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Our Policy Researcher's views on Deposit Return Schemes - Decoupling theoretical and direct benefits

16th July 2019

Martin Hyde

There have recently been claims made about the potential benefits of a Deposit Return Scheme (DRS) to the UK Economy, with suggestions that the government impact assessment shows a net benefit of £2 billion over a 10-year period if an “all in” model is applied.

Whilst it is positive to see support for more innovative methods of tackling littering, it is concerning to see such a broad statement made about a rather complex impact assessment which is based on a veritable plethora of assumptions and estimations.

What does the impact assessment say?

The impact assessment produced by the government (found here) does indicate some of the potential benefits of DRS introduction, however, it also presents some of the realistic cost implications for UK businesses, which could well be on top of any additional costs from a reformed Extended Producer Responsibility System.

Disamenity of litter

Disamenity of litter is by far, the largest perceived benefit at an annual value of £986 million. This makes up around 90% of the total benefits. If this figure is an overestimation by 20%, the entire DRS system could become a net cost rather than a net benefit.

What is disamenity of litter you ask? This refers to the theoretical value that UK householders would associate with the reduction in litter associated with the introduction of the DRS. This was calculated based on research completed by the University of Leeds in 2011 which suggested that householders would be prepared to pay £47.40 extra council tax per year in exchange for a 1-point reduction (on a 1-10 scale) in the amount of litter. The impact assessment assumes from this that households would be prepared to pay £213.75 extra per year to see a 4.5-point reduction. Scaled up to represent 27 million households, this appears to show a total value of £5.8 billion. This figure was then divided down by the proportion of litter considered to be in scope of DRS (40%) and a 42% reduction in littered drinks containers, which leads to a total annual figure of £986 Million.

Given the data available, this does seem like a reasonable estimate, but is it representative of a value “generated for the UK economy”? Keep in mind that the impact assessment also states the following regarding this figure:

“There is limited data and a lack of detailed studies in this area, therefore, whilst it is recognised that proportion estimations from international comparisons are unlikely to be comprehensive, this methodology based on empirical findings was considered preferable to attempting to deduce the amount of litter from the overall POM or non-recycling tonnage, which would be highly speculative.”

At this point we should consider some of the assumptions made as part of the impact assessment:

Being “prepared to pay” additional council tax is representative of value to the economy

This seems like a big leap; yes, the data shows that of the 561 households studied in 2011, many saw littering as an issue, and there were a reasonable number whom would be prepared to pay more council tax if littering levels were improved, but this in itself does not mean generating money for the economy, as there is no alternative plan to increase council tax to combat littering if an “all in” DRS is not implemented. It is also worth considering that what respondents to a survey in 2011 said they “would be prepared to pay” is unlikely to be fully representative of what they actually would be happy to pay.

Improvements on the “10-point scale” and their costs are linear

A major assumption here is that if a 1-point reduction in littering would be worth 47.40 to the average householder, then a 4.5-point reduction would be worth equivalent to 4.5 x this. This does not seem in line with the original research where respondents were simply asked to scale their current situation with proposed alternatives on a scale of 1-10, the scale used by each individual was therefore highly likely to be subjective.

Another issue here is that this assumes that the cost of providing a 1-point reduction compared to a 4.5-point reduction by “non-DRS” means is linear. This is unlikely to be the case as it cannot account for the average size, weight or material of litter to be collected or the impact this has on collection bias (larger or more visible items are more likely to be collected when collecting litter).

Litter minimised by DRS introduction is representative of current litter

Litter (especially plastic and glass drinks containers) can stay in the natural environment for years (potentially decades) before degrading. The presence of litter does not necessarily mean that it has been littered recently, and with apparent plans for a DRS scheme to accept containers disposed of prior to its introduction, the reduction in litter would really only account to the quantity of waste littered from the date of DRS introduction onwards.

Final thoughts

Whilst I applaud the support of innovative methods of minimising littering, and do recognise litter for the issue that it is, I think we need to be careful about the projected benefits we estimate for an “all in” DRS. There will be benefits, and a reduction in disamenity of litter is one of them, however, implying that this represents a direct generation of value to “the economy” is potentially an overestimation of the impacts.

Whilst the impact assessment used is relatively representative of the main costs and benefits of a DRS, there is a difference between a theoretical benefit (householders perceived value of a lack of litter) versus a direct benefit to “The Economy” and we should not ignore this.

In a time where “greenwashing” is all too common, and it is becoming increasingly difficult to define the “most environmental” strategy, policy or product, it is important to ensure that we don’t let a desire for change cloud our judgement about the best way to achieve it.