Background
1. In
June 2009 the Welsh Assembly Government consulted
on the policy of introducing a charge on single-use carrier bags
(SUCBs), considered in this Impact Assessment (IA) as Policy Option
2. A second consultation was undertaken between June and August
2010, to gather views on the draft Single Use Carrier Bags Charge
(Wales) Regulations 2010. The responses to the second
consultation have thus been considered in the main body of this
updated enactment-stage IA.
2. The
main objective of introducing a charge is to substantially
reduce the number of single-use
carrier bags (including paper and plastic bags) produced and
consumed annually in Wales, beyond the levels already achieved
through voluntary action undertaken by participating retailers.
This is consistent with the vision set out in ‘One Wales: One
Planet’ of a sustainable Wales that lives within
environmental limits and uses only its fair share of the
earth’s resources.
3.
The voluntary agreement
currently in place encompasses seven participating retailers and
achieved a reduction in SUCBs given out in Wales of 49% between
2006 and 2009. However, there is still an estimated 445 million
SUCBs consumed each year in Wales, with an estimated
ongoing cost to the environment – through production
emissions and improper waste disposal – valued at around
£31 million per annum. Policy action is therefore required,
and is outlined in this Impact Assessment, since the ongoing cost
to the environment of ‘doing nothing’ is deemed too
high to be sustainable over the longer term. The policy thus aims
to substantially reduce this ongoing ‘social
cost’.
Purpose
and Intended Effect
4.
The objective of the policy is
to:
·
encourage consumers to adapt
their behaviour towards
achieving a more sustainable level of consumption, both in
SUCB usage and indirectly through altering attitudes towards waste
in other areas of daily life;
·
cut down on the wasteful use of
resources in producing single-use bags;
·
improve the quality of the
local environment by reducing the highly visible litter created
from single-use bags; and
·
encourage waste reduction and
prevention.
5.
It is proposed that the charge
will be introduced through regulations made under the powers
provided in schedule 6 of the Climate Change Act 2008, to apply a
charge to single-use carrier bags.
6. The charge
will apply to all those who sell goods in the course of trade or
business to customers in Wales, including: supermarkets; high
street retailers; small businesses; market stalls; internet grocery
deliveries; and those that provide a service and also sell goods
(e.g. a hairdressing salon which also sells hair products).
7.
A description of bags to be
covered by the proposed charge is contained at Annex 2, along with
detailed exemptions from and rules for the application of the
charge.
Rationale for
Government Intervention
8.
The rationale for Government
intervention is represented by the ongoing ‘social
cost’ of producing single-use carrier bags
(SUCBs).
9.
The production of SUCBs imposes
an external cost on society (estimated at 7p per bag), both through
the emissions created during the production process and through the
improper disposal of the bags. The cost to society could
effectively be higher, since the damage to marine- and wild-life
and the aesthetical cost to society of improper disposal could not
be quantified.
10. Government intervention is necessary since the
cost imposed on society of the production of SUCBs is not captured
by the ‘private cost’ of each bag (estimated at around
2p), i.e. the price at which they are purchased by retailers. For
the purpose of this IA it is assumed that the private cost of each
SUCB is passed on by retailers to consumers through the price of
their shopping.
11. The marginal (additional) cost of purchasing each
bag therefore does not reflect the true cost to society of
producing each bag. This is said to create a ‘negative
externality’ – essentially an unfavourable
side-effect – which
Government intervention thus aims to correct through
internalising the social cost,
i.e. imposing a charge at point of sale to ensure those consumers
who choose to purchase SUCBs are paying the full cost to society of
their action.
Policy
Options
12. Four policy options have been considered in this
IA, in order to evaluate whether the introduction of a charge is
the best approach to achieving the objective of a lower, more
sustainable level of consumption of SUCBs in Wales. The Options are
as follows:
·
Option 1: No intervention (‘do
nothing’);
·
Option 2: Introduction of a charge on all single-use
carrier bags (with some exemptions);
·
Option 3: Introduction of a ban on all single-use
carrier bags (with some exemptions);
·
Option 4: Extension of the existing voluntary agreement
to encompass more retailers.
13.The net present value
(NPV) of each policy option represents the stream of costs and
benefits over a 15-year period, and is appraised relative to a
‘do-nothing’ option (Option 1) which acts as a
reference point for comparison. Doing nothing is not preferable
since this option generates an ongoing cost to society related to
the number of SUCBs still being consumed annually in Wales.
