Aug 4, 2020 8:00 AM

Should Governments Slap a Tax on Plastic?

More than a billion tons of it could enter the environment in the next 20 years. It's time, advocates say, to put a sin tax on single-use plastic.

If you want to discourage folks from doing something naughty, tax the hell out of it. Take cigarettes, for example: On average, in high-income countries you get a 4 percent drop in demand for every 10 percent price hike. Or consider pollution: Countries like Sweden have begun to tax carbon to fight climate change—basically, you pollute, you pay. And now another grand naughtiness may get hit with its own tax: single-use plastic.

Proponents of the California Recycling and Plastic Pollution Reduction Act are campaigning for a 1-cent tax on these plastics. Brands that hawk them would have to pay a penny for each non-recyclable or non-compostable piece of packaging they sell—plastic bottles, potato chip bags, and all that. The waste-management company Recology filed the paperwork to get the initiative headed toward the California ballot and has contributed $3.7 million to the campaign. Recology is joined by environmental groups like the Nature Conservancy. The group had nearly collected the requisite signatures to get the initiative on November’s ballot, but the pandemic put the kibosh on all that. Now, a Recology official says, they’re aiming to collect enough signatures by the end of this summer for it to appear on the 2022 ballot.

The idea behind the tax is to make it more expensive for the food and personal care industries to keep churning out single-use plastics. If it passes, the resulting revenue, which the state estimates would be on the order of a few billion dollars each year, would be used to shore up litter mitigation efforts and provide subsidies to the recycling industry, which struggles to compete with virgin plastic that’s cheaper than ever to produce, given the low price of oil. Half of the revenue would go toward recycling and composting infrastructure; subsidies would flow to the various players in the recycling pipeline, like curbside pickup programs and the “reclaimers” who process plastic into a reusable form.

In theory, the tax will make recycled materials more competitive with virgin plastic. “It can't, on its own, make economic sense for a product manufacturer to use recycled, post-consumer plastic versus virgin plastic,” says Eric Potashner, vice president and senior director of strategic affairs for Recology. “The numbers don't add up, which is why we're trying to create this subsidy, to try to balance that equation.”

“It's putting that sense of responsibility on the plastics industry to start addressing the environmental impacts that they're having,” says Alexis Jackson, fisheries project director at the Nature Conservancy. “So we see that as valuable. But I think the second part really is about setting a target for reduction.” The initiative also calls for all single-use plastic packaging and food-ware to be either recyclable, refillable, reusable, or compostable by 2030. Manufacturers would have to reduce the overall amount of this plastic sold in the state by 25 percent by the same year.

The concept of a plastic tax is quite similar to a carbon tax. With the latter, you put a price on carbon, which is intended to hit emissions-spewing utilities particularly hard. Ideally, this has a dual benefit. First, it incentivizes polluters to produce less carbon by switching to renewable sources of energy. (Since British Columbia implemented a carbon tax in 2008, regional emissions have fallen by up to 15 percent.) Second, the tax revenue funds green energy projects or gets kicked back to local residents as a dividend.

California already has a long history of so-called sin taxes designed to reduce environmental and health risks. Some of the revenue from its tobacco tax, for instance, funds early childhood development programs. And a plastic tax is a sort of sin tax, only on a global scale. “In general, a great way to raise revenue is through sin taxes,” says MIT economist Christopher Knittel, who studies carbon taxes.

These taxes target an externality, as economists call it: A carbon tax’s externality is catastrophic climate change, and a plastic tax’s is runaway pollution. “That is the cost society faces,” says Knittel. “Layering on top a tax, in that context, makes the market work better. And so if the goal of this tax is to price the damage that plastic pollution causes, then you're making the market work more efficiently. So from that perspective, the tax is actually a good tax.”

But here’s where it gets tricky. Like a carbon tax, a plastic tax may end up being regressive, meaning that it would end up imposing a bigger economic burden on less-wealthy people. For example, with a carbon tax, a utility might get dinged for spewing CO₂ and then pass those costs on to the ratepayer in the form of a higher bill. This would disproportionately affect the poor, who spend a larger percentage of their income on energy. That’s why some economists like the idea of a carbon dividend, or setting aside some of the tax’s revenue to go right back to taxpayers to offset this hit.

