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Environmental Economics Research Paper No.5
Consultancy report prepared by: Dr David James, Ecoservices Pty Ltd
Commissioned by Environment Australia
© Commonwealth of Australia, 1997
ISBN 0 642 26850 9
Deposit refunds on recyclable containers were once commonly used by Australian manufacturers. The advent of disposable containers saw the disappearance of these arrangements and consequent problems of environmental degradation caused by improper disposal of containers to the environment.
The introduction of modest payments by manufacturers for recycled cans and bottles has resulted in improved collection services. South Australia is the only State that has introduced specific legislation for deposit refunds. Details of the South Australian deposit refund scheme are presented as a case study in the next section.
The South Australian study raises questions about the cost burden and its incidence. Costs to government are small, but the cost to industry could not be ascertained. The prospects of recycling and energy saving might have entailed efficiency gains; but, on the other hand, a High Court challenge by a major brewery indicated that the system may have created market impediments for beer producers in South Australia compared with producers in other States.
The South Australian scheme nevertheless has wide public acceptance and has resulted in high return rates for beverage containers. An extension of the concept to kerbside recycling is under consideration.
Deposit refunds could usefully be applied in other areas of waste management, such as deposits on car batteries, tyres and car bodies.
Deposit refunds on beverage containers in South Australia have existed since the last century. They were traditionally used on a voluntary basis by beverage manufacturers and bottle handling enterprises. The Adelaide Bottle Company has collected, washed and hired refillable 'Pick Axe' beer bottles to the South Australian Brewing Company, Coopers Brewery and other breweries since 1897 (Beverage Container Unit 1991).
An extensive system for the return of containers evolved in South Australia, based on collection depots known as 'marine store' dealers. The success of this system was evidenced by high return rates for beverage containers in South Australia and less litter from containers than in other Australian States.
The advent of disposable containers in the late 1960s posed a threat to the return system. As noted by Lenehan (1992), concerns expressed by the Government related to:
the changed consumer attitude resulting in the littering of disposable containers
the added cost to the public of solid waste management
the direction of resources and energy into disposable containers
the potential for increased cost to the consumer due to less cost-efficient packaging
the potential for destruction of an efficient existing recycling system developed by industry and supported by the public.
The aim of the Government was to ensure continuation of the existing system of container returns, to prevent a litter problem from developing, to encourage more efficient use of resources and energy, and reduce the need for waste collection and landfill.
The instrument selected by the South Australian Government was legislation. The Beverage Container Act was passed in 1975 and came into effect in 1977. It was repealed in 1993. Beverage container deposits are now handled under the Environment Protection Act 1993. The schedule of fees reported here is currently under review.
The deposit refund system was an important component of the Beverage Container Act. This instrument was intended to provide ongoing economic incentives for the return, refilling and recycling of beverage containers. Although not described in the same terminology, the legislation was designed to internalise the costs of litter and waste handling.
Description of Instrument
The Act applied to containers for some soft drinks and alcoholic beverages. Some containers, such as refillable glass soft drink bottles with a voluntary deposit, are exempt from the Act. Ring pull containers have been banned as being environmentally unacceptable. The prescribed deposits range from 5 cents for containers for beer to 20 cents for refillable glass containers for soft drinks and mineral water.
The Act required that a retailer must not sell a beverage in a container unless the container is marked in a manner and form approved by the Minister, with a statement indicating the refund amount applicable to that container.
Depending on the type of container, returns could be made to retailers or to collection depots. There were 31 depots in the metropolitan area, spaced no further than five kilometres apart and 76 depots in major and minor country centres. The depots supplied their containers to five industry super collection agencies under a system of secured agreements.
The system was self-supporting, with only two persons employed within the Government for administrative purposes.
In 1990, Castlemaine Tooheys challenged the State of South Australia in the High Court of Australia, claiming that certain provisions of the Beverage Container Act and its amendments were contrary to section 92 of the Constitution. The presumption was that the competitive status of Castlemaine Tooheys was considered to be disadvantaged by the existing legislation.
