Plastic taxes: a guide to new legislation in Europe

Fees on specific single-use plastic consumer products, such as carrier bags, cups and cutlery, are not new across the world. However, few countries have so far levied comprehensive plastic packaging taxes, which are eco-modulated to achieve specific environmental outcomes. Europe is leading the way, with the UK, Spain, and Italy at the forefront.

The UK’s Plastic Packaging Tax (General) Regulations 2022, in force since April 1 2022, have a stated goal of encouraging recycling. Only plastic packaging products which contain less than 30% of recycled content are subject to the tax. So, a plastic container with 35% of recycled content goes tax free.

Spain and Italy have already passed laws containing plastic packaging tax provisions. But while the Spanish tax entered into force as scheduled on January 1 2023, Italy postponed its implementation (not for the first time) until further notice. The stated goals of both instruments are to prevent generation of waste from non-reusable plastic packaging and to encourage recycling of plastic waste.

The treatment of multi-material packaging differs. In the UK the taxable base is the weight of the whole packaging if plastic is the dominant component by weight. For example, if the package consists of 3g of paper, 3g of aluminum and 4g of plastic, the whole packaging is considered plastic and 10g is subject to tax. In Spain and Italy, if the packaging is composed of multiple materials, only the plastic content is taxable. So, if the same package entered the Spanish or Italian markets, only 4g of plastic would be taxed.

Unlike the UK instrument, however, the Spanish and Italian tax designs provide dynamic incentives to increase recycled content beyond 30%. The tax base is the total weight of the non-recycled plastic content. So, in Spain and Italy, the plastic component of packaging that contains 35% of recycled content would still lead to tax liabilities, although in a lower amount than the same component with 30% of recycled content.

The tax rates are €450 (~$465) per ton of taxable plastic in Spain and Italy, and £200 (~$250) per ton in the UK. The expected (net) government revenue from the Italian plastic tax was estimated to be almost €470 million (~$484 million) for the first year, and from the Spanish plastic tax, €724 million ($745) million. The expected revenue of the British plastic packaging tax is £240 million (~$300 million) for the first year. In the subsequent years the revenues are expected to decrease as consumers should switch to more reusable, recycled and non-plastic alternatives. In all countries the tax revenues go to the general budget. Environmental benefits are realised through the choice of tax base and eco-modulation of tax rates.

In all three countries taxes apply to all products sold in a country, whether manufactured domestically or imported. Therefore, these policies are World Trade Organization compatible as they do not discriminate between domestic and imported products.

The new plastic packaging taxes will affect businesses beyond the borders of implementing countries. To stay competitive, the exporters to the plastic-pricing markets will need to think not only about providing attractive and sustainable goods but also about sending them in sustainable packaging made from recycled or reusable plastic components or more environmentally friendly materials. They will ask domestic suppliers for recycled plastic or its substitutes, creating commercial value for green and circular business models in home countries. Together with extended producers’ responsibility systems, sustainable product standards and product restrictions, the new plastic taxes are poised to reshape global product design and trade, especially if the ‘club’ of the plastic tax countries has lots of market power.

To reduce plastic packaging tax liabilities, foreign manufacturers must provide their buyers in the UK and Spain with evidence about the amount of recycled content used to produce their products’ packaging. The UK government guidance requires evidence of recycled content from the foreign manufacturer or a robust supply chain audit, with this evidence conducted by the importer or a competent third party. In Spain, following the transition period when a manufacturer’s declaration is acceptable, as of 2024 a recycled plastic certificate will be required. It must be conducted according to the European standard UNE EN 15343:2008 on ‘Plastics recycling traceability and assessment of conformity and recycled content’ and be issued by an accredited entity.

Manufacturers and traders would like to see similar records and accounting requirements for the proof of recycled plastic content in all plastic tax countries. The Spanish plastic tax law (Article 77.3) stipulates that the recycled plastic certificate can be issued by an entity recognised by the national accreditation agency in Spain or in any other member state of the EU. This will allow recycling businesses in developing countries to reach an economy of scale and minimise transaction costs in trade with the EU.

Lower-income countries can harness this new wave of plastic taxes to their own advantage. Plastic taxes are excise duties, and hence are familiar revenue raisers even to weaker tax administrations. But the design matters. For example, Ghana has levied comprehensive plastic excise duty since 2014, covering all products listed under the Harmonised System (HS) codes for chapters 39 (‘plastics and articles thereof’) and under the HS chapter 63 (textiles). This is a much wider tax base than in the UK, Spain or Italy. However, according to the preliminary assessment conducted by the World Bank with support of the Problue and Global Program on Sustainability schemes, only a fraction of revenues due are collected even though the Ghanian tax is levied ad valorem, which in principle should make tax collection easier. An ad valorem tax base also weakens the environmental effect of a tax, because the social harm done by plastic is related to the weight and physical characteristics, not to the market value of plastic products. Another major compromise with environmental effectiveness is that unlike European plastic taxes, the rate of the Ghanian tax is not reduced for reusable plastic goods or for recycled content. Because of the absence of such eco-modulation, the Ghanian plastic tax does not help create a domestic market for recycling and product innovation. Neither does it help Ghanian exporters to prepare for reducing plastic packaging tax liabilities levied in Europe.

The World Bank recently conducted an impact assessment of alternative plastic policy scenarios considered in Indonesia, using its Plastic Policy Simulator model. Simulations showed that upstream plastic tax, extended producers’ responsibility systems, mandatory recycled content requirements and behavioural nudges are needed to change product design and consumer behaviour and reduce plastic waste at the source. Without upstream policies, just maintaining the same waste collection rate with rapidly increasing waste volumes would lead to an accumulation of unsustainable fiscal liabilities, especially at a sub-national level, and a massive increase in plastic pollution. A plastic tax of $280 per ton applied to the 20 most common plastic consumer products and packages with less than 30% recycled content could reduce plastic waste generation by one third below baseline and raise up to $1.3 billion annually, the World Bank has found. The integrated upstream and downstream policy reforms could achieve government targets at an affordable net fiscal cost.

Policy debates in Indonesia, Ghana and also recently Nigeria indicate growing interest by ministries of finance in developing countries in the green plastic excises which can deliver fiscal and environmental dividends, while at the same time helping domestic manufacturers stay internationally competitive and incubating new productive jobs in sustainable product innovation and circular business models.

Grzegorz Peszko is lead economist at the environment, natural resources and blue economy global practice of the World Bank.