The preferred option (Option 2)
is the introduction of a charge on all single-use bags, with some
exemptions, since this option generates the highest benefit to
society in terms of NPV over a 15-year period.
14. The four options are outlined below, with further
analysis of each presented in the subsequent section of the
evidence base.
Option 1: ‘Do Nothing’
15. Option 1 was evaluated as the reference case, and
involves a ‘do nothing’ approach, whereby the current
voluntary agreement encompassing 7 major retailers continues with
no further intervention from Government. This option has already
achieved a 49% reduction in SUCBs in Wales between 2006 and 2009,
through a combination of removing bags from view at till-points and
charging for SUCBs (1 out of 7 of the retailers imposed a
charge).
16. However, this option still generates a consumption
level of around 445 million SUCBs per annum in Wales (330 million
plastic and 115 million paper), with an ongoing cost to society of
an estimated £31 million per annum. It is anticipated that
without further intervention this level of consumption is unlikely
to fall substantially further.
17. The NPV of Option 1 is estimated to be around
-£390 million and is the baseline cost to which
all other options have been compared. This figure represents an
overall net cost to society, since each bag has a
‘social cost’ attached to it (i.e. production and
disposal of the bags creates negative environmental
effects).
Option 2: Charge
18. Option 2 involves the introduction of a charge on
all single-use carrier bags, both paper and plastic (with
some exemptions – see Annex 2). Paper bags are included in
the charge since they have an even higher detrimental impact on the
environment than plastic bags. Although sometimes made from
recycled materials – as is now the case for many plastic
SUCBs – the emissions generated from the production and
transportation processes are estimated to be much higher than for
plastic bags. Paper bags are also less durable than plastic bags
and are therefore more likely to only be suitable for single
use.
19. Introducing a charge is intended to create a
disincentive for use and therefore aims to reduce the number of
SUCBs consumed annually. This would hence create a net benefit to
the environment, through the reduction in both production emissions
from, and waste disposal of, single-use carrier bags.
20. A charge on SUCBs was put forward in the second
consultation as the preferred policy option since it was estimated
to generate the highest net benefit to society, relative to the
‘do nothing’ option; the recommended level of charge
was based on the estimated social cost per SUCB, of 7p. Following
consultation, and consideration of all the available information ,
the charge has been revised to 5p per SUCB. The cost-benefit
analysis in this IA has thus been re-worked since the
‘Final’ (Consultation) stage IA to incorporate a 5p
charge per SUCB being implemented rather than a 7p
charge.
21. It should be noted that this policy is highly
experimental and there are many uncertainties surrounding the
assumptions used in this analysis. Hence, there is scope to raise
the charge at a later date should the policy fail to reduce demand
for SUCBs to a more sustainable level; or, indeed, to lower the
charge should demand fall significantly.
22. The NPV of Option 2 depends upon the level of the
charge introduced: under a 7p charge the NPV is estimated to
be -£180 million (an additional benefit of £210
million compared with doing nothing) and is based on a reduction in
SUCBs of around 70% (or 300 million); under a 5p charge the
NPV is estimated to be around -£260 million,
which is a benefit of £130 million in addition to
the reference case (i.e. -£390m + £130m =
-£260m) and is based on a reduction in SUCBs of around 59% (or
260 million). The NPV is still negative in both cases, representing
an overall net cost to society; this reflects the fact that a
charge of either 5p or 7p is lower than the estimated optimal level
required to completely eliminate the cost to society of producing
SUCBs. It is estimated that a charge set somewhere between 10p and
15p could potentially eliminate this cost.
23. The Welsh Assembly Government does not currently
have the powers to determine where the net proceeds of a charge are
directed. The Assembly Government has proposed the
development of a voluntary agreement with retailers regarding the
use to which the net receipts from a charge will be put.
Under such a voluntary agreement, retailers will manage the
collection of the charge and its distribution, having accounted for
reasonable costs. The net receipts would then be passed from
retailers directly to charities, environmental or other
projects. The definition of
‘reasonable’ costs was a key issue in the consultation
responses and is discussed later in this IA.
Option 3: Ban
24. Option 3 involves a ban on all single-use carrier
bags (applying the same exemptions as set out for Option 2,
outlined at Annex 2), such that it would be an offence to either
produce or sell such bags under this option. Option 3 could
therefore eliminate the estimated 445 million SUCBs currently
consumed per annum in Wales, thereby removing the ongoing social
cost associated with single-use carrier bags.
