Deposit-refund system

A deposit-refund system (DRS), also known as deposit-return system or advance deposit fee, 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.

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