Publication Type: Benefit-Cost, Economic Impact, Fiscal Impact, Program Evaluation, Industrial and Occupational Structure, Public Policy, Revenue Forecasting, Taxation
Pages: 20
Authors: Dewey, James F; Denslow, David; Chavez, Belen; Romero, Henrique; Holt, Lynne
Division: Economic Analysis
Summary: This report presents the results of an independent assessment of a potential beverage container deposit refund system for Florida, conducted by the Economic Analysis Program of the Bureau of Economic and Business Research at the University of Florida, and funded by Owens Illinois, Inc. While the analysis represents the best professional judgment of the project team, it does not necessarily represent the views of either Owens Illinois Inc. or the University of Florida.
Analysis of a Florida Beverage Container Deposit Refund System
Jim Dewey, Dave Denslow, Belen Chavez, Henrique Romero, Lynne Holt
Overview: Instituting a beverage container deposit refund system (BCDRS) in the state of Florida represents a sound policy option capable of reducing waste and litter, encouraging recycling, offsetting taxes, orpreserving the jobs of state or local workers in the short term. Such a policy would also complement long-term efforts to preserve the natural environment crucial to the state’s economic well-being, and to serveas a modest step toward reducing the costs oftransitioning to a world with higher resourceprices.
Introduction:On an average day Floridians consume some 36 million sodas and other container beverages. Though they soon recycle about 6 million of the containers, most of the other million wind up as landfill, and some wind up as litter. As Florida’s urban areas grow, convenient landfill sites become harder to find, and litter is a particular concern in a state that attracts retirees and tourists because of its natural beauty and a climate that encourages enjoying the outdoors.
One way to slow landfill growth and reduce litter would be to mandate recycling, requiring people to bring their empty containers to collection sites. Such a mandate, however, would be heavy handed and difficult to enforce. Better would be to reward people for recycling, using a mechanism that mimics market incentives—collect a deposit at the time of sale and return it when the empty container is brought to a collection site. Such a policy, known as a beverage container deposit refund system, has been adopted by ten states with a third of the nation’s population.
Many people may favor a BCDRS because it strikes them as fair. Those who fill our landfills with durable containers or litter instead of recycling should pay the cost they impose on others. Though we are sympathetic to concerns about fairness, we restrict our analysis to the efficiency of a BCDRS, leading us to consider the role of markets in waste disposal and recycling.
While markets normally do a good job of allocating resources, people may overproduce litter and waste if all associated costs are not borne by those creating the litter or waste. Similarly, people may recycle too little if some of the benefits of recycling accrue to someone besides those bearing the costs of recycling. A BCDRS creates a financial incentive to discourage litter and waste and encourage recycling, thus relying on market mechanisms to overcome potential inefficiencies in waste disposal and recycling outcomes.
In addition, unredeemed deposit revenue (UDR) typically accrues or escheats to the state. UDR, net of any handling fees paid to offset the cost of processing returned containers and other program costs, can be used to finance other programs or to offset taxes. Because taxes distort decisions and create administrative and enforcement costs, it costs society more than a dollar to raise a dollar of tax revenue. Net UDR can reduce this excess burden of taxation.
Summary of Main Findings: With an optimized BCDRS, the incremental benefit of a returned beverage container, net of processing costs, is just under 2.5¢. A deposit of 2.5¢ per container would result in net benefits to Floridians of about $141 million per year (the exact amount depends on future resource prices) and net UDR of about $70million per year. Rounding the deposit up to3¢ reduces net benefits to about $139 million and increases net UDR to about $83 million.
A 5¢ per container deposit would result in lower net benefits because individuals would make returns that cost up to 5¢ but have benefits of only about 2.5¢. Net UDR would be about the same as with a 3¢ deposit. Net UDR falls as the deposit increases beyond about 4¢ per container as higher deposits result in higher redemption rates and therefore higher payouts of refunds and handling fees. Net UDR may become negative for higher deposits.
The impact on beverage consumption, and therefore beverage related employment, is likely to be zero for all practical purposes because: i) the deposit and handling costs are low relative to beverage prices, ii) beverage consumption responds far less than proportionally to price increases, and iii)consumers cannot easily avoid the price increase by substituting one beverage for another if the deposit is charged on almost all easily substitutable container beverages. Over a horizon of ten years or more, the impact on total employment will be essentially zero. But with a current unemployment rate of 12%, Floridians are concerned about creating jobs between now and then.
While confident quantitative statements about the near term effects of a BCDRS on jobs are not possible, it is entirely plausible that a BCDRS could add modestly to near term job creation. Net UDR could be used to fund public sector jobs that would otherwise be cut. For example, it could be used to put some of the large number of recent college graduates who planned to become teachers but have been unable to find jobs to work teaching Florida’s children. That would generate about 1,400 net jobs if annual net UDR is $70 million. If $70 million in annual net UDR is used to offset other state taxes, the resulting reduction in the excess burden of taxation would be about $14 million per year. That could result in about 280 jobs at an annual full cost of$50,000 per job. Using UDR to fund tax offsets that improve the efficiency of the tax system could boost intermediate term job creation.
Summing Up: A summary of the best logically consistentargument in favor of implementing a BCDRS inFlorida might go something like the following:The costs of litter and waste associated with beverage containers are not fullycaptured in market prices. At resource priceslikely to be reached in the immediate future,recycling beverage containers makes economicsense.
A BCDRS is a market based policydesigned to encourage recycling withoutresorting to mandatory recycling rules. A BCDRSalso generates state revenue, potentially reducingthe excess burden of taxation. A BCDRS with a base deposit of 2.5¢ or 3¢ per container can serve as a modest step toward reducing the costs of transitioning to a world with higher resource prices, including more stringent limits on GHG emissions. While the future is highly uncertain, it is better to take reasonable steps to prepare forsuch a transition and have it not occur than to be unprepared for it if it does occur.
A BCDRS will have no impact on the number of jobs in the long run, though it may result in a more efficient employment structure inthe form of higher real productivity. In the shortrun, given tight state budgets and current unemployment, if UDR is used to offset taxes or to prevent cutting jobs of state or local workers,for example K‐12 teachers, a BCDRS wouldprovide a moderate boost to job creation.
On the other hand, a summary of the best logically consistent argument against a Florida BCDRS might go something like the following. If resource prices reach very high levels, market forces will produce most economically beneficial recycling anyway. In the intermediate case, a BCDRS could improve matters in theory. But, government involvement is likely to have unintended and unforeseen consequences, so we should only add to the scope of government intervention when the net benefits are large and nearly certain. If a 5¢ deposit is adopted instead of a more modest deposit of 2.5¢, return and handling costs may outweigh gains. Moreover, current resource prices are not high enough to clearly justify even a perfect BCDRS, and if they are at some time in the future, we can revisit the question at that time.
On the whole, the potential net gains from a BCDRS are modest on a per capita basis and sensitive to assumptions about resource prices and handling and return costs—if handling costs turned out to be like Vermont’s any net gains would disappear. So, those who oppose government involvement in the market place unless the net gains are large and nearly certain may not be convinced that a BCDRS is a good idea. But, a well implemented and efficiently run BCDRS with a deposit of 2.5¢ or 3¢ per container and handling costs similar to those of California would create net gains over the next 20 years with a present value of around $70-$120 per Floridian (depending resource prices and the discount rate used). Further, net UDR could be used to boostnear term job creation. So, there are sound reasons for those who believe Florida should implement policies to reduce waste and litter and encourage recycling to favor a BCDRS.
Subject Index:
Public Policy, Florida Data