Paper or plastic? How disposable bag bans, fees and taxes affect consumer behavior

Last month, England became the latest government – and last among members of the UK – to pass a policy to combat the recent rise in the use of disposable plastic shopping bags, in its case a five-pence charge for each one.

While English newspapers warned that the new policy would create chaos, England is by no means the first to consider such a controversial policy. Several countries across the world and local governments have taken steps to address the environmental consequences of increased plastic bag use through regulation.

These regulations contain subtle but important design differences across different regions. Some banned their use; others just taxed them. In a few cases, companies began offering customers small bonuses for bringing their own bags.

Given the growing popularity of disposable bag regulations, this begs the question: have any successfully changed consumer behavior? And are all policies created equal?

Landfills are increasingly filled with plastic bags.Reuters

Impetus behind the bans

It’s obvious why cities, regions and countries want to reduce the use of disposable bags.

Americans, for example, go through 100 billion single-use plastic bags every year – or 325 per person – that end up in landfills, streams and lakes, where they take 10 to 20 years to degrade. The bags cost retail stores about three cents a piece, and since it’s normally incorporated into the price of everything else, consumers don’t see it and thus have no incentive to reduce their use.

Plastic bags made up almost half of the trash in Washington, DC’s tributaries, according to a 2008 study, while a look at the budgets of six major cities showed that they spent 3.2 to 7.9 cents per bag on litter control, which suggests total spending across the US could tally US$3.2 billion to $7.9 billion a year.

And even when the bags are recycled, they present problems by clogging up the machines.

Varying approaches

Bangladesh became the first country to regulate disposable bag use when the government banned single-use plastic bags in 2002. Shortly after, Ireland implemented an alternative regulation, a €0.17 tax per plastic bag (later raised to €0.33) called the “Plastax.”

The varying approaches don’t end there. Like England, China and South Africa do not levy a tax on disposable bags, but require that store owners charge a fee for bag use. Rwanda banned plastic bags in 2008, and agents at the airport not only confiscate any they find but also cut the plastic wrapping off of suitcases.

Similar variation exists across the US. In 2010, Washington, DC became the first American city to charge customers for the use of disposable bags when the City Council passed a five-cent tax on both paper and plastic bags. And last year, California became the first state to pass such legislation, which coupled a tax on paper bag with a ban on plastic, but that policy won’t take effect until voters approve it in a referendum next year.

Government regulations are not the only policies aimed at curbing disposable bag use. Several grocery store chains offer their own incentives to curb disposable bag use, such as financial rewards for customers who bring their own bags. For example, Whole Foods rewards customers with a ten-cent bonus for each reusable bag.

What works best to reduce bag use: a fee, tax or incentive?Reuters

Which ones work

In a recent study, I examined the relative effectiveness of two policies in the Washington, DC metropolitan area: a five-cent tax on paper and plastic disposable bags use and a five-cent bonus for reusable bag use.

If disposable and reusable bags are substitutes, the two policies are financially equivalent – each policy provides customers a five-cent incentive for using a reusable bag instead of a disposable bag. Standard economic theory tells us that individuals should have a similar response to the two types of incentives given that they are of the same monetary amount.

However, evidence from behavioral economics suggests that individuals are “loss averse,” meaning that they perceive losses more strongly than gains. If this is the case, then the tax may be more effective at changing behavior than a bonus.

My results showed just that. While 82% of customers used disposable bags prior to the tax, this fraction declined to 40% after the tax was implemented.

In contrast to the overwhelming impact of the tax, a five-cent bonus for reusable bag use had almost no impact on disposable bag use, evidence consistent with a model of loss aversion.

A related study found similar results after evaluating the impact of a policy in the San Francisco Bay Area.

The metro area that year imposed a ban on plastic bags in addition to a varying charge on paper bags. The study found that while the policy eliminated the use of plastic bags, it also generated an increase in the use of paper bags. This suggests that banning one type of disposable bag while leaving another type largely unregulated may lead to unintended consequences.

However, the effect of the policy on total disposable bag use (paper and plastic bags combined) was still quite effective – the proportion of customers using any type of disposable bag decreased by roughly 50%.

A federal solution?

Should the United States consider taxing or banning disposable bags?

The results from the two studies above suggest that while a small tax on disposable bags has a substantial impact on bag use, roughly 40% of shoppers continue to use disposable bags anyway. If the policy goal is to eliminate disposable bag use altogether, these results suggest a need for a stricter regulation.

But in spite of environmental concerns, it is not obvious that the optimal policy is to reduce disposable bag consumption to zero, through a ban. The environmental costs may not always outweigh the benefits some shoppers receive from the convenience of getting a disposable bag at the store. If they are willing to pay a higher tax or fee in exchange for that convenience, it could offset the costs to the environment.

So while a ban or a larger tax may be successful at reducing disposable bag use even further, policymakers should carefully weigh the benefits of that reduction against the burden shoppers would face from the inconvenience or financial costs of the policy. In contrast, less restrictive policies, such as nominal fees for bag use, change the behavior of only those customers who are almost indifferent between using a disposable bag or not.

A tiny tax had an impressive impact on behavior, suggesting that a policy that focuses on consumers on the margin could still have a lot of bite. And maybe that is a good place for policymakers to start.

Tatiana Homonoff does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.