A sideways look at economics

As I was doing my daily chores whilst at home in Norway during Christmas, I started thinking about the interesting way that Norway incentivises the recycling of plastic bottles and metal cans. This includes donating to the Red Cross with a very small chance of winning up to 1,000,000 kroner.[1] Continue reading if you would like to know how on earth this is all linked – and why children’s sports teams in Norway go around collecting plastic bottles to fund their away games.

Norway (along with about 44 other countries and territories around the world, including Germany, Croatia, Estonia, Sweden and Finland), recycles plastic bottles and metal cans through a deposit return scheme. Basically, you pay a small deposit when buying plastic bottles. For example, if a 1.5 litre bottle of Pepsi costs 31.90 kroner, the deposit is 3 kroner (25p). This deposit is then refunded when you go to your local grocery store to return it to the reverse vending machine, as shown in the image below. The deposit needs to be big enough to incentivise people to recycle, but small enough to prevent a situation where the less well-off cannot afford the initial outlay, and to prevent the widespread theft of priceless empty drinks bottles.

The deposit return scheme in Norway is operated by the grocery and beverage industry. It is administered by Infinitum, a non-profit organisation run by Norwegian bottlers and retailers. The name comes from the Latin ad infinitum, meaning forever, referring to the endless number of times that bottles can be recycled in a fully circular economy. Firms are incentivised through an environmental tax placed on all producers of single-use containers. This tax is reduced as return rates increase. If return rates reach 95%, the environmental tax is scratched.[2]

The scheme has been highly successful in Norway, with a return rate of over 90%. If you’re a bit of a hoarder like me, you may even get enough money from a trip to the reverse vending machine to buy yourself a nice lunch. In fact, it’s not uncommon for children’s sports teams to leave a note in your mailbox saying that they are coming round the neighbourhood collecting plastic bottles and cans to fund their away matches. It’s also considered polite to leave plastic bottles on top of public bins so that they’re easily accessible for homeless people to collect and return.

Now, what does all of this have to do with donations to the Red Cross and winning 1,000,000 kroner? After returning your plastic bottles and cans to the reverse vending machine you have two options. If you press the green button, you get your deposit back. But, if you press the Red Cross button, you donate the deposit to the Red Cross. In return, you enter a lottery with prizes worth 50, 100, 1000, 10,000, or a grand prize of 1,000,000 kroner (£82,500). Returning a small bottle gives four tickets to the lottery, while a big bottle gets you six tickets. There is a 1 in 467 chance of winning. On average, every 15th participant in the lottery wins a prize. This November, a lucky person in their 20s (sadly not me) donated a deposit of 51 kroner to the Red Cross and won the big prize.

While I really envy the person who got an early Christmas present, according to standard economic theory, a rational ‘homo economicus’ would not press the Red Cross button. This is because the expected payoff of getting your deposit back is larger than the expected payoff from the lottery – as is usually the case with gambling. So, how come an average of 11.6% of all plastic bottles in the deposit return scheme were returned using the Red Cross button in 2021? One reason may be that it’s an act of altruism – people feel a moral duty to be charitable, and feel good after doing so. Another reason may be that people enjoy the act of gambling, or over-estimate the chances of winning. According to Norway’s Gaming and Foundation Authority, around 2.5 million Norwegians participate in some form of gambling in the course of a year. That’s quite a high number considering there are about 4.3 million people in Norway above the age of 18. It might be worth mentioning that Norsk Tipping is the sole company allowed to deliver gaming services in Norway, and the entire surplus of these gaming services is given to organisations or projects that will benefit society as a whole (similar to the National Lottery in the UK).

Will the UK introduce a deposit return scheme? The first UK deposit return scheme dates back to 1900, when the Biucchi brothers introduced a deposit of thruppence per dozen bottles, which was refunded to the customer when bottles were returned. Deposit return schemes existed in the UK until the 1980s, but were discontinued when supermarkets replaced door-to-door collection and delivery services. The UK is planning to reintroduce a deposit return scheme in 2023/24. Plans were first announced in the 2018 Resources and Waste Strategy and it was part of the Conservative manifesto in 2019. The goal is to reduce littering and increase recycling rates from the current rate of 69% for PET containers in the UK. However, plans were delayed at the onset of the COVID-19 pandemic. In Northern Ireland, England and Wales, a proposal has been made to introduce a deposit return scheme by 2024.[3] Scotland is planning to introduce a deposit return scheme in August 2023, with a deposit of 20p per bottle and a goal of increasing recycling rates to 90%.[4]

Drawing on experiences from Germany, Norway and Sweden, deposit return schemes have the potential of reaching recycling rates of over 90%. Whether a deposit return scheme will include a Red Cross button in the UK remains to be seen. I sadly didn’t win 1,000,000 kroner this Christmas. In fact, I didn’t win anything. But pressing the Red Cross button made me feel like a good citizen at least.

Recycling in Norway

[1] The current exchange rate is 1.00 NOK = 0.083 GBP, so that is equivalent to around £82,500.

[2] https://infinitum.no/producers/

[3] https://www.britishsoftdrinks.com/Deposit-Return-Scheme

[4] https://depositreturnscheme.zerowastescotland.org.uk/