Regulatory failure via market evolution: the case of packaging recycling in the United Kingdom

The introduction of new market-based instruments (MBIs), such as eco-taxes and tradable permits, has prompted major changes in the implementation of environmental policy in the European Union. However, rather than wholeheartedly embracing the logic of environmental economics, governments have preferred to introduce MBIs alongside more traditional command-and-control measures, ostensibly to guarantee that policy objectives are met. Where such regimes of governance have underperformed, this raises the question as to whether difficulties are caused principally by flawed theory or regulatory failure, namely errors in policy design that distort MBIs from intended changes in market behaviour. Analysis of a tradable-permit scheme in Packaging Recovery Notes introduced to implement the UK Packaging Regulations reveals that, in this case, the difficulties experienced with an MBI were, in fact, traceable to regulatory failure. Different types of regulatory failure are identified and discussed.