

Environmental Costs of Solid Waste

by Thornton Matheson
© 2019 International Monetary Fund WP/19/283

IMF Working Paper

Fiscal Affairs Department

Disposal is Not Free: Fiscal Instruments to Internalize the Environmental Costs of Solid
Waste

Prepared by Thornton Matheson

Authorized for distribution by Ruud De Mooij

December 2019

IMF Working Papers describe research in progress by the author(s) and are published to elicit
comments and to encourage debate. The views expressed in IMF Working Papers are those of the
author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF
management.

Abstract
This paper provides an overview of global solid waste generation, its environmental costs, and
fiscal instruments that can be used to encourage waste reduction and finance proper disposal.
Countries—especially island nations--struggle to manage an ever-increasing volume of solid
waste, generation of which is projected to exceed 2 billion tons a year by 2025. Although solid
waste management is usually relegated to subnational governments, externalities from
inadequate management, which include greenhouse gas emissions and ocean plastic pollution,
reach global scale. National governments thus play a critical role in creating incentives for waste
minimization and ensuring adequate resources for waste management. This paper evaluates
potential fiscal instruments to achieve these goals, particularly in developing country policy
environments.

JEL Classification Numbers: H2, H7, Q5

Keywords: environmental tax, solid waste, plastic pollution, plastic bag tax, recycling, landfill tax,
tipping fee, advance disposal fee, deposit-refund, extended producer responsibility, virgin
material tax.

Author’s E-Mail Address: Thorntonmatheson@[Link]

 3

Content Page

Abstract ........................................................................................................................................................................ 2

I. Introduction ............................................................................................................................................................. 4

II. The Scope of the Problem.................................................................................................................................. 5

A. Waste Generation.................................................................................................................................. 5
B. Waste Management and Finance ..................................................................................................... 8
C. Externalities ........................................................................................................................................... 12

III. Policy Responses................................................................................................................................................ 14

A. Overview ................................................................................................................................................ 14
B. Fiscal Instruments ................................................................................................................................ 16

IV. Conclusions and Areas for Further Research ............................................................................................ 30

References ................................................................................................................................................................. 33

Tables
1. Countries with Highest Per Capita Waste Generation Rates .................................................................. 7
2. Collection and Disposal Costs by Income Level ........................................................................................ 10
3. Valuation of Solid Waste Externalities in Palau.......................................................................................... 14
4. Unit-Based Pricing Regimes ............................................................................................................................ 20
5. Countries with Plastic Bag Charges and Bans ............................................................................................ 23
6. Global Impact of Plastic Bag Charges ........................................................................................................... 24

Figures
1. Urban MSW Generation by Income Level ..................................................................................................... 6
2. Per Capita GDP and Solid Waste Generation – OECD Countries............................................................ 6
3. Developed Country Waste Generation Rates ............................................................................................... 7
4. Composition of MSW by Income Level .......................................................................................................... 8
5. Disposal Methods by Income Group .............................................................................................................. 9
6. Other Environmentally Related Revenues - OECD.................................................................................... 10
7. Property Tax Revenues by Region ................................................................................................................. 11
8. Countries with Highest Solid Waste Revenues .......................................................................................... 12
9. OECD Solid Waste Revenues and Recycling ............................................................................................... 15
10. OECD Landfill Charges and Rates ................................................................................................................ 17
11. Alternative ADF Structures............................................................................................................................. 22
12. ADF Rates – Plastic Packaging..................................................................................................................... 26
13. ADF Rates - Batteries ..................................................................................................................................... 27
14. ADF Rates - Tires .............................................................................................................................................. 27
15. ADF Rates - Appliances .................................................................................................................................. 28
 4

I. INTRODUCTION1

Neoclassical economic models traditionally assume free disposal of goods,2 and in the absence
of public policies aimed at clearly pricing solid waste, most industries and consumers comport
themselves as if this were indeed the case. Of course, free disposal is a myth: Collection and
disposal of discarded goods consumes valuable resources, including labor, fuel and land.
Though some of these costs may be priced, those prices often lack transparency, and
environmental costs such as carbon and methane emissions are usually not priced at all, while
charges for improper disposal are often not enforced. Cheap and obscure prices for waste
disposal have encouraged waste-intensive production and consumption patterns, such as a
heavy reliance on single-use plastics, rather than recycling. Nonetheless, as human populations
continue to burgeon, the increasing relative scarcity of land and water clarifies that “There is no
away”3 where our refuse can be carelessly thrown. Body of the document.

Waste management expenditures currently accounts for about 0.5 percent of global GDP,4 but
that figure does not capture the full social cost of trash generation. In the developing world, a
large percentage of trash goes uncollected, and even collected trash is often poorly disposed of.
Developed countries, which collect and dispose of a high percentage of their trash, nevertheless
often have recycling rates well below 50 percent. Countries at all development levels are
struggling to manage an ever-increasing volume of waste, which rises not only with population
but also with per capita income. Global waste generation rates are projected to reach more than
2 billion tons each year by 2025, almost double their level in 2012.5

Trash generates numerous externalities that affect the quality of human life by polluting land, air
and water and by poisoning domestic and wild animal populations. Although solid waste
management is usually relegated to local governments, its damages reach national and even
international scale: For example, ocean plastic pollution has been valued at $13 billion per year,
and methane from anaerobic decomposition of organic waste accounts for about 5 percent of
global greenhouse gas emissions. Island nations, which have limited land and often depend on
the waste-intensive tourist industry, can find that waste management costs (including
environmental externalities) exceed 1 percent of GDP.

Particularly in the developing world, local governments frequently lack sufficient resources to
provide adequate waste management, which is often their single largest budget item; they
depend on central government transfers rather than local charges, which provides residents with
no incentive to reduce trash generation. For all these reasons, waste management is a macro-

1
I am grateful to Michael Keen, Ian Parry and participants at an IMF Fiscal Affairs Department seminar for their
constructive comments on earlier drafts of this study.
2
See, for example, Debreu (1982).
3
Leonard (2010).
4
Based on $400 billion estimate of Le Courtois (2012) and UNEP (2011).
5
Hoornweg and Bhada-Tata (2014).

(continued)
 5

relevant issue calling for involvement of national governments, if only to provide a policy
framework for local governments to improve waste management financing and delivery.

The purpose of this paper is to review the existing literatures on the scope of solid waste
externalities and the policy instruments that could be used to address the widespread
underpricing of waste management services. Developing countries need to increase domestic
resources to meet their sustainable development goals,6 and this is particularly true of
subnational governments, whose capacity is usually even more constrained than that of central
governments. This paper therefore focuses on revenue-raising instruments, rather than
regulations or subsidies, to create appropriate incentives for waste minimization. The pros and
cons of the various instruments are assessed with an eye toward adaption to the developing
country context, and country experiences with those instruments are evaluated wherever
possible. The conclusion highlights instruments which appear to have the most promise for
developing countries and outlines areas where further research would enable better crafting of
fiscal instruments for waste management.

II. THE SCOPE OF THE PROBLEM

A. Waste Generation

1. Global MSW generation amounted to roughly 1.3 billion metric tons in 2012, or an
average of 1.2 kilos per person per day.7 This volume is projected to almost double to 2.3 billion
tons in 2025 (Figure 1), driven largely by developing countries’ population and income growth.
In terms of aggregate volume, more than half of total solid waste is produced by developing
countries. However, in per capita terms, higher-income countries generate at least twice as much
waste per capita (Figure 2).8 Higher-income consumers not only consume more goods overall,
but also a higher concentration of packaged and complex durable goods such as vehicles,
appliances and electronic equipment. The average waste generation rate among OECD countries
in 2014 was 1.4 kg/person/day (Figure 3), although there was substantial variation around that
average.

6
See [Link]
7
Hoornweg and Bhada-Tata (2014) and Le Courtois (2012). UNEP (2011) gives a somewhat higher figure of
roughly 1.8 billion metric tons.
8
Troschinetz and Mihelcic (2009). These figures include wastes that are recycled.
 6

Figure 1. Urban MSW Generation by Income Level

Source: World Bank (2012)

Figure 2. Per Capita GDP and Solid Waste Generation – OECD Countries
2.5

2.0
Waste Geenration - KG/Person/Day

1.5

1.0

0.5

0.0
0 10 000 20 000 30 000 40 000 50 000 60 000 70 000 80 000 90 000 100 000
GDP Per Capita (USD, 2013)

Source: OECD Environmental Statistics

 7

Figure 3. Developed Country Waste Generation Rates

Source: OECD Environmental Statistics

2. Although high-income countries generally have higher rates of waste generation, many
of the world’s highest waste generation rates are found in developing island nations, where
tourism plays a large role (Table 1). Scarcity of land—the critical resource for landfilling (or
dumping)—makes these countries’ waste disposal problems especially acute. Rising sea levels
due to global warming of course exacerbate this scarcity.

