Recycling Laws and Their Evaluation in Japan

Abstract

In this chapter, firstly we explain the various recycling laws that have been enacted in recent years such as Container and Packaging Recycling Act, Home Appliance Recycling Act, Small Home Appliance Recycling Act, End-of-Life Vehicle Recycling Act, Construction Material Recycling Act, and Food Waste Recycling Act and discuss their problems. Second, we describe the “microplastics problem”, a new emerging global waste problem, and its measures in Japan. Finely we discuss the policy against illegal dumping which occurs in the waste and recycling management.

When we get utility from the consumption of goods and services, this consumption generates various types of waste. Food waste is generated, for example, when we cook and eat at home or have someone cook for us at restaurants. Either way, we are the generators—the only difference is whether we generate waste directly or indirectly. Likewise, when new houses or condominiums are built for sale, construction waste is generated. Many of us may not consider ourselves as generators unless we work in the construction sector. However, the root cause of industrial waste is our consumption, as housing is built to meet our household demand.

Consumption and production activities hinge on two precious resources: natural resources as raw materials essential for production and landfill sites where waste generated by consumption and production are to be disposed of. These resources are not unlimited. We will run out of natural resources if we use them faster than they can be regenerated. Landfills can also run out of space, and creating new sites is difficult due to land restrictions and the “not in my backyard” (NIMBY) syndrome among many other constraints. Optimal allocation of resources across generations is necessary for building a circular economy (See Chap. 4 for the analysis of optimizing the intergenerational allocation of landfills). Resource conservation for future generations, particularly, waste reduction and recycling are integral parts of waste management policy across regions and nations.

This chapter reviews Japan’s recycling policy programs. In what follows, individual recycling acts will be detailed, including the recycling guideline for disposable plastics that the government recently introduced in response to the growing concern about microplastic pollution. Policy measures to combat improper or illegal dumping will also be discussed, among which we will pay particular attention to deposit-refund schemes.

1 Recycling in Japan

Recycling in Japan has been conducted and promoted mainly in accordance with six individual recycling acts: (1) Container and Packaging Recycling Act, (2) Home Appliance Recycling Act, (3) Small Home Appliance Recycling Act, (4) End-of-Life Vehicle Recycling Act, (5) Construction Material Recycling Act, and (6) Food Waste Recycling Act.¹

1.1 Container and Packaging Recycling Act

Containers and packaging wastes (e.g., paper, plastics, glass, and metals) account for more than half of household waste, taking up 66% of the volume and 28.5% of the weight of the entire household waste (The Ministry of the Environment (MOE), 2021).² To reduce the major waste source by requiring sorted collection and recycling of such items as glass bottles, cans, and PET bottles, the Container and Packaging Recycling Act was enacted in June 1995. The act partially took effect in 1997 and became fully enforced in 2000 by including more target materials, specifically, containers and packaging made of paper and plastic.

The act enabled the separation, recovery, and commercialization of many recyclables. Examples include aluminum (steel) cans collected and commercialized as aluminum raw materials (raw materials for ironmaking), glass bottles primarily recovered as raw materials for glass bottles and building materials, beverage cartons and cardboard containers recovered as papermaking raw materials. The list goes on; paper packaging recycled into various resources (such as papermaking materials, construction materials, and solid fuels), PET bottles recovered as plastic raw materials and polyester raw materials (such as fiber, sheets, and bottles), and plastic packaging reused as plastic raw materials, chemical raw materials, and fuels.

The recycling practices are promoted by the act requiring consumers to sort target containers/packaging upon disposal, the municipalities to collect them separately, and businesses that produce or use them for products (such as beverage manufacturers) to properly recycle them. Businesses can meet the requirement by recycling waste items either by themselves or by paying the recycling fee to the Japan Containers and Packaging Recycling Association (The JCPRA), a government-designated organization established under the act, and outsourcing the operation to the JCPRA.³

The JCPRA does not conduct recycling by itself but chooses recyclers every fiscal year through bidding. Recyclers sign an outsourcing contract with the JCPRA to be authorized to recover and commercialize collected wastes. Penalties apply to recyclers that do not fulfill or that underreport their recycling obligations. For example, a fine of up to JPY 1 million is imposed for failing to fulfill their obligation. Nonetheless, no penalties apply to consumers who do not follow the sorting guidelines, meaning that the act does not provide incentives for recycling to consumers. Put differently, it is up to individual consumers’ consciences to determine whether they manually sort their waste daily.

