Task for the new Dutch cabinet: introduce a tax on virgin plastic

Research by CE Delft confirms that a tax on virgin plastics is possible.

In the Netherlands, as much as 2 billion kilograms of plastic products are purchased every year, around 117 kilograms per person per year (CE Delft, 2021). To discourage the production and use of virgin plastics (new plastic based on petroleum or shale gas), an environmental tax is a potentially effective instrument.

Currently, the low market price of virgin plastics does not reflect the cost of environmental pollution. Levying a tax on virgin plastics can (partially) rectify this. A higher price also makes it more attractive to use recyclate. Reduced use of virgin plastics leads to fewer CO2 emissions and is therefore in line with the government's climate agenda.

The United Kingdom will introduce a tax of £200 per tonne (approx. 235 EUR) from April 2022 on plastic packaging containing less than 30% recycled plastic (produced in the UK, or imported). The Spanish government also has plans to introduce a new tax on virgin plastics of 0.45 EUR per kg of non-recycled plastic in non-reusable packaging.

Possibilities of a national levy on virgin plastic

CE Delft has, commissioned by the Dutch government, carried out an exploratory study into the possibilities for a national levy on virgin plastic (following a motion by Van Raan (PvdD). In the plastic chain, there are several links where a tax can be levied. The taxable base can be the volume, the weight (crude oil, cracker feed, polymers, and plastic products), the number of units (in the case of plastic products) or the price. The two options evaluated by CE Delft are:

Tax on plastic pellets

According to the CE Delft report, a tax is easiest to design at the moment plastic pellets and powder (polymers) are resold to manufacturers of plastic (semi-)finished products. The product that is then taxed is homogeneous, easily measurable and the number of taxpayers is relatively limited, namely 15 companies and importers. In addition, recyclate seems relatively easy to exempt from the tax, directly encouraging its application.

However, a disadvantage of a tax on Dutch polymers is that the plastic products made from them may be replaced by imports from abroad to which the tax does not apply. As a result, there is a risk that the production of virgin plastics will not decrease but shift.

Tax on finished plastic products

A tax on finished plastic products, including imported products, does not have these leakage effects, but is more difficult to design due to the large number of products and taxpayers. In addition, it is more difficult to exempt products with recyclate from the tax and its effectiveness depends, among other things, on price elasticity. To simplify the introduction of the tax, it could be limited to single-use plastic packaging. To achieve a reduction in plastic use, the tax will have to significantly increase the price of plastics.

Exactly how the tax should be designed requires further elaboration, but one thing is certain: an environmental tax on virgin and/or single-use plastics implements the 'polluter pays' principle and effectively stimulates the use of recyclate.

Research by CE Delft confirms that a tax on virgin plastics is possible.

In the Netherlands, as much as 2 billion kilograms of plastic products are purchased every year, around 117 kilograms per person per year (CE Delft, 2021). To discourage the production and use of virgin plastics (new plastic based on petroleum or shale gas), an environmental tax is a potentially effective instrument.

Currently, the low market price of virgin plastics does not reflect the cost of environmental pollution. Levying a tax on virgin plastics can (partially) rectify this. A higher price also makes it more attractive to use recyclate. Reduced use of virgin plastics leads to fewer CO2 emissions and is therefore in line with the government's climate agenda.

The United Kingdom will introduce a tax of £200 per tonne (approx. 235 EUR) from April 2022 on plastic packaging containing less than 30% recycled plastic (produced in the UK, or imported). The Spanish government also has plans to introduce a new tax on virgin plastics of 0.45 EUR per kg of non-recycled plastic in non-reusable packaging.

Possibilities of a national levy on virgin plastic

CE Delft has, commissioned by the Dutch government, carried out an exploratory study into the possibilities for a national levy on virgin plastic (following a motion by Van Raan (PvdD). In the plastic chain, there are several links where a tax can be levied. The taxable base can be the volume, the weight (crude oil, cracker feed, polymers, and plastic products), the number of units (in the case of plastic products) or the price. The two options evaluated by CE Delft are:

Tax on plastic pellets

According to the CE Delft report, a tax is easiest to design at the moment plastic pellets and powder (polymers) are resold to manufacturers of plastic (semi-)finished products. The product that is then taxed is homogeneous, easily measurable and the number of taxpayers is relatively limited, namely 15 companies and importers. In addition, recyclate seems relatively easy to exempt from the tax, directly encouraging its application.

However, a disadvantage of a tax on Dutch polymers is that the plastic products made from them may be replaced by imports from abroad to which the tax does not apply. As a result, there is a risk that the production of virgin plastics will not decrease but shift.

Tax on finished plastic products

A tax on finished plastic products, including imported products, does not have these leakage effects, but is more difficult to design due to the large number of products and taxpayers. In addition, it is more difficult to exempt products with recyclate from the tax and its effectiveness depends, among other things, on price elasticity. To simplify the introduction of the tax, it could be limited to single-use plastic packaging. To achieve a reduction in plastic use, the tax will have to significantly increase the price of plastics.

Exactly how the tax should be designed requires further elaboration, but one thing is certain: an environmental tax on virgin and/or single-use plastics implements the 'polluter pays' principle and effectively stimulates the use of recyclate.