Table 1. Countries with Highest Per Capita Waste Generation Rates

Country Kg/Person/Day Income Group Landfill/dumping rate (%)
Kuwait 5.72 High na
Antigua and Barbuda 5.50 High 99
St. Kitts and Nevis 5.45 Upper-middle 100
Guyana 5.33 Lower-middle 96
Sri Lanka 5.10 Lower-middle na
Barbados 4.75 High na
St. Lucia 4.35 Upper-middle 70
Solomon Islands 4.30 Low na
Tonga 3.71 Lower-middle na
New Zealand 3.68 High 85
Ireland 3.58 High 66
Vanuatu 3.28 Lower-middle na
Bahamas 3.25 High na
Source: Hoornweg and Bhada-Tata (2012)

3. Not only the volume, but also the composition of solid waste changes as income rises
(Figure 4). Whereas most waste generated in lower-income countries consists of biodegradable
 8

organic materials, this share shrinks as income rises. Most waste in middle- and high-income
countries thus consists of inorganic materials, notably paper and plastic. At present, the central
challenge for low-income countries is safely processing organic materials—for example by
composting, a practice which has high coordination costs but generates a valuable output.
Higher income countries, by contrast, need to address a growing flow of inorganic materials by
transforming production and consumption patterns toward comprehensive recycling. As
incomes grow, lower-income countries can also anticipate a rising level of inorganic wastes that
will need to be processed.

Figure 4. Composition of MSW by Income Level

Source: UNEP (2011)

B. Waste Management and Finance

4. As for waste generation, collection and disposal outcomes also vary with country income
level. At present, much of this waste goes uncollected and/or is improperly disposed of,
particularly in developing economies: Medina (2010) estimates that low- and middle-income
countries collect only 40-60 percent of their solid waste, and properly dispose of only 5-30
percent. While developed nations have very high collection rates, they nevertheless have room
to improve incentives for waste reduction and recycling.

5. Though performance differs widely, most developing countries’ systems for collecting
and processing solid waste are sorely inadequate. Collection rates in low and lower-middle
income countries average only 43 percent, rising to 85 percent in upper-middle income countries
(Hoornweg and Bhada-Tata, 2012). In high-income countries, there is currently little significant
dumping—legal or illegal—of solid waste. The majority of solid waste is deposited in sanitary or
at least controlled landfills,9 although recycling, incineration, and composting of organic waste

9
In contrast to dumping, controlled landfilling entails daily coverage of wastes with soil to deter vermin access,
as well as perimeter drainage. Modern sanitary landfill further entails entrapment and treatment of liquid
(leachate) and gas emissions. Figure 5 does not distinguish between these landfill standards.
 9

also account for significant processing shares (Figure 5). In developing countries, however—even
those in the upper-middle income category—dumping is still a common practice.

6. Although formal recycling activities in lower-income countries account for a small share
of waste disposal, those countries tend to have active informal recycling sectors. In contrast to
most developed countries, where recycling is usually a negative value-added process requiring
government subsidies, the lower wage level in developing countries make scavenging a
profitable activity. On average, scavengers process about 15 percent of MSW in developing
countries, where scavenging can account for as much as five percent of urban employment,
making it an important source of income and employment for marginal groups (UNEP, 2011; Le
Courtois, 2012).

Figure 5. Disposal Methods by Income Group

Source: Hoornweg and Bhada-Tata (2012)

7. According to the UN Environmental Programme (UNEP), waste management

expenditures are approximately 0.5 percent of global GDP.10 Waste management is typically the
responsibility of local governments, where it is often the single largest budget item, accounting
for 20-50 percent of operational spending (Medina 2010).

8. Though developing countries produce more than half the world’s solid waste, their
annual public expenditure on waste processing, about US$46 billion, represents only a little more
than one tenth of the roughly $400 billion spent on waste processing worldwide (Le Courtois,
2012; UNEP, 2011). This is partially due to lower labor costs, which render all methods of
collection and disposal cheaper, but also to inadequate collection and disposal (Table 2). The
absolute costs of waste collection and disposal are lower in developing countries, but they
nonetheless account for a higher share of income than in advanced countries. Cointreau (2006)
estimates that low-income countries pay 0.7-2.6 percent of income for solid waste management,
vs. 0.5-1.3 percent in middle-income countries and 0.2-0.5 percent in high-income countries.

10
Based on $400 billion estimate of Le Courtois (2012) and UNEP (2011).
 10

This higher cost share is due to several factors, including the high capital cost of inputs (mainly
trucks and fuel), process inefficiencies, and the more frequent pickups required in hotter climates.

Table 2. Collection and Disposal Costs by Income Level

Anaerobic
Collect Dump Landfill Compost Incinerate Collection Volume
Income Group digestion
Rate (%) (Ton/Person/Year)
USD/ton
Low 20-50 2-8 10-30 5-30 na na 43 0.22
Lower middle 30-75 3-10 15-40 10-40 40-100 20-80 68 0.29
Upper middle 40-90 na 25-65 20-75 60-150 50-100 85 0.42
High 85-250 na 40-100 35-90 70-200 65-150 98 0.78
Source: World Bank (2012)

9. Data on global waste-related revenues such as garbage collection fees, landfill taxes, and
advance disposal fees are scarce. Nonetheless, waste-specific public revenues are clearly much
lower than waste management expenditures. Even in OECD countries, which tend to have higher
levels of environmental taxes than developing countries, solid waste-related charges account for
only 0.02 percent of GDP on average (Figure 6).

Figure 6. Other Environmentally Related Revenues - OECD

10. Waste expenditure greatly exceeds waste-related revenues charges because most local
governments finance waste collection and disposal out of their general revenues. Globally, the
most common source of waste management finance is an unspecified portion of the local
property tax. Revenues from the property tax average 0.7 percent of GDP worldwide, but vary
widely by income and region (Figure 7). Among the 76 countries tracked by the OECD, property
tax revenues averaged of 1.1 percent of GDP in developed countries compared to 0.4 percent in
developing countries. The major problem with financing waste collection out of general
 11

revenues is that the practice does not confront residents with either an average or marginal cost
of waste generation, creating the impression that disposal is free, when in fact it has substantial
private and social costs.11

Figure 7. Property Tax Revenues by Region

Percentage of GDP - 2016
3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0
1

OECD Africa Asia-Pacific Latin America/Caribbean

Source: OECD revenue database

11. Despite the overall low level of waste-related charges, several countries have recently
expanded this revenue source in an effort to help finance and curb growing trash volumes
(Figure 8). Nordic and east European countries figure prominently in this group. The spike in
Italy’s waste-related revenues in 2010 resulted from its partially replacing its property tax with a
waste management tax in that year. Mauritius—the sole developing country among the top
tier—has doubled its solid waste-related revenues since 2007 as part of a concerted effort to
improve waste management practices and finances. This initiative arose in response to a tripling
of waste generation, from 400 tons per day in 1997 to around 1,200 in 2017, due to rising
incomes as well as the tourist industry. The central and local governments spend around MUR
1.5 billion (US$ 45 million) annually on waste management, compared to waste-related revenues
of roughly US$8.2 million.12 Most waste disposal is thus still financed out of general revenues, a
situation that Mauritian authorities plan to address by charging more businesses directly for
waste disposal.

11
The incentive effects of various waste-related charges will be dealt with in greater detail in the Section III.
12
[Link] OECD database.
 12

Figure 8. Countries with Highest Solid Waste Revenues

C. Externalities

12. Waste generation is ultimately driven by consumption of goods and services13,

production of which generates a variety of externalities throughout the product lifecycle (TKTK).
Extraction of virgin materials such as timber and metallic ores generates various externalities
including loss of biodiversity and carbon absorption, watershed pollution and erosion, and
aesthetic disamenities. The production process consumes energy, which typically adds to carbon
emissions and generates various liquid, solid or gaseous wastes. Finally, end-of-lifecycle product
disposal—as well as disposal of solid production wastes--may produce dumping or landfill
externalities, which are the focus of this paper.

13. Failure to internalize any of these externalities via appropriate taxation and/or regulation
can distort activities throughout the entire production-consumption chain. For example, Conrad
(1999) presents a general equilibrium model showing that failure to charge for disposal biases
production in favor of virgin materials, and indeed, virgin material taxes have been studied and
promoted as a means to encourage recycling.14 Similarly, Acuff and Kaffine (2013) present a
model showing the impact of waste disposal taxes and recycling subsidies on carbon emissions,
which they measure as being at least as large as disposal externalities: Carbon savings from using
recycled inputs vary across materials, but can be large, especially for aluminum. Such studies

13
Although solid waste consists of disposed of goods, service consumption also generates material wastes at
both producer and consumer levels. For example, dry cleaning services proliferate plastic bags and hangers as
well as chemical emissions, and catering services produce food waste as well as packaging and, often, single-use
serveware. TKTK also notes that legal and medical services produce paper, plastic and biohazard wastes.
14
See, for example, Dinan (2001).
 13

concur that externalities associated with each production stage are ideally addressed by a tax
applied at that stage: That is, virgin material taxes or royalties are best suited to internalizing
extraction damages, and the social cost of carbon emissions is best dealt with through a
comprehensive carbon tax. However, in the absence of these instruments, a disposal tax may
reduce some of those externalities or vice versa. This paper will generally assume that virgin
material royalties and carbon taxes are available to address extraction and production
externalities and focus on taxing waste to curb disposal externalities. Disposal externalities do,
however, include greenhouse gas emissions from dumps and landfills, where decomposition of
organic wastes releases biogas, a roughly 50-50 mixture of carbon dioxide and methane. These
emissions, which are not generally covered by carbon taxes, account for about 1.4 percent of
total global GHG emissions.15

14. Solid waste externalities depend critically on the means of disposal: that is, whether trash
is deposited in a sanitary landfill, a non-sanitary landfill, an official dump, or an illegal dump. In
the U.S., where the 1976 Resource Conservation and Recovery Act required waste to be disposed
of in sanitary landfills, Kinnaman (2006) estimates that disposal externalities range from $5.38 to
$8.76 per ton, including greenhouse gas emissions, or only about 0.01 percent of GDP.16 South
Korea, which required separation of organic wastes in 2013, noted a significant fall in waste
externalities—specifically, ground water contamination and foul odors—as a result. However, as
Figure 5 suggests, much of the world’s trash is not subject to these high standards.

