I just purchased a can of root beer from the small campus convenience store on my way here. Once the last drops are gone I will throw the aluminum can away. And if it is convenient, I may even drop it in a recycling bin. The point of my allusion is to illustrate that I will not save the can, strap it to my bicycle, and ride it two miles to the nearest Massachusetts Department of Environmental Protection redemption site to claim the deposit-refund—it is simply not worth it for me to do so.
Embodied in the $1.29 I paid for the soda was a five-cent deposit designed to reduce litter, encourage recycling, and raise revenue for the state. In the U.S., these types of systems are designed and enforced at the state level. Most states have a similar system with deposits ranging from five to fifteen cents. Deposit-refund systems (DRS) for beverage container disposal can also be found in India, Syria, Lebanon, Egypt, Cyprus, Australia, Canada, France, Germany, and Switzerland, among others (Hanley et al. 2007).
It is clear that the DRS mechanism is vastly popular. But why is a system even necessary? What are the intentions behind such system and does the system achieve them? Let’s use a bit of economic analysis to try and answer some of these questions.
Back to my empty root beer can…who pays for its disposal? Who pays to pick it up if I decide to litter? These are all costs that I don’t think about when I purchase my soda. Therefore, I consume more units of beverages than I would otherwise. Economists refer to this problem as an externality. More generally, an externality arises whenever an individual undertakes an action that has an affect on another party, for which the latter is not paid. So when we consume beverages we impose costs on society in the form of disposal/recycling costs and litter (if you’re into that sort of thing).
A deposit refund system is an attempt to correct the externality by mandating a monetary incentive to return the can, thus reducing the costs of waste collection and litter. Unclaimed deposit revenue can then be used to pay for the remainder. So, does this mechanism work?
There’s a load of existing literature (of which I’ve perused) that suggest that even the most efficiently administered DRS—in California—is not economically efficient. That is, it runs at a loss. Although aluminum cans yield a profit of $0.006 per container, glass and plastic cost $0.022 and $0.077, respectively, causing the red bottom line. If the system were profitable, it would exist in jurisdictions where it is not mandatory, and it does not (Dewees and Hare 1998).
The DRS is designed to encourage me, as the consumer of this root beer, to properly dispose of the container. If I do decide to litter, the system also encourages others to pick it up and collect the $0.05 refund as a reward for my negligence. Yet, it also encourages others to return non-littered items to collect the refund—maybe to a larger extent than the other effects. This leads to considerably more refunds distributed than the system design calls for, further diminishing revenue. As a result, this mechanism does not exist in a private, non-compulsory setting.
Maybe this loss is justifiable to pay for litter control? Unfortunately, the Massachusetts Department of Environmental Protection (MassDEP) was not able to provide conclusive evidence in their 2009 study (check out my more formal version of this for details).
So far we’ve said nothing but negative things about a DRS: it is costly, doesn’t reduce waste, and distorts the market. Why is it so popular? One answer can be found in a characteristic we have neglected.
Many homeless use the system as a means to an income. I see it everyday around the streets of Boston; the homeless pack shopping carts with returnable containers. And I hear it once a week when the same homeless woman picks through the trashcan below my bedroom window. It may be the case that the DRS is intentionally being used as a instrument to provide income to the poor at the expense of the wealthy (Robin Hoodish?). Although this goal has not been identified in the current literature, it is clear that a DRS has significant distributive effects.
High-income agents contribute proportionately more to deposit revenue while low-income agents redeem all of the refund rewarded. Consequently, this DRS is progressive. (See the previously mentioned paper for the supporting model.)
A brief phone conversation with a MassDEP redemption site employee suggests that this is not far from reality: “95% of all containers returned are by homeless.” Further analysis would be needed to confirm his statement; however my research yielded no study on the demographics of those who claim refunds.
The only feasible reason for such a system is its progressivity. While society may value this redistribution, the transaction costs still need to be looked at. In other words, are we spending 5 cents to redistribute 2 cents? If this is the case, there are other known ways to accomplish the same goal in a much less costly manner.
Embodied in the $1.29 I paid for the soda was a five-cent deposit designed to reduce litter, encourage recycling, and raise revenue for the state. In the U.S., these types of systems are designed and enforced at the state level. Most states have a similar system with deposits ranging from five to fifteen cents. Deposit-refund systems (DRS) for beverage container disposal can also be found in India, Syria, Lebanon, Egypt, Cyprus, Australia, Canada, France, Germany, and Switzerland, among others (Hanley et al. 2007).