25. This option would result in a net environmental
benefit through the reduced production of SUCBs. The NPV of Option
3 is estimated to be around -£310 million,
which is a benefit of £80 million relative to the reference
case. This is based on the total elimination of the estimated
445 million SUCBs currently consumed per annum. Although a
substantial environmental benefit would arise from eliminating
single-use carrier bags, it is anticipated that an outright ban on
SUCBs would result in a considerable increase in the number of
bags-for-life consumed annually. Hence, this increase would
generate a cost to the environment which is estimated to offset
much of the environmental benefit gained from the reduction in
SUCBs.
26. There was some support for a ban on SUCBs in the
consultation responses, with the potential environmental benefit
highlighted as a fundamental factor. Several responses considered
that the figure quoted in the previous ‘Final’
(Consultation) stage IA did not fully reflect the true potential
value of the environmental benefit arising from a ban. However, our
best estimate was based on analysis of the social cost per SUCB
which included an assessment of the environmental impact per bag.
Whilst there exists a degree of uncertainty relating to the
valuation of environmental effects, we feel the analysis gives a
good representation of the social impacts per bag. Furthermore, it
should be noted that the net environmental benefit arising from a
ban also takes into consideration the increased environmental cost
arising from the relative increase in bags-for-life following a ban
on SUCBs.
27. A further key benefit highlighted by the
consultation was the elimination of administration costs for
retailers which would arise under a charge. However, for the
purpose of analysis this would not be an additional monetary
benefit relative to doing nothing, since retailers are not
currently required to record the number of SUCBs given out to
customers. Additional responses to the consultation indicated a ban
would be clearer and simpler to understand, since there would be no
need for a list of exemptions that could be open to
interpretation.
Option 4: Extended Voluntary Agreement
28. Option 4 involves extending the current voluntary
agreement through Government intervention, to encompass a greater
number of retailers. The objective of Option 4 is thus to encourage
a further reduction from the reference case in the number of SUCBs
consumed annually. For the purpose of analysis, this additional
reduction is estimated to be around 18% relative to the reference
case (i.e. 445 million reduced by 18%); this is based on a similar
achievement in Australia through an extended voluntary agreement to
reduce the number of single-use bags consumed, although the precise
extent to which retailers participated is not known.
29. Given that under the existing voluntary agreement
the seven participating retailers hold around 75% of the market
share of food retailers in the UK, it is thus assumed
that around a third (or 30%) of the remaining retailers would
participate in an extended voluntary agreement. However, since
there is no data available on potential participation rates this
figure could ultimately be higher or, indeed, lower. For the
purpose of this analysis it is also assumed that all participating
retailers would voluntarily charge 5p per bag; although, in reality
retailers might choose to reduce SUCB consumption using means other
than a charge (e.g. removing SUCBs from view at
till-points).
30. This option could also generate a net
environmental benefit, albeit the lowest net nominal benefit of all
the policy options. The NPV of Option 4 is thus estimated to be
around -£370 million, which is a benefit of
£20 million relative to the reference case and is based on
a reduction in SUCBs of around 80 million.
31. Responses to the second consultation indicated
that this option would be preferable to a charge since a majority
of retailers feel that an extended voluntary agreement could
achieve an additional reduction in SUCBs far greater to that
outlined in this analysis. However, further evidence would be
needed in order to quantify any additional benefit arising from
this option, since the only robust evidence available is that of
the 49% reduction already achieved by 2009 under the existing
voluntary agreement. Although there is some evidence available from
specific retailers regarding reductions achieved through their own
voluntary agreements, broader evidence of such schemes is needed in
order to undertake analysis which is fully representative of the
consumer base in Wales.
32. For illustrative purposes, if Option 4 were able
to reduce SUCB demand by a further 50% relative to the baseline
(i.e. 445 million reduced by 50%, to 223 million) it is estimated
that, provided 50% of remaining retailers took part and all
voluntarily charged 5p per bag, this could create an additional
benefit of around £50 million relative to the original
estimated NPV, giving a new overall NPV of -£320 million. If
participating retailers only charged 1p per SUCB on this voluntary
basis the additional benefit relative to the original NPV would be
smaller at around £10 million, generating an overall NPV of an
estimated -£360 million. These adjusted NPV figures also
account for the anticipated relative increase in bags-for-life that
would arise under this option.
