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.