Wednesday, May 25, 2022

Eric Crampton: Why I don’t like the Ministry For The Environment’s reboot of Seinfeld

The ministry's proposed plan to impose a 20-cent deposit on almost every beverage container sold doesn't add up, and with a 10c bottle deposit difference between Australia and NZ, we'll be making smuggling great again too

There were a lot of truly classic episodes of Seinfeld, but among the very best, at least for economists, was “The Bottle Deposit”.

And we may be in for a repeat if the Ministry for the Environment has anything to say about it.

In the Seinfeld episode, Newman, a postman, tries to figure out how to profit from the five-cent difference in the can and bottle deposit between New York and Michigan. Truck rental fees, tolls, and fuel for the thousand-kilometre trip seemed to make it impossible – until Newman figures out a way of using a postal service truck to make the run.

But trans-Tasman container shipping is a lot more cost-effective, per tonne, than freight hauling across the United States.

And the Ministry for the Environment has just closed off submissions on a proposed container deposit return scheme that, among other problems, would set a 20-cent deposit on beverage containers. Australia’s deposit is 10 cents. And it could well be viable to send a container of crushed cans across the Tasman for fun, profit, and a Seinfeld reboot.

We will come back to some rough numbers on the Ministry for the Environment’s attempt to Make Smuggling (and Seinfeld) Great Again.

But first, the scheme.

The Ministry for the Environment wishes to impose a 20-cent deposit on almost every beverage container sold. Fresh milk bottles and cups would be excluded. The price of every beverage would go up by 20 cents, plus a levy covering the administrative costs of the scheme - perhaps about 8.8 cents per container, according to the ministry’s discussion document.

It doesn’t sound like a lot. But Pak’nSave currently sells a 24-pack of Mountain Dew for $17.89. The price of the case of soda would go up by $6.91, or 38%, under the scheme – if the full cost of the deposit scheme’s levy were passed along to consumers. $4.80 would be the refundable deposit, and $2.11 would be the surcharge to cover the costs of running the money-go-round.

The proposed scheme relies on ‘Reverse Vending Machines’, which might be placed in supermarket car parks. Bring your 24 empty cans back to the supermarket, feed them into the machine, and get a ticket. You can then cash in the ticket to get back $4.80 of the $6.91 that you paid.

Add in your empty beer, wine, juice, and long-life milk containers, and the tally could be substantial.

Unfortunately, the scheme does not make very much sense at all, except potentially as a way of reducing littering. And there could well be better and cheaper ways of reducing littering than adding a lot of cost and hassle to almost every beverage sold.

The ministry’s Discussion Document says the scheme aims to reduce litter, reduce the number of containers that wind up in landfills, and increase container recycling and reuse. Containers intended for reuse are exempt from the scheme.

Reducing littering is a laudable aim. Littering can impose an actual externality, as economists define the term.

But reducing the number of containers winding up in landfills only makes sense as a policy objective if council landfill sites are constrained against charging the fees that would cover their costs. Suppose the landfill charges fees that cover their costs, including depreciation and retirement of sites when they are full. In that case the amount of rubbish going to the landfill really is not a public policy problem to be solved.

The country faces no risk of running out of land for landfill. When I checked the numbers a couple of years ago, it would take thousands of years of continued use of landfills before we started needing to consider using arable land for landfill rather than non-arable land.

There can be real costs in commissioning and decommissioning sites to ensure they are up to an appropriate environmental standard. Those costs need to be worked into tip fees. But that is all that needs to be done to encourage the ‘right’ amount of waste to wind up at the tip.

If the country ever did start running out of sites suitable for use as landfills, tip fees would still solve the problem. Tip operators would charge higher fees, anticipating that the next site would cost a lot more to commission, and those higher fees would encourage innovation in avoiding waste.

Innovation in avoiding waste or better dealing with it, isn’t a pipe-dream. Waste-to-energy plants are already cost-effective. Higher tip fees, caused by greater scarcity of sites, would make them even more attractive - if officials would ever allow one to operate here. But officials seem ideologically opposed to them: one council official noted that such a plant would reduce their options for implementing waste-minimisation initiatives.

If littering is the only legitimate policy problem that might be addressed through a container deposit scheme, could there be alternative solutions that are a bit more cost-effective? When Stuff investigated things over five years ago, neither Porirua nor Upper Hutt had issued a single fine for littering over a four-year interval, and Wellington Council had recorded only trivial levels of fines. By contrast, Hutt Council had issued over $100,000 in fines for littering over the same period.

It may be simpler to start enforcing existing council rules against littering rather than require every household to collect and clean all of their empty beverage containers, carry them back to a reverse vending machine, stand in a queue at the machine, feed them slowly into the machine, collect a receipt, and then take that receipt into the store to be cashed out.

As the scheme stands, it seems like a great way of imposing costs on everyone who buys beverages to provide profits to the companies that lease out reverse vending machines.

And then there is the Seinfeld problem. And it isn’t just fiction.

In 2017, CBS News reported on a Michigan entrepreneur who had muled no-deposit cans from Indiana to Michigan. His business partner set up a can ‘recycling’ business that paid sixty to eighty cents per pound for non-refundable cans in Indiana. They brought the cans to Michigan, put phoney barcodes onto the cans so reverse vending machines would accept them, and copped a $400,000 fine when caught.

Any return scheme will have to make provision for bulk returns. Venues that go through a lot of cans, such as stadiums, will not be bringing cans to reverse vending machines one-by-one. Instead they will be crushing cans on site and delivering them in bulk for reimbursement.

And bulk cans do not take up a lot of space.

As a rough calculation, a 20c deposit in New Zealand, compared with a 10c deposit in Australia, works out to about $5,600 per tonne trans-Tasman difference in deposits, after adjusting for exchange rates. A standard shipping container can hold about 3.3 tonnes of crushed cans. So getting a container of crushed cans from Australia to New Zealand could be worth almost NZD$19,000 in extra deposit revenues. If it costs less than that to collect and ship the cans, we’ll have made smuggling great again.

Reboots of shows from the 1990s can be excellent. The new season of Kids in the Hall on Amazon Prime is superb. But I really do not like the new season of Seinfeld the Ministry for the Environment is queuing up.

Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE

1 comment:

DeeM said...

Only our current lot of incompetents could think that going back decades is the way to innovate.

These days, 20c is such a tiny amount as to be ridiculous for other than very small children.
Especially when the drinks will now cost you 28.8c more than they did the day before the scheme was initiated.

We already have waste systems to collect these containers and deal with them accordingly and we pay our rates to finance them -it's called rubbish collection.

I'm not aware of a litter problem particularly. And even if there is, this scheme won't fix it. People who throw their bottles away are most likely to be teenagers who would choke on their coke if you told them to take it back and get 20c.
If this is the best the Ministry of the Environment and all its new employees can come up with then we should disband it.