Waste Management Policies An Applied General Equilibrium Analysis

1、waste management policies: an applied general equilibrium analysis an earlier version of this paper has been presented at the second world conference of environmental and resource economics 2002. we would like to acknowledge useful comments of timo kuosmanen on previous versions of this paper. this

2、paper is part of the project: material use and spatial scales in industrial metabolism financed by the netherlands organization for scientific research.h. bartelings corresponding author, tel +31-317-485367 fax +31-3117-484933, e-mail: heleen.bartelingsalg.shhk.wau.nl., r. b. dellink and e.c. van ie

3、rland, environmental economics and natural resources group, wageningen universityp.o. box 8130, 6700 ew wageningen, the netherlandsabstractcurrent waste management policies are not sufficient to obtain a significant reduction in waste generation of both industries and households. waste generation is

4、 too high due to certain characteristics of the waste market, for instance flat assessment pricing for treatment of solid waste and virgin material biased regulations. this paper presents an empirical modeling analysis of the efficiency of current waste management policies and calculates the social

5、costs of waste generation. in this paper, we will specifically concentrate on the effectiveness of introducing a unitbased fee for the collection of household waste. we will show that although introducing such a fee may lead to reducing waste generation it may also lead to undesirable environmental

6、impacts. such a fee provides households incentives to generate lower quality organic waste as a form of dumping. an applied general equilibrium model is built that incorporates organic waste in high quality, low quality, and rest waste, including the possibility of substitution between the generatio

7、n of these three types of waste. the model is used to analyze the effects of introducing a unit-based pricing scheme. the results show that waste leakage can occur and that this will have a strong impact on the effectiveness of the unit-based pricing scheme. the successfulness of unit-based pricing

8、largely depends on the willingness of the households. households with a large preference for a clean environment are less likely to dump rest waste in organic waste. this makes unit-based pricing less suitable for larger municipalities, which in general have a larger share of ordinary consumers who

9、have only small preference for a clean environment. we recommend considering these counterproductive effects explicitly before implementing unit-based pricing of waste collection.keywords: solid waste; flat fee; general equilibrium; policy modeling; solid waste; unit-based pricing; general equilibri

10、um; jel classification: d58; h21; q281 introductioneconomic literature suggests that externalities should be internalized by means of pigovian taxation. to internalize the external costs of waste dumping a unit-based pricing scheme in a unit-based pricing scheme households pay a variable fee for the

11、 collection of waste, where the total amount of the fee depends on the actual quantity of waste generated. for the collection of solid waste can be implemented. most municipalities, however, still favor the flat fee-pricing scheme in a flat fee pricing scheme consumers are charged a fixed fee indepe

12、ndent of the amount of waste they actually produce. over the variable-pricing scheme. recent studies have shown that the introduction of such a pigovian tax contributes to solving the solid waste problem, provided that proper care is taken to prevent illegal disposal, like dumping and illegal burnin

13、g (see for example jenkins, 1993; fullerton and kinnaman, 1995, 1996; palmer and walls, 1997; fullerton and wu, 1998 and choe and frasier, 1999). disposal taxes also give incentives to producers to make efficient choices about the degree of packaging, the weight and material input of the product and

14、 finally the rate of recyclability of the product (fullerton and wu, 1998). several municipalities have already experimented with the use of variable taxes for waste collection. results of these experiments can be found in, for example, miranda et al. (1994), sterner and bartelings (1999), and linde

15、rhof et al. (2001). most of these empirical studies conclude in favor of the pigovian tax. a unit-based pricing scheme is usually only implemented for collection of rest waste. households can choose to separate organic waste and paper, which is collected free of charge. a unit-based pricing system i

16、s generally accompanied with policies promoting recycling of glass, tins, and batteries. recent studies (see for example fullerton and kinnaman, 1995) have focused on the possibility of illegal disposal of waste as a consequence of introducing unit-based pricing system for waste collection. however,

17、 they have failed to recognize another potential problem, namely the possibility of pollution of recyclable or organic waste. not only do households have the option of burning or illegally dumping trash but they also can get rid of the rest waste in small amounts by putting it in with organic waste

18、or glass containers-both of which are collected free of charge. this kind of waste leakage can have serious effects. it will greatly increase the costs of recycling or composting of polluted waste. this could eventually, result in the situation where all waste is incinerated or landfilled. especiall

19、y in larger municipalities this could be a significant problem.monitoring and preventing waste leakage is costly. organic waste is usually collected in large garbage trucks where all waste is thrown together. this makes it difficult to distinguish waste of one household from that of another. to loca

