Better Knowledge - Draft Action 12: Develop a “Pay-as-you-throw”-toolkit with coaching

  • William (Commun... profile
    William (Commun...
    18 July 2018 - updated 8 months ago
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What is the specific problem?

How do existing EU policies/legislations/instruments contribute?

Which action is needed?

Which partners?

Which timeline?

More information

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Develop a “Pay-as-you-throw” (PAYT) toolkit as support for cities, connecting stakeholders in need of knowledge with experts with experience in a taskforce that can provide support and coaching to municipalities. Through the implementation of this action, the Partnership aim to make it easier for cities to set the right price level and monitoring systems so PAYT can be installed for maximum effectiveness.


What is the specific problem?

The transition towards a circular economy requires a shift from a linear consumption-based model towards a more services-oriented model, where value is kept in a product while ownership is of lesser importance than the ability to derive use from the product. This can be done by fiscal and financial stimuli. In principle, the (lack of) development of circular practices can partly be seen as a matter of economics and price points. Economic rationale implies that the least effort option is exercised and so, changing the price points changes the options that are chosen by market and civil actors. Government actors have two options at their disposal: increasing the price of least favoured options and decreasing the price of most favoured options. The task at hand is to modify the current price trend into the desired price trend, as shown below.

Figure 1 – The mechanism of financial incentives for a circular economy



As visible in the diagram, one can impose financial disincentives on disposal and recovery while incentivising recycling, reuse and prevention. Common measures of doing so are through taxes, levies and subsidies, which make least preferred options more expensive than the preferred options. Market actors should then rationally change their behaviour towards the desired options.

The Partnership has chosen three common and effective instruments to influence the price points, which will be explained in detail in their respective sections below:

Table 2 – Measures, mandates and targets



The measures above cover the full chain of stakeholders (producers, consumers and governments) and all governance levels necessary. A complicating factor with waste legislation is that waste is primarily a municipal problem, while both producer responsibility and (tax) legislation are usually set at the national or European level.

Indeed, only an intelligent mix of these measures applied in close collaboration with all stakeholders can make a complementary framework that delivers the necessary incentives. The current situation varies between different materials and value chains, also based on regulatory obstacles, safety requirements and local conditions. We acknowledge that VAT, EPR and PAYT are not at all new instruments; the question is how to apply them correctly, considering the full system of products, materials and services in a circular economy.

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How do existing EU policies/legislation contributes?

The review of VAT, EPR and PAYT gathered important knowledge and possible actions for all levels of government, for public, private as well as civil actors, and for multiple waste streams and waste hierarchy options.

Directive 2006/112/EU[1] on the common system of value added tax regulates and establishes the common system of value added tax (VAT) between the EU Member States. The Directive provides Member States with the opportunity to use a reduced VAT rate for small repair services: bicycles, shoes, leatherwear, clothes and linen (the full list of possibilities is in the Annex III of the Directive).

Several EU Member States have used the opportunity of differentiating VAT to promote environmental purposes.

Directive 2008/98/EC[2] has underlined the importance of economic instruments:

In order to contribute to achieving the objectives laid down in this Directive, Member States should make use of economic instruments and other measures to provide incentives for the application of the waste hierarchy such as those indicated in Annex IVa, which includes, inter alia, landfill and incineration charges, pay as you throw schemes, extended producer responsibility schemes, facilitation of food donation, and incentives for local authorities, or other appropriate instruments and measures.

Article 8 describes the use of Extended Producer Responsibility in Member States.

Annex IV a: Examples of economic instruments and other measures to provide incentives for the application of the waste hierarchy referred to in article 4:

2. ‘Pay-as-you-throw’ systems that charge waste producers on the basis of the actual amount of waste generated and provide incentives for separation at source of recyclable waste and for reduction of mixed waste;

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Which action is needed?

Following an in-depth analysis of the three aforementioned methods of circular economy incentives for urban authorities, PAYT was deemed to be the most effective option for source separation and an essential first step to produce clean streams. By offering door-to-door collection and electronically tracking residual waste and recycling citywide, the scheme could increase recycling by relevant percentage. PAYT system rewards people and business who separate waste and penalises those who do not.


Added value of action:

  • The whole community benefits from the improvements in waste collection;
  • Better health and safety standards because streets are cleaner;
  • A fair system because people pay according to the amount of waste they generate and how they separate it;
  • More jobs in the recycling sector;
  • Less non-recyclable waste, so fewer collections – saving on fuel and labour costs.

PAYT schemes are the only scheme under review that is fully within the mandate of municipalities. It works by charging citizens a fee for each amount of waste they produce, thus imposing costs on wasteful behaviour. Most often PAYT schemes are applied for residual waste. This generates an incentive to reduce residual waste, and one option to do so is by separating the recyclable waste at the source. The income from PAYT then partly pays for the separate collection and/or processing of the separated waste streams.

Two general variants exist:

  1. Volume based taxation, often implemented by using pre-paid garbage bags, bins of different sizes or differentiating the fee based on the collection frequency.
  2. Weight based taxation systems require significantly investment in both time and money to setup infrastructure for weighing and administration. 