The collection and recycling of beer bottles is distinctive in that the entire process is undertaken by the Beer Bottle Guarantee Deposit System, a voluntary initiative organized and managed by the Brewers Association of Japan. Under this system, a deposit of JPY 5 is paid by the retailer to the brewer/wholesaler for each bottle received. Consumers pay the same deposit to the retailer as part of the beer price and get refunded when they return the emptied bottles to the retailer.⁴ The deposit refund increased the incentive to return bottles, with collection rates exceeding 95% after the system was introduced and reaching 99% by 2020.⁵

It should be noted that the system was launched partly because it is less expensive to reuse beer bottles than to manufacture new ones. As this case exemplifies, businesses engage in recycling voluntarily as part of market transactions if it is profitable for them to do so. However, the recycling of some products may result in additional costs, hindering voluntary initiatives among businesses. Government intervention will be needed in such situations to assist their recycling practices.

1.2 Home Appliance Recycling Act

Although waste home appliances contain useful resources such as iron, aluminum, and glass materials, they used to be dumped in landfills while only some metals like iron were recovered after shredding. These resources got recycled as the Home Appliance Recycling Act took effect in April 2001, targeting four types of home appliances: home air conditioners, TVs, refrigerators/freezers, and washers/dryers.

The act requires consumers to pay fees for the collection, transportation, and recycling of home appliances that they no longer want. Retailers are required to collect appliances from consumers and hand them over to manufacturers or importers, who must recycle them either by commercialization (i.e., recovering metal and glass materials contained in the appliances and reusing them as part of new products) or by heat recovery (i.e., using the heat generated by burning plastic wastes). When used appliances are shipped from consumers to retailers and then to manufacturers/importers, the shipment is tracked by a manifest, or a document form required by the regulatory authority, to deter retailers from selling the appliances to second-hand dealers.

It is mandatory for manufacturers/importers to recover chlorofluorocarbons in air conditioners, refrigerators/freezers, washers, and heat-pump dryers. They are also obligated to recycle appliances in accordance with the standards set by the government. The standards specify the weight ratio of recovered parts or materials and the waste appliance, as shown in Table 7.1.

Table 7.1 Standards for recycling

Recycling fees are set for each type of appliance based on size and manufacturer. Fees as of April 2022 are presented in Table 7.2. Collection and transportation fees vary by region and retailer. At major retailers and large appliance stores, consumers pay JPY 644–688 on average and JPY 1,050–1,500 at most to dispose of home appliances and replace them with new ones, and JPY 2,319–2,458 on average and JPY 4,200 at most for disposal only.⁶ In the case of smaller appliance stores in the suburbs, they pay JPY 2,026–2,632 on average and JPY 29,215–42,000 at most for disposal and replacement, and JPY 2,451–3,086 on average and JPY 15,000–23,925 at most for disposal only. We can see that the fees tend to be smaller in urban regions where major retailers are more likely available compared to rural areas.

Table 7.2 Recycling fees (April 2022)

As the fees are not insignificant, some consumers illicitly dump their home appliances to avoid the burden. Local governments attempt to raise public awareness against illegal dumping by patrol monitoring, installing surveillance cameras, and placing posters and signboards. These countermeasures have been effective to some extent; the number of illegally dumped items decreased approximately by 68% from 2002 to 2020 (from 164,678 to 53,195 items).⁷

The number of illegally dumped home appliances can further be reduced if the current pay-after-use system is modified to incorporate a deposit-refund scheme. Assume that the consumer purchases a large refrigerator and pays a deposit of JPY 10,000 at the time of purchase. By returning the refrigerator to a retailer for disposal, the consumer can obtain a refund, which is JPY 10,000 minus the actual costs of collection, transportation, and recycling. At present, suburban smaller-scale retailers charge JPY 3,000 on average for collecting and transporting a large refrigerator in addition to JPY 5,600 at most as the recycling fee,⁸ meaning that the consumer can obtain a refund of at least JPY 1,400 (or larger if the fees are lower). The incentive element encourages the consumer to choose proper disposal over illegal dumping. For cases where the total costs of disposal and recycling are higher than the deposit amount, consumers may be required to pay the deficit at the time of disposal. In such cases, we can prevent illegal dumping simply by elevating the deposit amount.

