What we know with certainty is that at the individual level, people benefit from using single-use grocery bags. We also know that prior to the ordinance’s passage, the bags were given indiscriminately and for free. But the bags are also arguably bad for the environment and require recycling, and thus are costly to society. In economic terms, this means the bags create a negative externality – a cost that is not born by the consumers who enjoy the benefits of this product, but by society at large. This cost likely exceeds the benefit from using them.
The 10c fee per paper bag is nothing but a Pigovian tax (named after the English economist Arthur Pigou) as it counteracts the negative externality. If the amount of the tax is set equal to the cost brought about by the negative externality, it will produce an efficient outcome: Only those who value the convenience of having grocery bags ready at the checkout enough to pay for the harm the bags cause will purchase them.
So where does the 10c fee come from? And why ban plastic bags completely instead of charging a fee for them as well? For one thing, the negative externality created by a paper bag is relatively easy to calculate. Since paper decomposes quickly without producing lasting damage to the environment, its harm equals the cost of recycling. So, there is a good reason to believe that the 10c tax is efficient enough. Unfortunately, plastic is another matter. The negative externality from plastic bags exceeds the cost of recycling as it also includes the damage to the environment done by discarded plastic bags, which is difficult to estimate accurately. In the absence of reliable cost information, it is hard to calculate an optimal Pigovian tax. Therefore, it seems reasonable to ban free plastic at the stores and let the market decide the price for substitute products.
1. Are single-use grocery bags normal goods?
2. What if the actual negative externality from a paper bag is less than 10c?
3. Could the single-use bags ordinance affect retail grocery sales?