PAYT success factors

Several studies have been performed to investigate the success factors for a PAYT implementation. Although each case is different and there is no "one size fits all" solution, the studies identify some important factors for a successful implementation of a PAYT system:

  1. Type of fee structure - Weight based PAYT generally outperform volume based PAYT systems. However, the implementation of weight based systems can require a higher investment in cost and time to create the proper infrastructure.
  2. Infrastructure - An extensive infrastructure to collect the recyclable waste streams needs to be in place – this can be financed through the PAYT income.
  3. Quality of fraction and separate collection - Separate collection of waste fractions leads to higher recycling rates. Also, due to increasing requirements for the quality of the recycled materials it becomes more important to separate the waste fractions.
  4. Collection system - Door-to-door collection systems result in highest capture rates and yields of recyclables. Door-to-door collection is more applicable to rural areas, whereas in municipal areas with multi-story housing central collection points are often used.
  5. Environmental awareness and informing citizens - High level of environmental awareness among the households is important, both to increase commitment as well as reduce the risk of illegal dumping.
  6. Alignment with other measures - PAYT schemes need to be aligned with EPR systems in the country.
  7. Fee structure - The fee of the PAYT system needs to reflect the true cost of waste management. Thought needs to be given how to cover the cost of the system, also in the long run when residual waste streams go down in volume.
  8. Cross-financing - Cross-finance the recyclable waste streams by applying a fee to the residual waste, and do not apply variable charges to the recyclable waste stream.


PAYT barriers

  1. Spill-over effects and waste crime. In areas where regional coordination is not very strong, introduction of PAYT schemes may result in:
    1. Illegal disposal of waste (although this effect is disputed);
    2. Avoidance of charges by travelling to areas without PAYT schemes;
    3. Cost avoidance by polluting recyclable streams with residual waste. This then urges the separated streams to incur high costs for inspection of quality while it deteriorates much of the streams to low quality recyclables.

Effects A and B are generally found to be small in comparison to the overall positive effect of introducing the PAYT scheme, in particular when environmental awareness under citizens is high.

  1. Worries about the costs to local authorities and households. In the case of Luxembourg, the organization representing the cities and communes (Syvicol) was concerned that those costs had not been considered properly and objected to a model of charging from central government. One additional motivation for such objections are discriminatory effects on low-income households. If one hypothesises that low income households tend to use more disposable / short lifespan products that generate more waste, this causes them to they pay more with PAYT schemes in place, placing them in a positive feedback loop of poverty - waste – PAYT fees.
  2. Ensuring enough revenue to cover the cost of the scheme. Because PAYT schemes use a marginal tariff on the disposed waste, the income from the scheme can go down when the scheme is successful. It is therefore necessary to find a way to ensure stable revenues for the service provider, for example by using a fixed component in combination with the variable component.
  3. Guidance required from national legislation. Local municipal authorities are helped when the national government gives guidance how to design and rate the level of a PAYT waste charge. Different countries take different approaches to this, with Denmark, France, Italy and the Netherlands giving guidance in national legislation, while Germany and Belgium complement the national legislation with regional or federal states' specific regulation.
  4. Lack of recycling infrastructure expansions. The introduction of a PAYT system should always be accompanied by proper infrastructure to collect the recyclable waste streams.
  5. Limited outreach to consumers about how to change purchasing habits. As also noted earlier, it is important to increase social and environmental awareness under citizens.
  6. Charging of a separate fee for recycling. The idea is to stimulate citizens to hand in recyclable waste separately. It is therefore better to cross-finance the recyclable waste streams with the taxes on residual waste, instead of taxing the recyclable waste streams.
  7. For weight-based PAYT systems, setting up a data collection system for billing, accounting and system optimization purposes can be a complex and challenging task.
  8. Cost avoidance by polluting recyclable streams with residual waste. This then urges the separated streams to incur high costs for inspection of quality while it deteriorates much of the streams to low quality recyclables.

Finally, while PAYT schemes are effective to motivate citizens to separate at the source and finance the infrastructure for separate collection and, they are only one step towards a circular economy. PAYT schemes usually do not cover material recovery or recycling operations, i.e. the loop is not closed.


How to implement the action?

Develop a PAYT a toolkit as support for cities, connecting stakeholders in need of knowledge with experts with experience through the taskforce mentioned above. Provide guidelines, workshops and consequently make it easier for cities to set the right price level and monitoring systems so PAYT can be installed for maximum effectiveness.

The toolkit as support for cities will define:

1. Analysis of application cases

1.1 Success factors

1.2 Criticalities and barriers to the implementation of a system of punctual pricing

2. Economic and financial elements of PAYT application

3. External factors that influence the system

3.1 Recycling and recovery infrastructures

3.2 Development and diffusion of a complex EPR system

3.3 Social involvement and education and training of citizens

4 Tools and practical supports available to municipalities

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Which partners?

Action leader: Prato

Participants: Oslo, Poland, Finland, Greece, Porto, The Hague, ACR+

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Which timeline?


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Join the Public Feedback on Draft Action 12


See also

Better Regulation

Better Funding

Better Knowledge

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