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Effectiveness of Danish Packaging Tax: the case of plastic and paper/paperboard packaging imports

Effectiveness of Danish Packaging Tax: the case of plastic and paper/paperboard packaging imports. 11 th Global Conference on Environmental Taxation Bangkok, Thailand 3-5 November, 2010 Enian Cela Shinji Kaneko

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Effectiveness of Danish Packaging Tax: the case of plastic and paper/paperboard packaging imports

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  1. Effectiveness of Danish Packaging Tax: the case of plastic and paper/paperboard packaging imports 11th Global Conference on Environmental Taxation Bangkok, Thailand 3-5 November, 2010 EnianCela Shinji Kaneko Graduate School for International Development and Cooperation, Hiroshima University, Japan

  2. Introduction • Packaging use has been experiencing increasing rates over the years in the EU-15 area; • From 1998-2006, virgin packaging placed in the market increased 11% (10 million tones) (EUROPEN, 2009); • Packaging per capita has also been increasing from 147 to 157 kg on average; • Although recycling rates are constantly increasing, there is large amounts of packaging going for final disposal (16 million tones in 2006); • Characterized mainly of non-wood packaging: paper/paperboard, plastic, metals, glass; • In 1994 was launched the European Parliament and Commission directive 94/62/EC on packaging and packaging waste; • Member states were to adopt appropriate measures to deal with the packaging issue; • Emphasis placed upon market based instruments.

  3. Packaging taxation • Packaging taxation is included amongst the market based instruments; • It is adopted in two main forms (Pearce and Turner, 1993); : -material levies -product charges; • Material levies consist of taxes being placed upon the raw material used to produce the packaging product; • Paid by the packaging producer at the moment of purchase; • The purpose is to increase material efficiency by stimulating reduced use of raw materials; • Product charges are placed upon the packaging products and paid by the packaging user; • The purpose is to reduce demand for virgin packaging either by stimulating source reduction and/or increased recycling rate; • There are very few cases (states) applying taxation on packaging (EUROPEN, 2000).

  4. Packaging Taxation in Denmark • First taxes applied in 1978 in the form of product charges on packaging for liquid stuffs (beer, carbonated soft drinks, juice) (Brisson, 1992); • The new packaging tax policy was applied in 1999 (amended in 2000); • Product charges were to cover almost all kinds of packaging not taxed by previous policies; • Weight basis product charges were applied on all packaging varieties; • The purpose is to reduce the demand for virgin packaging; • The policy called for differentiating tariff according to the material used for the packaging product; • Taxed subjects reserve the right to choose how to achieve that; • Packaging buyer pays the tax.

  5. Purpose of the study • Investigate the effectiveness of the tax policy applied in year 1999 on two major packaging groups: plastics and paper/paperboard; • Focus on packaging imports; • Effectiveness defined as: did the tax policy manage to reduce import demand in each case?

  6. Requirements • What is required for successful implementation; • Taxes not being pushed on to final consumer; • Should this happen, packaging users (firms) would remain unaffected by the tax charging it entirely to their consumers; • ECOTEC (2001) report claims that this did not occur in the case of the Danish 1999 packaging tax policy; • Success is closely related with demand price elasticity (Bailey, 2003); • If demand for packaging is price elastic, tax policy is bound to be successful in its intent; • If demand is price inelastic, demand would remain unaffected by the tax policy.

  7. Literature review on plastic and paper/paperboard packaging demand

  8. Expectations • Tax policy to be effective in the case of paper/paperboard packaging; • Demand to remain unaffected in the case of plastic packaging.

  9. Methodology • Apply panel data gravitational regression model to investigate import trade flow behavior; • Analysis conducted separately for 2 commodity groups: - Boxes, cases, crates and similar articles of plastic (Plastic Group) - Paper and paperboard for packaging purposes (Paper/Paperboard Group) • Period 1994-2007; • Full implementation assumed to have begun in year 2001; • Panel data includes 19 partner countries in the case of Plastic Group and 13 partners in the case of Paper/Paperboard Group.

  10. Regression Equations • In the case of Plastic Group: lnIMPjt = β1lnSFBTt + β2lnRGDPjt + β3lnRPRIt + β4lnDISTj + β5TIjt + β6BORj + β7TAXt + ε (1) • In the case of Paper/Paperboard Group: lnIMPjt = β1lnSFBTt + β2lnRPRIt + β3lnDISTj + β4TIjt + β5BORj + β6TAXt + ε (2) IMPjt – imports from partner country j into Denmark in period t in kg; SFBTt – sales of the Danish Food, Beverage and Tobacco sector in period t in real DKr and seasonally adjusted; RGDPPjt – real GDP of partner country j in period t in (real 2000 USD); RPRIt – real import price of the commodity group (real 2000 DKr); DISTj – distance in KM between Copenhagen and partner country j capital city; TIjt – dummy of Trade Integration between Denmark and partner country j at period t; BORj – dummy for common border between Denmark and partner country j; TAXt – dummy of packaging tax application in period t.

  11. Unit Root test (plastic group) Unit Root test (at level, at intercept) The tests are conducted at individual intercept using Schwarz automatic lag selection, Bartlett method and Newey-West Automaticbandwidth selection. Probabilities are displayed in parentheses. Unit Root test (1st difference, at intercept) The tests are conducted at individual intercept using Schwarz automatic lag selection, Bartlett method and Newey-West Automaticbandwidth selection. Probabilities are displayed in parentheses.