One may argue that deposit-refund schemes are not desirable as they increase the burden on consumers by having them pay higher prices for goods and services. Although the waste-end charge system as currently adopted makes products appear cheaper on store shelves, consumers still pay for the cost of disposal and recycling. It is a matter of when to pay the costs, that is, paying it either at the time of purchase (deposit-refund schemes) or at the time of disposal (pay-after-use-system). If the consumer receives a refund, which is the deposit with interest based on the period between the time of purchase and the time of disposal, the cost to the consumer will be the same as in the pay-after-use system.

A crucial difference is that a back-end charge system allows illegal dumpers to get away with not paying the disposal/recycling fees while a deposit-refund scheme selectively penalizes consumers who improperly discharge their waste as they fail to get their deposit refunded. Put differently, arguing against deposit-refund schemes leads to protecting the interests of (potential) illegal dumpers. Another advantage of a deposit-refund is in that, as this market instrument introduces an incentive to properly dispose of wastes, it will reduce or eliminate the associated expense of monitoring.

1.3 Small Home Appliance Recycling Act

Small home appliances and consumer electronics such as smartphones, digital cameras, and game machines make extensive use of rare earth metals and other rare elements, most of which used to be discarded as trash after only one use. Because the net social benefit of recovering these rare elements is significant, the government launched the Small Home Appliance Recycling Act on April 1st, 2013 to ensure that consumer electronics would be collected, sorted, and properly recycled. Unlike the Home Appliance Recycling Act whose policy programs are implemented uniformly across the nation, this act gives decision-making authority to local governments and officials. This means that they are to develop and implement their own plans by establishing recycling fees, recycling targets, and methods of collection, sorting, and recycling.

At present, recycling efforts at the municipal level largely depend on consumers’ willingness and voluntary action. Some municipalities provide drop-off boxes in appliance stores and public facilities for consumers to stop by and return waste items. Because no refund is given for returning waste, the system does not introduce an incentive for proper disposal and recycling. Likewise, initiatives by manufacturers, retailers, and recyclers currently play key roles in the recovery, reuse, and remanufacture of small home appliances in municipalities where recycling services are provided free of charge. As in the case of home appliances, deposit-refund schemes seem to be a viable policy option to further enhance recycling rates and practices.

1.4 End-of-Life Vehicle Recycling Act

Conventionally, end-of-life vehicles used to be bought by dismantlers (shredders) to dismantle (shred) and recover reusable parts and materials including steel and non-steel metal scrap. While they were sold for remanufacturing, the rest known as automobile shredder residue (ASR), consisting of materials such as plastics, glasses, and rubber, ended up in landfills. The reduction and reuse of ASR were needed because many industrial waste landfills were expected to run out of space. Meanwhile, the abandonment and improper disposal of vehicles and auto parts was becoming a problem, which was caused partly by a higher disposal fee imposed on vehicle owners due to the elevated costs of treatment and recovery and the stagnating price of scrap metal. In response to the problems, the government enacted the End-of-Life Vehicle Recycling Act in 2002 (which came into full effect in January 2005) and promoted the recycling of ASR into resources (e.g., welding slag and useful gas) as well as the use of waste heat recovery system which captures the waste heat and transferred it as an energy source.

One of the main objectives of the act is to mandate manufacturers/importers to collect and properly treat ASR, airbags, and chlorofluorocarbons that are used in air conditioners. The act also directs that new car buyers must pay a deposit for recycling at the time of purchase to the Japan Automobile Recycling Promotion Center, the fund management corporation designated by the government, and receive recycling tickets in exchange. When returning unwanted vehicles for recycling, they hand the tickets to dismantling or shredding companies and then receive a refund. If they sell their vehicles in the second-hand market, the tickets can be transferred to the next owner. The deposit amount depends on the type of vehicle and manufacturer, as it is based on the cost of processing ASR, airbags, and chlorofluorocarbons. A standard passenger vehicle, for example, costs from JPY 6,000 to 18,000.⁹

According to the recycling statistics, the act successfully facilitated the recycling of end-of-life vehicles; recycling rates for ASR and airbags were 92–94% and 92–100%, respectively, in FY2011, meaning that nearly all ASR and airbags collected were recycled.¹⁰ The number of abandoned or improperly stored vehicles sharply dropped across the nation following the launch of the act, from 218,000 in FY 2010 before the act was implemented to 8,667 at the end of FY 2011, which is a decrease by 96% (see Fig. 7.1). The results indicate that illegal dumping can be significantly discouraged by a deposit-refund scheme that reduces the consumers’ costs at the time of disposal.

