Plastic taxes - A European perspective

The use of environmental taxes to drive the sustainability agenda is on the rise and new regulations and legislation are being introduced on a global scale at a rapid pace. While plastics tax is not a new concept, it is quickly becoming a legislative discussion point in several regions and countries as governments implement various environmental protection methods to combat climate change and tackle waste and pollution. The plastic tax wave towards greater sustainability and circularity.

The European Union (EU), which was instrumental in brokering the Paris Agreement^[1] and has been at the forefront of international efforts to fight climate change, launched the European Green Deal in 2019 as its action plan to transform the EU economy for a sustainable future. To achieve the ambitions set out in the Green Deal, the EU is, amongst other efforts, working on revising existing environmental policy packages, Directives and legislation. One of the revisions relates to the EU’s plastics strategy^[2], which is a key element of Europe’s transition towards carbon neutrality and part of the EU’s Circular Economy Action Plan^[3]. Specifically, plastics and packaging are addressed within the Green Deal under the “environment and oceans” action plan.

A traditional linear model sees natural resources introduced into a manufacturing system that are then used to produce a product which is ultimately disposed. In comparison, a circular economy is based on the principles of designing out waste and pollution, keeping products and materials in use and regenerating natural systems by minimizing the amount of new raw materials required. 

Taxes and tax incentives can play a role in directing behavior at each stage of the circular economy life cycle. For example, natural resources taxes on the extraction of raw materials or on the use of raw materials in the production process may lead to increased circularity in extraction or production systems. Specific to tackling plastic pollution, there are several points in the circular economy lifecycle that a plastics tax can be introduced to trigger the necessary reductions in both plastics production and consumption along the supply chain. For example, taxes may be levied on the use of virgin plastic materials, on the production (or importation) of non-reusable plastic packaging, or on the generation of residual plastics waste.

To direct behavior in tackling plastic pollution, the EU has in place specific rules and targets that apply to certain areas, including single-use plastics, plastic packaging, and microplastics^[4]. However, rather than a regional tax, the EU has introduced an “own resource plastics contribution”, which is a national contribution from each Member State based on the amount of non-recycled plastic packaging waste. This contribution is only between the EU and the Member States and is based on the amount of non-recycled plastic packaging waste produced by each Member State. 

The attention to plastics is increasing not only on a European level, but globally as well. Plastics tax introductions are happening quickly, and it is important to remain informed about both European developments and developments in the countries where organizations have business or production facilities, as companies could face significant additional pass-through costs with the implementation of plastic taxes.

The impact on businesses may vary in different jurisdictions, depending on the type of plastics tax. The direct effect is the increase in costs for affected manufacturers and importers as in-scope plastic products attract plastics taxes. Indirectly, entire downstream supply chains may be affected as product costs increase – from businesses buying the plastic packaging products or components to consumers and even waste management companies.

The current regulatory frameworks relating to plastics lacks harmonization within Europe. While plastic products may not attract a “plastics tax”, this does not mean that there is no additional cost associated with the use or consumption of plastics products. For instance, the Netherlands has a packaging waste management contribution, Bulgaria levies a product fee in certain plastic products and Romania has a contribution levy on certain plastic items.

It is, therefore, important to keep abreast of legislative developments, both tax and non-tax, and assess its applicability to the organization:

• What types of plastics are in scope (single-use, plastic bags, microplastics, plastic waste, etc.)?
• Will restrictions on the percentage of recyclable vs. non-recyclable plastic content be introduced?
• At what point will plastics be taxable (imports, production, distribution, market entry, etc.)?
• What are the reporting obligations? Will new systems have to be introduced to keep track of the percentage of non-recycled plastic used?
• Are there other plastics levies or waste contributions in place in the jurisdiction in which an organization operates?

KPMG firms have developed a leading global Climate Change and Decarbonization practice. Working alongside ESG Tax and Legal teams, they deliver leading approaches as they work collaboratively with clients on the journey to a low carbon, sustainable future.

KPMG ESG professionals can assist you with a climate risk and decarbonization strategy that includes helping you gain strategic foresight and operational value across your organization. All of this is supported by an array of options, such as plastics tax legislative scanning to remain abreast of current and upcoming regulation developments, circular economy, climate risk and supply chain impact assessments, and ESG measurement, assurance and reporting services that enable the development and implementation of methods, tools and frameworks to better track and measure plastics and climate-related risks and opportunities.

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