Nobody decides for all — Modeling incentives and policies for closing the material loop

Abstract

This paper introduces an analytical model that characterizes the incentives of the manufacturing industry, consumers, and waste management sectors in closing the material loop. To address identified market failures, various policy instruments are evaluated both theoretically and numerically, using the example of the EU PET market. The assessment shows that a policy package consisting of carbon pricing, advanced disposal fees, and product standards substantially reduces total material consumption and enhances material recovery, leading to a notable reduction in emissions. The analysis of material cost savings, surplus allocation, and social welfare also shows the advantages of such a policy package compared to individual policy instruments.