Fig. 7.1

Illegal dumping and improper storage of vehicles in Japan. Sources MOE “Recycling of the Automobile”, https://www.env.go.jp/recycle/car/situation1.html (in Japanese) adopted by the authors (last access date/ 2/12/2024)

1.5 Construction Material Recycling Act

Before the Construction Material Recycling Act was enacted in May 2000, construction waste such as concrete and asphalt masses and wood waste used to account for a large proportion of waste: about 20% of industrial waste and the final disposal waste (i.e., waste that was landfilled after going through the intermediate treatment process for reduction and recycling) and about 60% of illegally disposed waste.¹¹ As a legal measure for reducing construction waste and preventing illegal dumping, the act directs that contractors engaged in construction projects above a certain size must separate, dismantle, and recycle their waste materials if they belong to the following categories: demolition of a building with a floor area greater than 80m², new construction or expansion of a building with a floor area greater than 500m², building repair and redecoration whose contract prices are larger than JPY 100 million, and demolition or new construction of structures other than buildings whose contract prices are larger than JPY 5 million.

The act also directs the recycling of various construction materials. Examples include concrete mass that is mainly reused as roadbed material, asphalt concrete mass reused as roadbeds and pavements, and construction-generated wood that is turned into wood chips for biofuels and construction boards. It is also the legal obligation of contractors to properly treat and dispose of chemicals and toxic substances used or generated in the construction process. Construction materials contain toxic and hazardous materials that, if improperly managed or abandoned, can result in hazardous waste contamination and pose a significant threat to health and the environment.

The Ministry of Land, Infrastructure, Transport and Tourism (MLIT)¹² reported that construction waste was reduced by 85% after instituting the act from 12.85 million tons in 2000 to 2.12 million tons in 2018. Successful outcomes are also observed in recycling rates, as they either exceeded or almost met the objectives of the 2014 Construction Recycling Promotion Plan. Specifically, recycling and reduction rates for construction waste and recycling rates for construction-generated soil were 97.2% and 79.8%, respectively, in 2018 whereas their target rates are 96% and 80%, respectively. Likewise, illegal dumping of construction waste was reduced by 87.5%, from 303,997.8 tons in 1999 to 38,110 tons in 2020. Therefore, it can be concluded that the Construction Material Recycling Act is effective in reducing the illegal dumping of construction waste. It should be noted that it accounts for a substantial portion of illegally dumped waste (71.4% in 1999 and 74% in 2020), suggesting the need for further measures against illegal dumping.

1.6 Food Waste Recycling Act

It is reported that 25.31 million tons of food was wasted in FY 2018 in Japan of which 7.66 million tons were generated from households, 17.65 million tons from businesses, and 6 million tons as food loss (i.e., food that is discarded although edible), which accounts for more than a quarter of the wasted food.¹³ Businesses and households are two major sources of food loss; half of the food loss consists of edible food that was not purchased by consumers at retailers such as supermarkets and convenience stores, food items returned by consumers at retailers, as well as leftovers at restaurants and substandard products, while the other half is generated at households as leftovers or food purchased but discarded without being used.¹⁴

The Food Waste Recycling Act was enacted in May 2001 as a policy initiative aimed at reducing food loss and waste generated by businesses and sectors of the food industry (e.g., food manufacturers and processors, wholesalers, retailers, and restaurants). The act establishes recycling targets called “the target percentage” and “the standard target percentage” for each sector and individual businesses.

