Policy instruments and consumption

Sustainable consumption has been identified as an important area for achieving several of Sweden's environmental goals and the overall generational goal. We need to increase our knowledge of what can steer society towards more sustainable consumption. The research should support authorities and decision-makers in this work and stimulate a transition to sustainable production and consumption systems.

The five research projects funded by the Swedish Environmental Protection Agency span a range of areas and explore different parts of consumption's environmental impact.

Production of food consumed in Sweden causes great environmental impact both in and outside Sweden. The purpose of this project has been to increase the knowledge of how a consumption tax on all food (both those domestically produced and imported) can be designed based on the climate impact of food and what effects such a tax would have. Unlike previous similar studies ­focusing only on animal products, this project extends the analysis to include all types of food. Reductions in greenhouse gas emissions and tax revenues to the state are calculated based on how the tax affects consumers’ demand for various foods. Further, the following effects of a climate tax on food are analyzed: 1) distributional effects, i.e. how the tax affects high- and low-income groups, 2) nutritional supply, 3) impact on the profitability of Swedish agricultural firms, and 4) other environmental effects. In addition, the project studied how income from the consumption tax can be used to counteract negative economic consequences of the tax on the agricultural sector, and further mitigation options.

The results show that a consumption tax on food that corresponds to the Swedish 2015 carbon dioxide tax (SEK 1.15 per kg CO2) and that includes all emissions from a life cycle perspective up to retail, would have the potential to reduce greenhouse gas emissions from food consumption by just over 10 percent. The price of average beef increases by 18 percent with such a tax, while the price of vegetables only increases by a few percent. If the tax only covers animal products, the emission reduction will be 8 percent. If only beef, which is the food product that causes by far the most greenhouse gas emissions per kg, is taxed in the same way, emissions will be reduced by about four percent. If the tax only covers emissions of methane and nitrous oxide in agriculture the reduction in emissions is also about four percent. A climate tax on all food products is regressive, i.e. low-income groups will pay a larger share of their income in food tax. Previous research has shown that a tax on only meat affects the middle class the most.

The changes in consumption that result from a climate tax on food also lead to reductions in the environmental impact in other environmental areas, which is above all an effect of the reduced consumption. The use of pasture also decrease. Depending on where the grazing takes place, i.e. on which types of land and in which region, it can have negative or positive consequences. In Sweden, a certain number of grazing animals is needed to conserve biodiversity rich semi-natural pastures. As it was not possible in this project to distinguish between meats from different places, it is unknown which type of grazing that would be affected by the reduction as a result of the tax, i.e. whether it is grazing on arable land, on grassland abroad or on semi-­natural pastures in Sweden or abroad. In order to handle a potential trade-off of a climate tax negatively affecting semi-natural pastures in Sweden, the payments to farmers for maintaining such lands could be increased with the introduction of a climate tax. There is currently no shortage of ruminants in Sweden for grazing semi-natural pastures, but many ruminants are raised in stables and/or graze arable land. 

A climate tax on food would generate revenues to the state of almost SEK 20 billion annually if all food is taxed including all emissions up to the retail, or SEK 12 billion with a tax targeting only methane and nitrous oxide emissions from agriculture. However, a climate tax on food has a negative impact on Swedish farmers’ incomes – they decrease by about five percent according to the modeling in this project. One way to counteract this negative effect on farmers’ incomes is to return part of the tax revenue to agriculture. An alternative to such refunding, which also entails large reductions in greenhouse gas emissions (in addition to the reductions that consumption changes lead to), is compensation for re-wetting peatlands. Other ways of returning some of the tax revenue to farmers would be to pay for the construction of wetlands to reduce leakage of nitrogen and phosphorus and increased payments for the management of semi-natural pastures.

Other important aspects in the design of a tax include legal and administrative consideration, as well as several aspects regarding the acceptance of the tax. In addition to the impact on the environment, agriculture and food production, other sustainability aspects include challenges related to the use of antibiotics and animal welfare. These aspects were not included in this project and thus need to be considered in future projects and studies on how policy aimed at steering food consumption should be designed. Other knowledge gaps include how consumers change within the food groups, e.g. the difference in the willingness to pay for Swedish meat from semi-natural pastures and imported beef.