15. Non-sanitary landfilling and dumping generate numerous negative externalities for
humans and the environment. In addition to emitting foul odors, they also poison wild and
domestic animal populations; breed vermin such as rats and insects that spread disease; allow
toxins including unprocessed human sewage to leach into ground and surface water; and
generate spontaneous fires that create air pollution. Illegal dumping—including trash that
escapes from legal dumpsites via wind or water—causes the same problems as legal dumping
and also blocks drainage systems, contributing to flooding and waterborne diseases. Plastic
waste—and especially thin plastics bags—are of particular concern in this respect due to their
non-biodegradability, impermeability, mobility and toxicity.

16. While most of the pollution from improper solid waste disposal is localized, it
nonetheless has international spillovers: Approximately five percent of greenhouse gases derive
from methane produced by anaerobic decomposition of organic materials in solid wastes. And
the UN Environmental Program estimates that 8 million tons of plastic end up in the ocean each
year, where they cause an estimated $8-13 billion in annual damages, including poisoning

15
ICPP (2007). Solid and wastewater emissions total 2.8 percent, approximately half of which come from solid
waste and waste incineration. In some landfills, biogas is captured and either flared or used for energy
generation. While it is generally agreed that this reduces landfill GHG emissions, estimates vary as to how much.
16
In 2006, U.S. GDP was $13.86 trillion and the U.S. generated 251.3 million tons of trash. However, not all U.S.
trash is deposited in sanitary landfills: For example, roughly 300,000 tons of U.S. plastic waste ends up in the
ocean (Jambeck, 2015).

(continued)
 14

marine stocks and littering shorelines, which damages the fishing and tourism industries.17
Jambeck and others (2015) find that more than 60 percent of ocean pollution originates in only
six Asian countries (China, Indonesia, the Philippines, Vietnam, Sri Lanka, and Thailand),
suggesting that waste policy reform in only a few countries could have a large positive impact.

17. Comprehensive data on global solid waste externalities are not available (Cointreau,
2006). However, individual studies make it clear that those costs are macro-relevant for at least
some countries. Islands, with limited land mass and dependence on tourism and marine
activities are particularly vulnerable. For example, Hajkowicz et al. (2005) estimate the total cost
of solid waste in Palau, including public collection and disposal and impairments to human
health, fishing, and tourism income, at approximately 1.6 percent of GDP (Table 3).

Table 3. Valuation of Solid Waste Externalities in Palau

Source: Hajkowicz et al., 2005

III. POLICY RESPONSES

A. Overview

18. In response to a rising tide of solid waste, governments at all development levels are
seeking new policy measures to improve solid waste management. Across the globe, a wide
variety of regulatory (“command and control”) and economic instruments (taxes, fees and
subsidies) are used to manage and finance solid waste collection and disposal. Common
regulatory instruments include extended producer responsibility (EPR), sanitary landfilling

17
UNEP (2014) estimates ocean plastic pollution conservatively at $8 billion, while Jambeck and others (2015)
estimates $13 billion.
 15

requirements, and recycling quotas, while common fiscal instruments include waste collection
charges, advance disposal fees, and deposit-refund schemes. No single policy approach is ideal
for all contexts, and regulatory and economic instruments can serve as complements as well as
substitutes.

19. This paper focuses on revenue-raising instruments due to developing countries’ general
need for domestic resource mobilization, which is particularly acute for waste management
finance: Waste-related charges in developing countries usually do not cover the costs of
collection and disposal, let alone related negative externalities. Also, disposal standards tend to
be low, resulting in high solid waste externalities; elevating these standards, for example by
requiring sanitary landfilling or composting of organic materials, would reduce externalities but
impose additional costs, requiring additional funding. Among OECD countries, higher solid
waste taxes are strongly correlated with reduced waste volumes and increased recycling levels
(Figure 9).

Figure 9. OECD Solid Waste Revenues and Recycling

Solid Waste Revenues and Recycling

0.05 25

0.05

0.04 20

0.04
Percentage of GDP

15

Percentage
0.03

0.03

0.02 10

0.02
OECD average revenues (left axis)
OECD average recycling rate…
0.01 5

0.01

0.00 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

20. Although waste management is typically the responsibility of local governments, central
governments play an important policy role in setting waste management standards and ensuring
adequate financing. Since some externalities from solid waste, such as methane and carbon
emissions18 and aquatic pollution, reach the national and international levels, policies to address
them should arguably fall under the purview of central governments, with guidance by
multilateral agencies. Also, some economic instruments, such as material charges and hazardous
waste excises, are most easily imposed on producers or imports, requiring national-level
legislation. National policies can also promote local own revenue generation, which is frequently
inadequate in developing countries. Local public services including waste management are often

18
Anaerobic decomposition of organic waste (which can be avoided by composting) results in methane
emissions; solid waste collection (via trucks) and incineration create carbon emissions. Failure to recycle useful
materials, particularly aluminum, also worsens carbon emissions.
 16

financed out of central government transfers, which weakens citizen perception of their cost.
Central governments should therefore provide a policy framework encouraging effective
incentives for waste minimization as well as adequate resources for waste management
(Cointreau and Hornig, 2003).

21. Waste stewardship involves multiple parties with different objectives and constraints.
Producers design, produce and sell products, and wholesalers and retailers buy products to resell
at a markup, both with the goal of generating profits. Consumers buy products and dispose of
used products and packaging to enhance their welfare while minimizing costs. Local
governments are often charged with responsibility for waste collection and disposal (including
recycling), to which end they levy taxes and/or fees or receive subsidies from higher levels of
government. Private or non-profit entities may also be involved in waste disposal or recycling
with the goal of generating profits or covering costs, respectively. A well-designed product
stewardship program must take into account the interests and incentives of all these parties to
achieve the desired outcome.19 A growing literature on the game theory of sustainability
explores these interactions.20

22. Developing countries have certain distinguishing characteristics that should be taken into
account in designing waste financing policies. First, they tend to have high poverty rates, so
regressivity of any tax measure is an important concern. Second, despite lower labor costs, they
tend to have relatively high per capita collection costs, which depend heavily on the prices of fuel
and capital equipment. Third, they tend to have very limited administrative capacity, particularly
at the local level. And fourth, they have significant private recycling activities.

B. Fiscal Instruments

Disposal Level

23. Excessive waste generation stems from the fact that the full cost of waste disposal—
private cost plus externalities--is seldom fully compensated. This problem begins at the disposal
site and works its way up through the entire production chain. The private costs of landfilling—
land rent, capital and operating costs—may be compensated by tipping fees: charges levied by
the landfill owner, whether public or private, per ton of material deposited. Tipping fees often
have variable rates, with reduced rates for waste streams with lower externalities or higher reuse
value (e.g., construction debris, separated compost) and increased rates for hazardous wastes.
Although tipping fees are paid by immediate users of the dumpsite, such as public and private
waste haulers, they ultimately burden consumers by increasing the cost of disposal. Waste
haulers recoup the fees by charging more to households, businesses, and local governments
(who must then levy higher waste charges on constituents, etc.) While private landfill owners

19
See U.S. Environmental Protection Agency (2011) for a detailed discussion of how different waste disposal taxes
and regulations affect different types of actors.
20
See, for example, Grimes-Casey and others (2007) and Kaushal and others (2015).

(continued)
 17

generally charge adequate fees to cover their costs, publicly owned landfills may undercharge,
providing an implicit subsidy to waste generation.21

24. Even if the private costs of a landfill are fully compensated, its public disamenities—odor,
groundwater contamination, greenhouse gases, truck traffic, vermin, etc.—usually are not.
Numerous hedonic studies of property values have shown that proximity to a landfill negatively
impacts property values, even in countries with relatively stringent environmental standards.
According to a U.K. survey, properties located within one mile of a landfill are worth an estimated
5-10 percent less than comparable properties located elsewhere (DEFRA, 2003). To compensate
communities for this loss, U.S. landfills often pay “host fees” to local governments per ton of
trash deposited in their jurisdiction. Kinnaman (2006) finds that these fees partially offset waste
disposal externalities and recommends imposition of a landfill tax to internalize any residual
externalities. In general, there will be a tradeoff between landfill taxes and tipping fees: If landfill
environmental standards are raised, it will reduces environmental externalities but raises landfill
operating costs, resulting in a shift from taxes to tipping fees.