33.
A
description of the assumptions used in the calculation of the costs
and benefits for each policy option is included at Annex
3.
Calculation of
Costs and Benefits
34.The four policy options are
evaluated in terms of the net present value of the stream of costs
and benefits resulting from each, over a 15-year period. There are
four main categories estimated to be affected by the introduction
of each policy option:
·
Consumers
·
Retailers
·
Environment
·
Government
For each policy option, both
consumers and the environment incur annual costs and receive annual
benefits, resulting in an overall annual net benefit (relative to
doing nothing) in each case. One-off costs arise for both retailers
and the Government under Option 2, as do annual costs. The
Government is estimated to incur one-off and annual costs under
Option 3, whereas retailers are likely to incur zero or minimal
costs under this option. Assuming all participating retailers
impose a charge under Option 4, retailers are estimated to incur
both one-off costs and annual costs under this option, whereas the
Government does not incur any costs under Option 4.
Cost to
Consumers
35. The aim of a charge is to bring about a change in
consumer behaviour and
to encourage people to use re-usable alternatives wherever
possible; hence, this policy should not be seen as intentionally or
unjustifiably impacting on lower- or fixed-income groups. Some
consultation responses suggested that it is unfair to imply that
this policy will affect lower-income groups more than others.
Indeed, those people who are still willing to pay the charge in
order to receive SUCBs are more likely to be those who can afford
to do so.
36.The annual cost to the consumer
of introducing a charge (Option 2) results from the inconvenience
caused by switching to bags-for-life
(BfL), i.e. in having to bring the bags on each shopping trip. This
inconvenience arises for those consumers not willing to pay the
charge. Assuming consumers are perfectly rational, those not
willing to pay the charge will use alternative bag types such as
BfL – thereby incurring this inconvenience.
37.The total cost to consumers
under Option 2 can therefore be estimated by the fall in demand for
SUCBs following a charge (i.e. the convenience lost from the
reduction in SUCB usage), multiplied by the price of a SUCB
following a charge. For a charge of 5p per SUCB it is estimated
there would be a fall of around 260 million SUCBs. This sum is then
divided by two, since this is estimated to be approximately equal
to the area under the demand curve for SUCBs. The total cost of
this inconvenience to all consumers in Wales is estimated to equate
to around £6.5 million per annum ([£0.05 x 260m] /
2).
38.The same method is used in
calculating the cost to the consumer of both a ban on SUCBs (around
£4.5 million per annum with a fall in SUCBs of 445m) and an
extended voluntary agreement (around £0.5 million per annum
with a fall in SUCBs of 80m). Whereas for Options 2 and 4 the price
of a SUCB would equate to the level of charge per
bag,
under the ban the ‘price’ of a SUCB would equate to the
‘private cost’ of each bag (estimated at
2p).
39.The private cost per bag is
assumed to be a ‘hidden’ cost charged by retailers and
included in the price of shopping. This is assumed to be a cost
already incurred by the consumer under the ‘do nothing’
option. For the purpose of this IA it is assumed that retailers
would lower their general prices under a ban on SUCBs, since
they would no longer incur the cost of purchasing the bags.
However, in reality this is not likely to be the case and consumers
would therefore carry on paying for a good they are no longer able
to receive.
40.The wholesale cost of a SUCB is
not included under the definition of ‘reasonable costs’
which can be deducted from the gross proceeds of a charge. It is
assumed that the wholesale cost of SUCBs is, and will continue to
be, a cost which retailers pass on to consumers through the price
of their shopping. Responses to the second consultation indicated
that several retailers consider SUCBs to be a ‘free’
reward to customers in return for using their services. However,
retailers are profit-making businesses and it is therefore deemed
appropriate to assume for the purpose of this IA that the cost of
SUCBs is somehow passed on to the consumer.
Benefit to
Consumers
41.The annual benefit to the
consumer of introducing a charge arises from the transfer of
consumption, from 14 SUCBs towards one BfL. This transfer is based
on the assumption used in a report by the Environment
Agency
on the life-cycle of supermarket carrier bags. The report indicates
that in order to carry one month’s shopping (483 items) from
the supermarket to the home (UK level, 2006/07), 82 SUCBs are
required; hence, around 985 SUCBs are used per household, per annum
(the same assumption has thus been applied to Wales, for
simplicity). This compares with an average requirement of around 70
bags-for-life – consisting of LDPE bags, non-woven PP bags,
and cotton bags – such that one BfL equates to 14 SUCBs, i.e.
