Economic incentives to reduce plastic packaging in supermarkets

Plastic pollution is a growing concern for the environment, as more than eight million tons of plastic is released into the oceans every year (Plastic Oceans, 2017). In 2013, the amount of plastic pollution measured in the world’s oceans was estimated to 5.25 trillion particles, weighing 268,940 tons, severely harming the marine life as well as humans. Scientists forecast that the oceans will contain relatively more plastic than fish by weight within the next three decades (Eriksen et al. 2014). While there are countless contributors, supermarkets are responsible for a large part of the plastic pollution on the planet (Laville, 2017), as nearly two thirds of total packaging waste by volume derives from that of food (Marsh & Bususu, 2007).     

Consumption of packaging continues to increase (Verghese, Lewis and Fitzpatrick, 2012) and plastic has become a popular choice due to its low costs of production, beneficial properties and inexistent disposal costs (Lewis, Verghese and Fitzpatrik, 2010). The resulting pollution however, from production as well as disposal, is a negative externality, affecting third parties not involved in the actual transaction, for instance animals or humans that enjoy the oceans for recreational value or rely on them for their diet or income. The economy is currently using the environment as a waste sink to an extent which it cannot sustain. The existing free market system without any price to discourage plastic pollution has thus created a marginal social cost, larger than the marginal benefit, which has resulted in market failure, something that needs to be addressed (Hanley, Shogren and White, 2013).    

Food packaging, however, plays a significant role and has many purposes such as protecting the food from physical damage, extending shelf-life, improving convenience, marketing the product and providing information to the consumer (Marsh and Bugusu, 2007). Consequently, it is extremely important to recognize the value of packaging when developing strategies to reduce total environmental impact (Verghese et al. 2012).  

Although alternatives to plastic packaging, for instance glass, paper and biodegradable materials have been considered as substitutes to decrease environmental damage, these too create pollution from production and improper disposal or require energy in waste management or recycling (Lewis et al. 2010). Furthermore, while recycling has been stressed in the past decades, Baldwin (2015) claims that 95% of the environmental impact of packaging comes from the production of packaging, while only 5% comes from the disposal. Although recycling could decrease the amount of packaging being produced, this can mostly only be done twice for plastic (Laville, 2017) and this process also requires energy. Hence, the most environmentally preferred strategy is source reduction; to avoid packaging where possible (US EPA, 2017).      

Generally, people and firms respond to incentives and prices since they are self-interested and want to make choices based on their costs and benefits to maximize their profit. The market is therefore argued to be the best way to allocate resources. Hence, a solution to reduce plastic packaging could be to introduce a Pigovian tax on plastic packaging. The price would be fixed, which would let the market decide the demand and the quantity of plastics used in supermarkets among other places (Hanley et al. 2013). This would create an economic incentive for supermarkets and consumers to choose products without plastic packaging. The result would be a decreased demand for those and consequently less quantity being consumed. As groceries without plastic packaging would become relatively cheaper, the demand for those products would naturally increase in the market. 

Reducing the consumption of plastic packaging would result in environmental benefits as less plastic pollution would be dumped into the oceans, which would improve well-being of marine flora and fauna and drinking water quality for many humans as well as the aesthetic value of oceans (Eriksen et al. 2014). As landfill would decrease, there are also economic benefits in reduced costs of waste management and recycling for consumers, suppliers and councils (US EPA, 2017). Reduced packaging could also function as a marketing opportunity and increase profits for supermarkets (Food Ethics Council, 2009) as stakeholders are becoming increasingly more concerned about sustainability (Verghese et al. 2012). Additionally, the revenue earned from a Pigovian tax could be used to introduce subsidies on groceries without plastic packaging. This would further increase the economic incentive for supermarkets and consumers to decrease the usage of plastic packaging. Alternatively, increased revenue could be used to reduce distortionary taxes or invested in environmental projects, for instance addressing plastic pollution.

Nevertheless, reduced plastic packaging could result in several environmental and economic costs, such as transition costs from re-branding products as free from plastic packaging or re-pricing groceries according to an imposed tax, decreased labor demand and consequently increased unemployment due to less plastic production as well as an increase in food waste (Williams and Wikström, 2011).

Finally, since decreased plastic packaging for groceries in supermarkets could reduce plastic pollution significantly, policy makers ought to ensure efficient market allocation. While there are prospective costs of reducing plastic packaging, a Pigovian tax, possibly complemented with subsidies on groceries without plastic packaging, would value the nature appropriately and eliminate the negative externality currently harming the environment. The geographical scale however contributes to the complexity of this problem. Its transboundary characteristics and global reach result in difficulties in assigning responsibility for plastic pollution, which often ends up in remote dumps in the ocean, far away from any national borders, creating the incentive for free-riders to avoid contributing and simply enjoying the benefits of others’ efforts (Hanley et al. 2013).

Observing social, demographic and economic trends such as population growth and increased living standards around the world (Verghese et al. 2012), plastic pollution, among other environmental problems, is likely to increase unless acted upon. With the aim to respect the needs of future generations through transitioning to a low-carbon economy, it is crucial that policy makers cooperate internationally (Tol, 2017) to ensure that supermarkets and other actors take appropriate action to reduce plastic pollution globally to enable a cleaner future.

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About me: 

My name is Lovisa and I am in my fourth and final year of studying Sustainable Development, Economics and Management at University of St Andrews. I am passionate about sustainable business, international contexts and the idea of creating shared value. Through previous experiences of studying and working in different regions and countries such as Kenya, Myanmar, Singapore, the UK, Italy, Ireland, Malta and Sweden, I have realised the need for international cooperation as well as a new, holistic management approach. In the future, I aspire to become one of the change making leaders in shaping this new paradigm of global management.