In 1992, Sweden introduced a producer responsibility ordinance which explicitly states that sorted out, collected waste paper must be material recycled. Another alternative could be to recover energy by incineration. Material recycling was prioritized, although there is no environmental consensus favouring either of the alternatives. By calculating shadow prices of waste paper for the paper industry and for the heating plants, this study tries to determine whether waste paper should be partly incinerated. The study also addresses whether the producer responsibility has contributed to an inefficient allocation of waste paper. The results find no economic support for the producer responsibility.