985/70 = 14). The benefit to the consumer of this transfer is the
difference between the price they would have paid for 14 SUCBs
following the introduction of a 5p charge (i.e. £0.70), minus
the price they actually pay for one BfL (£0.16 – see
paragraph 163) if they are not
willing to pay the charge. The total benefit to consumers is
therefore the individual gain multiplied by the increase in the
number of BfL demanded (around 24 million) under a charge; this is
estimated to equate to around £14 million in total, per
annum.
42.Under Option 3 (ban), the same
method is used for calculating the benefit to consumers, i.e. the
difference between willingness to pay for 14 SUCBs and willingness
to pay for one BfL; this is estimated to amount to around £5
million in total, per annum. Consumers’ willingness to pay
for a SUCB under a ban is assumed to equate to the private cost per
bag (estimated at 2p) which would have been priced into their
shopping in the reference case (see paragraph 39).
Benefit to the
Environment
43.The net environmental benefit is
calculated by taking the social cost of producing 445 million SUCBs
and 14 million BfL in the reference case, and comparing this with
the social cost of production of both following the introduction of
each policy option.
44.The net environmental benefit is
estimated to be highest under Option 3 (a ban). Although the social
cost of producing BfL is highest under this option – since
the increase in BfL demand is estimated to be substantially higher
than under Options 2 or 4 – there is a relatively large
environmental benefit from eliminating the social cost of
production of SUCBs, thereby increasing the net benefit.
45.There are also aesthetical
benefits to the environment from reduced plastic bag litter, which
could not be quantified at this stage. A description of the
calculation of the social cost of production of both SUCBs and BfL
can be found at Annex 3.
Cost to
Retailers
46.One-off costs to retailers arise
with the introduction of a charge under both Options 2 and 4
(assuming that Option 4 involves voluntarily imposing a charge on
SUCBs). These set-up costs involve altering till-points to process
the charge (estimated at around £1 million in total for the
retail sector) and to ensure the number of bags sold with each
purchase is itemised on receipts. Annual costs arise from having to
administer the charge (estimated at around £0.9 million for
the retail sector); i.e. to record and publish the number of SUCBs
sold per annum (further detail of administration costs is provided
at Annex 2). However, reasonable administration costs associated
with processing the charge can be deducted from the gross proceeds,
with the intention of making the charge cost-neutral to
retailers.
47.The cost to retailers is assumed
to be lower under Option 4 than Option 2, since fewer retailers are
assumed to participate under Option 4. Option 3 may involve minimal
one-off costs to some retailers in terms of amending till-points to
account for offering an alternative to SUCBs. However, since many
retailers already offer alternatives, the cost to retailers is
estimated to be far lower than for Options 2 and 4 (i.e. is
estimated to round down to zero).
48.Responses to the second
consultation indicated that a charge might impose additional costs
on small businesses and on Quick Service Restaurants (QSRs). Since
many items in QSRs or in greetings card shops, for instance, are
priced at £0.99 or £1.99 a charge on SUCBs could take the
price of a purchase over the next one-pound mark, substantially
increasing the amount of change a customer would require if paying
in cash. This could generate additional costs to business in terms
of handling cash, staff time taken to process transactions and an
increase in bank transactions. However, payments by credit or debit
card are becoming more prevalent and it is anticipated that this
could therefore minimise such impacts on businesses.
49.Additional security costs might
also arise to retailers from the increased risk of theft that could
be associated with the policy. For example, a purchase is usually
verified by ensuring that the good is placed in a store
carrier-bag; if a bag is not used it could create uncertainty as to
whether goods have actually been purchased. There was some concern
that this would place disproportionately high costs upon smaller
retailers who cannot necessarily afford to improve their security.
On the other hand, it is anticipated that larger firms are likely
to incur a higher incidence of theft overall, since they have
higher volumes of both consumers and produce. It has not been
possible to quantify such impacts at this stage since further
information or evidence is required from retailers in order to do
so. This could be obtained, for instance, when undertaking the Post
Implementation Review following the introduction of a
charge.
50.The second consultation
indicated there is some concern that the policy could impact upon
impulse purchases if consumers are not willing to pay the charge
and do not have an alternative carrier bag with them. However, the
policy is designed to encourage a fundamental change in consumer
behaviour, with the intention of making people more aware of the
need to re-use carrier bags and to carry them whenever possible. It
is not anticipated that an additional 5p on the total cost of a
purchase would substantially affect impulse buying, even in the
case of low-cost goods. However, more evidence and research on
impulse purchasing is needed in order to quantify this potential
impact.
