Abstract: Closing material loops and reducing resource extraction is considered to be the foundation of the circular economy that delivers environmental gains. Today, certain materials with large environmental impacts, such as plastics, are placed high on the circularity agenda. In this thesis, the market acceptance of circular plastics is analyzed. Firstly, the current – mostly linear – market for plastics in the European Union is analyzed. We find that market failure and uncertainties lead to postponed and scaled down private investments in recycling facilities for plastics. As a consequence, we conclude the failing and uncertain market needs government intervention. Secondly, potential government interventions that alleviate the market failure and reduce the present uncertainties are analyzed. Government intervention can be either incentive-based or regulatory-based. The Flemish government already acts as an incentivizer. For more than two decades already, a tax is levied on the incineration of plastic waste. We find that this tax reduces industrial plastic waste generation, but fails to elicit investments in recycling facilities. Regulatory-based policies are expected to gain in importance in the pursuit of a circular economy. Indeed, in the European Commission’s latest circularity action plan, a policy to mandate the use of recycled plastics is signaled. Mandating the use of recycled plastics can enable the circularity of plastics effectively. However, it would also generate a shock wave on the market, especially because, i.a. the implementation time of such a policy is uncertain. We investigate how firms can invest optimally in the use of recycled plastics under the presence of policy uncertainty. We conclude that the European market will be able to successfully adopt circular plastics. However, stimulating policies, both incentive-based and regulatory-based, turn out to be essential in this adoption process. Therefore, there will be a need for a combination of policies in order to prevent the incessant mass single-use consumption of plastics, which harms the environment.

Abstract: Waste treatment taxation is a popular policy instrument in many European countries and regions. Its impact on household waste has extensively been researched. However, only little research exists which looks into the impact of waste treatment taxation on industrial waste generation. Nevertheless, industrial waste constitutes more than ninety percent of waste generated in the European Union. This study assesses the impact of an incineration tax on the generation of industrial plastic waste in Flanders, Belgium. We conduct different types of econometrical panel analyzes and provide statistical evidence that firms show lagged behavior, which means that the previous year’s waste generation partly determines the current year’s. The dynamic panel estimations show robust results, indicating that a growth of incineration taxes exert significant negative effects on the growth of industrial plastic waste generation. This result offers no argument to iteratively raise incineration taxes. We conclude that incineration taxation is meaningful if tax rates are set according to the prevailing market conditions, i.e. taking into account the marginal costs of alternatives for incineration. In the short run, the effectiveness of taxation will quickly diminish due to the rapidly rising marginal costs of waste reduction. In the long run, extra recycling capacity is needed to recycle the minimized waste fraction. The role of taxation in the long run is to maintain an equilibrium in which recycling is preferred by the market.