It is clear that the DRS mechanism is vastly popular. But why is a system even necessary? What are the intentions behind such system and does the system achieve them? Let’s use a bit of economic analysis to try and answer some of these questions.
Back to my empty root beer can…who pays for its disposal? Who pays to pick it up if I decide to litter? These are all costs that I don’t think about when I purchase my soda. Therefore, I consume more units of beverages than I would otherwise. Economists refer to this problem as an externality. More generally, an externality arises whenever an individual undertakes an action that has an affect on another party, for which the latter is not paid. So when we consume beverages we impose costs on society in the form of disposal/recycling costs and litter (if you’re into that sort of thing).
A deposit refund system is an attempt to correct the externality by mandating a monetary incentive to return the can, thus reducing the costs of waste collection and litter. Unclaimed deposit revenue can then be used to pay for the remainder. So, does this mechanism work?
There’s a load of existing literature (of which I’ve perused) that suggest that even the most efficiently administered DRS—in California—is not economically efficient. That is, it runs at a loss. Although aluminum cans yield a profit of $0.006 per container, glass and plastic cost $0.022 and $0.077, respectively, causing the red bottom line. If the system were profitable, it would exist in jurisdictions where it is not mandatory, and it does not (Dewees and Hare 1998).
The DRS is designed to encourage me, as the consumer of this root beer, to properly dispose of the container. If I do decide to litter, the system also encourages others to pick it up and collect the $0.05 refund as a reward for my negligence. Yet, it also encourages others to return non-littered items to collect the refund—maybe to a larger extent than the other effects. This leads to considerably more refunds distributed than the system design calls for, further diminishing revenue. As a result, this mechanism does not exist in a private, non-compulsory setting.
Maybe this loss is justifiable to pay for litter control? Unfortunately, the Massachusetts Department of Environmental Protection (MassDEP) was not able to provide conclusive evidence in their 2009 study (check out my more formal version of this for details).
So far we’ve said nothing but negative things about a DRS: it is costly, doesn’t reduce waste, and distorts the market. Why is it so popular? One answer can be found in a characteristic we have neglected.
Many homeless use the system as a means to an income. I see it everyday around the streets of Boston; the homeless pack shopping carts with returnable containers. And I hear it once a week when the same homeless woman picks through the trashcan below my bedroom window. It may be the case that the DRS is intentionally being used as a instrument to provide income to the poor at the expense of the wealthy (Robin Hoodish?). Although this goal has not been identified in the current literature, it is clear that a DRS has significant distributive effects.
High-income agents contribute proportionately more to deposit revenue while low-income agents redeem all of the refund rewarded. Consequently, this DRS is progressive. (See the previously mentioned paper for the supporting model.)
A brief phone conversation with a MassDEP redemption site employee suggests that this is not far from reality: “95% of all containers returned are by homeless.” Further analysis would be needed to confirm his statement; however my research yielded no study on the demographics of those who claim refunds.
The only feasible reason for such a system is its progressivity. While society may value this redistribution, the transaction costs still need to be looked at. In other words, are we spending 5 cents to redistribute 2 cents? If this is the case, there are other known ways to accomplish the same goal in a much less costly manner.
That would suck to be homeless in Boston. Maybe if they collect enough cans, they can buy a train ticket to somewhere warmer?
ReplyDeletewww.epa.gov/waste/conserve/materials/alum.htm
ReplyDeleteThis has info on aluminum recycling and talks about the use of energy needed for producing new aluminum vs. using recycled aluminum. Perhaps, the deposit scheme helps lower energy consumption and green house gas emissions by reducing the demand for more "fresh" aluminum. I'll check back to see what you think. -Josh
Thanks for the comment Josh. It is likely that using recycled aluminum helps reduced demand for fresh aluminum. However, when looked at holistically, it may not lower energy consumption and green houses gases.
ReplyDeleteFor instance, say the use of a recycled can saves can manufacturers ten cents per can. (which is a generous estimate) But society dished out five cents in distortions because of the DRS, and even more in maintaining recycling infrastructure, etc. The economic cost benefits analysis I've looked into try and quantify these benefits. And, as I said, a DRS may be effective for aluminum, but not for plastic and glass.