The proposed California plastic tax, on the other hand, would use its revenue to juice the recycling industry and develop local pollution mitigation programs. So instead of getting a dividend, the average resident might end up paying a tiny bit more for the plastic-wrapped products they buy, if brands end up passing the 1-cent cost of the tax on to them.

It’s a debate that California’s been through before, at least on the local level. When the city of Berkeley was considering a soda tax, which voters eventually passed in 2015, opponents argued that higher prices would disproportionately affect low-income consumers, because beverage distributors, who were the intended target of the tax, would pass the cost increase along to shoppers. (Three other Bay Area cities have since passed soda taxes, and Philadelphia, Washington, and Boulder, Colorado, have them too.)

A plastic tax’s effect on consumers might be negligible—again, it’s 1 cent per package. But Recology's Potashner acknowledges that building in even a tiny price increase will help discourage plastic use. “There's nothing, actually, at the end of the day, stopping that from going to consumers,” he says of the cost. “But the consumer has a choice here, which is: Buy something not made of single-use plastic, if you want to avoid whatever those costs are. So the part of this is to incentivize not only better design decisions by the manufacturers but better purchasing decisions by our consumers.”

Knittel says that how much of the price gain gets passed on to consumers depends on the product. “So what we know about economics is, the more inelastic the demand is for the product, the more it gets passed on,” he says. That is: Do you have other options? For example, can you substitute a bottle of laundry detergent that is packaged in recyclable plastic for one that isn’t? If so, that demand is elastic, because you can take your business elsewhere.

“Imagine plastic bags versus paper bags, if those are close substitutes,” Knittel says. “Then the maker of the plastic bag is unable to pass the tax on to the consumer, because she knows that they would just switch to paper bags. That producer eats the tax.”

(There’s a precedent for this in California, too—of sorts. When the state banned large stores from giving out free, single-use plastic bags in 2016, the cost of that change, in a way, fell on individual shoppers. If a customer didn’t have their own reusable bag, they either ate the 10-cent charge for a new bag or opted for paper. And overall, these kinds of surcharges have worked: They reduce plastic bag use and even litter.)

But the American Chemistry Council, which represents plastic manufacturers, takes issue with the singling out of single-use plastics. While the council supports the packaging fee like the one described in the plastic-tax ballot initiative, it supports one for all materials, because paper, plastic, and metal share the recycling infrastructure. “Applying fees only to plastic packaging, as California’s ballot initiative as currently drafted would do, would likely result in shifts to other types of packaging, which would significantly increase environmental impacts, especially greenhouse gas emissions,” says Keith Christman, managing director of plastic markets at the ACC.

“California’s ballot initiative is likely to result in brands switching to packaging made from glass, paper, and metals, which typically increase the weight of a package, resulting in more trucks on the road, more energy used in transport, and more waste,” Christman continues.

But, argues Potashner, the emissions challenges of transportation are imminently solvable. In fact, the California Air Resources Board just passed regulations to require the electrification of trucks over the next 25 years. “I am less confident in our ability to manage plastic marine debris and the associated environmental damage unless we tackle source reduction,” says Potashner. Regarding the idea of manufacturers switching to other materials like glass, he says, “We don’t have a sea-glass problem.”

It’s important to point out that even if the tax passes, and recycling gets an economic boost, it wouldn’t be a magical cure for the pollution crisis. There’s just too much plastic that never makes it to a waste facility. And production is skyrocketing: Without drastic action to stem the flow, 1.3 billion metric tons of plastic waste could pour into the environment in the next 20 years, according to a recent study published in Science by an international team of scientists that included researchers at Oxford University and the Pew Charitable Trusts. Even with immediate and drastic action, they concluded, that figure could be 710 million metric tons.

“We know that we can't recycle our way out of the plastic crisis,” says Christy Leavitt, plastics campaign director at Oceana, a conservation nonprofit that funded the ballot initiative. “Even if you can increase recycling, there's no way that it can keep pace with that amount of increased plastic production. That's going to lead to more pollution going into the oceans.”

Can 1 cent here and there can do much to prevent that dire destiny? It’s going to take at least another election cycle to find out.