The target percentage is calculated as:

$$ \frac{ {\text{Waste reduction rate }} \!+ \!{\text{ Amount recycled }} \!+ \!{\text{ Reduction in weight }} \!+ \, 0.{95} \times {\text{ Heat recovery}}\,}{{\text{Potential waste generation }} \left( {={\text{ Actual waste generation rate }} \!+ \!{\text{ Waste reduction rate}}} \right).} $$

The target percentage¹⁵ for FY2024 is 95% for food manufacturers, 75% for food wholesalers, 60% for food retailers, and 50% for food service providers. All sectors increased their recycling rates over the period from FY2008 to FY2021¹⁶: food manufacturers increased from 93 to 96%, food wholesalers from 59 to 70%, food retailers from 37 to 55%, and food service providers from 13 to 35%. We can see that the food retailers and food service providers particularly made a significant improvement. Recycling rates for the entire food industry altogether increased from 79 to 87%.

The act directs that businesses that generate over 100 tons of food waste annually will be given recommendations, public announcements, orders, and/or fines and those that generate less per year be given guidance and advice if their reduction and recycling efforts are insufficient. This scheme faces challenges, however, as it is difficult to estimate the amount of food waste generated by each business every year, particularly given that many businesses are small-sized enterprises. Consequently, waste reduction efforts are largely driven by individual businesses at present. For example, major convenience stores and supermarket chains donate products nearing expiration dates to food banks. They also promote expiring products by giving bonus points to consumers who purchase them with e-money. In addition, they recycle expired products into livestock feed and fertilizers. While these initiatives are causing successful outcomes, also desirable are policy interventions aimed at altering behaviors and practices among consumers and smaller-sized businesses because they too are the dominant generators of food waste.

2 Microplastic Pollution

Pollution caused by microplastics, or plastic debris less than 5 mm in diameter, is a global concern as expressed at the 2015 G7 summit in Germany. Chemicals contained in or absorbed by microplastics negatively impact ecosystems through the food chain, though the full extent of impacts remains under-researched. Microplastics are classified into two types: primary microplastics and secondary microplastics. Primary microplastics are micro-sized plastics such as microbeads used in a variety of products that we use every day. Products that use microbeads include toothpaste, shampoos and conditioners, sunscreen, face and body washes, bath salts, mouthwashes, lipsticks, eyeliners, and foundation. By using these items, we unconsciously cause environmental pollution because microbeads are discharged into the natural environment through sewage.

Being so small, microbeads are difficult to recover once released into the environment. The United States, France, South Korea, the United Kingdom, Taiwan, New Zealand, and Canada have banned the manufacture of products containing microbeads, and some of them also banned the distribution and importation of the products. Policy instruments of this kind are yet to be implemented in Japan while initiatives at the voluntary level were launched subsequently after the Japan Cosmetic Industry Federation asked its member companies to self-regulate and remove products that contain microplastics in March 2016.

Disposable plastic products such as water bottles, plastic straws, and containers turn to small particles called secondary microplastics due to gradual degradation caused by ultraviolet light and external forces like ocean waves. The majority of microplastics found in the oceans and ingested by marine animals are secondary microplastics. Incidents of microplastic ingestion are widely reported, including sea turtles and whales that ate plastic litter accidentally and plastics found in the stomachs of seabirds in the North Pacific and in the feces of fur seals in the Antarctic Ocean. While versatile and useful, disposable plastic products need to be recovered before degradation begins, as they persist for decades or hundreds of years and harm the environment and wildlife.

Jambeck et al. (2015) reported that the annual emission of plastic waste into the oceans is estimated to be between 4.8–12.7 million tons for which Asia is mostly responsible. The largest amount is generated in China (3.53 million tons/year), followed by Indonesia (1.29 million tons/year), Philippines (075 million tons/year), Vietnam (0.73 million tons/year), and Sri Lanka (0.64 million tons/year) with Japan (0.06 million tons/year) and the U.S. (0.11 million tons/year) ranked 20th and 30th, respectively. The quantity is expected to increase further, as countries in Asia will increase consumption in line with their high economic growth. Plastic waste reduction across Asian countries, including Japan, is thus essential in tackling microplastic pollution.

Plastic waste can be reduced by using substitute materials, specifically, bioplastics known as biomass plastics that are made from renewable organic resources and biodegradable plastics that are made from micro-organisms and that eventually decompose into water and carbon dioxide. Biomass plastics are made from such products as corn, sugarcane, cassava, oil palm, and soybeans. If they are used to produce biomass plastics, their demand would increase and then food prices could be affected. Merits and demerits are also pointed out about biodegradable plastics. While they can be made harmless by decomposition, they take quite a long time to decompose if they are discharged into the ocean and cause microplastic pollution just like conventional plastics.

