Role of Economic Instruments for a sustainable Solid Waste Management System (SWM)

Social Lab
8 min readJun 19, 2021

A sustainable solid waste management (SWM) system builds upon technological innovation, availability of finance, institutional arrangements, and social participation. To drive and sustain these different aspects of the SWM system, the Government implements numerous policy instruments. The policy instruments can be broadly classified as regulative (command & control), social and economic instruments.

Given the peculiar characteristics of the different instruments, a mix of policy instruments is most effective for developing a sustainable SWM system. Having stated so, the economic instruments are particularly important for ensuring the financial sustainability of the SWM system. They play a vital role in recovering and self-sustaining the operational expenses which constitute 60–85% of total waste management costs. Additionally, they provide strong incentives for reducing waste generation as well as enhancing waste recycling. However, despite these benefits, the use of economic instruments for SWM is limited, particularly in India. It is reflected from the guiding national-level policy documents namely SWM rules 2016 and PWM rules 2016 which largely focus upon the regulative instruments and social instruments. They recommend only a few economic instruments such as user fees and on-site fines. Against this backdrop, the article aims to review the common economic instruments for SWM which can be implemented by the local or state, or national authorities based on the specific context.

Common types of Economic Instruments

The economic instruments can be classified into three categories such as- revenue-generating to the public authorities, revenue-generating to the people & private companies, and using the market mechanism with no revenue generation. The common types of economic instruments are mentioned below.

The above-mentioned economic instruments are elaborated below.

Category 1: Revenue generating to the public authorities

These types of economic instruments apply charges to the waste generators to promote waste reduction and waste recycling and generate revenues for the public authorities.

User charges

This is the most important instrument for the local governments to achieve cost recovery. The SWM rules 2016 mandate that all waste generators shall pay such user fee for solid waste management, as specified in the bye-laws of the local bodies. The user fee can be charged as a flat rate tariff with a uniform charge irrespective of the quantum of waste generated, or a variable tariff with variable charges based on the amount of waste generated. Under the variable tariff, the indicators such as the size of property or electricity consumption may be used as a proxy of income and the amount of waste generated. The user charges may also be different for commercial, industrial, and institutional entities.

At present, a dedicated user fee is not commonplace, especially for small ULBs. Moreover, at some places, it is not charged separately while included under property tax. The approach to user charging depends on existing legal and institutional arrangements and the availability of an appropriate user database/register. A socially acceptable tariff structure and an effective billing mechanism are of the utmost importance when designing user-charging regimes.

On-site fines

The SWM rules 2016 make a provision for levying spot fines for littering as per the bye-laws framed by the local bodies. This instrument can be extremely beneficial at places of garbage vulnerable points (GVPs). In our experience, on-site fines set an example and deliver a message about administration determination.

Performance-based grants

Performance-based grants are provided by the national or state government to the local governments. Unlike normal grants, they are linked with performance and aim to reward and incentivize the good performance achieved by the local governments. For example, the Urban Development Department of Maharashtra awarded price funds to the best performing urban local bodies based on their performance in Swachh Survekshan 2018 & 2019.

Landfill tax

It is a levy on the disposal of waste in landfills to discourage landfilling as a waste disposal option. This aims to promote alternative eco-friendly waste treatment options such as composting, anaerobic digestion, recycling, and incineration by making them economically viable as compared to landfilling. The landfill taxes are charged by national governments to landfill operators which may be private or public, e.g. local authorities.

Incineration tax

Incineration tax may be charged for the incineration of recyclable waste materials. It aims to promote the recycling of recyclable waste materials and is generally practiced by the developed countries.

Product taxes/ advanced recycling fees

The objective of product taxes or advanced recycling fees is to internalize the costs of the recycling of discarded products in the product price. It also promotes efficient product consumption and reduces waste generation. The product taxes must be appropriately determined by the government considering the environmental costs as well as the social and economic factors. One of the examples of product taxes is the “plastic bag tax” which aims to reduce consumer use of plastic bags.

Category 2: Revenue generating to the people and private companies

Subsidies or tax exemptions may be provided for the companies that provide environmental services or products. They can also be provided to the small recovery, sorting, or recycling enterprises or cooperatives. They are used to promote resource-efficient waste management infrastructure and practices.

Subsidy for home composting

A subsidy may be provided for electric composters and compost bins, to promote home composting.

Subsidy for compost marketing

A subsidy may be provided to the compost manufacturers to lower the compost prices for the farmers. For example, a Market development assistance (MDA) subsidy is provided by the Ministry of Chemicals & Fertilizer in the form of a fixed amount of Rs.1500 per ton of City Compost sold to the farmers.

Tax exemption on scrap materials and recycled goods

To promote the scrap market and subsidize the recycled goods, tax exemption or rebate may be provided for the sale of scrap materials and recycled goods. For instance, the GST Council drastically reduced the GST from 28 percent to 5 percent on electronic waste and from 18 percent to 5 percent on plastic waste, cullet or other waste or scrap of glass and rubber waste[1].

However, it is striking that before GST there was no tax on scrap material except on e-waste and metals (6 per cent Value Added Tax). Therefore, the GST may be further reduced to ensure the level playing fields for the recycling industry. Additionally, the GST may also be reduced/exempted on the recycled goods to provide the competitive advantage for such products as compared to the products made from the virgin materials.

Custom duty exemption for the import of waste management equipment

Exemptions may be provided to customs duties for the import of waste management equipment to reduce the investment risks.

Category 3: Using market mechanism with no revenue generation

Zero waste accreditation system

It aims to control waste generation from the stores. This system certifies stores, particularly food and beverage establishments, to heighten zero waste consciousness and encourages customers to reward certified businesses with their patronage.

Deposit & refund system

Under this system, the buyer of a product pays a deposit which is paid back when the product is left for waste treatment. It ensures that the products are collected in a proper way which is particularly significant for valuable or potentially hazardous materials (e.g. car batteries). It provides an incentive for the user to return the discarded product and helps to avoid littering of waste.

Key Findings

For setting up an efficient SWM system and sustaining the waste management operations, the availability of finance is extremely important for the local governments. The economic instruments play a crucial role to recover the waste management costs particularly the operational expenses. They also provide incentives for the waste generators to reduce their waste as well as enhance waste recycling. Therefore, the government authorities at the local, state and national levels should assess the potential economic instruments and implement the feasible instruments based on the specific circumstances. The economic instruments should complement the regulative and social instruments for achieving the optimum benefits.

As a first stage, the municipalities should conduct a detailed assessment of all SWM costs, including upfront and back-end costs (e.g. landfill closure and aftercare) as well as environmental or social costs resulting from unsustainable waste management. The design of economic instruments should be based on a detailed assessment of the problems they are intended to address and an analysis of their costs and benefits. Given that local economic instruments like user charges are often not able to cover the whole cost of SWM, the municipalities should request and promote the establishment of additional economic instruments at the state or national government levels. Close coordination between government levels is key for the successful design and implementation of economic instruments.

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Contributed By- Anirudh Pandav, Manager at Social Lab

Social Lab Environmental Solutions is a waste management company, which helps brands take-back and scientifically dispose of post-consumer plastic waste of their products. Brands take our services to fulfill Extended Producer Responsibility (EPR) obligation under Plastic Waste Management Rules, 2018.

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Social Lab

We are a waste management company, which helps brands take-back and scientifically dispose of post-consumer plastic waste of their products.