20、te the source of polluted organic waste, the quality of organic waste must be checked during collection. this requires large adaptation costs and it would probably be cheaper to separate the organic waste from the rest waste at the composting unit. although this paper focuses on waste leakage in a u

21、nit-based pricing system, waste leakage is a potential problem in any system in which consumers are punished for generating rest waste and rewarded for generating recyclable or organic waste.in this paper we apply a general equilibrium approach to build a model with which the problem of waste leakag

22、e can be analyzed. existing studies have analyzed economic and environmental effects of policies aimed at reducing waste generation, in both partial equilibrium and general equilibrium. most recent studies have chosen the general equilibrium approach. the advantage of a general equilibrium approach

23、over a partial equilibrium approach is, firstly, that it is possible to model the entire product life-cycle from production, packaging, sale, use to disposal. policies trying to reduce waste disposal will effect all of these stages in the life-cycle. it is, therefore, essential to include all these

24、stages in the model. secondly, waste leakage is a sort of market failure. this market failure will not only affect the composting market but all other markets in the model. to ignore these effects will give an incomplete picture of the impacts waste leakage has on our economy. we will show with a nu

25、merical example, based on data stylized for the netherlands in 1996, that waste leakage can cause serious problems. consumers will have an incentive to pollute organic waste, which in turn will greatly increase the cost of composting and recycling.environmental preferences of a household play an imp

26、ortant role in deciding what quality of organic waste the household wants to generate. households with little or no preference for a clean environment will have a larger incentive to pollute organic waste than those households with a larger preference for a clean environment. this aspect will be imp

27、lemented in the model by introducing two groups of consumers: green consumers and ordinary consumers, who face different substitution elasticities between organic waste and rest waste. the paper is structured as follows. section 2 describes the model and shows how the problem of waste leakage can be

28、 included in an applied general equilibrium model. section 3 presents a numerical example and shows how a unit-based pricing system can inadvertently promote waste leakage. section 4 concludes and gives policy recommendations. 2 modeling different waste categories 2.1 model descriptionthe model used

29、 in this paper is an applied general equilibrium model (age) in the negishi format general knowledge of age models in the negishi format is assumed. for more information about general equilibrium modelling in the negishi format see for example negishi (1972) or ginsburgh and keyzer (1997). . in this

30、 section a general model description is given. the focus is on the assumptions necessary to build a model that includes generation of three types of waste, a flat fee pricing system and a variable labor supply labor supply equals the exogenously determined labor endowment minus the labor used by pri

31、vate households to generate organic waste.to illustrate the problem of waste leakage clearly, the model has been kept as simple as possible. this makes it easy to follow the assumptions necessary to introduce waste leakage in an age model.the model characteristics are as follows. there are three con

32、sumers in the model: two private households and a government. private households generate waste as a fixed percentage of consumption and they have to deal with this waste. they can either choose to put the waste in the waste bin or chose to separate organic waste from rest waste. the organic waste i

33、s then collected separately from the rest waste and sent to a composting unit (see figure 1). figure 1 representation of the basic modelgenerating organic waste is costly for the consumers because they have to invest labor to separate organic waste from rest waste. the consumers can choose to genera

34、te low or high quality organic waste. production of a high quality organic waste will cost more labor. in the benchmark model, private households pay a flat fee for collection of all waste, including organic and rest waste in a flat fee pricing scheme consumers pay a fixed amount of money for the co

35、llection of waste, which is independent of the actual amount of waste that is produced. therefore the marginal cost of producing one unit of waste is equal to zero. in such a pricing scheme, the marginal costs of waste collection equal zero. this means that the equilibrium price for waste collection

36、 of rest waste and organic waste equals zero. to implement this in the negishi format, a subsidy-cum-tax scheme is used. in the subsidy-cum-tax scheme, consumers pay the equilibrium price for waste collection. however, the government reimburses the consumers with exactly the same amount in the form

37、of a subsidy. in this case the perceived price for additional waste disposal equals zero. the government will finance the costs of the subsidy by demanding a flat fee or direct tax a direct tax only influences the income of the consumer and does not influence in anyway how the income is spend. from

38、the private households for waste collection.in the policy change scenario a unit-based pricing scheme is introduced for the collection of rest waste. this means that private households pay the equilibrium price for waste collection, which equals the marginal costs of producing these services. 2.2 th

39、e modelour simple model follows the general structure of an age model in the negishi format. therefore, total welfare is maximized. total welfare (tw) depends on the weighted sum of the log of the utilities, ui, of each consumer i where i=1.3, with welfare weights, ai, (see appendix a and b for full