The Act on Promotion of Resource Circulation for Plastics came into force in April 2022 to facilitate the circulation of plastics across the entire life cycle (i.e., from product design to waste disposal) by involving all entities that produce, distribute, and use plastic materials and products. The act targets 12 disposable products: spoons, forks, knives, stir sticks and straws for drinks, toothbrushes, hairbrushes, combs, razors, shower caps, clothes hangers, and garment covers. Businesses whose annual use of these products exceeds 5 tons must promote source reduction practices.¹⁷ Accordingly, businesses started to develop and implement initiatives on their own.¹⁸ For example, food-service operators like Ohsho Food Service Corp. began to charge customers for spoons to takeout, while others like the convenience store operator FamilyMart Co. eliminated the provision of plastic utensils. Replacing plastic items with alternatives is another commonly adopted strategy; the restaurant chain Ringer Hut uses spoons made up of 25% of plant-derived materials, and Imperial Hotel, Ltd. provides toothbrushes and other complimentary amenities made from bamboo or wood.

It should be noted that plastic products covered by the act account only for about 1% of Japan’s plastic waste. For better recycling outcomes, it is necessary to broaden the scope of target products. Besides, implementing a deposit-refund scheme would be a sensible measure, as it works against littering and improper disposal by providing incentives for consumers to return plastic waste before degradation begins. Improved waste management systems, better product design, and control measures against the release of plastic waste into the oceans are needed as part of the policy initiatives for a more sustainable future.

3 Preventing Waste Scattering and Illegal Dumping

Earlier in the chapter, we discussed that some individuals and businesses choose to illegally dump their waste when recycling fees are required at the time of disposal, as in the case with unwanted home appliances and construction waste. The same happens with a waste disposal fee (see Chap. 5 for the economic analysis of disposal charges). Policy interventions are necessary to discourage and reduce illegal dumping, as it weakens the effectiveness of instruments for proper waste management and recycling. This section will consider countermeasures against illegal dumping, specifically, deposit-refunds and penal regulations. It will be argued that adopting a deposit-refund scheme to collect as many types of waste as possible is desirable to discourage roadside litter and illegal dumping. When it is not feasible to implement the system, penal regulations are desirable as a substitute measure.

3.1 Deposit-Refund Scheme

A deposit-refund scheme is an effective instrument to prevent illegal dumping, as it provides consumers with incentives to properly dispose of waste for recycling. Some regions in Japan have adopted the system for collecting cans. Consumers pay the initial deposit when purchasing canned beverages and then obtain a refund—either the full or a partial amount of the deposit—upon returning empty cans to collection machines or retailers. The system is aimed to promote responsible disposal and reduce roadside litter. Similar schemes abound overseas. Beverage containers of some or all kinds are collected under deposit-refund schemes in the U.S. and Europe. South Korea uses the system to collect not only beverage containers but also various wastes including televisions, washing machines, air conditioners, tires, lead-acid batteries, as well as containers of liquor, cosmetics, and lubricating oil.

The deposit-refund scheme is particularly suitable for collecting hazardous waste such as pesticides, lead-acid batteries, and gas cylinders that contain toxic, flammable, corrosive, or explosive substances. If these types of waste are placed in and mixed with ordinary solid waste, they can cause fires, explosions, and pollution, posing a threat to the environment and the health of animals and humans. The negative externalities can be alleviated by instituting a deposit-refund scheme and properly collecting hazardous waste.

Some problems may arise if the scheme is instituted in some regions but not in others. Suppose that consumers purchase goods in a region that does not adopt the scheme and then return them to collection points in regions that adopt the scheme. There will be no refund in this case. As such, the policy practice does not provide consumers with incentives for recycling and hence, not prevent littering or the mixing of contaminants or recyclables with non-recyclables.

One may propose to give refunds to consumers even if they have not paid deposits. While this may reduce roadside litter, illegal dumping, and associated environmental degradation, it will lead to some other problems. First, some consumers may take advantage of the loophole, buying products in regions not implementing the deposit-refund scheme and returning them in regions adopting the scheme to obtain a refund. This will lead to restraining sales and causing an excessive influx of waste in the regions that adopt the scheme. Another problem is the additional cost of giving a refund to customers who did not pay the initial deposit. To avoid these problems and to operate a deposit-refund scheme effectively, it is important to implement the scheme across regions as broadly as possible.

