Around 400 tonnes of plastic waste are generated every year around the world. However, of the seven billion tonnes of plastic waste humans have developed to date, only 10% has been recycled; the rest is dumped or burned, releasing harmful chemicals into the environment.

In many regions and countries, governments are exploring plastic taxes to incentivise the reduction of plastic waste. So, what are European Union (EU) countries doing to tackle the problem?

The EU’s role in promoting the circular economy

The EU has been leading environmental issues, including brokering the Paris Agreement 2015. In 2019, the European Green Deal set an action plan to make the EU economy more sustainable. The EU plastics strategy is currently under revision, with this being an essential part of the EU’s Circular Economy Action Plan and the plan for the environment and oceans.

The traditional approach to using natural resources was linear: oil was extracted from the Earth, processed to make a plastic item, and discarded after use. However, in a circular economy, the focus is on maximising the utilisation of natural resources and designing out waste and pollution.

The circular economy looks at every stage of a product’s life cycle, from the extraction of raw materials to design and production through distribution, consumption, repair or reuse, recycling and eventual disposal. Plastic taxes can incentivise more intelligent use of resources, for example, by taxing the use of virgin plastics, the usage of non-recyclable packaging or the generation of plastic waste.

Accounting for plastic waste generation

During the COVID-19 pandemic, a temporary measure was implemented to provide additional revenue for the EU, with implementation beginning on 1 January 2021. Each Member State reports the amount of plastic waste generated but not recycled each year and pays a contribution to the EU based on a rate of EUR 0.80 per kilogram of non-recycled plastic packaging waste.

For some Member States, the contribution is adjusted to avoid being overly harsh. The money is used to help Member States adversely impacted by COVID-19 and to help make up some of the EU income shortfall resulting from the pandemic.

Although Member States are not required to introduce a plastic tax, the contribution incentivises countries to do so to recover the money paid to the EU. This incentivises companies in each Member State to reduce plastic waste. If Member States choose to do so, they can fund the contribution from the national budget instead.

Pre-existing plastics legislation

Many European countries have already introduced some form of plastic tax, for example, a tax on plastic carrier bags. On 1 April 2022, the UK introduced a tax on plastic packaging produced or imported to the UK. It applies to single-use products with less than 30% recycled material, imposing a tax of GBP 200 on manufacturers or importers for every tonne of chargeable plastic packaging.

2023 has seen Spain and Italy bring in plastic taxes. On 1 January, Spain introduced an excise tax of EUR 0.45 per kilogram of non-reusable plastic packaging, with some exemptions for packaging used in medicine and agriculture. Italy’s law also introduced on 1 January 2023, imposes a rate of EUR 0.45 per kilogram of single-use plastic products consumed to produce non-reusable plastic products. But, again, some exemptions apply, such as the use of medical devices.

Other EU Member States may not have plastic taxes but impose additional costs for plastic waste, for example, the Netherlands’ packaging waste contribution or levies applied in Bulgaria and Romania on some plastic products. In addition, other EU Member States will likely introduce new legislation to address the issue.

How will plastic taxes impact business?

Plastic taxes can impact beyond the jurisdiction where they are imposed through supply chain impacts. In addition, plastic taxes could increase the cost of products such as plastic packaging components. Waste management companies will also be affected.

As new laws are introduced, it is important to discern which plastics come within the scope of the legislation, what the restrictions are, what the trigger for taxation is, and other issues such as reporting obligations and intersecting plastic waste laws.

The key objective for companies is to avoid being blindsided by plastic tax changes – be aware of worldwide alterations and understand how the company could be affected and how the tax function can ultimately provide support across these critical areas.