[Feature: Sustainable Consumption] Sustainable Consumption from an Economic Perspective

2019/08/05

Our lives are a continuous series of consumption activities. This morning, you might have bought and drank a coffee on your way to work. On your way home yesterday, you might have stopped by a local supermarket to buy groceries. When you buy coffee, perhaps you ordered your usual favorite at your favorite coffee shop.

However, before that shop became your favorite, you probably did a little research. Based on a comprehensive judgment of taste, atmosphere, and price, you likely chose that shop because you felt your satisfaction would be higher there than at a rival chain (for example, because the price was slightly lower).

On the other hand, what did you buy at the supermarket? Suppose you went to the vegetable section wanting to eat boiled broccoli, but the broccoli was more expensive than you imagined. If it were me, I would immediately look at the asparagus, and if it were on sale (if I judged it not to be expensive), I would buy the asparagus instead. For me, broccoli and asparagus are almost the same as boiled vegetables, so I would choose the one with the relatively lower price. If the quality of what one consumes is constant, the difference in relative price compared to substitutes plays an important role in consumption decision-making.

Relative price is important information that regulates our behavior, but when looking at society as a whole, it is not necessarily a perfect indicator. This is because even if a market economy functions at its best, costs other than those borne by the seller are not reflected in the price. A representative problem is the emission of greenhouse gases such as CO2. Damage from natural disasters caused by climate change is spreading worldwide, but there are regions that are susceptible (such as developing countries and island nations) and those that are not, and this is unrelated to the scale of greenhouse gas emissions in each region. If it does not cause damage to themselves and there are no specific regulations, it appears irrelevant to companies. While it is desirable to pass on the social costs of CO2 emissions to prices, in corporate management that takes into account the intentions of global shareholders, bearing costs beyond legal compliance is not easy. This is called "market failure."

How can this failure be corrected? From a consumer's perspective, the first thing they would want is information. If identical products are sold at the same price and one has lower CO2 emissions, some consumers would be willing to buy it. Depending on the size of the difference in relative price, there may be cases where they buy it even if it is slightly more expensive. Information provision is particularly effective regarding energy efficiency during use, as it leads to a reduction in usage costs. Information is actively provided not only for automobiles but also for home appliances in the form of Energy Star and energy-saving labels. These movements are also spreading to the field of natural resources, such as sustainable forest management certification by the Forest Stewardship Council (FSC) and fishery certification by the Marine Stewardship Council (MSC), known as the "Blue Eco-Label."

This is being pushed forward by the global trend of ESG (Environmental, Social, and Governance) investment. In 2015, Japan's Government Pension Investment Fund (GPIF) signed the United Nations Principles for Responsible Investment (PRI). The PRI is a set of principles that advocates selecting investment targets according to ESG investment criteria. The California Public Employees' Retirement System (CalPERS), an influential institutional investor worldwide, has also signed the PRI, making it difficult for companies that do not consider "Environment, Social, and Governance"—including non-financial information—to receive investment. Furthermore, in 2017, the Tokyo Olympic Organizing Committee formulated the "Sustainable Sourcing Code," making it difficult for businesses with environmental risks or human rights issues to be involved in international events.

There is no doubt that providing information through eco-labels makes it easier for consumers to choose sustainable consumption. However, the design of information provision through labels needs to be approached carefully. According to one study, when fish in a supermarket were sold with eco-labels colored red, yellow, and blue in order of danger according to the status of resource conservation, sales of yellow fish decreased significantly, but no statistically significant change occurred in the sales of fish of other colors (Hallstein and Villa-Boas (2013), JEEM). Possible reasons for this include: (1) for consumers who refrained from buying yellow fish, blue fish were not a sufficient substitute (the relative price was too high to make a qualitative compromise), and (2) there were many consumers who already had knowledge about red and had no intention of buying it in the first place.