25. In the OECD, higher landfill charges (taxes and tipping fees) are strongly correlated with
lower rates of landfilling (Figure 10). In Europe, landfill taxes became popular in the 1990s as one
means of reducing solid waste volumes. Since 2000, European landfill tax rates have generally
declined—sometimes sharply—as other fiscal and regulatory measures reduce solid waste and its
environmental externalities, and reduced waste volumes threaten the financial viability of existing
landfills (Park and others, 2018).

Figure 10. OECD Landfill Charges and Rates

Source: OECD Environmental database

21
One reason why publicly owned landfills may undercharge for trash disposal is fear of creating an incentive for
illegal dumping. This issue is discussed further in the section on unit-based disposal pricing.
 18

Household Level

26. Globally, the most common waste-specific fiscal instruments are fees and taxes levied by
local governments on households and smaller businesses to finance solid waste collection and
disposal. (Larger businesses, by contrast, typically manage their own waste streams through
some combination of recycling and on- or off-site disposal.) There are variety of ways these
charges can be structured that affect waste reduction and recycling incentives as well as
distributional incidence. Although household-level charges are most common, waste-related
fees can also be applied earlier in the consumption cycle, at the retail or production stage. The
institutional constraints of a particular environment—for example, the extent of trade or local
administrative capacity—will make some instruments more effective than others.

27. Local waste charges may be either explicit or implicit, which affects their salience. Explicit
charges typically take the form of a flat fee charged per residence, or the fee may vary scaled
somehow to property size or value. In some countries, waste disposal fees are charged as a
utility surcharge, such as an ad valorem markup on an electricity or water bill. The most
common implicit charge is for waste collection to be financed out of local government general
revenues, which may include intergovernmental transfers and the largest source of which is
usually the property tax. In all these cases, waste disposal charges are independent of the
amount of trash actually generated; the marginal cost of disposing of an additional unit of trash
is therefore zero, and residents have no financial incentive to reduce their waste output. Where
charges are implicit, consumers will likely be unaware of even the average cost household cost of
waste disposal.

28. While none of the abovementioned instruments encourages waste reduction at the
margin, their salience, administrability and proportionality to household consumption—that is,
their fairness—varies. Flat fees have the advantage of being relatively easy to administer, but
they are unfair in the sense that they are not proportional to household consumption.22 Under a
flat fee scheme, smaller and lower-income households cross-subsidize larger, higher-income
households. Utility surcharges, which are used in several developing countries (Cointreau and
Hornig, 2003), are both easy to administer and proportional to a measure of household
consumption. Larger and higher income households are likely to have higher consumption levels
both of goods and services that generate solid waste and of water and energy. Levying the
waste charge on the utility bill eases administration and improves compliance: The bills can be
paid simultaneously, with the water or electric company acting as collection agent for the waste
management authority, and households are more likely to pay in order to ensure that their water
and power supply is not cut off.23 Both flat fees and utility surcharges are salient.

29. Property tax rates are set proportionate to some measure of property value, sometimes
with a progressive rate schedule and/or an exempt value threshold. They thus tend to be quite
progressive, as property ownership correlates strongly with both wealth and income. However,

22
For example, some Ethiopian municipalities charge a flat fee for waste collection. Lohri et al., (2014).
23
Where developing countries provide a “lifeline” level of electricity and/or water free of charge to poor
households, they must decide whether to also provide trash collection free of charge or to charge a flat fee below
the utility threshold.
 19

property values do not necessarily correlate closely with consumption and are therefore a poor
proxy for waste generation. A large family living in a modest-sized home may generate far more
trash than a large house occupied by a small family, and property tax is due even on unoccupied
properties that generate no waste. Moreover, property taxes usually finance a variety of local
public services, so residents paying for waste management in this manner do not receive a clear
signal of even its average cost.

30. Creating a financial incentive for waste reduction requires imposing a non-zero marginal
cost for waste disposal. Under unit-based or “pay-as-you-throw” (PAYT) pricing, residents are
charged per unit of trash collected. This can be done in several ways: Under a bin-based system,
residents pay for a certain number of size-regulated trash bins that they can fill for regular
collection. Depending on the system, they are charged for all bins each period or, where
administrative capacity allows, only for those that are set out for collection. Alternatively,
residents are required to purchase special trash bags or bag stickers to pay for the cost of trash
disposal; only trash set out in appropriately marked bags in accepted for collection. The most
administratively sophisticated systems charge residents for the weight of trash collected, which is
the measure most relevant to landfill costs.

31. The appropriate PAYT charge would cover the full cost of collecting and disposing of
each unit of trash as well as any environmental externalities generated in that process.24 In
reality, fees charged are often much lower, causing Cointreau (2003) to question their incentive
effects. Nonetheless, international studies show that unit-based pricing schemes have a
significant negative impact on waste volume generated, with an average arc elasticity of -0.34,
according to a meta-analysis conducted by Bel and Gradus (2016). The meta-analysis shows no
significant difference in effectiveness between bin-based and bag-based systems, although
weight-based systems perform substantially better, with an additional marginal elasticity of -0.4.
Surprisingly, systems offering curbside pickup of recycling materials did not perform significantly
better, but those offering compost collection did, with an additional marginal elasticity of -0.2.

32. The major disadvantages of PAYT are its high administrative/compliance costs and the
incentive it creates for illegal trash disposal. Under bin- and weight-based systems, charges must
be tailored to each household. Bag-based systems are simpler insofar as they put the burden of
compliance on consumers to purchase bags or stickers, but they create an incentive for
counterfeit bags/stickers and dumping unpaid bags in collective bins. Imposing PAYT is thus
easiest in suburban settings dominated by single-family homes and more difficult both in urban
settings, where residents have access to collective bins, and in rural areas, where trash can be
dumped in remote areas. Where dumping risk is high, Fullerton and Kinnaman (1995) posit that
the best alternative to unit-based pricing is pre-charging for goods disposal upon purchase (e.g.,
through a local sales tax) and collecting garbage for free.

33. Several advanced countries have unit-based pricing regimes, which can raise a significant
amount of revenue that is frequently earmarked for disposal costs (Table 4). South Korea’s

24
This would include landfill externalities and anti-dumping enforcement costs, and any untaxed vehicular
externalities (carbon emissions, road damage and accidents, and congestion).

(continued)
 20

experience is illustrative: Unit-based pricing was introduced in 1995 in response to a rapid rise in
solid waste generation due to rising incomes as well as changing consumption patterns.25 Under
the volume-based waste fee (VBWF) system introduced, consumers and smaller businesses are
required to buy official bags to dispose of waste. The charge for the bags varies among
municipalities, reflecting local disposal costs; in 2014, the average cost of a 20 liter household
bag was KRW 482 (about US$0.46), with local prices ranging from KRW 299-813 (US$0.28-0.77);
businesses pay higher rates; the average cost of a 20-liter business bag in 2014 was KRW 766
(US$0.73). 26

Table 4. [Link]-Based
Table Pricing
Pay-As-You-Throw Regimes
Regimes
Revenue
Country Instrument Year Base Rate Earmarking (US$ mns.)
Charge on municipal Ton or m³ of 100% - waste
waste collection / waste 3-75€ per container; varies by type management 242.6
Finland treatment 1979 collected of waste and size of the container. costs (2014)
Varies between municipalities.
National averages 2008 were 238
Volume-based waste Municipal KRW per 10 litres bag and 447 484.2
Korea fee 1995 wastes KRW per 20 litres bag. - (2014)
Volume of
Municipal waste user collected
Latvia charge NA waste 5.27-7.51 € per m³ - NA
Charge on municipal Volume of
waste collection / collected Municipalities are urged to apply full
Norway treatment 1981 waste cost charging - NA
Charge on municipal Waste
waste collection / collection 100% - disposal
Switzerland treatment 1950 bags 1.15 - 2.88€ per 5 kg bag. costs NA
Source: OECD PINE Database

34. Although Korea’s VBWF system generally does not charge consumers for the full cost of
waste disposal, it has nonetheless been instrumental in triggering a significant change in
consumer behavior. According to KEI (2016), waste generation fell from 1.3 kg per person per
day in 1994 to 0.95 kg in 2014, while total waste generation fell from 58.1 tons per day to 49.9
tons. The recycling rate rose from 15.4 percent to 59 percent over the same period. In 2013, an
additional composting program for the separation of food wastes was added (although many
households began separating food wastes prior to that year in order to reduce their trash
output). Landfilled food waste has fallen from 97 percent in 1994 to only about 2 percent in
2014, which has greatly reduced landfill externalities (air and water pollution as well as methane
emissions).

