Deposit-Refund Systems2001 575. Deposit-Refund Systems5.1 IntroductionDeposit-refund systems (hereafter referred to as “deposit systems”) are acombination of a product charge (the deposit) and a subsidy for recycling or properdisposal (the refund). Manufacturers or vendors of products that are subject todeposits incur additional costs in handling returned products, but these costs are oftenpartially offset by the interest earned on deposits, unclaimed deposits, and sales ofcollected, used products.One of the objectives of a deposit system is to discourage illegal or improperdisposal. Waste products that are discarded improperly have higher social costs thanthose disposed of properly, since such discards can become an eyesore or even anenvironmental or health threat. Improperly discarded waste is also quite expensive toredirect to the legal waste stream. Deposit systems are commonly applied to beveragecontainers, in part because these containers make up a large proportion of roadsidelitter. Another important objective of a deposit system is to divert recyclable itemsfrom the waste stream.In addition to being used for beverage containers, deposit systems have also beenused for other products such as pesticide containers, lead-acid batteries, and tires.Some of these systems are voluntarily implemented by industry, whereas others areimplemented by state or local authorities. While federal legislation on deposits hasbeen considered, none of these proposals has been enacted.Several studies have concluded that deposit systems are more cost-effective thanother methods of reducing waste disposal, such as traditional forms of regulations,recycling subsidies, or advance disposal fees (ADF) alone. A recent study by Palmeret al. (1995) concluded that a 10% reduction in waste disposal would cost $45 per tonof waste reduced under a deposit system, compared to $85 per ton under advancedisposal fees and $98 per ton under recycling subsidies. However, the study notedthat the relatively high administrative costs of a deposit system could outweigh thesecost savings.Administrative costs are an important consideration when determining whether tocreate deposit systems. Ackerman et al. (1995) estimate that administrative costsaverage about 2.3¢ per containermore than $300 per ton for steel containers and$1,300 per ton for aluminum cansin states with traditional legislation on beveragecontainer deposit systems. A full accounting of the desirability of deposit-refundsystems would compare administrative costs and the costs imposed on consumerswith the benefits of reduced disposal costs, energy savings, reduced litter, and otherenvironmental benefits. Deposit-refund systems appear best suited for productswhose disposal is difficult to monitor and potentially harmful to the environment.When the used product has economic value, the private sector may initiate theprogram.The U. S. Experience with Economic Incentives for Protecting the Environment58 JanuaryFullerton and Kinnaman (1995) conclude that fees for waste collection should be priced as ifdisposal and recycling are the only two disposal options. If illicit burning or dumping is also anoption, the optimal policy is “a tax on output plus a rebate on proper disposal,” in other words, adeposit system. While variable pricing programs for waste collection have the potential to givewaste generators an incentive to improperly dispose of waste, deposit schemes give them anincentive to return waste for proper disposal or for recycling. For example, with beveragecontainers, roadside litter is an important issue, so a deposit system is a good policy choice.As noted in this chapter, studies have found that deposit systems result in higher recovery ratesof used products and less contamination of recyclables than curbside recycling programs.However, deposit schemes are also believed to cost more to administer than curbside programs.5.2 Beverage ContainersBeverage containers have been subject to both voluntary and mandatory deposit schemes. In thepast, the beverage industry made extensive use of voluntary schemes to recover refillable bottles.However, this practice nearly disappeared following the introduction of cheaper “disposable”containers.As shown in Table 5-1, 10 states have passed “bottle bills” that mandate beverage containerdeposits ranging from 2.5¢ to 15¢ per container, the most common amount being 5¢ percontainer. Beer and soft drink containers are subject to deposits in all 10 states; mineral watercontainers in six states; malt containers in four states; and wine coolers, liquor, and carbonatedmineral water containers in three states. Michigan includes containers of canned cocktails, NewYork includes containers of soda water, and Maine includes containers of juices and tea. In moststates, deposit requirements apply to the full range of container types, including glass, plastic,aluminum, and steel. The State of Delaware, however, has exempted aluminum from itsrequirement.Most states require retailers to take back containers that are in their product line, even if thecontainer was purchased elsewhere. In Maine, however, retailers located within a certaindistance of a certified redemption center are not obligated to take back containers. In addition toretail outlets, “redemption centers” accept containers in most states. Any organization mayoperate such centers, although certification of the center may be required. Some redemptioncenters and retailers could earn profits from mandatory handling fees of 1.5¢ to 3¢ per container,fees that are paid by distributors. As shown in Table 5-1, distributors usually keep unclaimeddeposits.Not included in this table is a deposit system that has been in effect in Columbia, Missouri, since1982. Under this system, consumers pay deposits of 5¢ on containers of beer, soft drinks, malt,and carbonated mineral water. Although retail stores are required to take back containers, nohandling fees are mandated. The overall rate of redemption is estimated to be 85% to 95%.Although it is beyond the scope of this report to describe in detail every deposit system that islisted in Table 5-1, systems in Maine and California are discussed below as illustrative examples.Deposit-Refund Systems2001 59Table 5-1. State Beverage Container Deposit-Refund SystemsState SinceContainersCoveredDeposit,RefundAmounts% ReturnedRedemptionSitesUnclaimedDepositsHandlingFeesCalifornia 1987Beer, soft drinks,wine