The Economics of Plastic Bags: Too Late for California to Hop Off the Ban-Wagon?

Justin Adams, Ph.D.
President and Chief Economist of Encina Advisors

In late February we learned that opponents of SB 270 (Padillia), the ban on single-use plastic bags in grocery stores, gathered enough signatures to qualify a referendum on the law. This means that SB 270’s scheduled July 1 start date will be put on hold. And it means that California voters will determine the law’s ultimate fate in November 2016.

November 2016 is a long way off, so we will have plenty of time before then to discuss the specifics of SB 270 and their pros and cons. In the meantime, whether you support SB 270 because it would harmonize law in state with roughly 140 existing local bag bans, or whether you oppose SB 270 because it would destroy more jobs in an already job-averse state, we should all be able to agree on one thing:

Bans, generally speaking, make for bad public policy.

Why is this true? Beyond the philosophical arguments regarding the erosion of individuals’ freedom of choice – which are strong arguments, but ones I would rather not discuss today – bans are economically inefficient policies. They are blunt instruments that needlessly restrict economic activity, and as a result they make everyone worse off.

Put another way, instituting a ban is like using a sledgehammer when a ball peen hammer would do.

One way to see that bans are economically inefficient is to think about the concept of externalities. Externalities are unintended consequences to a third party, typically negative, that occur as the result of some market activity. We are most familiar with externalities when they take the form of environmental harms that impose costs on society, such as smog from automobiles, dolphins killed in driftnets, and, yes, waterways littered with plastic bags.

Externalities arise because the societal costs generated are not directly borne by the participants in the market transaction. As an example, let’s say that I regularly consume a particular kind of snack food and that the production of this snack food results in significant amounts of air pollution that is costly to clean up. If the cleanup cost is not reflected in the price I pay at the store, then the snack food I buy is underpriced relative to what is socially optimal. And, as we know from the laws of supply and demand, this means that I end up buying more of this snack food than optimal, resulting in more costly air pollution.

We can thank Arthur Pigou, a British economist living in the late 19th and early 20th centuries, for first introducing the concept of externalities and how they lead to inefficient market outcomes. And we can thank him for his proposed remedy as well. By calculating the value of the negative externality created and applying it to the market activity in the form of a tax – now known as a Pigovian tax – it is possible to get market participants to internalize the true cost of the activity. In this way, efficient market outcomes can result.

Makes sense, right?

So what does a Pigovian tax have to do with bans and whether or not they are economically efficient? Quite simply, in this framework a ban represents an infinite tax. It is a tax set so high that no market activity takes place as a result.

In the case of single-use plastic bags, a ban means that there is no amount that I – or Bill Gates, for that matter – could possibly pay to offset the environmental harm caused by obtaining, using and disposing of one plastic bag.

Now that doesn’t make sense.

While the cost of cleaning up plastic bags across California is not inconsequential, it certainly is not astronomical either. For example, consider the debate over banning plastic bags in the City of Davis, where I currently live. A 2012 staff report to the City’s Natural Resources Commission showed that plastic bags make up 50 to 60 percent of the litter at the Yolo County Central Landfill, and the Landfill spends roughly $34,000 a year to clean up plastic bags blown about by the wind. A 2007 report by the County of Los Angeles noted that the Department of Public Works and the Flood Control District spends about $18 million a year in the county to clean up litter from roadways, catch basins, flood control channels and the like, where plastic bag litter maybe makes up a third of the total litter. And the same report described Caltrans District 7 (Los Angeles and Ventura Counties) as spending about $12 million a year to collect all litter and debris, including plastic bags.

Of course, one could argue that the costs cited underestimate the true amount of environmental harm done by plastic bags, since not all plastic bags are cleaned up and those that do escape foul the environment and kill or sicken wildlife. I wouldn’t disagree. But what I would point to in response is a 2010 analysis by the City of Santa Monica on what are reasonable fees to place on single-use bags. The analysis noted that Washington, D.C.’s ordinance requiring stores to charge a $0.05 fee for each single use disposable carry out bag – plastic as well as paper – resulted in an estimated 86 percent reduction in single-use bag distribution after only one month of implementation.

In other words, banning single-use plastic bags is simply not necessary. Instead, it is possible to place a small fee on both plastic and paper bags that preserves consumers’ choices, retains manufacturing jobs, and dramatically reduces environmental harm.

Unfortunately, it’s not a solution that Californians will get to experience. Whether because of bad existing policy – AB 2449 (Levine) for years prevented localities from imposing fees on plastic bags rather than bans – or because activists find that bans provide simple and compelling messaging, we’ll be stuck with plastic bag bans regardless of how SB 270 is resolved. The only question remaining is the number of Californians impacted.

It is not the case that bans are never warranted. I confess that I don’t lose any sleep from being unable to procure lead-based paint, for example. Sometimes the harm is that large.

But clearly not in the case of plastic bags. For a state that prides itself on being sophisticated and innovative, it is disappointing that California policymakers could not apply these same qualities to the policies designed to address plastic bags.

Dr. Justin L. Adams is the President and Chief Economist of Encina Advisors, LLC, a Davis-based research and analysis firm.

Share this article: Share on FacebookTweet about this on TwitterShare on LinkedInPin on PinterestEmail this to someone

Comment on this article


Please note, statements and opinions expressed on the Fox&Hounds Blog are solely those of their respective authors and may not represent the views of Fox&Hounds Daily or its employees thereof. Fox&Hounds Daily is not responsible for the accuracy of any of the information supplied by the site's bloggers.