Retail Level

35. General consumption taxes, such as the value-added tax (VAT) or retail sales tax (RST),
raise the general cost of consumption compared to other activities (e.g., leisure) and thus

25
Korea Environment Institute (2016), henceforth cited as KEI, notes that, as Korea’s growth engine shifted from
exports to domestic consumption, shopping evolved from a necessity to popular leisure activity, leading
producers to shorten their expected product lives.
26
KEI (2016).
 21

produce some source reduction of waste. However, since consumption of different goods and
services produces waste streams of varying cost to the environment, general consumption taxes
are a blunt instrument for internalizing those costs. General consumption taxes are therefore
better suited to general revenue raising than to internalizing environmental costs. However,
where household-level waste charges are not feasible, a retail sales tax is a reasonable proxy for
household consumption and could be used to prepay for disposal; if varied at the local level, it
could be tailored to local disposal costs.

36. Jamaica’s Environmental Protection Levy (EPL), introduced in 2007, is an example of a

general consumption tax imposed for waste management purposes. The 0.5 percent ad valorem
charge was originally imposed on all imports (except those from CARICOM countries) to offset
the environmental costs of waste materials, particularly plastic packaging. Revenues from the
EPL were supposed to be earmarked to improve waste management, but given Jamaica’s fiscal
pressures they were actually swept into general revenues. In 2015, the government extended the
base to include imports from CARICOM countries and domestic manufacturing, with credit given
for EPL paid on inputs; however, it did not reform the use of revenues. The EPL thus came to
resemble an additional 0.5-point surcharge on Jamaica’s General Consumption Tax (a credit
invoice-type VAT).

37. Because different products, depending on their material composition and production
process, generate waste streams with differing environmental impacts, a system of goods-
specific excises could internalize those environmental costs. Such excises, known as advance
disposal fees (ADFs)27 can be levied at either the retail or the production (or import) level (Walls,
2011); in either case, they pass through into consumer prices, so their burden falls on consumers
and discourages consumption of goods with more costly waste streams.

38. ADFs can reflect different levels of disposal costs, from recycling (lowest) to trash
disposal to littering (highest) (Figure 7). If ADFs internalize only the cost of recycling, then an
additional charge should be levied for disposal (and a stiffer penalty for dumping—if detected).
A more reasonable practice is for ADFs to reflect the cost of legal disposal, with rebates given for
delivering goods for recycling (a deposit-refund scheme, discussed below). Where the
environmental costs of improper disposal are very high, it may be reasonable to incorporate
them into the ADF, with rebates given for recycling. Porter (2002) proposes that the best model
may be incorporating legal disposal costs into the ADF and controlling dumping by non-fiscal
means. Determining appropriate levels for ADFs on highly pollutive goods could be
administratively challenging for many developing countries but could be facilitated by the
development of product- and context-specific norms.

27
These are sometimes referred to as advance recycling fees (ARFs).
 22

Figure 11. Alternative ADF Structures

39. Since retailers are more numerous than manufacturers (or importers) and many are
retailers are small, retail ADFs will generally be more costly to administer than production-stage
ADFs. On the other hand, retail-level ADFs may be more visible to consumers, which can
increase their behavioral impact. Retail ADFs can either be included in the retail price (implicit) or
stated separately as a specific charge (explicit). Both implicit and explicit ADFs increase the price
of taxed goods, resulting in waste reduction at source, but explicit ADFs can also raise consumer
awareness of a good’s pollutive externalities, which can further dampen demand for the taxed
good and/or increase recycling.

40. An example of implicit ADFs are the tire and battery fees imposed in many U.S. states.
These taxes are typically collected and paid by the dealer when a tire or vehicle is sold. (The
dealer will often retain a small percentage of the revenue to offset its collection costs.) Because
the dealer pays the fee, the consumer is usually unaware of it unless the retailer chooses to
itemize it on the sales invoice. Proceeds from tire and battery taxes are often earmarked to
fund recycling or other environmental programs.

41. The best known type of explicit ADF is the plastic bag tax or fee, which is now in use
across a broad swath of countries (Table 5). Thin plastic bags and are now globally recognized as
a serious environmental threat whose damages extend far beyond unsightly litter. Carbon and
air pollution emissions from production account for about a third of bags’ environmental costs
(UNEP, 2014). Because of their physical structure, thin plastic bags escape easily from poorly
handled waste deposits into the environment, where they cause numerous harms. Plastic bags
poison both wildlife and livestock, with toxins feeding back to humans. They also clog drainage
systems, which spreads disease and causes floods, and contribute to ocean plastic pollution
(Xanthos and Walker, 2017).
 23

42. In the absence of a plastic

Table 5. Countries with Plastic Bag Charges and Bans
bag tax, retailers typically include Charge or Charge/Ban Ban Only
the cost of plastic bags in their Argentina (2009) 1/ Australia 1/
overhead and provide them Botswana (2007) Bangladesh (2002)
“free” to consumers, recouping Colombia (2016) Canada 1/
the expense through their Denmark (2003) China (2008)
general price margin. Consumers Germany (2016) Eritrea (2005)
thus already pay for plastic bags, Hong Kong (2015) France (2016)
Indonesia (2016) 1/ India (2002) 1/
although the price is not explicit
Ireland (2002) Italy (2011)
and does not include the
Israel (2017) Kenya (2011)
environmental costs of bag Malaysia (2011) 1/ Mauritania (2013)
proliferation. Charging Mauritius (2006) Morocco (2016)
consumers explicitly for bags thus Mexico (2010) Myanmar (2009)
has both a price and a signaling Netherlands (2016) Papua New Guinea (2016)
effect, serving to raise consumer Romania (2006) Rwanda (2008)
awareness of plastic bag South Africa (2004) Taiwan (2003)
pollution. Uganda (2007) Tanzania (2006)
UK (2011-2015) 1/ Tunisia (2017)
43. Plastic bag consumption USA 1/
1/ Policy varies subnationally
per person per year varies
dramatically across countries, in part due to public policies: Denmark, which imposes an average
charge of about EUR 0.37 per bag levied on retailers, has one of the world’s lowest consumption
rates of only 4 single-use plastic bags per person per year.28 In the United States, where there is
no national level policy but a few subnational governments impose bans and/or charges, the rate
is about 350 per year. In Thailand, which has no bag restrictions, the rate is almost 3,000 per
year.29

44. Policies designed to reduce plastic bag use vary widely. Per bag charges range from as
little as US$0.015 in parts of Indonesia to as much as US$1.00 in Brownsville, Texas. Charges are
often combined with bans on bags of less than a minimum thickness (e.g., 20-50 microns), and
bans without charges are also common. Not all bag charges are taxes: Frequently—as in China—
bag laws require retailers to charge consumers a minimum amount for bags, but not to remit the
revenues to the public treasury. Revenues that are remitted may be earmarked for
environmental cleanup funds, which can lead to governance issues, particularly in developing
countries. Enforcement also varies both across and within countries: For example, Mexico’s 2010
plastic bag law remains largely unenforced, while China’s 2008 law is mainly enforced in urban
areas.

45. International experience shows that charging even a negligible fee for plastic bags can
dramatically reduce their consumption (Table 6). In the listed countries, imposing a very small
bag fee—the average fee was equal to 0.3 percent of national daily per capita consumption—
reduced bag use by an average of two thirds. Because prior to imposition of charges bags are

28
The rate including multiple use bags is approximately 90 per year. Ireland and Luxembourg have the lowest
overall plastic bag use rates in the EU of approximately 20 bags per year.
29
The Thai government has asked consumers to voluntarily reduce bag use and is considering introducing a tax.
 24

given out for free (or actually, for a very tiny hidden price bundled into the retail margin), an arc
elasticity of demand is estimated. Arc elasticities ranged from 24 to 47, with an average value of
34.

Table 6. Global Impact of Plastic Bag Charges

Ratio to national
Change in bags Arc
Country Year Bag Charge average daily Source
consumed Elasticity
consumption

National
Percentage Percentage
currency
Denmark 1994 0.50 0.19 -66 -33 Andresen (1994), He (2010)
Ireland 2002 0.15 0.35 -94 -47 Convery et al. (2007)
South Africa 2003 0.17 0.36 -48 -24 Hasson et al. (2007)
Botswana 2007 0.26 0.68 -50 -25 Dikgang and Visser (2012)
China 2008 0.09 0.36 -49 -24.5 He (2010)
Wales 2011 0.05 0.10 -81 -40.5 Thomas et al. (2016)
Portugal 2015 0.10 0.32 -74 -37 Martinho and others (2017)
UK Department for
England 2015 0.05 0.10 -83 -41.5 Environment, Food and
Rural Affairs (2018)
Average 0.31 -68.1 -34.1

46. The extreme sensitivity of bag consumption to introduction of bag charges suggests that
they impact consumer behavior well beyond the typical income and substitution effects of a
marginal price increase. Imposing an explicit charge on a previously free good raises consumer
awareness of the environmental costs of single-use plastic bags, triggering a voluntary additional
reduction in bag use. However, the strength of this signaling effect may wear off over time.
Dikgang and others (2012) posit that some of the sharp reduction in bag use that followed South
Africa’s introduction of bag charges was due to consumer resistance to paying for a good that
they previously received “for free”; once this shock wore off, however, the deterrent effect of the
bag charge diminished. It may thus be necessary to increase bag charges over time to maintain
their deterrent effect, and this dynamic has in fact been observed in numerous European
countries.