3.2 Penal Regulation as a Substitute for a Deposit-Refund Scheme

So far, we understand that a deposit-refund scheme rewards responsible disposal and recycling and discourages illegal dumping and the mixing of hazardous waste with ordinary solid waste. While applicable to a broad range of waste types, a deposit-refund scheme may be infeasible in situations where waste sources are difficult to track, as in the case with household wastes where miscellaneous items and materials are placed in a single trash bag. In this case, penal regulations, which impose penalties and fines on illegal dumpers, are suitable to reduce illegal dumping.

For the regulations to effectively reduce illegal dumping, it is crucial to set penalties and fines at optimal levels; if they are small, illegal dumping will not be reduced. Below we will consider an optimal fine for illegal dumping that would achieve the social optimum. By the term “fine,” we refer to a sum of money that the polluter pays as a penalty, which includes clean-up costs and restoration costs among others.

The optimal fine imposed on the polluter is equal to the social costs of illegal dumping such as environmental damage and environmental restoration costs, if the detection probability of illegal dumping is 100%. However, in reality, it is difficult to monitor and detect every single case of illegal dumping. Fines need to be set depending on the detection probability. Because if the probability is low, the expected costs of illegal dumping to the polluter (i.e., the detection probability multiplied by fines on illegal dumping) becomes low and hence, so does the incentive to refrain from illegal dumping.

Then what conditions should be set for the optimal fines? To answer the question, we need to consider the dumper’s benefits and costs, where “benefits” mean avoiding disposal and recycling fees and “costs” mean legal liabilities to pay a fine. Individuals may choose illegal dumping over proper disposal if benefits exceed expected costs. That is, incidents of illegal dumping do not decrease as long as the expected costs remain small.

From our discussion of environmental taxes in Chap. 2, we know that improper or illegal dumping gives rise to a negative externality. Therefore, the external costs caused by the disposal of waste (i.e., costs to clean up the site to restore the environment to its original condition) should be reflected in the fine. If we set the fine equal to the external costs, the expected costs of illegal dumping will be smaller than the actual external costs. Because we cannot detect all incidents of illegal dumping.

Suppose that the external costs are JPY 100 million and the detection probability is 50%. Then the expected costs are JPY 50 million, which is smaller than the external costs. To control illegal dumping at the optimal level, the fine must be set such that the dumper’s expected costs are equal to the external costs. Therefore, the condition of the optimal fine is

$${\text{(Optimal fine)}}=\frac{\text{(External costs)}}{\text{(Detection probability)}}$$

If the external costs are JPY 100 million and the detection probability is 50%, the optimal fine is JPY 200 million (i.e., JPY 100 million divided by 0.5). Polluter’s incentive for illegal dumping will be reduced by setting the fine as follows: the higher the detection probability, the lower the fine should be, and vice versa, the lower the probability, the higher the fine should be. In either case, the fine needs to be set higher than the external costs since the detection probability is lower than 100%. It is also necessary to concurrently introduce measures aimed at improving the detection probability. It should be noted that penal regulations incur additional costs, such as monitoring and administrative costs associated with introducing surveillance cameras and patrol services.

These costs are unnecessary with a deposit-refund scheme, which is one of its advantages compared to other alternative measures, including penal regulations. Another advantage is that the collected revenues, namely, the deposit that a person paid but did not get refunded due to illegal dumping, can be used to clean up contaminated sites and restore the environment. Loss of the deposit due to illegal dumping can be regarded as a penalty on the illegal dumpers. Under a deposit-refund scheme, the financial burden is borne by individuals or businesses that commit improper action.

Given these advantages, a deposit-refund scheme should be adopted more comprehensively, applying to as many types of waste as possible. At present, the End-of-Life Vehicle Recycling Act incorporates a deposit-refund scheme and effectively discourages illegal dumping of used vehicles while promoting the reduction and recycling of ASR. On the other hand, this scheme is not adopted to collect home appliances in Home Appliance Recycling Act and as a result, illegal dumping often occurs. Given the environmental problems caused by illegal dumping and the cost of enforcement, the use of a deposit scheme should be considered in the future.