When Pigouvian waste taxes (cannot) implement the first-best in general equilibrium

We introduce a framework for the representation of material flows in a competitive equilibrium. Material balances track material flows, and adjust endogenously to economic transactions. The simple theoretical model shows that taxing waste where generated does not restore the optimum while taxing resource extraction does. We show that Hedonic pricing of material content for goods restores the capacity of waste taxes to implement the first-best. The framework can be used in a computable general equilibrium model that adds industrial ecology elements: material balances that fully track material flows and stocks.