47. Deposit-refund (D-R) schemes, which have been widely used for beverage containers in
particular, are ADFs offering refund for goods (or packaging) returned for recycling. In contrast
to an ADF, which increases goods price unequivocally, a D-R raises prices only for consumers
who do not recycle. D-Rs therefore deter consumption less and encourage recycling more than
ADFs, making them a generally lower-cost and more effective strategy (Palmer and others, 1997;
Acuff and Kaffine, 2013). Unlike unit-based disposal pricing (see below), deposit-refund schemes
also do not encourage illegal dumping. Palmer and Walls (1997) show that the optimal D-R rate
is the marginal social cost of solid waste disposal. Walls (2011) details the successful application
of deposit-refund schemes for a variety of products—bottles, batteries, tires, motor oil, and
electronic goods--in the U.S. and Canada.
 25

48. Though theoretically efficient, D-Rs can in practice have high administrative and
compliance costs. Consumers incur some cost of storing and returning used items, which must
at least be compensated by the deposit in order to ensure compliance. As incomes increase,
higher deposit rates become necessary to compensate consumers for their time and effort,
particularly if there are alternative methods of recycling, such as curbside pickup.30 Depending
on program design, retailers, distributors and producers may also incur costs of administering
the program, which can be offset by their receiving some fraction of the deposit amounts.
Unclaimed deposits may revert to the state (or recycling authority) or to participating businesses.

49. Deposit-refund schemes be a very useful method of reducing waste and encourage
recycling in developing countries, and their incidence could moreover be highly progressive. By
establishing a minimum monetary value for covered goods, D-R schemes could boost urban
employment, invigorate existing informal recycling activities, and help ensure an income stream
for scavengers. Unclaimed deposits from consumers whose compliance value exceeds the
deposit amount can be appropriated to fund the D-R system and other recycling activities. The
United Nations Development Program supports D-R schemes as an effective method of
combatting ocean plastic pollution and has funded feasibility studies for their introduction in
small island developing states (SIDS) of the Pacific (Mar Dieye, 2018). Somewhat surprisingly, few
developing countries outside of that region have moved to introduce D-R schemes. One
exception is Zimbabwe, where Kaseke (2005) finds a high elasticity of recycling response with
respect to the deposit-refund scheme for bottles in particular.

Production/Import Level

50. As previously noted, ADFs can be levied at the production or importation stage rather
than the retail stage, which makes for greater administrative simplicity. Like retail ADFs,
production-level ADFs pass through into consumer prices, reducing consumption of more
pollutive goods; they are however less likely be separately itemized on the receipt and are
therefore less salient to consumers. A major concern regarding ADFs levied at the production
level is their effect on the competitiveness of exports. As a source-based tax, ADFs raise the
relative price of goods at the production stage, even if consumption (and disposal) take place in
another jurisdiction. Importers will therefore favor goods produced in jurisdictions that do not
levy ADFs. Rebate of ADFs on exports is therefore appropriate, at the cost of increased
administrative complexity.

51. ADFs have become quite common throughout Europe on goods with high environmental
disposal costs and/or high recycling value, including batteries, electronics and appliances,
packaging including food and beverage containers, tires and vehicles. An early review of

30
The rise of curbside recycling in the U.S. has led to pressure to repeal “bottle bills” in some U.S. states, and
Delaware scrapped its law in 2011. Deposit rates of $0.05-0.10 have stagnated over decades, diminishing the real
incentive for consumers to participate, while the spread of curbside recycling offers a “free” alternative. However,
bottles collected through D-R programs are generally cleaner and more likely to be reused or recycled than
bottles processed via curbside recycling. D-R programs have historically been unpopular with beverage
producers, distributors and retailers, who are sometimes undercompensated for their participation. In recent
years, however, increased interest in sustainability has led some producers to support bottle bills to ensure an
adequate flow of recyclable inputs.
 26

European ADFs highlights their main challenges as policy instruments aimed at correcting the
underpricing of waste generation: ADFs tend to be introduced at very low levels with numerous
exemptions due to concerns about impairing competitiveness and employment (Ecotec, 2001).
Lack of international coordination and/or export exemption exacerbates these pressures. Korea
and some Canadian and U.S. subnational governments also apply ADFs selectively, with
occasional use in emerging market countries including China, India, Russia and South Africa.

52. The OECD Policy Instruments for the Environment (PINE) database provides a detailed
description of many national and subnational ADFs, including base, rates, and revenues. Tax
rates for some of the most common items subject to ADFs—plastic packaging, batteries, tires
and appliances—are summarized in Figures 12-15. These figures show the tremendous
variability in ADF rates not only across but also within countries, either due to rate differences
among subnational jurisdictions or to rate variation applied to different goods within the same
category. Tax base descriptions also include numerous exemptions, most commonly for exports
but also for particular uses—e.g., tires for public service vehicles or plastic packaging for medical
goods. Further research into the determinants of ADF rates, such as local disposal costs and
political values, would help develop rate-setting norms and delineate best practices.

Figure 12. ADF Rates – Plastic Packaging

ADF Rates - Plastic Packaging
3

2.5

2
* Revenues earmarked for
environmental and/or waste
EUR per KG

management programs
1.5

0.5

0
ry
l
k

ia
*

ly*

*
s
ia*
a*

ga
an

nd
ar

nd
ia

nd

ia

on
a
ni

Ita
rtu
an

at
tv
nm

ng
rm

la

la
la

ed
to

La

o
er
hu

Hu

Ice
Po

Po

Cr
De

Ge
Es

ac
th
Lit

M
Ne
 EUR per Tire EUR per Unit or KG 10
12

0
2
4
6
8
Po

10
15
20
25
30
35
40
45
50

0
5
Fin rtu
la ga

500
Po nd Ca Lat l
rtu
ga n a v ia
Cr l da *
o (B
Ca
De atia C
nm
na C US )*
d a ana ark (T
(S d a *
Ca a US X)
na ska (BC
d a tch )* (S
( N ew C

Max per tire (left axis)

B, a US )
NS n ) De ( FL
,N nm )
F)
* a
M Be rk*

Max per Unit

al
ta lgi
u
Ca US US m*
na (A
da U K (M
(A S( )
lb T Bu O)*
management programs

er X )* lg
ta
,
* Revenues earmarked for

ar
environmental and/or waste

M PEI)
*

Min per tire (left axis)

ac Ice i a*
e d la

Min per Unit

US Ca nd
na US o ni
27

(A d a ( IL a Ko *
L,
FL ( M , NY re
,N an ) *
E, Lie Swe a*
NV US itob ch d e

management programs
ADF Rates - Tires
, O (Ca a)* te n*

* Revenues earmarked for

H , lifo
ADF Rates - Batteries

PA rn Sw ns te

environmental and/or waste

, U ia) i tz i n
Max per KG

T, er *
la
52.79

US W A n
(IA ) Po d*
Figure 14. ADF Rates - Tires

Max per KG (right axis)

,K la
Po S) nd
Figure 13. ADF Rates - Batteries

lan Cr *
oa
Bu d *
lga
t
r
Po ia*
Min per KG

S lo ia* rtu
va Sl ga
ki ov l
Hu a* ak
S o nga Hu i a*
ut ry
h ng
Af Lit ar
ric

Min per KG (right axis)

a
hu y
M an i
ac a*

0
1

ed

0.2
0.4
0.6
0.8
1.2

on
ia
EUR per KG
 28

Figure 15. ADF Rates – Appliances

ADF Rates - Appliances
80 18

70 16

* Revenues earmarked for 14

60 environmental and/or waste
management programs 12
50
EUR per Unit

EUR per KG
10
40
8

30
6

20
4

10 2

0 0
l ) ) ) C) ly ry
ga d* in
* )* BC o ni
a
CA NC na
* ea and kia*
rtu lan nste b er
ta
a( S ( US ( US
(S
hi Ita nga Ko r l a
o e r l d e d
U C u Po lo v
P
itz ht
e (A na Mac H S
S w Liec ad a Ca
n
Ca
Max per unit (left axis) Min per Unit (left axis) Max per KG (right axis) Min per KG (right axis)

53. Another common feature of ADF regimes highlighted in Figures 8-11 is frequent
earmarking of their revenues for waste management, recycling or other environmental purposes.
Although revenue earmarking is generally considered suboptimal as it may prevent public
revenues from being applied to their highest-value use, earmarking of environmental revenues
may be necessary to sustain environmental protection programs through economic downturns
and changes of government. Brett and Keen (2000), for example, model environmental
earmarking as a means by which green politicians can insulate environmental programs from
potential future changes in government.

54. For developing countries, source-based ADFs are attractive insofar as the small number
of collection points make them relatively easy to administer. Countries that import a large share
of their consumer goods can collect most ADFs at customs, plus perhaps at a small number of
manufacturers. The environmental cost of managing the waste stream from imports, which are
particularly high for island countries, could potentially be used as a basis for rationalizing tariff
structures, which currently reflect a variety of economic and political influences. In order not to
harm trade competitiveness, manufacturers should be charged ADFs only for output sold into
the domestic market, and ADFs charged on imported inputs should be rebated for exported
products. However, production waste should be charged for where it is disposed of (likely in the
producing country).