  12. Unit Root test (paper/paperboard) Unit Root test (at level, at intercept) The tests are conducted at individual intercept using Schwarz automatic lag selection, Bartlett method and Newey-West Automaticbandwidth selection. Probabilities are displayed in parentheses Unit Root test (1st difference, at intercept) The tests are conducted at individual intercept using Schwarz automatic lag selection, Bartlett method and Newey-West Automaticbandwidth selection. Probabilities are displayed in parentheses

  13. Regression Results (SUR) t stat show in parenthesis; *** Significance at 1% intervals

  14. Residual Unit Root Test (at level) The tests are conducted at individual intercept using Schwarz automatic lag selection, Bartlett method and Newey-West Automaticbandwidth selection. Probabilities are displayed in parentheses Stationary residuals denote retained model specification in both cases

  15. Results • In the case of the Plastic Group, results reveal import demand to be unaffected by price changes (as expected); • Furthermore, the tax policy did not produce the intended effect; • In the case of the Paper/Paperboard Group, results confirmed literature findings of a price elastic demand (import demand); • The tax policy proved effective in reducing import demand for virgin packaging; • That is probably related to the high recycling rates characterizing paper/paperboard packaging (over 60% in the case of Denmark).

  16. Policy Implications • In the case of the Plastic Group, a product charge taxation approach seems inappropriate; • A material levy approach could increase material efficiency but not resolve the waste problem completely; • It would seem more appropriate to reverse the demand-price relationship; • The rates remain very low (barely at 20% in 2006); • Fostering recycling; • Scientific efforts aiming to increase recycling patterns of plastic packaging.

  17. References Atkinson SE, Wilson PW. The bias of bootstrapped versus conventional standard errors in the general linear and SUR models. Economic Theory 1992;8:258-275. Beck N, Katz JN. What to do (and not to do) with time-series cross-section data. The American Political Science Review 1995;89:3:634-647. Brisson I. Packaging waste and the environment: economics and policy. Resources, Conservation and Recycling 1993;8:183-292 Chas-Amil ML, Buongiorno J. The demand for paper and paperboard: econometric models for the European Union. Applied Economics 2000;32:8:987-999. ECOTEC. Study on the economic and environmental implications of the ese of environmental taxes and charges in the European Union and its member states. Brussels: ECOTEC, 2001. EUROPEN. Economic instruments in packaging and packaging waste policy. Brussels: EUROPEN, 2000. EUROPEN. Packaging and packaging waste statistics 1998-2006. Brussels: EUROPEN, 2009. Fox J, Monette G. Generalized collinearity diagnostics. Journal of the American Statistical Association 1992;87:417:178-183. Hekkert MP, Joosten LAJ, Worrell E, Turkenburg WC. Reduction of CO2 emissions by improved management of material and product use: the case of primary packaging. Resources, Conservation and Recycling 2000;29:33-64. Hekkert MP, Joosten LAJ, Worrell E. Reduction of CO2 emissions by improved management of material and product use: the case of transport packaging. Resources, Conservation and Recycling 2000;30:1-27. Messemer C, Parks RW. Bootstrap methods for inference in a SUR model with autocorrelated disturbances (October 18, 2004). University of Washington Economics Working Paper No. UWEC-2004-24. Pagan AR, Wickens MR. A survey of some recent econometric methods. The Economic Journal 1989;99:398:962-1025. Palmer K, Sigman H, Walls M. The Cost of reducing Municipal Solid Waste. RFF Discussion Paper 96-35 1996. Pearce DW, Turner RK. Market-based approaches to solid waste management. Resources, Conservation and Recycling 1993;8:63-90. Prestemon J, Buongiorno J. Elasticities of demand for forest products based on time-series and cross-sectional data. Groupe de Reserche en Economie des ProduitsForestiers, University of Bordeaux, Seminar 24-25 June, 1993. Simangunsong BCH, Buongiorno J. International demand equation for forest products: a comparison of methods. Scandinavian Journal of Forest Research 2001;16:2:155-172. Suhonen T. Price variable in dynamic consumption, models of Selected paper products: a pooled cross-section and time series analysis. JaakkoPöyry International Oy, Helsinki; 1984. Zhang Y, Buongiorno J. Paper or plastic? The United States’ Demand for paper and paperboard in packaging. Scandinavian Journal of Forest Research 1998;13:1:54-65. Web references • Statistics Denmark. StatBank Denmark. January 5. 2010 • <http://www.statbank.dk/statbank5a/default.asp?w=1280> • The Danish Ministry of Taxation. Consolidated Act on taxes on certain types of packaging, bags, disposable tableware and PVC foils. February 10. 2010 • http://www.skm.dk/foreign/english/2087.html • European Plastic Converters. Plastics Packaging Markets in Europe. 21 January. 2010 • http://www.plasticsconverters.eu/markets/packaging • International Monetary Fund. World Economic Outlook Databases. 18 December. 2009 • <http://www.imf.org/external/ns/cs.aspx?id=28>

  18. Thank you for your attention

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