The Danish packaging tax has a long history

Denmark originally passed its tax on packaging in 1978. The tax has two component parts. First, there is a volume-based component that applies to some goods, while a weight-based component applies to others. Since 1978, the both components of the tax have evolved. The volume-based tax added rates for small packaging containers in 1998, and since 1998, the rates by volume have remained constant. The existing weight-based tax was abolished for most goods in 2014, although several key items are still taxed this way (Danish Ecological Council). In both its past and present forms, the Danish packaging tax aims to promote environmentally-friendly packaging and to encourage recycling, but it faces several important challenges in execution.

The volume-based component

The volume-based packaging tax applies to most drink bottles and cans, excluding non-carbonated soft drinks (Danish Ecological Council, 1). It aims to incentivize recycling and reuse of existing bottles and cans. To do this, the tax makes it more expensive to purchase and use new packaging. When the tax is considered, it makes financial sense for companies to recycle bottles and cans as long as the cost of recycling these items is lower than the cost of producing new ones (including the tax).

The Danish Deposit-Refund System plays a vital role in the success of the volume-based packaging tax because the tax mainly applies to bottles and cans. There are many business locations that must accept recycled bottles and cans due to a Danish law passed in 2002 called The Statutory Order on Deposits. Because of this law, the return system has “the exclusive right to operate the deposit and return system, which collects, counts, sorts and separates bottles and cans and sends them for recycling” (Danskretursystem.dk). This setup streamlines the recycling process, making the incentive created by the tax more impactful. Additionally, the return system is consistently efficient, achieving an 89% return rate in 2010 (EN Policy). This high return percentage creates a strong circular economy and demonstrates the effectiveness of the return system, supported by the volume-based component of the packaging tax.

The weight-based component

Since 2014, the weight-based component has only applied to certain items including single-use silverware, pvc foil, and plastic bags (Danish Ecological Council). Like the volume-based component, this tax incentivizes companies to use more environmentally-friendly packaging. The plastic bag tax was passed in 1994 (Danish Ecological Council), and plastic bags remain one of few packaging items taxed by weight. This tax incentivizes companies to find alternative packaging materials that are functional and economical considering the remaining packaging tax.

Administrative challenges plague implementation of the tax

The packaging tax is complex, and its long history introduces several complications. As a result, the tax has faced challenges in implementation and administration (EaP GREEN, 36). Additionally, the tax rates vary based on the type of material used and whether the material is newly produced or recycled. Moreover, the tax applies to a large number of businesses across Denmark, and a few exceptions to the tax exist. These factors create difficult administrative complications.

The tax considers the business impact

Obviously, the tax creates a burden on businesses operating in Denmark. The weight-based tax component created such a large burden on Danish businesses that political leaders abolished the tax as it applied to many items, leaving only a few remaining packaging items taxable according to weight. In another move to protect Danish businesses, the tax is structured to apply equally to packaging created and used in Denmark along with packaging products imported into Denmark. The tax does not apply to Danish exports (EaP GREEN, 36). Without the export exemption, Danish businesses would be at a significant disadvantage when competing internationally. This tax’s careful consideration of its international business impact continues to play an important role in its political longevity and success.

Conclusion: The packaging tax incentivizes environmentally-friendly action

Denmark’s packaging tax has a long, complex history. Its two components tax environmentally-harmful materials in different ways, but with the same goal of incentivizing companies to recycle their packaging materials and to utilize more environmentally-friendly packaging materials. The volume-based tax component focuses on bottles and cans, and the Danish Retursystem (deposit-refund system) facilitates recycling and reuse of these items in a circular economy. The weight-based component focuses on plastic bags, pvc material, and plastic silverware. These single-use items are harmful to the environment, so the tax encourages companies to minimize their use and to find more environmentally-friendly (and non-taxed) alternatives. The packaging tax has changed since its original implementation in 1978, but its core goal of waste reduction has remained constant.

Sources

https://green-budget.eu/wp-content/uploads/The-Danish-Packaging-tax_volume_FINAL.pdf

https://green-budget.eu/wp-content/uploads/The-Danish-Tax-on-Packaging_weight_FINAL.pdf

https://www.oecd.org/environment/outreach/EN_Policy%20Manual_Creating%20Market%20Incentives%20for%20Greener%20Products_16%20September.pdf

https://www.danskretursystem.dk/en/about-dansk-retursystem/regulated/