Nowadays in my home country, the Republic of Moldova, there is a blogging campaign for reducing the use of plastic bags, more specifically the plastic shopping bags given for free at shops and supermarkets. The issue here is that these bags have a very large period of decomposing (up to 100 years), and during this process polyethylene (the plastic the bags are made of) splits into toxic chemicals that pollute the environment.
The most common solution to reduce consumption of plastic bags in Moldova suggested by various bloggers is a tax levied on such bags. So, a consumer would have to pay a specific tax when receiving a plastic bag in a shop. This idea was inspired by the experience of such developed countries as the USA and Ireland.
However, though such plastic bag tax is appropriate for the developed world, it might cause the totally opposite effect in such developing states as Moldova. The reason is related to the states’ different position on the so-called Kuznets curve.
The developed countries are usually positioned after the tipping point, which indicates that they have enough resources and understanding to abate their pollution. This causes the reduction of environmental degradation. But the developing countries have “more important” problems to think of, for instance, GDP fall, external debt, technological drawback, poverty, hunger, etc. – there are many reasons not go care for the environment. So, such states allocate almost all of their resources to industry in order to catch up with other more developed countries at the expense of the clean environment. The pollution level here goes up.
Turning back to the tax on plastic bags. While in the developed world it is treated as an externality-correcting instrument and thereby is set at the level to discourage plastic bag usage, the governments of the developing countries will likely see it as an additional source of revenue for their weak budget. So, in order to maximize the amount of money it gets, the government will be interested in setting the tax level in such way that it does not reduce the plastic bags consumption (or does only a little), but assures this supplementary money inflow. By introducing this tax you just take some money from the society and give it to the government. Such “perverse incentive” gets even more troublesome in the presence of high corruption level, a commonplace thing in these states.
So, what can be done here?
Let us look at the problem from the beginner environmental economist’s point of view.
Firstly, a suggestion is to use the so-called “market-based incentives” instead of the tax. In other words, we need to create a market for the plastic bags, so that they become a separate good with their market price. In this way consumers will think twice before buying them, because it becomes more economically effective to carry your own bag or backpack when going shopping. Also economists argue that such market-based mechanisms are more flexible than the “once set and go” taxes, are more or less self-adjusting, and allow the obtaining of the desired effect in a relatively short time.
However, the implementation of this suggestion alone will not lead to significant reduction of plastic bags consumption, because so far we have addressed only the demand side of the problem. We need to target the supply also.
So, secondly, we can use the “so-many-talks-about” plastic bag tax, but levy it directly on the companies producing these bags. This suggestion is in line with the “polluter-pays” principle – in a way, these firms can be considered as polluters, can’t they? Of course, the companies will move the tax value into the product price, which seems to be the same as the tax levied on each plastic bag. So, what is the trick? The thing is that consumers already pay for the bag as proposed previously. Additional tax will hit hard on their pockets. And they will direct their complaints not to the government, but to the “original polluters” themselves. So, in order not to lose clients and to stay in the packaging business, firms will have 2 choices: either suffer from the significantly reduced demand for the plastic bags or innovate in direction of more ecologically friendly packaging, like the biodegradable bags. Taxes are said to be very difficult to set properly and require a long period of time to produce the desired effect. However, they are a very good motivation for the profit-maximizing firms to innovate.
In conclusion, the campaign on reducing the plastic bags consumption is definitely an environmentally beneficial thing to push forward. However, it should be done wisely, with analysis of different options and their combinations and with “putting ourselves into other’s shoes”. Science is a very good and helpful ally in this respect. It allows us to prevent many mistakes and unpleasant effects even before the implementation of the campaign’s suggestions.
So, it is high time to say “NO!” to plastic bags… in a scientific way.
Note: For those interested in environmental taxes and market-based instruments a recommendation is to read Baumol, W.J., Oates, W.E. (1988): “Uncertainty and the Choice of Policy Instruments: Price or Quantity Controls?” in Baumol, W.J., Oates, W.E. The Theory of Environmental Policy, 2nd Edition.