55. Palmer and others (1997) suggest that deposit-refund schemes be imposed at the
producer level in order to achieve greater administrative simplicity. Under producer-level D-R,
producers (or importers) charge retailers an ADF, part or all of which recycling consolidators
reclaim from the producer when returning used goods and/or packaging. Operation of a
deposit-refund scheme at the producer level thus assumes the existence of household- or retail-
 29

level recycling mechanism, such as the curbside pickup systems prevailing in many developed
countries. Where such mechanisms do not exist, D-R schemes are more effective at the retail
level in order to ensure the return of used goods or packaging.

56. Producer-level ADFs are often an important component of extended producer

responsibility (ERP), a regulatory regime that imposes a legal liability on manufacturers to reclaim
their goods and/or packaging after use. Under EPR, imposition of the recycling responsibility on
producers and importers increases their costs, which they pass along to consumers through
higher prices, abating consumer demand. Producers then use the higher unit income to either
recycle the goods themselves or, as is often the case, to compensate an intermediary to fulfill this
function.31 In this respect, EPR functions like an ADF or producer-level D-R scheme, reducing
source demand and encouraging recycling. However, EPR has some distinct advantages over
those regimes: With EPR the government does not need to determine the appropriate excise tax
level, so EPR is less information-intensive than ADFs. And perhaps even more importantly, ERP
incentivizes manufacturers to design their products to reduce waste and maximize recycling and
reuse. Also, to the extent that ERP does not apply to exports, it should not impact
competitiveness. Applying ERP to importers should ensure that it does not favor imports over
domestically produced goods.

57. ERP has the greatest potential in larger developing countries with significant
manufacturing for domestic consumption. South Africa has included a significant ERP
component in its National Waste Management Strategy (Republic of South Africa, 2016). In the
first phase, manufacturers in the paper and packaging, electrical and electronic, and lighting
industries were required to submit comprehensive waste minimization and management plans in
2018.32 Manufacturers may either subscribe to the government waste management plan or
define their own plan, which may include the establishment of non-profit organizations to
manage the industry waste cycle. Plans are required to include detailed data on waste volumes,
management costs, environmental impact, and job creation. Plans are also required to define
methods of raising public awareness of industry waste streams and involvement of historically
disadvantaged individuals and communities.

58. A virgin material tax (VMT), as the name suggests, is an excise on virgin (but not
recycled) raw materials. VMTs lower the relative cost of recycled inputs, stimulating producer
demand for recycled materials and consumer demand for goods with higher recycled content
(Miedema, 1983; Conrad, 1999). Increased demand for recycled inputs can make recycling
programs, which frequently operate at a loss, more cost-effective. However, Dinan (1993)
demonstrates that either deposit-refund schemes (i.e., a waste charge combined with a recycling
subsidy) or unit-based disposal pricing are more efficient than a VMT at encouraging recycling,
because a VMT only encourages use of recycled inputs in goods that also use virgin materials.

31
For example, under Germany’s pioneering “Green Dot” program, manufacturers can discharge their obligations
under Germany’s 1991 Packaging Ordinance, by paying a private company (Duales System Deutschland, or DSD)
to collect and recycle their packaging. Manufacturers paying into this system mark their packaging with a “Green
Dot” logo to indicate that can be recycled in the DSD bin/bag system. This system has since been adopted by 19
other European companies, each of with its own consolidator enterprise.
32
Republic of South Africa (2017).
 30

However, VMTs (or resource royalties) are appropriate instruments for internalizing the
environmental costs of extracting of virgin materials (Dinan, 1993; Kinnaman, 2006).

IV. CONCLUSIONS AND AREAS FOR FURTHER RESEARCH

59. Pressured by the rising environmental costs of solid waste, countries are seeking better
means of reducing its generation and financing its processing. Minimizing waste and maximizing
recycling offer several economic benefits in addition to a cleaner environment, including more
secure material supplies, greater productive efficiency, and greener employment (European
Commission, 2015). Fiscal instruments, together with appropriate regulations, can play an
important role in both generating resources for proper waste management and modifying
producer and consumer behavior to reduce waste. While the full product cycle may generate
multiple externalities, this analysis focuses on those produced by waste disposal, assuming that
carbon and virgin material taxes are available to address externalities from fossil fuel
consumption and natural resource extraction, respectively.

60. Developing countries face several fiscal policy priorities for waste management. First,
waste management programs are often underfunded and/or are charged for in a manner that
obscures their cost to consumers. Waste management is often paid for out of general revenues,
so consumers do not perceive its price. Even when households pay an explicit garbage collection
fee, it often does not cover the full cost of disposal, let alone waste-related environmental
externalities. Further, because fees are usually unrelated to the amount of trash disposed of (that
is, the marginal cost of disposal is zero), households face no disincentive for waste generation.
For all these reasons, consumer awareness of waste management costs and externalities tends to
be poor.

61. To remedy this situation, households and businesses should be confronted with the full
cost of waste management, including not only collection and disposal costs, but environmental
externalities as well. Where feasible, unit-based pricing schemes based on the actual weight or
volume of trash disposed of create the best incentive for residents to minimize waste. However,
where administrative capacity is limited and/or illegal dumping risk is high, charging on the basis
of household consumption is a second-best alternative. A sales tax tailored to local disposal
costs prepays for waste generation at the retail level. Alternatively, an ad valorem surcharge can
be added to water or electric utility bills, which offer a proxy for household consumption.
Though marginal disposal cost under this system is still zero, households at least perceive an
average cost of waste management, and administration is facilitated. If property tax compliance
is good and the above systems are rejected for political reasons (e.g., because they are relatively
regressive), a third-best alternative is to pay for waste management through the property tax;
however, the waste management fee should then at least be separately stated to inform
households of its cost.

62. Imposing adequate landfill charges—both tipping fees to cover the private costs of
landfill operation and landfill taxes scaled to environmental externalities—ensures that full waste
disposal costs are internalized. Landfill taxes should reflect local waste externalities, which will
 31

depend on population density, and topography, among other factors; they should also cover the
cost of any increase in anti-dumping enforcement necessitated by higher landfill charges.
Landfill charges paid by public and private waste haulers ultimately raise costs for consumers by
increasing production costs or raising local government charges. Fully financing waste
management in a manner that raises consumer awareness of its environmental costs should help
build support for an increase in environmental standards. Improved solid waste regulations, such
as sanitary landfilling and separation of organic materials, will reduce externalities (though
raising landfill operating costs).

63. While both upstream and downstream fiscal instruments can help internalize disposal
costs, downstream instruments have clear advantages. Downstream charges will typically be
more visible to the consumer and thus more likely to raise their awareness of alter behavior.
Consumer-level charges also do not need to be border-adjusted to avoid harming
competitiveness. Nonetheless, production waste disposed of in the source country should be
charged for at source, even if the product is then exported. Revenues from waste-related
charges should arguably be earmarked for waste management to ensure that environmental
standards are not compromised in times of fiscal stress.

64. Deposit-refund schemes (disposal tax plus recycling subsidy) can be used to ensure
recycling of goods with the highest material value and/or the highest disposal externalities. This
would include large consumer items such as vehicles, appliances, electronics and tires as well as
batteries, metal cans, PET bottles, and paper/cardboard. Where broad-based curbside recycling
programs exist, deposit-refund schemes could be applied at the producer level for ease of
administration. In the absence of such programs, however, retail-level deposit reclaim is
necessary to incentivize consumers to recycle; it also helps generate a revenue stream for
scavengers. Where the goal is less to encourage recycling than to discourage consumption, a
simple retail-level ADF may be more appropriate, as in the case of lightweight plastic bags. If
high value and pollutive goods are covered by deposit-refund schemes and ADFs, then fees for
waste disposal can be gauged toward the average cost of other types of waste.

65. A regulatory requirement for extended producer responsibility offers certain advantages
over producer-level ADFs. Importantly, they place fewer information requirements on
governments, since producers choose how to adjust their prices to reflect their expected
recycling costs. Assuming that producers are not liable for reclaiming exported goods, EPR also
does not require border adjustment. And internalizing recycling costs allows producers to
design goods to for ease of recycling.

66. More research is needed on many aspects of waste taxation, but perhaps the two most
salient areas are responsiveness of consumer behavior to ADFs and measuring the environmental
externalities from waste disposal. Plastic bag taxes have received a great deal of attention, but
most studies do not take a rigorous approach to estimating behavioral elasticities that would
help determine effective bag tax policies. Given the proliferation of ADFs on various items—and
the wide differentials among their rates and bases (see Appendix)—better studies of their effects
 32

would be extremely useful. Similarly, in order to set ADF and waste management charges to
internalize the external costs of waste disposal, the magnitude of those costs—as well as their
variability in different geographic and demographic settings—must be determined.
 33

REFERENCES

Acuff, K. and D. Kaffine (2013). “Greenhouse Gas Emission, Waste and Recycling Policy,” Journal
of Environmental Economics and Management, 63: 74-86.

