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An economic analysis framework for waste charges and deposit-refund systems


Policy oriented, economic analysis of deposit refund systems (DRS) has been carried out with respect to hazardous waste management area. A comprehensive risk based economic framework was used to examine the effect of existing hazardous waste regulations on waste management decisions. This framework was applied to problems of noncompliance, regulatory enforcement, safe disposal and waste minimization. The problem of designing a DRS for waste ore was analysed in terms of the framework provided.

The effects of a tax subsidy instrument are largely determined by 4 parameters:
the extent of regulatory noncompliance;
the relative risks posed by noncompliant disposal;
the degree to which firms are responsive to the cost of approved disposal;
the level of transactions costs implicit in administering the programme.

From the analysis 3 major conclusions were drawn. First, transactions costs matter: in cases like used oil, they dominate the analysis. Transactions costs take a variety of forms.
Second, tax subsidy instruments are not all purpose solutions to hazardous waste problems.
Finally, when the kinds of problems arise that give merit to the tax subsidy approach, other regulatory methods will probably perform poorly by comparison. The tax subsidy instrument achieves reductions in risk in an efficient manner. If it cannot generate positive net benefits under plausible real world conditions, then it is likely that no regulatory instrument will do so. A corollary to this conclusion is that the tax subsidy instrument will achieve any globally inefficient objective at less cost than other regulatory methods. This last result seems to be a particularly important lesson in the hazardous waste area, because the pursuit of positive net social benefits has not been incorporated in the policy framework established by statue.

Funding Scheme

CSC - Cost-sharing contracts


Oxford Institute for Energy Studies
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