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Is the willingness to pay for plastic bags low? Evidence from a private pricing initiative

Is the willingness to pay for plastic bags low? Evidence from a private pricing initiative. José María Cabrera (U. of Montevideo) Marcelo Caffera (U. of Montevideo) Alejandro Cid (U. of Montevideo) Segundo Workshop sobre Economía del Medio Ambiente y la Energía UCA Buenos Aires

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Is the willingness to pay for plastic bags low? Evidence from a private pricing initiative

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  1. Is the willingness to pay for plastic bags low? Evidence from a private pricing initiative José María Cabrera (U. of Montevideo) Marcelo Caffera (U. of Montevideo) Alejandro Cid (U. of Montevideo) Segundo Workshop sobre Economía del Medio Ambiente y la Energía UCA Buenos Aires Octubre 7 2019

  2. What do we do • Supermarket chain in Uruguay put a price on single-use plastic bags • Started in a city and rolled out the initiative to other cities between April 2018 and March 2019 • We estimate the effect of the price(s) on the quantity demanded.

  3. How do we do it • We use a difference-in-difference approach • Data: • Total number of single-use plastic bags delivered by month by all 90 branches • From April 2017 (12 months before first branches implemented the price) to March 2019, when all branches priced the bags • For 30 branches that priced the bags and 56 that do not (4 closed before April 2018)

  4. We find that… • Full experiment: • Price of $U2 (approx. US$ 0.07) in 27/90 branches: • Demand of single-use plastic bags decreased by 83% on average. • Approx. 63,590 plastic bags by branch by month • (95% Conf. Interval.: -75,200 (98%), -51,985 (67%)) • Price of $U3 (approx. US$ 0.1) 3/90 branches: • Demand of single-use plastic bags decreased by 84% on average. • Approx. 41,970 plastic bags by branch by month • (95% Conf. Interval.: -55,931 (112%), -28,014 (56%)) • Large

  5. Intervention context • City of Salto: • 105,000 inhabitants • second most populated city in Uruguay, behind Montevideo

  6. Intervention context • Industrial and Commercial Center of Saltostarted a campaign in 2017 to decrease the use of plastic bags in the city (“Somoslimpios, somosfelices”) • Main proposal: stores in town pricesingle-use plastic bags • + different communication strategies for promoting the reduction of the use of plastic bags • The Industrial and Commercial Centre of Salto proposed price of $U 2 (2 Uruguayan pesos; around 7 cents of US dollar), and “big bags” be charged $U 3 (around US$ 0.1)

  7. Interventioncontext • Municipal government adhere to the campaign • Pricing remain optional • Majority of stores in the city adopted the price • Adhered businesses started charging the bags in April 2 2018

  8. The roll out of the pricing initiative • For reasons unknown….: • April 2018: 3 branches in Salto ($U 2) • October 2018: +11 branches in +6 cities ($U 2)

  9. The roll out of the pricing initiative • December 2018: +3 branches in +2 cities ($U 3)

  10. The roll out of the pricing initiative • January 2019: +12 branches in +7 cities ($U 2)

  11. The roll out of the pricing initiative • February: +1 branch in +1 city ($U 2)

  12. Time line priceincreases April 2019: all supermarkets in Uruguay ($U 4)

  13. Time line quantities of bags

  14. Descriptive statistics

  15. Salto

  16. Salto • Table 1: Average number of bags delivered by treated and control branches, before and after pricing the bags • Difference in differences: -92.00 thousand bags per month • Statistically significant at 1% (standard error of 7.27) • 74% drop

  17. Salto • Critical assumption: parallel trends • Figure 2: Changes in the initial difference of bags delivered by month between control and treated branches Statistically different from zero in every month except two of the pre-treatment period.

  18. Salto • Basic specification: • number of bags delivered by branch ion month t. • Salto and Post are indicator variables for the branches located in the city of Salto and the period post-charge, respectively. • is our coefficient of interest. It is the estimate of the difference-in-difference effect of the charge. • is the error term, clustered by branch.

  19. Salto • OLS estimation of our basic equation • During the first six months: • decrease of 92.00 thousands plastic bags delivered by branch by month (95% Conf. Interval. -106.06, -78.10) • 104.67 if we include Branch FE, Month FE and Branch-specific time-trends • Demand for bags decreased 74% - 83%

  20. Difference-in-difference analysis • Synthetic control • Considerable difference between the average number of bags delivered by the treated and control stores • Appropriateness of control group may be argued. • For this reason, we repeat the analysis using a synthetic control. • The donor pool is comprised of the 87 branches in the control group. • The final synthetic control is comprised of 11 branches.

  21. Difference-in-difference analysis • Synthetic control • Average difference between treated branches and the synthetic control • in the pre-treatment period is 0.11 thousand bags per month. • In the post-treatment: -95.2 thousand bags. • Point estimation: -96.0 thousand bags per months (95% confidence interval: -107.3; -84.6) • Very similar to the diff-in-diff estimate when using the 87 branches outside Salto as a control.

