Effectiveness of Danish Packaging Tax: the case of plastic and

paper/paperboard packaging imports

11th Global Conference on Environmental TaxationBangkok, Thailand

3-5 November, 2010

Enian CelaShinji Kaneko

Graduate School for International Development and Cooperation, Hiroshima University, Japan

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.

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).

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.

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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?

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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.

Plastic PackagingPalmer et al. (1996) Study of plastic packaging in the US

market; Demand for plastic packaging of all kinds is price inelastic

Zhang and Buongiorno (1998)

Study on paper and paperboard packaging; citations on plastic packaging in US and Europe

Plastic packaging of all kinds considered defined as “luxury commodity”

European Plastic Converters (2010)

Plastics packaging market in Europe Demand for all kinds of plastic packaging is price inelastic despite the continuous price pressures beholding the market

Paper/Paperboard packaging

Suhonen (1984) Study of ECC countries in the period 1965-1980

Price Elastic demand in the case of paper/paperboard packaging

Prestemon and Buongiorno (1993)

Study of 24 OECD countries in the period 1968-1988

Brooks et al. (1995) 4 European countries in the period 1964-1991

Chas-Amil and Buongiorno (2000)

Separate analysis on 15 EU member states

Price Elastic demand in the case of pooled analysis; in the case of Denmark demand defined as price elastic significant at 1% levels of confidence

Simangunson and Buongiorno (2001)

International demand equation for forest products (including paper/paperboard packaging)

Demand for packaging was deemed price elastic and statistically significant at 5% intervals

Literature review on plastic and paper/paperboard packaging demand

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Expectations• Tax policy to be effective in the case of paper/paperboard packaging;

• Demand to remain unaffected in the case of plastic packaging.

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.

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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.

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Unit Root test (plastic group)Method/Variable

lnIMP lnSFBT lnRGDP lnRPRI

ADF 75.5447(0.0003)

0.74407(1.0000)

4.84784(1.0000)

81.0388(0.0001)

PP 68.1463(0.0019)

0.04236(1.0000)

3.58482(1.0000)

80.5924(0.0001)

Unit Root test (at level, at intercept)

Method/Variable lnSFBT lnRGDP

ADF 81.4951(0.0000)

54.3133(0.0419)

PP 84.2238(0.0000)

56.6539(0.0263)

Unit Root test (1st difference, at intercept)

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The tests are conducted at individual intercept using Schwarz automatic lag selection, Bartlett method and Newey-West Automatic bandwidth selection. Probabilities are displayed in parentheses.

The tests are conducted at individual intercept using Schwarz automatic lag selection, Bartlett method and Newey-West Automatic bandwidth selection. Probabilities are displayed in parentheses.

Unit Root test (paper/paperboard)

Method/variable lnIMP lnSFBT lnRPRI

ADF 48.6479(0.0045)

0.74407(1.0000)

33.0876(0.1592)

PP 53.3382(0.0012)

0.04236(1.0000)

14.7022(0.9625)

Unit Root test (at level, at intercept)

Method/Variable lnSFBT lnRPRI

ADF 81.4951(0.0000)

53.0909(0.0013)

PP 84.2238(0.0000)

54.5245(0.0009)

Unit Root test (1st difference, at intercept)

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The tests are conducted at individual intercept using Schwarz automatic lag selection, Bartlett method and Newey-West Automatic bandwidth selection. Probabilities are displayed in parentheses

The tests are conducted at individual intercept using Schwarz automatic lag selection, Bartlett method and Newey-West Automatic bandwidth selection. Probabilities are displayed in parentheses

Regression Results (SUR)Variable Plastic Boxes Paper/paperboard

lnSFTB 0.779034(9.539267)***

1.308593(23.69787)***

lnRGDP 0.852414(6.515104)***

lnRPRI -0.323721(-1.338292)

-0.933892(-5.028633)***

lnDIST -0.581792(-3.986263)***

-2.189988(-19.55079)***

TI -0.336095(-5.955241)***

-2.157558(-7.938619)***

BOR 1.2669(4.474655)***

0.778925(7.377597)***

TAX 0.072429(1.014405)

-0.546903(-5.549538)***

R2 = 0.195876DW = 1.977034

R2 = 0.951677DW = 1.626236

t stat show in parenthesis; *** Significance at 1% intervals

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Residual Unit Root Test (at level)

Method/Case Plastic Box Equation Paper/Paperboard equation

ADF 72.2036(0.0007)

49.3611(0.0037)

PP 58.4630(0.0180)

52.2467(0.0017)

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Stationary residuals denote retained model specification in both cases

The tests are conducted at individual intercept using Schwarz automatic lag selection, Bartlett method and Newey-West Automatic 　 bandwidth selection. Probabilities are displayed in parentheses

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).

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.

ReferencesAtkinson 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;8:183-292Chas-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.

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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 Produits

Forestiers, 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. Jaakko Pöyry International Oy,

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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> •

Thank you for your attention