Why do some environmental and social harms never appear in the price? Zero Waste Scotland’s report on externalities, levies and hidden impacts

A large share of the environmental and social consequences of economic activity never appears in the price of a product, service or investment. The cost of greenhouse gas emissions, habitat loss or burdens on local communities usually stays invisible in the decisions made by businesses, investors and policymakers. Zero Waste Scotland’s July 2026 report, “Internalising social and environmental externalities”, examines how these hidden impacts – externalities – can be brought back into decision-making, and what role levies, licences and lease arrangements play in doing so. The lessons are relevant well beyond Scotland, including for Hungary’s circular economy.

Zero Waste Scotland: What is an externality, and why is it missing from the price?

An externality is an impact that is not included in the market price yet affects third parties or the environment, whether as a burden or a benefit. The report is clear on the concept: externalities can be negative (placing burdens on others or the environment) or positive (delivering social or environmental benefits), and in both cases they distort decision-making when left unaccounted for.

Climate change is the most striking example. No one planned its consequences, yet they occurred because greenhouse gas emissions are an externality of countless economically driven decisions. When harms are not built into the price, the market systematically under-prices pollution, resource depletion and community burdens – while positive externalities (habitat restoration, community wellbeing) remain unfunded.

Internalising externalities means factoring these previously invisible or ignored costs and benefits back into the decision-making process. According to the report, this is central to a just transition, which aims to ensure equity and justice for current and future generations during the shift to a low-carbon economy.

The levy as an internalising mechanism: where does the hidden cost surface?

The central question of this article – the relationship between levies and other impacts – touches on one of the report’s most interesting threads. Levies, licences and lease charges are not merely revenue sources: they can price the hidden externality and channel the revenue back into activities that generate positive impacts.

Scottish aquaculture: leases, licences and levies

Scottish aquaculture is based on seabed leases, managed by Crown Estate Scotland for the majority of the country’s seabed and coastal waters. For finfish aquaculture, Crown Estate Scotland applies a so-called production rent: a charge per kilogram of produce harvested, set at 1.5% of notional turnover and linked to the maximum allowed biomass. Revenue passes to the Scottish Government, with a share reinvested to local authorities that distribute it through coastal community development.

The levy feeds Crown Estate Scotland’s Sustainable Communities Fund (SCF), established in 2020. The fund is split into two programmes: Community Capacity Grants provide early financial support for community enterprise projects, while Environment Grants – exclusive to those operating on Crown Estate Scotland territory – fund projects delivering environmental benefits. Between 2020 and 2025 the fund shared more than £1.7 million in funding, supporting invasive species removal, environmental education and the installation of solar panels on community cafés.

This is where the connection between the levy and wider impacts becomes clear: revenue from a polluting activity flows through a ring-fenced channel directly into local community regeneration and positive environmental externalities. The report highlights that ring-fencing a share of seabed lease revenues creates a stable source of investment independent of government budgets – and because the levy is linked to turnover, it poses no undue risk to producers.

The Norwegian model: traffic lights and resource rent tax

The Norwegian example adds further nuance. Norway applies a “traffic light” system: the coastline is split into production zones assigned a colour. In green zones production can increase, in yellow zones it can be maintained, and in red zones reductions are enforced. Zones are reviewed every two years, so the system incentivises the industry to reduce its environmental externalities in order to produce more stock.

On the fiscal side, Norway levies a resource rent tax designed to capture the high profits derived from access to shared natural resources. Salmon farming often delivers margins of 30–40%, and the tax is currently set at 25% of profits (down from the originally proposed 40% following industry objections). Tax revenue is split equally between municipalities and county authorities (for local welfare and development) and the central government (for general public spending). In 2025, Norwegian municipalities and county authorities hosting aquaculture farms will receive more than £105.1 million from the aquaculture fund.