  22. Full experiment • We estimate: • : month indicator • : branch indicator

  23. Regressions results

  24. Discussion of results • Large impact • Cannot rule out clients went to others stores, but • Way more tan 50% of stores in Salto (all supermarkets) price the bags • The supermarket chain started pricing the bags in other cities!!! • It was possibly profit increasing

  25. Literature - What have others found • Surprisingly scarce given • the number of regulatory initiatives on plastic bags • the scale of the problem

  26. Scale of the problem • 1 trillion plastic bags produced every year around the world (UNEP, 2018), although the site https://www.theworldcounts.com/ put this number in 5 trillion. • Those numbers make the annual average world consumption of plastic bags somewhere between 150 and 700 per person. • The environmental impacts of this consumption are significant • Ingestion (starvation) and choking of wildlife (Barnes et al, 2009) • particularly risky to sea turtles, as well as other 26 species of cetaceans (Moore, 2008) • Relevant environmental concentrations of micro-plastics affects behavior and growth of larval fish (Lönnstedt and Eklöv, 2016) • Also, accumulation of plastic bags and debris in shores may have considerable economic impacts in tourism and fishing (UNEP, 2014)

  27. Regulatory initiatives on plastic bags • Awareness of these impacts seems to have increased globally • Germany in 1991 and Denmark in 1994 appear to be the first to tax(Xanthos and Walker, 2017) • Bangladesh in 2002 appears to be the first country to ban(UNEP, 2018) • Ireland famous levy in 2002 (Convery et al, 2007) • South Africa in 2002, Botswana and Kenia levied bags in 2007 (Xanthos and Walker, 2007) • In North America • Canada • six municipalities banned plastic bags between 2007 and 2010. • Trudeau just announced ban for 2021 • US: Considering cities, counties and states, 156 norms regulating the use of disposable single-use carryout bags passed between 2007 and today. Of these, only 12 are levies (10 cities, Suffolk County, NY, and Washington DC). The rest are bans, some combined with a charge on paper bags.Therests are bans • Europe • Directive 215/270 requires member states to either • Cap 90 bags plastic carrier bags per person by 2019, 40 by 2025 • Charge bags • Or both

  28. Regulatory initiatives on plastic bags • South America • city of Buenos Aires established a charge for plastic bags at the end of 2012 (Jokovcevic et al, 2012) and later banned plastic bags in supermarkets in 2017. • Chile became the first Latin American country to ban plastic bags in supermarkets by law, since February 2019. • The above list of initiatives does not cover • voluntary agreements between governments and retailers to reduce plastic bags, • private company initiatives, • social awareness campaigns, • waste management systems improvements and • promotion of ecological alternatives.

  29. Literature - What have others found • Rigorous (i.e.: with a control group) evaluations of the impact of a levy on the actual quantity of plastic bags demanded are scarce • Homonoff (2018) • studies the impact of a US$ 0.05 levy on disposable paper and plasticbags in Montgomery County, USA • some stores had also a US$ 0.05 subsidy for each reusable bag that customers brought to the supermarket • Diff-in-diff • levy produced an average • decrease of 0.22 in # of disposable bags used per user per trip by bag users; a change of 8% (Intensive margin) • Decrease in % customers using >0 disposable plastic bags by 42% (extensive margin) • subsidy had virtually no effect

  30. Literature - What have others found • Homonoff et al (2018) • studied the effect of the US$ 0.07 tax on all disposable paper and plastic bags, • effective in the city of Chicago since February 1, 2017 • authors observed the number and type of bags used by 24,499 customers at large chain grocery stores inside the city of Chicago and outside (no tax), before and after the tax. (Diff-in-diff) • Results (the tax led to): • On the likelihood of using disposable bags: • a 27.7 percentage point reduction (p<0.001, 95% CI: -31.7, -23.7) (82% of consumers used a disposable bag before the tax) • 33% reduction in the first two months to 23.9% a year later • On the average number of disposable bags used per consumer • An average decrease of 0.51 bags (from 2.3 bags per trip) • 0.97 bags in early period to 0.19 (not statistically different from zero) a year later • Effects similar in low-income neighborhoods and high-income neighborhoods.

  31. Literature - What have others found • Jakovcevicet al (2014) • observed a sample of customers in supermarkets in the city of Buenos Aires and Great Buenos Aires, before and after the city of Buenos Aires implemented a charge on disposable plastic bags. • The charge in the city of Buenos Aires was implemented in two waves. • Charge: 0.25 US dollars for small bags and 0.4 US dollars for gig bags • Authors interviewed 457 customers in total in four points in time. • Authors classified interviewed customers in three categorical groups: (a) those using only plastic bags, (b) customers using only own reusable bags and (c) mixed customers. • They find that the charge steadily increase own bag use.

  32. Literature • Taylor and Villas-Boas (2016) • evaluate the impact of a ban on single-use plastic bags coupled with a mandatory charge US$ 0.05 on single-use paperor any other (e.g.: thick-plastic) reusable bag • Observe customers at retail stores in towns of California with and without the ban • they show that the ban have similar effects on the use of reusable bags as did the five-cent levy on disposable bags in Montgomery County • Taylor (2019), mostly bans of paper and plastic bags in California

  33. Our work • we evaluate the impact of a price on single-use plastic bag • is the only regulation • private pricing initiative • total bag consumption not on a sample of customers • all branches of a national supermarkets chain (discount) • Several waves • Two prices • similar amount of charge but Salto, Uruguay poorer Montgomery County, Maryland and Chicago

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