Fiscal Incentive Reform To Support Waste Management Investment And The
Move Towards The Circular Economy
Executive Summary
There are significant barriers in the UK currently that hold back the move to the circular economy and to
increasing adoption of superior waste management techniques. In this paper, fiscal incentives are considered
which can help address some of the issues that have been identified.
These can be summarised as follows:
 Measures to increase costs at the lower end of the waste hierarchy;
 Measures to reduce the cost of investment; and
 Measures to discourage the use of virgin material where inappropriate.
Barriers to waste management investment and the move towards the circular economy
Discussions, research and debates on waste management investment have highlighted the key issues holding
back investment.
 Policy certainty; refers to the degree of commitment that current and future governments have to
existing policies, and the likelihood for existing proposals and recommendations to be followed.
 Investor confidence; refers to the likelihood of an investment in this sector gaining an appropriate
return, considering the uncertain policy environment and changing business priorities
 Risk mitigation; refers to the opportunities available for investors to improve on their returns, reduce
their costs and hedge against unpredictable business reactions to market dynamics.
Similarly, experts in the circular economy field have highlighted the following issues standing in the way of the
transition to a circular economy.
 Policy uncertainty; refers to the unknown priority level that any government or government body are
giving to the move towards a fully circular economy.
 Legal framework issues; for example in Europe’s WEEE Directive1 consumers do not have any
specified, enforced, legal responsibilities for returning products for recycling
 Development of material and design standards; Development of design standards needs to be
carried out appropriately, alongside the development of waste infrastructure. A business will gain no
advantage from designing a device that can be disassembled if it will be landfilled or shredded at the
end of its lifecycle, and the appropriate development on this area can result in significant gains for
participants.
 Information and awareness barriers; Many businesses and consumers are unaware or do not
understand how to best respond to the issues of resource scarcity and the transition to a circular
economy. There is a lack of trusted and well-respected certification in this area.
1
http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32012L0019
Proposed measures to tackle some of these barriers
At this time, EIC has limited itself to considering fiscal incentives that could be used. These are considered to
be measures that are simplest to understand, propose, lobby for and implement.
An EIC project in this area would develop a package of tax measures which would support investment in
infrastructure and the move towards a circular economy in three ways:
1) Raising the costs of leaving waste at the lower end of the waste hierarchy
2) Reducing costs of investment in waste infrastructure
3) Taxing virgin material to support reuse/recyclate markets
Together, this package would address many of the barriers previously identified. It would improve policy
certainty by signalling the government’s commitment to improving waste management practices, and ideally
“lock-in” future governments into appropriate follow through. It would improve investor confidence by
putting into place a secured policy framework with which to determine the benefits of investment, and so
promote the advancement of this sector.
The measures would also reduce investor risk, and so promote the sector as a safe bet for the future.
Further, the package would also aim to reduce informational barriers in the circular economy by increasing
awareness, improving waste infrastructure and creating business networks.
1. Raising costs at lower end of waste hierarchy
Landfill tax
The Working Group has already developed a provision position on landfill tax policy as follows:
 Clarity that the standard rate will rise at RPI for next ten years
 A phased raising of the lower rate from £2.50/t to around £20/t, plus Loss on Ignition testing
to reduce fraud.
Incineration tax
While this could risk raising costs for local authorities or business, it should be utilised as a selective
tax eg on low efficiency electricity-only Energy From Waste (EFW), or on plastics going to EFW
(plastics should either be recycled or go to landfill as otherwise they are a very high carbon means of
electricity generation.
Anti-Landfill / Landfill-Bans
Further measures could be adopted to discourage the landfilling of potentially valuable waste,
including biowaste. Imposing higher taxes on particular waste streams can encourage and secure
investment in the required infrastructure.
2. Reducing costs of investment in waste infrastructure
Enhanced capital allowances
Enhanced Capital Allowances (ECA) could be introduced for a wider range of recycling/reprocessing
technology eg. advanced optical sorters at MRFs
Grants and loans
Schemes similar to the Enhanced Capital Allowance (ECA) scheme could be advanced to improve
business access to required equipment, and to reduce investor risk through reduced interest rates.
The “Strings attached” to any loan or grant would have to be robustly developed to ensure
investment is appropriate and meets policy objectives. In addition, the costs to providing a loan
facility would come in through having to offer a sufficiently attractive interest rate.
ROCs
May be a case for reforming treatment of EFW technologies under ROCs/FiTs, in order to
appropriately support those EFW that is effective, and reduce EFW of low efficiency electricity-only
EFW, or on plastics going to EFW.
Business Tax break for circular economy (CE/RE) approved service
Approved services would need to be determined, and tax breaks would need to be policed. Either the
whole business/entity would have to operate under Circular Economy principles, or a metric would
have to be utilised to determine how much of a tax break has been earned. As the circular economy
relies on full commitment, this could potentially create difficulties.
Supporting innovative design policy
EU moves such as The Ecodesign Directive and voluntary Ecolabelling can provide inspiration for fiscal
interventions. A grant or incentive could be put into place to encourage more widespread adoption
of such schemes, particularly for highly visible products which would be likely to improve consumer
awareness and engagement.
3. Taxing virgin material to support reuse/recyclate markets
Peat levy
The electricity generated by AD is supported through the ROC system, but there is often a limited
market for the digestate which undermines Anaerobic Digestion plant economics. A peat levy could
address this, while also assisting with the restoration of peatlands.
Levy on disposable products/excessive use of virgin material
A levy could be applied to single use products which are difficult to recycle or products which used a
lot of virgin material unnecessarily. This would have to be targeted at products with re-usable or lesswasteful substitutes so as to avoid inappropriate losses. This lesson has been learned from the mixed
success of aggregates taxation, where the construction industry was slow to respond to the fiscal
incentives, both in their demand for recycled products and in developing supply chains to recycle
their waste.
Product Taxes
Whether levied or cut to increase the price of non-recycled / non-circular goods, or to reduce the
prices of recycled / circular goods, this could potentially impact consumer behaviour as a pigouvian
tax. However, any changes that are VAT-related won’t change the market structure but will instead
be passed to consumers. The side-effects (externalities) of such fiscal measures can be damaging customer simply bears difference, or cost cutting by supplier to maintain price could impact product
quality or employment through downward pressure on wages.
Resources:

ESA Beyond Landfill : Using green taxes to incentivise the waste hierarchy
http://www.esauk.org/reports_press_releases/esa_reports/BeyondLandfill_web.pdf
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Green Alliance - Reinventing the Wheel http://www.greenalliance.org.uk/resources/Reinventing%20the%20wheel.pdf
Resource - Circular Economy – State of the Nations http://www.resourceevent.com/Uploads/Resource%202015%20Circular%20economy%20State%20of%20the%20Nations.pdf