The High Court ruled that section 5b of the Act was invalid. This section contained a clause to the effect that a Minister may exempt glass containers (including those for the purpose of containing beer) from the regulations of the Act if the Minister is satisfied that 'proper arrangements have been made for the re-use of the containers when returned to collection depots by refilling as referred to in paragraph (a) and by re-use of the glass of which they are made'. Paragraph (a) specified that 'the containers are made so as to be refilled not less than four times' (South Australia 1975). However, the remaining sections of the Act to which objection had been raised were ruled to be valid.
This change in the legislation meant that the Act would not regulate refilling and recycling practices of brewers, but that containers for beer would still be subject to the deposit system.
Assessment Against Criteria for Evaluation
Various Australian studies have looked at the economic efficiency effects of container deposit legislation. They include a study on the glass industry by the Industries Assistance Commission (1987) and on recycling by the Industry Commission (1991). The Business Regulation Review Unit (1989) has also undertaken an assessment of container deposit legislation, arguing that such legislation resulted in significant costs to the community. However, the scope, methods, assumptions and data of the latter study have been criticised by Hatch (1990), who places little credibility on its findings.
The two main economic impacts of container deposit legislation are:
effects of the deposits on the litter habits of consumers
effects on equilibrium market prices in markets for beverages.
It is not easy to estimate the effects on littering. Indeed, even estimating changes in the level of littering is problematical. One approach is to take litter counts, and estimate shifts in behaviour as a result of the legislation. A more reliable approach is to use statistics on return rates for containers. Figures published by the Beverage Container Unit on return rates for South Australia indicate return rates ranging from 61.7 per cent for PET containers to 96 per cent for refillable glass containers. These rates are well in excess of the national targets recommended by the Industry Commission (1991).
Neither is it easy to estimate the effects of the legislation on equilibrium market prices in markets for beverages, and hence on economic welfare. As argued by the Business Regulation Review Unit (1989), the Industries Assistance Commission (1987) and Hatch (1990), the economic welfare effects of an instrument such as container deposit legislation may be measured in terms of the resulting changes in producers' surplus and consumers' surplus in the market for beverages. The magnitude of such changes depends on the changes in production cost, changes in consumers' willingness to pay, and the elasticities of market supply and demand. Hatch (1990) was critical of the elasticities assumed in the Business Regulation Review Unit report (1989).
There are various effects on production costs. All other factors remaining constant, the imposition of deposits can be expected to result in an upward shift of the industry supply curve. Additional costs may also be incurred from collection and handling. Once the system is in place, this cost becomes a fixed rather than a marginal cost. Cost savings may, however, result from the use of refilling and recycling technology as compared with raw materials.
As pointed out by Hatch (1990), the return of containers does not guarantee that they will be refilled or recycled. However, there is the opportunity for litter reduction and resource conservation.
According to Lenehan (1992), there is no evidence to show that the retail prices of beverages in South Australia are any higher than in other States. This may, however, result from lower profit margins in the industry.
Other community benefits may be attributable to a successful beverage container return system. They include cost savings from reduced dependence on landfill sites, resource conservation and the 'external' benefits of reduced litter in the environment. Studies of the economic impact of deposit container legislation have not estimated these benefits, although Hatch (1990) has noted them.
Return of beverage containers is now under investigation in conjunction with kerbside recycling. Significant economic efficiency gains have been demonstrated in the United States from such schemes (Ackerman & Schatzki 1991; Franklin 1990, 1991). Preliminary advice from a local council (Tea Tree Gully) in South Australia suggests that container deposit legislation products generated approximately 60 per cent to 70 per cent of the revenue during a recent Kerbside Recycling Trial.
There is strong public support for the deposit refund system. According to a survey undertaken in 1981, 72 per cent of respondents considered the Beverage Container Act to be effective in reducing litter, and 65 per cent wanted the Government to take further measures to reduce the sale of non-returnable containers. In addition, 77 per cent did not regard convenience packaging to be superior to returnable containers. Subsequent surveys have upheld these community opinions (Beverage Container Unit 1991).
The experience with the South Australian beverage container legislation demonstrates that deposits on potentially polluting items can create strong economic incentives for their collection and return. Recycling is not guaranteed, but favourable conditions are created to reuse containers or the materials from which they are made. The instrument is under consideration for other items and materials. Difficulties encountered with the scheme, such as the possibility of unequal cost conditions in different States among competitive manufacturers or distributors, could be overcome by means of a common policy among the States and Territories