Given the huge structural challenges our economy still faces and with the government still borrowing around £100 billion per year, it felt somewhat trivial for Queen’s Speech day to be filled with debate on a proposed 5p charge on plastic bags in supermarkets and large shops.
For most people, it is difficult to get animated about this. Many simply shrug their shoulders and say, ‘well, plastic bags are bad for the environment … and in the grand scheme of things 5p per bag is not going to have a dramatic impact on my wallet’. If the figures from Wales and elsewhere are correct then this charge is also likely to act as a significant deterrent to plastic bag use – possibly reducing usage by 75 per cent. This is surely, unambiguously a good thing, right?
Not quite. The reason we should care about this relatively trivial policy is that it provides an excellent case study in the narrow thinking that surrounds much government regulation. It also shows how regulations become captured and shaped according to the interests of certain groups.
To see why, consider the justification behind the plastic bag charge. Plastic bags, it is said, take 1,000 years to degrade. There are 8 billion of them used per year (a very big, scary number –currently about the number of pounds our government is borrowing every 29 days) and they blight the landscape, particularly in coastal areas. The eventual presence of plastic bags in the oceans also has significant negative impacts on marine life.
In other words, plastic bags have what many economists would describe as ‘negative externalities’. The social cost of plastic bag use is greater than the marginal cost to an individual bag user (who will pay within his broad shopping bill for the bags), meaning that there is overuse relative to some social optimum.
Given this social cost, the textbook ‘Pigouvian’ solution would be to apply a tax on plastic bag use in order to ‘cost in’ or ‘internalise’ this social cost and reduce the amount used closer to the socially optimal level. Hence, a per bag charge of 5p.
The problem is that in public debate we only hear about the benefits of the charge. Our analysis is incomplete. The costs, the behavioural changes which may result and the broader inconsistencies of the policy do not get a look in.
The reason we use lots of plastic bags is because they are incredibly cheap and convenient to use, both for customers and supermarkets. Making the carrying of shopping more expensive or difficult, even if the overall per bag charge is small, therefore has economic costs. This is so directly, through the charge. But there might also be a minor effect in terms of slower moving check-out processes, as shoppers attempt to squeeze more goods into each bag, shop assistants tally up the number of bags used and so on. There is a reason why supermarkets give out bags free - they are cheap and to charge for them would be time consuming.
Empirical work on the effects of a plastic bag ban on grocery and convenience stores in Los Angeles was undertaken in an NCPA study two years ago. This found that areas with the bag ban on average saw sales decline by 3.3 per cent over a one year period, compared with an average increase in sales of 3.4 per cent in areas without the ban. Of course, given that ours is a charge, not a ban, and is applied to all supermarkets across the country we might expect the distortive aggregate effect to be much smaller. Yet the government evidently thinks it will have a detrimental effect on some businesses, otherwise it would not have exempted small businesses and independent stores from the legislation.
Indeed, the most baffling part of this sort of legislation is its inconsistencies. If plastic bags are the thing we want fewer of, then why are some shops exempted? More importantly, if it is plastic per se we want less off, why are we only imposing charges on plastic bags? What about plastic pots and food containers? Will not imposing charges on the bags simply lead to adjustments to packaging to make the goods easier to carry in the first place?
In reality, it’s rare for the public discourse to seem to be concerned by plastic per se. Perhaps this is just because of the visual effects of plastic bag pollution. But one gets the sense that the anger surrounding their use is more to do with opposition to the casual consumption they represent, considered ‘vulgar’ by some.
Then there are the environmental trade-offs, of course. Since people still need some sort of means of carrying their shopping, we cannot only consider the humble plastic bag in isolation. One of the reasons why plastic bags are so cheap, for example, is precisely because they are extremely energy and water efficient to produce. For an equivalent amount of groceries, the NCAP study finds that production of paper bags consumes three times as much energy as plastic. Paper bags also produce substantially more landfill waste, whilst both paper bags and reusable bags lead to much higher greenhouse gas emissions than their plastic cousin.
In fact, an Environment Agency study found that cotton bags would need to be re-used over 100 times before they yielded net environmental benefits. But it found that cotton bags are only re-used around half that amount, making them worse than plastic on net for the environment. This is before considering the energy and water required to clean and maintain them, and the potential for negative health effects in relation to bacteria brought about by repeated use.
The case for the charge then is much more ambiguous when all these unintended consequences, inevitable carve outs for special interests and costs associated with the intended consequences are considered. Absent government regulation, supermarkets already have incentives to purchase bags as cheaply as possible (which often means less energy intensive to produce) or indeed to encourage their customers to bring their own bags. We should therefore be suspicious of heavy-handed government attempts to intervene, particularly at a national level.
Though I would not wish to live in a local area that imposed a plastic bag charge, if this really is regarded as an essential policy then surely it should be delivered at a local level. Almost without exception, the main social costs of plastic bag use are local - very local. Local competition would help ensure that local authorities only imposed charges to the extent that they reflected the true social costs to the local inhabitants of plastic bag use.
Quite simply, almost all activities have external costs and benefits. Yet we do not attempt to calculate optimal taxes for all of them at a national level, for good reason – it’s hard to quantify and there are a broad range of potential consequences to consider. It’s time our regulatory efforts stopped pretending behaviour occurs within a vacuum.