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Bag Fees and Bag Bans in San Francisco: Assessing the Arguments

3 min readBy: I. Harry David

As we blogged last week, San Francisco’s city council passed an ordinance on February 7th to extend its ban on the use of plastic bags. In 2007, San Francisco became the first city to impose a partial ban on plastic bags on large grocery stores and pharmacies. The new ordinance extends the ban to apply to all retailers and restaurants.

The ordinance also mandates that retailers collect a fee of 10 cents for the bags that they are allowed to use, primarily made of paper. The fee will be collected and kept by the retailer.

Although both proponents and opponents have focused on the easily visible effects of the ordinance, the ordinance may have several unintended and hidden effects.

Proponents, including the director of the city’s Department of the Environment, argue that the ordinance will eliminate negative environmental impacts of plastic bags, claiming that the fee will remove bags that “clog the sewers and take up space in landfill[s].” Others have argued that similar ordinances have little environmental impact, noting that while plastic bag litter can be an eyesore, the manufacturing of plastic bags is in fact “greener” than the manufacturing of paper bags and Priuses.

Some proponents also argue that the ordinance has benign effects on jobs and growth by spurring production of reusable bags. Of course, this argument falls prey to the broken window fallacy, because as the reusable bag industry is artificially propped up by the ordinance and adds jobs, the plastic bag industry will be hurt by this ordinance and will lose jobs. On net, there is no stimulus to employment.

Even more interesting to note is the conflicted response of different retailer types to this ordinance. Shopkeepers and restaurateurs in Chinatown, The Tenderloin, and Richmond argue that the fee will drive their customers away. But a broad set of businesses support the ordinance. I conjecture that many of these businesses recognize that they may profit from it. The bag fee customers pay is 10 cents. If businesses can get bags for less than 10 cents, they would keep the difference.

But this government-aided profit engine will only hold if consumers continue to shop within the city. Further, if customers make fewer purchases, as businesses in the three districts listed above anticipate, the business will lose from the ordinance. Thus, the impact on businesses is far from uniform.

Other potential unanticipated consequences: Some customers may be led to switch from products that come in bags to products that don’t require bags. Thus, some customers may go out to eat instead of buying meals from the grocery store and carry-out restaurants. Second, the ordinances have already granted exemptions for large merchandise, but heavy merchandise will also be especially affected. To be more concrete, we might see that customers shift from whole crabs to packaged crab meat.

Bag taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es and bag bans thus work to benefit some at the expense of others, fail to accomplish their stated goals, and reduce the welfare of customers. These goals can be met by allowing businesses and customers to respond as they see fit instead of relying on “one-size-fits-all” tax policy.

If customers identify as environmentalists, they may be willing to compensate businesses for the cost of using reusable bags. If stores perceive there are cost reductions to be had from switching away from one-time use bags, they will move toward reusable products. There is already a budding industry around reusable bags and water bottles without the help of total bans.

More on bag taxes here.