A topic that has attracted attention in recent years when considering sustainable consumption is the problem of waste plastic. It feels as though it suddenly gained attention around the time of the G7 Charlevoix Summit in Canada in 2018, but academically, a major trend had begun around 2014 with authoritative academic journals sounding the alarm on issues such as microplastics and marine debris (Eriksen et al. (2014), PLoS ONE; Jambeck et al. (2015), Science, etc.). The trigger for increased social interest was likely the EU's successive introduction of policies for resource efficiency and the circular economy from around 2015. Positioning resource circulation and recycling policies not just as environmental policies but as economic policies was a breakthrough. Around the same time, "The New Plastics Economy" was published by the Ellen MacArthur Foundation, and as estimates that there would be more waste plastic than fish in the sea by 2050 spread through the 2016 Davos Forum and other venues, public opinion surged all at once.

In the study by Jambeck et al. mentioned above, the amount of plastic waste flowing into the ocean is aggregated by country, and the top four countries are China, Indonesia, the Philippines, and Vietnam—all Asian countries. Japan is ranked 30th, and its outflow is a fraction of China's, but considering that large amounts of waste plastic are exported from Japan to Asian countries, it is not someone else's problem. In fact, according to the United Nations Environment Programme (UNEP) report "Single-use Plastics," Japan's per capita waste plastic generation is second only to the United States, placing it in a position of great responsibility for the world's plastic waste. Microplastics have already been detected not only in fish but also in the human body, and urgent action is required to ensure that rich oceans are passed on to the next generation. Consequently, Japan formulated the "Resource Circulation Strategy for Plastics" in May 2019. This is based on the principle of "3R + Renewable," and milestones were set, including a 25% reduction in single-use plastic emissions by 2030.

Hints for achieving this globally ambitious milestone can be found in the aforementioned UNEP report. The report estimates that, on a global scale, about 50% of plastic waste in 2015 was containers and packaging, including plastic bags. One of the cores of the plastic waste problem is containers and packaging, and it cannot be solved without suppressing the generation of containers and packaging. In other words, our daily consumption holds the key to the solution. While there are aspects where it is difficult for consumers to choose products with excessive packaging, options are steadily increasing. Furthermore, regarding the charging for plastic bags, the Minister of the Environment has stated that the government aims to make it mandatory before the Tokyo Olympics. Charging for plastic bags is a means of suppressing generation through a typical change in relative price, and a reduction can certainly be expected compared to when they are distributed for free.

However, there are points to be cautious about. One is to ensure that excessive consumption of eco-bags does not occur along with the charging for plastic bags. Since general eco-bags are thicker than plastic bags, it is said that the substitution effect with plastic bags does not appear unless they are used about 100 times. The casual distribution of eco-bags (especially those made of plastic) at events and the like should be avoided. Another point is to confirm whether charging for plastic bags is truly leading to a reduction in plastic use. There is a study showing that when plastic bags were charged for in some areas of California, while the consumption of plastic bags themselves decreased, the purchase of trash bags increased (Taylor (2019), JEEM). This was the result of consumers who had originally used plastic bags as trash bags seeking substitutes and purchasing thicker trash bags, and it is reported that this offset a significant portion of the reduction in plastic bags.

Since the end of 2017, China has fundamentally banned the import of waste plastic. Japan, which had been exporting about 1.3 million tons of waste plastic to China annually, fell into great turmoil, at least in the short term. Because the exported waste plastic was low-grade mixed plastic that was difficult to recycle, I hear there are cases where it is piled up in yards because no processing destination can be found.

How to increase domestic processing capacity and demand for recycled materials in Japan is a challenge for the future, but at the same time, it is an opportunity to review the way waste plastic recycling has been handled. It is difficult to create high-value-added recycled materials from items collected as low-grade mixed plastics, and the yield is poor because a lot of residue is produced. Until now, we could rely on China as a "last resort" that accepted them at a relatively lower price than separate collection, but from now on, while proceeding with generation suppression, careful sorting further upstream will be important, even if it costs more. To achieve this, consumers are required to carry out daily consumption activities without forgetting the perspective of sustainable consumption, and accurate provision of product information that supports those choices is required.