Attzs, M., M. Maharaj, and G. Boodhan (2014),“Survey and Assessment of Environmental Taxes in
the Caribbean,” Inter-American Development Bank, Washington DC.

Bel, G. and R. Gradus (2016). “Effect of Unit-Based Pricing on Household Waste Collection
Demand: a Meta-regression Analysis,” Resource and Energy Economics 44: 169-182.

Brett, C. and M. Keen (2000). “Political Uncertainy and the Earmarking of Environmental Taxes,”
Journal of Public Economics, 75: 315-340.

Cointreau, S. (2006). “Occupational and Environmental Health Issues of Solid Waste

Management,” Urban Paper UP-2, World Bank Group, Washington DC.

Cointreau, S. and C. Hornig (2003). “Global Review of Economic Instruments for Solid Waste
Management in Latin America,” Regional Policy Dialogue, Inter-American Development
Bank, Washington DC.

Conrad, K. (1999). “Resource and Waste Taxation in the Theory of the Firm with Recycling
Activities,” Environmental and Resource Economics, 14: 217-242.

Convery, F., S. McDonnell, and S. Ferreira (2007), “The Most Popular Tax in Europe? Lessons from
the Irish Plastic Bags Levy”, Environmental Resource Economics, 38:1-11.

G. Debreu (1982), “Existence of Competitive Equilibrium,” Handbook of Mathematical Economics,

K. Arrow and M. Intriligator, editors, Elsevier, Vol 2: 697-743.

DEFRA (U.K. Department for Environment, Food and Rural Affairs), (2003). “A Study to Estimate
the Disamenity Costs of Landfill in Great Britain”, Final Report by Cambridge
Econometrics in association with EFTEC and WRc, London.

DEFRA (U.K. Department for Environment, Food and Rural Affairs). (2018). “Single-use plastic
carrier bags charge: data in England for 2016 to 2017.”
[Link]
england/single-use-plastic-carrier-bags-charge-data-in-england-for-2016-to-2017.

Dikgang, J., A. Leiman and M. Visser (2012). “Elasticity of Demand, Price and Time: Lessons from
South Africa’s Plastic Bag Levy,” Applied Economics 44: 3339-3342.

Dikgang J. and M. Visser, “Behavioral Response to Plastic Bag Legislation in Botswana,” South
African Journal of Economics 80(1): 123-133.

Dinan, T. (1993). “Economic Efficiency Effects of Alternative Policies for Reducing Waste
Disposal,” Journal of Environmental Economics and Management, 25:242-256.
 34

Ecotec (2001), “Study on the Economic and Environmental Implications of the Use of
Environmental Taxes and Charges in the European Union and its Member States,”
C1653/PtB/DH/MM.

European Commission (2015). “Closing the Loop – an EU Action Plan for the Circular Economy”,
COM (2015) 614, Brussels, February 12.

Fullerton, D. (2005), “An Excise Tax on Municipal Solid Waste?” in Theory and Practice of Excise
Taxation, S. Cnossen, ed., Oxford University Press, Oxford, 155-192.

Fullerton, D. and T. Kinnaman (1995). “Garbage, Recycling and Illicit Burning or Dumping,”
Journal of Environmental Economics and Management” 29: 78-91.

_________, (1996). “Household Responses to Pricing Garbage by the Bag,” American Economic
Review 86(4): 971-984.

Grimes-Casey, H., T. Seager, T. Theis, and S. Powers (2006). “A Game Theory Framework for
Cooperative Management of Refillable and Disposable Bottle Lifecycles,” Journal of
Cleaner Production, 15: 1618-1627.

Guerrero, L. G. Maas, and W. Hogland (2013), “Solid Waste Management Challenges for Cities in
Developing Countries,” Waste Management, 33: 220-232.

Hasson, R., A. Leiman and M. Visser, “The Economics of Plastic Bag Legislation in South Africa,”
South African Journal of Economics 75(1): 66-83.

He, H. (2010) “The Effects of an Environmental Policy on Consumers: Lessons from Chinese Plastic
Bag Regulations,” University of Gothenburg Working Papers in Economics No. 453, June.

Hoornweg, D. and P. Bhada-Tata (2012), “What a Waste: a Global Review of Solid Waste
Management,” World Bank, Washington DC.

Jambeck, J., R. Geyer, C. Wilcox, [Link], M. Perryman, A. Andrady, R. Narayan, and K. Law
(2015). “Plastic Waste Inputs from Land into the Ocean.” Science. 347 (6223): 768-771.

Kaseke, N. (2005), “The Use of Deposit Refunds as Pollution Control Policy in Urban Areas: the
Case of Zimbabwe,” University of Zimbabwe Department of Business Studies, Harare.

Kaushal, R. A. Nema and J. Chaudhary (2015). “Strategic Exploration of Battery Waste

Management: A Game-Theoretic Approach.” Waste Management and Research 33(7):
681-689.

Khatib, I. (2011), “Municipal Solid Waste Management in Developing Countries: Future

Challenges and Possible Opportunities,” Integrated Waste Management - Volume II, S.
Kumar, editor, InTech DOI: 10.5772/16438.

Kinnaman, T. (2006). “Examining the Justification for Residential Recycling,” Journal of Economic
Perspectives, 20(4): 219-232.
 35

Korea Environment Institute (2016). “Two Decades in Effect: Volume-Based Waste Fee System in
South Korea,” Korean Environmental Policy Bulletin, Ministry of Environment, Seoul, 14(3).

Le Courtois, A. (2012), “Municipal Solid Waste: Turning a Problem into a Resource,” Private Sector
and Development, 15:1-3, [Link].

Leonard, A. (2010), The Story of Stuff, Free Press, New York.

Lohri, C. R., Camenzind, E. and Zurbrugg, C., “Financial Sustainability in Municipal Solid Waste
Management – Costs and Revenues in Bahir Dar, Ethiopia,” Waste Management, 34: 524-
552.

Mar Dieye, A. (2018). “Container Deposit Laws: A Winner for Preventing Ocean Plastics
Pollution,” United Nations Development Project,
[Link]
[Link].

Martinho, G., N. Balaia, and A. Pires (2017). “The Portuguese Plastic Carrier Bag Tax: The Effect on
Consumers’ Behavior,” Waste Management, 61: 3-12.

Medina, M. (2010), “Solid Wastes, Poverty and the Environment in Developing Country Cities:
Challenges and Opportunities,” World Institute for Development Economics Research,
WP No. 2010.23.

Miedema, A. (1983). “Fundamental Economic Comparisons of Solid Waste Policy Options,”

Resources and Energy, 5(1):21-43.

Palmer, K. and M. Walls (1997). “Optimal Policies for Solid Waste Disposal Taxes, Subsidies and
Standards,” Journal of Public Economics, 65: 193-205.

Palmer, K, H. Sigman, and M. Walls (1997). “The Cost of Reducing Municipal Solid Waste,”
Journal of Environmental Economics and Management, 33: 128-150.

Park, J., M. Jung, R. Kim, S. Moon, and N. Lee (2018). “Review on Impact of Landfill Tax for Waste
Management in EU Countires,” Journal of Korea Society of Waste Management, 35(3):
191-201.

Porter, R. (2002), The Economics of Waste, Resources for the Future, Washington DC.

Republic of South Africa (2017), Government Notice 41303, Staatskoerant vol. 630, December 6.

Republic of South Africa Department of Environmental Affairs (2016). Government Notice 40200,
“National Pricing Strategy for Waste Management,” Staatskoerant vol. 614, August 11.

Thomas, G. W. Poortinga and E. Sautkina (2016). “The Welsh Single-Use Carrier Bag Charge and
Behavioural Spillover,” Journal of Environmental Psychology, 47: 126-135.
 36

Troschinetz, A. and J. Mihelcic (2009), “Sustainable Recycling of Municipal Solid Waste in

Developing Countries,” Waste Management 29: 915-923.

United Nations Environment Programme (2011), “Waste: Investing in Energy and Resource
Efficiency”, [Link].

UNEP (2014), “Valuing Plastics: The Business Case for Measuring, Managing and Disclosing Plastic
Use in the Consumer Goods Industry,” [Link].

U.S. Environmental Protection Agency (2011). “Final Report of the Dialogue on Sustainable
Financing of Recycling of Packaging at the Municipal Level,” EPA-530-R-11-004.

Walls, M. (2011), “Deposit-Refund Systems in Practice and Theory,” Resources for the Future
Discussion Paper 11-47, Washington DC.

Walls, M. and K. Palmer (2001). “Upstream Pollution, Downstream Waste Disposal, and the
Design of Comprehensive Environmental Policies,” Journal of Environmental Economics
and Management, 41: 94-108.

Xanthos, D. and T. Walker (2017). “International Policies to Reduce Plastic Marine Pollution from
Single-Use Plastics (Plastic Bags and Microbeads): A Review”, Marine Pollution Bulletin
118: 17-26.