Elin Röös, Swedish University of Agricultural Sciences

In order for nudging to be a valuable addition to the practitioner’s toolbox, it is necessary to understand how nudge works, what the pros and cons are, and how an evaluation should be done. This report provides an introduction for practitioners interested in applying nudge and behavioral economics to their work. Our review of previous studies of nudge shows many examples of successful nudge. These studies aim, in part, to provide an overview of the types of green nudges that have been evaluated, but also to provide inspiration for future work. However, we want to be careful about drawing far-­reaching conclusions about what works and what does not, as this depends on a ­variety of factors. We emphasize the value of evaluating. This is important not only for nudges, we believe it can be valuable for other interventions and policy instruments. Of course, there is always a trade-off between the cost and the benefit of an evaluation. But with smart approaches and a habit of taking into account a possible evaluation, we believe that much more can be done than today. Illustrating with three case studies, all of which have been done in Sweden, we show that it is possible to evaluate a nudge intervention, and we explain what worked well and what worked less well. The most important lessons are that a well-executed nudge requires planning and knowledge, and that many factors such as pressure on quick action and insufficient data can be difficult to manage. In most cases, practitioners should not be able to design, implement and evaluate a nudge without help. Instead, collaboration with experts in various organizations and universities is recommended. Hopefully, the report provides lessons on what is important for nudge design and evaluation.

Christina Gravert, University of Gothenburg

A linear economy creates a resource and environmental problem that differs in several ways from other environmental problems that are limited in their spatial scale. A linear economy is a societal problem because it arises due to several external effects and other market failures in several markets for e.g. raw material extraction, production, consumption, recycling and reuse which affect each other in a general equilibrium. In recent years, both practitioners and researchers have come up with proposals for policy instruments for the circular economy. However, policy analyses seen from a life-cycle perspective and general equilibrium conditions have so far received less attention in applied research literature.

The POLICIA project takes this as a starting point for developing an integrated model approach between circular economic (CE) models and life cycle analysis (LCA) that can be used to identify and analyze policy combinations to achieve goals or socially efficient solutions that involve a transition from linear to circular flows. The project has done this with a new interdisciplinary strategy that combines CE models with LCA. The research in POLICIA illustrates the importance of using system perspectives with general equilibrium models and LCA to steer towards circular flows. The results show that combinations of coordinated policy instruments are necessary to create the efficient conditions for a transition to a circular economy

Magnus Hennlock, Swedish Environmental Research Institute

Consumption is not the direct cause of deteriorating environmental quality and lost biodiversity, it is polluting emissions and destruction of habitats that are the cause. Therefore, economists recommend that policy instruments should be targeted directly at polluting emissions and habitat destruction rather than consumer goods: a tax per passenger may lead to fewer flights and lower emissions, but it does not give airlines an incentive to fly more fuel-efficiently or switch to emission-free technologies such as electric aircraft; an emission tax covers all of these bases. However, there are several reasons why we should, after all, link policy instruments and consumption, of which we focus on two. The first reason is that in many cases there are obstacles to pricing polluting emissions – for example, to tax emissions from international flights, agreements are required that have so far proved unattainable – and thus other instruments must be examined, including instruments specifically aimed at consumers. And the second reason is that there are problems specific to consumption decisions that need to be corrected. These problems, which are known as consumption externalities, arise when the consumer’s own benefit is affected by the fact that she sees what others are consuming, and by the fact that others see her consumption. If consumption of conspicuous goods gives status, consumption can be driven upwards in a zero-sum game without a winner, but with an innocent loser: the environment. We analyse policy instruments and consumption in these two cases, and draw four main conclusions:

1. A transition to clean technology is the most important mechanism for reducing emissions, and the best instrument for achieving such a transition is pricing of emissions through, for example, emissions taxes.
2. Consumption taxes do not provide incentives for such technology transitions, but in certain circumstances other instruments – for example, a ban on dirty technology choices – can achieve the same effect as pricing of emissions.
3. When a transition to clean technology is not feasible in the short run, consumption taxes in line with environmental damages can be a viable alternative to pricing emissions in order to reduce emissions in a socially efficient way.
4. If consumers’ choices of environmentally harmful products – for example passenger flights – are greatly influenced by social factors such as competition for status, much more powerful consumption-oriented instruments may be justified.

Rob Hart, Swedish University of Agricultural Sciences