Nickels Matter: Pigou and the Plastic Bag

On January 1, Washington DC introduced a 5-cent tax on disposable shopping bags at grocery, drug, convenience, and liquor stores. The fee had two goals: to reduce the number of bags, in particular plastic ones, that end up blighting the landscape and to raise funds for cleaning up the Anacostia River.

The fee appears to be succeeding on both counts, but not equally so. As Sara Murray and Sudeep Reddy report over at the Wall Street Journal, shoppers have cut back on bag use more than anticipated; as a result revenues are running below expectations:

[T]he city estimated that [bag use] would decline by 50% in the first year after the tax was imposed. …. [A]n informal survey of corporate headquarters for grocery stores and pharmacies with dozens of locations in the city estimated a reduction of 60% or more in the number of bags handed out. … Through the end of July, the city collected more than $1.1 million from the bag fee and small donations. At that rate, receipts are likely to fall short of the expected $3.6 million in the first year.

I’ve witnessed the sharp decline in bag use during my daily lunch run. Last year, the Subway folks would automatically put your sandwich and a napkin in a plastic bag. Now they ask if you want one. I always decline, as do most other customers.

Why has there been such a strong reaction to a nickel fee? I think it’s a combination of two factors.

  • The first is a traditional microeconomic explanation: there are often good substitutes for a disposable shopping bag. For example, I find it just as easy to carry the wrapped sandwich as to carry the old Subway bag. And if I buy some dental floss at CVS, I can just pop it in my pocket for the trip home. So even a relatively small fee can get results.
  • The second is a behavioral explanation: people act weird when things are free–they acquire things without really thinking about it. If you start charging a price–and thus change the default from “here’s your bag” to “do you want a bag?”–you can witness large responses.

P.S. As noted in a previous post on the bag fee, Arthur Cecil Pigou is the father of environmental taxes.

10 thoughts on “Nickels Matter: Pigou and the Plastic Bag”

  1. Another reason revenue may be lower than anticipated: at places like CVS, the customer is allowed to enter the number of bags used at self-checkout stations. Zero is an option and there is no inspection/oversight.

  2. I doubt the bag fee has succeeded environmentally. The study that showed bags were a disproportionate pollution problem in the Anacostia used visual inspection, so pollution related to anything you couldn’t see because it dissolved, sank or quickly floated away were undercounted while bags, which snagged on twigs, roots, and rocks were severely overcounted. Regardless, it showed a lot of the bags in the Anacostia watershed were from corner markets in lower income neighborhoods — especially near schools — not from the Subway shop downtown. Is there reason to believe schoolkids are eschewing bags when they pick up candy bars and chips for their chums? Finally, the money raised by DC does not seem to be going to additional environmental cleanup. As I recall, the Mayor said it would pay for streetcleaning in Anacostia — something the city presumably already does.

  3. If the incentive is to reduce the use of plastic bags by refunding a nickel, why is it a hassle to get a nickel when you hand carry an item out of the store? Am I not entitled to the nickel?

  4. Some years ago there was a business study of a firm that provided snack food and candy to employees for free, and found a whole lot of half-uneaten snack food in the trash every day.

    It changed the vending machines for the food from distributing them free to charging one penny.

    The amount of uneaten food in the trash plunged.

  5. We’ve been paying 5 cents for grocery bags in Canada’s capital for well over a year and life has gone on with no worries. It’s increased use of reusable shopping bags, reduced bags in landfills and those that still need a plastic bag can buy one (usually of a slightly better quality than the older “free” ones).

    It takes some getting used to, but is absolutely no problem at all. Everyone should be doing it.

    Shawn

  6. What?

    More government control is so redicuous. Do they charge a nickle for every bag I place on my penus? Condoms, condiments and condominiums, just tax it all.

    In Massachusetts the sales tax went from 5% to 6.25%. On tuesday Nov 3 there is a question on the ballot to reduce it back down to 3%. Personally I hope it passes.

    Then again if it passes then the government officials and lawyers will just spend more taxpayer money trying to figure out how to create revenue for the state.

    It’s so wonderful, our system! lol.

    Paul

  7. Costs for plastic bags like this are so incredibly important. Plastic is choking our environment – and not just in the oceans. An even better solution is for everyone to turn down paper or plastic and use reusable bags for all their shopping! If you are like the rest of us remembering your plastic bags turns out to be a big problem!. The number one reason our community members give for not using reusable bags is that they forget them. That is why we created a FREE car window static cling reminder – go to http://www.conservingnow.com to get yours today!!

    Read more: http://www.sfgate.com/cgi-bin/blogs/nov05election/detail?entry_id=70270&plckOnPage=2&plckItemsPerPage=10&plckSort=TimeStampAscending#ixzz10kx4HDkl

  8. The whole plastic bag thing began in 1987 with a misreading of a Canadian study in Newfoundland, which found that between 1981 and 1984 more than 100,000 marine mammals were killed every year by discarded fishing nets. The Canadian study did not mention plastic bags. In 2002 a report prepared for the Australian Govt. by Nolan-ITU said that the Newfoundland study attributed the deaths to “plastic bags.” But according to the Australian Govt.’s Environmental Dept. the report was amended in 2006.

    Scientists and environmentalists have questioned the case against the use of plastic shopping bags as based on flawed science and misreporting. That has not stopped governments everywhere from trying to phase out plastic bags. The original report, later amended, has been widely quoted by environmentalists. It actually attributed the deaths to all plastic debris, including fishing nets and equipment.

    Even a science expert who advises Greenpeace says that plastic bags pose only a minimal threat to most marine species.

    The story gets more complicated because studies show a risk from reusable cloth bags. Toronto-based Spirometrics found that 64% of reusable cloth bags were contaminated, and 30% had bacterial counts higher than what is considered safe for drinking water. 40% had yeast or mold and some had unacceptable presence of coliforms.

    Cloth bags should be used only for groceries, never for cross-purposes like diapers or gym clothes, and washed and bleached between uses, to prevent any possible exposure to MRSA, food poisoning, infections or allergic reactions.

    As is often the case, governments start chasing the wrong (non) problems, because they see a chance to raise taxes. There is an amazing amount of environmental hooey out there!

  9. Who ever said you were previously getting free bags ? There is a monumental naivete about government motivations. This fee is for revenue and the environment be damned.

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