Plastic bag bans have become a favorite tool of municipal governments. The argument made by proponents of them is seductively simple: plastic bags generate waste and other negative environmental externalities, so banning their use could improve economic welfare.
Research shows, time and again, however, that bans on single‐use plastic bags can have unintended consequences, not least by inducing substitution towards alternatives with potentially worse environmental impacts.
A new working paper examines two plastic bag policies implemented in Chicago from 2015 onwards, using the city as a treatment group against a control of the broader suburbs. Beginning in 2015, Chicago had an ordinance banning all single‐use thin plastic bags. In 2017 the ban was repealed and replaced with a 7‐cent tax on disposable bags of all types and thicknesses.
Examining behaviors at grocery stores under both regimes, the researchers found that when the ban was in place, 82 percent of shoppers simply used paper or alternative thicker plastic bags that were freely distributed to them. Overall disposable bag use was a third lower under the tax than the single‐use plastic bag ban policy.
Why does this matter? Previous research has suggested that paper bags produce substantially more landfill waste, greenhouse gas emissions, and waterborne wastes than their plastic cousins, meaning their lifecycle environmental impact can be worse, unless they are used as many as 43 times. The more expensive thicker bags falling outside of the contours of the ban use more plastic, of course, generating more waste and other environmental damage, not less, unless they too are re‐used significantly.
This highlights an obvious truth that one of us pointed out in a paper on policy towards dealing with externalities as “market failures”:
by considering the consumption of one good in isolation, policy proponents misuse the framework of market failure with potentially damaging policy consequences. All goods and their substitutes here entail production processes using chemicals and water, and have the potential for pollution, carbon emissions, and much else besides. Advocating for taxes or bans associated with one type of product on the basis of externalities, without considering the environmental consequences of substitutes, can lead to policies that reduce economic welfare.
The problem of externalities is not new, nor is it always easy to solve. It is almost certainly the case that applying the same tax charge on all these bag types itself creates distortions given their differential environmental impacts. But one thing we know for sure is that crude bans guarantee bad economic outcomes. The marginal revolution in economics taught us that the optimal quantity of anything is rarely zero. That is especially true when the most economically viable alternatives have even bigger externalities.
For more on externalities and “thinking on the margin” but applied to the pandemic, you can pre‐order Ryan Bourne’s Economics In One Virus here.