Design
This instrument requires that redeemable deposits are put on containers of packaged beer and carbonated soft drinks. By law, all beverage retailers are also required to act as container receiver centres. (OECD 1997, pp83)
Expectations (Ex ante Analysis)
A study conducted by Porter in 1978 attempted to predict the possible outcomes of the scheme, based on experience in Oregon where over 90% of beer and drinks containers were refillable, ‘Porter assumed that mandatory deposits would induce a 100 per cent refillable bottle system in Michigan since the deposit was to be set at 10 cents per container rather than the 2-5 cents set in Oregon,' (Porter 1978, cited in OECD 1997, pp83) Litter Costs: litter costs were expected to fall since ‘refillable bottles are only 15-38 per cent as likely to be littered as the average container,' (Porter 1978, cited in OECD1997, pp83); and ‘a complete conversion to refillable bottles would be accompanied by a 62-85 per cent decline in beverage container litter,' (Porter 1978, pp357, cited in OECD1997, pp83); the possible reduction in eyesore costs are difficult to quantify; Solid Waste: Porter estimated a 91-96% reduction in containers disposed of as solid waste and thus a reduction in total municipal waste of 2.1%, this translates into a saving in solid waste costs of around 0.07cents per filling (Porter, 1978, table 1, pp356, cited in OECD 1997, pp84); Containers: Porter estimated a saving of 3.08 cents per filling assuming the average refillable container is reused 15 times (Porter 1978, cited in OECD1997, pp84); Production and Distribution: an overall increase of 2.77 cents per container was anticipated; this is ‘less than the estimate for the decrease in container costs implying that the money price of beverages will decline in an all-refillable delivery system,' (Porter 1978, pp362-365 cited in OECD1997, pp84) Consumer Convenience: time-of-return costs are difficult to quantify Social Benefit-Cost Evaluation: Porter devised a formula from which it is possible to calculate the ‘critical values of eyesore and time-of-return costs...' resulting ‘...in social indifference between the mandatory deposit-refund system and the status quo', if time-of-return costs are low (e.g. 0.78 cents per returned container) then the mandatory deposit scheme is preferred in terms of efficiency, and if the willingness-to-pay for reduced container litter is high (e.g. $27.12 per resident per year) then the mandatory deposit scheme is favoured regardless of the time-to-return costs (Porter 1978, cited in OECD1997: 85)
Performance
Porter reassessed the scheme in 1982; beverage related litter had fallen by 85% and return rates for refillable containers was around 95% (Porter 1982, cited in OECD1997: 85) ‘if beverage price increases fully reflected cost increases, then the annual aesthetic or eyesore value of the litter reduction must have been worth as much as $14 to $24 per resident for mandatory deposits to have been economically efficient,' Porter 1982, cited in OECD1997: 85) ‘Porter estimated that the decline in beer and soft drink consumption due to mandatory deposits amounted to 170 million fillings per year and 106 million fillings per year respectively,' (Porter 1982, cited in OECD1997: 85) ‘Porter estimated the loss in consumer surplus due to mandatory deposits to be $7-12 million and the price increase losses to continuing consumers amount to $120-180 million,' (Porter 1982, cited in OECD1997: 85) ‘return rate appeared to be equally high for the 5 c as the 10 c deposit containers,' (Porter 1982, cited in OECD1997: 86)
Drawbacks
The scheme did not however induce a 100% switch to refillable containers; ‘prices at the brewer/bottle level did not decrease. Given that container cost savings were not being passed on to distributors and retailers there was nothing to offset cost increases at the distributor and retail level. The final result was as estimated real price increase due to mandatory deposits of 2-3 c per filling for soft drinks and 3-5 c per filling for beer bottles. Thus, not only did beverage delivery in cans remain significant following the introduction of mandatory deposits but it also involved higher costs and higher prices,' (Porter 1982, cited in OECD 1997: 85).
References
OECD, 1997, Evaluating Economic Instruments for Environmental Policy, OECD: Paris. Available at: http://www.oecd.org//env/policies/publications.htm#eistrpub)
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