An important lesson is that the profit-based tax caps the externality itself rather than production volume – so tax revenue can grow alongside the industry’s resource-efficiency innovation. This high business taxation for social gain is culturally and politically accepted in Norway, with the same principle applied to the fossil fuel sector.

Seven mechanisms for making hidden impacts visible

Drawing on a literature review and case study analysis, the report identifies seven broad categories of mechanism for internalising externalities:

1. Choice editing: restricting or phasing out options that create negative externalities.
2. Negative financial incentives: taxes, charges and levies that penalise harmful behaviour – such as taxes on virgin materials, carbon pricing and extended producer responsibility (EPR).
3. Positive financial incentives: subsidies, tax breaks, rewards for circular activity and social value scoring in public procurement.
4. Targets and caps: recycling and reuse targets, emissions trading schemes and resource-use licensing.
5. Measurement and reporting: making externalities visible and actionable in decision-making.
6. Guidance, information and education: building awareness and capability.
7. Inclusive decision-making: alternative value and exchange systems, often at community level.

The key message is that there is no single solution. The most effective approaches combine multiple mechanisms, are tailored to local circumstances, rest on good data and reporting, and involve collaboration between government, businesses and communities.

Relevance for Hungary: what can the domestic circular economy learn?

The Scottish lessons are directly relevant to the Hungarian situation on several fronts. In the domestic waste-management concession system – the operation of MOHU MOL Hulladékgazdálkodási Zrt. – the question of fee structure and revenue recycling is as central as it is in the Scottish aquaculture levy system. The logic of the Scottish Sustainable Communities Fund – channelling revenue from a polluting activity through a ring-fenced route into local community and environmental benefits – is a model worth considering for directing the revenues of Hungary’s EPR system and deposit return scheme (DRS) more purposefully towards community benefit.

The Norwegian principle of externality-based capping – regulating the harmful impact itself rather than production quantity – is likewise instructive for the Hungarian application of the polluter pays principle. The report stresses that industries can be made responsible for financing monitoring through fiscal and financial mechanisms, in line with the principle that those causing environmental externalities should bear the cost of preventing and addressing them.

In the built environment, the report highlights the role of measurement and reporting: measuring embodied carbon makes otherwise hidden emissions visible and enables them to be factored into design and construction decisions. The Dutch MPG (Environmental Performance of Buildings) system expresses a building’s environmental impact as a “shadow cost” per square metre per year – quantifying the externality in monetary terms and making it visible to authorities and developers.

FAQ

What is an externality in simple terms? An environmental or social impact that is not reflected in the price of a product or service yet burdens third parties or the environment (negative externality) or benefits them (positive externality).

How do levies relate to internalising externalities? Levies, licences and lease charges can put a price on hidden harms (pricing the negative externality), and the revenue can be ring-fenced and reinvested into activities that generate positive externalities – such as community regeneration or environmental restoration.

What is the difference between the Scottish and Norwegian levy models? The Scottish production rent is linked to turnover (1.5% of notional turnover), while the Norwegian resource rent tax is linked to profit (currently 25%). The Norwegian model caps the externality itself rather than production volume, which also incentivises innovation.

What lessons does it hold for Hungary’s circular economy? Ring-fencing of revenue, fiscal application of the polluter pays principle, and measurement-and-reporting as a precondition for every other mechanism can be transferred directly into the development of EPR, DRS and concession systems.

Sources

• Zero Waste Scotland (2026): Internalising social and environmental externalities: Lessons from the built environment and bioeconomy. Prepared by Resource Futures (Holly Owens, Susan Evans, Katherine Ellsworth-Krebs, Daisy Copping).
• Zero Waste Scotland: Why do some environmental and social impacts never appear in the price we pay? (8 July 2026)
• Crown Estate Scotland: Rents and charges; Sustainable Communities Fund.
• Directorate of Fisheries (Norway): Resource Rent Tax on Aquaculture.
• Ministry of Trade, Industry and Fisheries (Norway, 2025): The future of aquaculture: sustainable growth and feeding the world.