Government's Taxes undermine Its Circular Economy Goals

Bio-based alternatives face £520 per tonne charges from 2026 while three million tonnes of fossil CO2 emissions continue from the incineration of plastic waste

Thursday 25 September 2025 - A comprehensive new study published today by BB-REG-NET reveals that UK sustainability taxes are creating perverse incentives that favour fossil-based plastics over bio-based alternatives, despite government ambitions to build a circular economy.

The report, "Fixing Fossil Market Failures: The impact of UK taxes on bio-based plastics," finds that bio-based alternatives already cost 2-3 times more to produce than fossil-based equivalents, yet face additional punitive charges under current Extended Producer Responsibility (EPR) and Plastic Packaging Tax (PPT) schemes that can add up to £1,600 per tonne in extra costs.

Research shows that incinerating UK plastic waste generates an estimated three million tonnes of fossil CO2 annually - equivalent to the carbon footprint of major cities like Manchester or Glasgow. Recovery rates vary dramatically by packaging type: although over 50 per cent of PET and HDPE bottles are recovered, only 5 per cent of single-use tableware and 4 per cent of plastic films are recovered, with small-form packaging typically not recovered at all.

Kieran MacSweeney, Managing Director of Sphere Consumer Products, said: "The UK's policy framework is unintentionally holding back solutions it claims to prioritise. Bio-based plastics, made through low-carbon manufacturing, are vital for reducing emissions and tackling hard-to-recycle packaging. Yet they face higher costs and structural disadvantages than fossil-based materials. EU policies increasingly reward biogenic carbon savings and support scaling production, while the UK lags behind. Without reforms to level the playing field and back domestic manufacturing, UK ambitions for a circular economy will remain out of reach."

The policy misalignment is driving UK companies to seek opportunities abroad. Related BB-REG-NET research shows that whilst only 24 per cent of UK bio-based companies currently have international operations, these businesses demonstrate substantially stronger growth, generating 1.8 times higher median revenue and employing double the workforce compared to UK-focused counterparts. International competitors are pulling ahead with structured support policies - the United States with its BioPreferred Program and France with its RE2020 policy on bio-based materials in construction have created stable markets that actively drive investment.

The study identifies fundamental policy misalignments across three key tax schemes, reflecting broader systemic dysfunction where 56 of the UK's 606 government departments, agencies and public bodies are involved in bioeconomy regulation, often working with conflicting priorities. Despite £450 million in taxpayer money and £517 million in private investment flowing into bioeconomy research and development over the past five years, regulatory barriers continue to prevent these innovations from reaching the market.

Under EPR regulations taking effect from 2026, materials like PLA (polylactic acid) will be classified as "hard to recycle," resulting in doubled base fees of approximately £520 per tonne - effectively increasing production costs by 20 per cent. Meanwhile, the Plastic Packaging Tax treats bio-based plastics identically to virgin fossil plastics, while exempting fossil plastics containing 30 per cent recycled content, creating a perverse incentive against pure bio-based solutions.

The hardest-to-recycle plastic packaging - including films, single-use tableware, and small sachets - represents approximately 50 per cent of total plastic packaging waste by volume. These materials have among the highest cost premiums for bio-based alternatives, creating what researchers term a "policy trap" in which solutions to the most environmentally problematic products face the greatest economic barriers.

Jonathan Edmunds, Sustainability Director at Woodly, said: "We have an incredibly uneven playing field with regulation, policy and taxation very much geared toward the status quo of fossil-based plastics. It is becoming increasingly expensive for a producer to adopt a bio-based packaging solution. Bio-based packaging materials in just two years' time are likely to see much higher costs of compliance under EPR which is based solely on recyclability, and the inability to scale to achieve recycled content targets under PPT. Fossil-based plastics, by comparison, may see their EPR costs come down, and if 30% recycled content is achieved, then also an exemption from PPT. The unlevel playing field is set to become even more unlevel if there is no intervention.

"If there is any desire for long term decarbonisation and defossilisation of the plastic industry, then now is the time to promote and incentivise the switch to bio-based materials through regulatory levers and tax incentives. This may be more than a missed opportunity – without the support of government, we may find there isn't a UK bio-based industry to turn to in future."

Analysis of the forthcoming extension of the UK Emissions Trading Scheme to waste incineration offers the only meaningful advantage for bio-based products. From 2028, facilities incinerating packaging waste will need to purchase carbon allowances for each tonne of CO2 emitted, effectively adding £300 per tonne to the cost of non-recovered fossil plastics. However, even with this carbon pricing mechanism, bio-based alternatives would remain twice as expensive to produce as fossil-based counterparts.

The research highlights that even if bio-based products were exempted from all current fees and charges (EPR, ETS, and PPT), they would still face significant cost disadvantages. The study calls for targeted policy reform recognising the environmental benefits of biogenic materials, potentially through EPR exemptions similar to those offered under the EU's Packaging and Packaging Waste Regulation for "innovative packaging" or cases of "economic constraints."

For the hardest-to-recycle flexible films, the recently published FlexConnect project estimated recycling costs at £1,671 per tonne, compared to potential bio-based composting solutions costing around £100 per tonne through existing UK infrastructure. This disparity underscores the need for policy frameworks that avoid trapping the most environmentally beneficial solutions behind economic barriers.

The report emphasises that unless exponentially increased, taxes and charges on fossil-based products alone will be insufficient to drive necessary changes in business models. Instead, a coordinated suite of measures will be required that simultaneously increases the cost competitiveness of bio-based alternatives and catalyses the UK market for sustainable packaging solutions.

The report is available to download from bb-reg-net.org.uk/resource-hub from 25 September.