UK sustainability taxes create perverse incentives that favour fossil-based plastics over bio-based alternatives despite government circular economy ambitions, according to new research by BB-REG-NET, a regulatory network for bio-based materials.

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 equivalents, yet face additional charges under Extended Producer Responsibility (EPR) and Plastic Packaging Tax (PPT) schemes that can add up to £1,600 per tonne.

Research shows that incinerating UK plastic waste generates an estimated three million tonnes of fossil CO2 annually - equivalent to the carbon footprint of Manchester or Glasgow. Recovery rates vary dramatically by packaging type, with over 50 per cent of PET and HDPE bottles recovered compared to just 5 per cent of single-use tableware and four per cent of plastic films.

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. Meanwhile, the Plastic Packaging Tax treats bio-based plastics identically to virgin fossil plastics while exempting fossil plastics containing 30 per cent recycled content.

"The UK's policy framework is unintentionally holding back solutions it claims to prioritise," said Kieran MacSweeney, Managing Director of Sphere Consumer Products. "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."

The study analysed production costs and tax implications for fossil-based plastic packaging and bio-based alternatives across six product categories. It found that even if bio-based products were exempted from all current fees and charges, they would still face significant cost disadvantages.

Policy misalignment drives investment abroad

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.

International competitors are advancing with structured support policies. The United States' BioPreferred Program and France's RE2020 policy on bio-based materials in construction have created stable markets that 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 with conflicting priorities.

Despite £450 million in taxpayer money and £517 million in private investment flowing into bioeconomy research over the past five years, regulatory barriers continue to prevent innovations from reaching market.

Flexible packaging presents particular challenges

The hardest-to-recycle plastic packaging - including films, single-use tableware, small sachets, and certain types of pots, tubs and trays - 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."

Recent FlexCollect project findings highlighted this challenge, estimating recycling costs for flexible films at £1,671 per tonne compared to potential bio-based composting solutions costing around £100 per tonne through existing UK infrastructure.

"We have an incredibly uneven playing field with regulation, policy and taxation very much geared toward the status quo of fossil-based plastics," said Jonathan Edmunds, Sustainability Director at Woodly, a Finnish-British materials technology company. "It is becoming increasingly expensive for a producer to adopt a bio-based packaging solution."

ETS extension offers limited relief

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, according to the research.

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."

The research 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.