40、 model specification and notation) to include the subsidy-cum-tax scheme in the model the total cost of the per unit subsidy (x) on waste collection of both rest waste (x r tw r ) and organic waste (x o tw o) has to be added to the total welfare function due to technical reasons. therefore the welfa

41、re function used in the model is the following:adding the subsidy term to the total welfare function is solely done to change the marginal prices of waste collection. for more information on this subject see ginsburgh and keyzer (1997).:private households generate waste during consumption. for simpl

42、icity, we have chosen to keep our model static, although we realize that waste generation has dynamic aspects; not all products will turn into waste immediately when they are consumed, for example durables can function properly for several years. in our comparative static model, waste generation (w)

43、 of consumer i is determined as a fraction b of the consumption product, xg implicitly this means that part of the used material will accumulate in the stock of durable goods. therefore at a given moment of time the material inflow does not have to be equal to the material outflow in the model.the p

44、rivate households have to deal with the waste by using the so-called waste collection services. they can either choose to demand collection services of rest waste, xr, or collection services of organic waste, xo. they can substitute between demand of rest waste collection services and organic waste

45、collection services. private households can also choose to generate low quality organic waste, xo,l, or high quality organic waste, xo,h, as specified in the following ces function the notation z=ces(x,y;s) reflects the following function:.:where s lh stands for the substitution elasticity between l

46、ow quality organic waste and high quality organic waste and s ro stands for the substitution elasticity between rest waste and organic waste.the demand for collection services is not equal to the generation of waste. to convert from demand for a certain type of collection service (in volume) to the

47、actual generation of that type of waste (in kg) we calculate that particular collection services share of total collection service demand. we then multiply this by the total amount of waste generated, calculated as a percentage of consumption. if the private households decide to generate organic was

48、te, they will spend labor, lw, on separating organic waste from rest waste. producing high quality organic waste costs more labor than producing low quality organic waste. the production possibility set for organic waste of quality f looks as follows, (f=1,2):where m reflects the labor costs necessa

49、ry to produce a unit of organic waste of quality f. the three firms (producers of the consumption goods and the two types of collection services) generate output q of good j under conditions of constant returns to scale, using as inputs capital, k, and labor, l. thus the production function for thes

50、e firms is: where skl is the substitution elasticity between capital and labor. consumers supply capital and labor to the firms. the capital supply, k, is exogenously determined. however, the labor supply l of each consumer i is calculated as the exogenous labor endowment, , minus the total amount o

51、f labor used for generating both types of organic waste, lwf:the model is closed by two balance constraints: (i) the commodity balance constraint, which states that demand for any commodity should be less than or equal to the supply of that commodity the variables shown in these equations are all k

52、x 1 vectors, where k stands for all commodities in the model. , by taking the marginal value of the balance constraint, the price vector p can be determined (this is symbolized by p). the price vector is used in calculating the budget constraint and in determining the negishi weights.:and (ii) the s

53、ubsidy balance constraints for both types of collection services:by taking the marginal value of the subsidy balance constraints, equation and , the perceived price of both waste collection services can be determined. in the case of the flat fee pricing scheme this price will equal zero.finally, the

54、 negishi weights are determined in such a way that each of the consumers spends their full income on the consumption of goods and services.3 a numerical examplethe model presented above is applied in a numerical example with stylized data from the netherlands. the goal of this section is to show how

55、 the main mechanisms of the model operate and how these mechanisms are influenced by the assumptions inherent in the model. the economic data used in the numerical example are based on the netherlands in 1996 (statistics netherlands, 1998). 3.1 benchmark datathe accounting matrix displayed in table

56、i describes the initial equilibrium. supply of commodities, i.e. producers output and consumer endowments, have positive values; demand of commodities, i.e. production inputs and consumption, have negative values the column of each producer sums to zero to ensure that the zero profit condition holds

57、 (value of input equals value of output). the column of each consumer sums to zero to ensure that the budget constraint holds (consumers spend exactly their income on the consumption of goods and services). each row must sum to zero in order to ensure that each market clears (total demand for each c

58、ommodity must equal total supply). table i benchmark accounting matrix (expenditures in 100 million nlg, 1996)goodcs restcs organiccons1cons2govcolsumpricegood646000-5008-1252-20001.00cs rest07.60-6.08-1.52001.05cs compost001.9-1.52-0.38001.05capital-2893-4.8-1.22158.8539.7200.501.00labor-3567-3.2-0.82856.8714.2001.00fee000-7.6-1.99.501.00subsidy00082-1001.00rowsum0000000note: “good” stands for the consumption good; “cs rest” stands for collection services of rest waste, “cs organi