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A ‘nudge’ to reduce plastic bag use

This week large retailers in England will have to charge at least 5p per bag (in Scotland and Wales the levy already exists). What will be the impact?

You may be familiar with the idea of the use of taxes and charges to change behaviour. Often the consumption and production of merit goods is encouraged by government subsidy. Demerit goods, especially those associated with negative externalities, can be discouraged through taxation.

Plastic bags are thought to pose an environmental menace, and the BBC covers the story here. Although plastic bags make up a small amount of Britain’s litter, they can take 20 years to decompose fully, says Keep Britain Tidy. According to government estimates, cutting plastic-bag use by 60-80% might lead to a reduction of about 100,000 tonnes of carbon dioxide a year, equivalent to taking 35,000 cars off the road.

Most economists would expect that the impact of a plastic bag tax is likely to be determined by price elasticity of demand. This concept measures the impact on demand of a price change. As a 5p charge is so tiny it represents only a miniscule slice of a person’s income, you might expect demand to be relatively price inelastic i.e. the charge will have very little impact. Yet most commentators expect demand for single use carrier bags to fall significantly.

According to The Economist, after Ireland introduced a plastic-bag charge in 2002 (at €0.15 each) usage dropped by 90%. Marks & Spencer, which introduced its own 5p charge in 2008, found that it prompted a fall of 70%.

Why might such a small charge have such a big impact? The answer probably lies somewhere in Behavioural Economics. That such a tiny fee can prompt so big a change implies that the charge is really more of a “nudge” towards something that people would be willing to do, if only they had the willpower. Indeed, polls show that around six out of ten people are in favour of the 5p charge. Britons want to use fewer plastic bags; they just need a little encouragement.

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