Deposit-refund system
A deposit-refund system, also known as deposit-return system, advance deposit fee or deposit-return scheme, is a surcharge on a product when purchased and a rebate when it is returned. A well-known example is when container deposit legislation mandates that a refund is given when reusable packaging is returned. Deposit-refund system are a market-based instrument to address externalities. As with Pigovian taxes a DRS aims to limit pollution of various types by creating an incentive to return a product.
While most commonly used with beverage containers it can be used on other materials including liquid and gaseous wastes. Deposit-refund systems are used on products such as batteries, tyres, automotive oil, consumer electronics and shipping pallets.
There are three potential advantages of a DRS: it reduces illegal dumping by giving a financial incentive, it makes monitoring and enforcement easier, and evading the costs is difficult.
Deposit-refund systems can be both voluntary or mandated by legislation.