51.Since the total potential costs
to retailers of a charge could not be fully quantified at this
stage, the costs outlined in the IA could underestimate the true
value to retailers on a per annum basis. However, although the
impact of additional costs will vary between firms, it is not
anticipated that the non-quantified costs outlined above will be
substantial as to have a significant impact on the overall annual
cost to retailers.
Cost to
Government
52.The Government is estimated to
incur both one-off and annual costs under Options 2 and 3 (i.e. the
introduction of a charge or a ban), with costs assumed to be the
same or similar under each policy. It is assumed Option 4 does not
involve any costs to Government.
53.One-off costs of an estimated
£0.4m arise from communicating / advertising the introduction
of a charge, and £0.18m for introducing the legislation.
Preparatory work on enforcement is estimated to cost up to
£0.33m, with ongoing (annual) costs of around £0.45m
assumed to arise from enforcing a charge thereafter (based on a
complaint-led enforcement regime). Ongoing management within WAG is
estimated to cost £0.18m per annum.
Costs and Benefits by Policy
Option
54.Table 1.0 sets out the estimated
total costs and benefits arising under each policy option for each
of the categories listed previously (Consumers, Environment,
Retailers and Government), and using four different levels of
charge under Option 2 for comparison. Options 1, 3 and 4 would
produce the same outcomes regardless of the level of charge
introduced under Option 2.
55.The lowest level of charge
considered under Option 2 was 5p and the highest 15p; this range
was based on responses to the first consultation
process, which
indicated that a majority would find it appropriate to apply a
charge of between 5p and 15p per SUCB. Further consideration of the
recommended level of charge to be introduced under Option 2 is
outlined in the subsequent section.
Table
1.0 Estimated Costs and
Benefits by Policy Option
|
Costs and Benefits
(£ million)
|
CONSUMERS
|
ENVIRON-MENT
|
RETAILERS
|
GOVERNMENT
|
NPV £ million
|
|
Benefit
|
Cost
|
Net Benefit
|
One-off costs
|
Annual Costs
|
One-off costs
|
Annual Costs
|
|
Option 1:
‘Do Nothing’
|
0.0
|
0.0
|
-31.0
|
0.0
|
0.0
|
0.0
|
0.0
|
-390.0
|
|
Option 2:
5p Charge
|
14.0
|
7.0
|
4.0
|
1.0
|
1.0
|
1.0
|
1.0
|
-260.0
|
|
Option 3: Ban SUCBs
|
5.0
|
4.0
|
6.0
|
0.0
|
0.0
|
1.0
|
1.0
|
-310.0
|
|
Option 4: Voluntary Agreement
|
1.0
|
1.0
|
1.0
|
1.0
|
1.0
|
0.0
|
0.0
|
-370.0
|
|
Alternative Charge Levels Under
Option 2
|
|
7p
|
24.0
|
11.0
|
4.0
|
1.0
|
1.0
|
1.0
|
1.0
|
-180.0
|
|
10p
|
44.0
|
19.0
|
5.0
|
1.0
|
1.0
|
1.0
|
1.0
|
-20.0
|
|
15p
|
75.0
|
31.0
|
6.0
|
1.0
|
1.0
|
1.0
|
1.0
|
230.0
|
Note: All
figures are rounded to the nearest £1 million; costs to
Retailers under Option 4 are rounded up to £1 million for
indicative purposes (i.e. would round down to zero). NPVs are
rounded to the nearest £10 million.
56.The assumptions used in the
calculations in Table 1.0 are outlined at Annex 3. Overall a net
benefit arises for both Consumers and the Environment under each of
the policy options 2, 3 and 4. Therefore, undertaking any
policy action is estimated to make both Consumers and the
Environment better off, relative to the ‘do nothing’
option.
57.However, the NPV represents the
present value of the stream of costs and benefits over a 15-year
period, for each policy option; hence, the higher the NPV, the
better the expected outcome of the policy option. Each NPV is
calculated relative to the reference case, i.e. Option 2 creates an
additional benefit of £130 million, relative to the -£390
million baseline NPV under Option 1, resulting in a negative NPV
for Option 2 of £260 million. Option 3, for example, would
create a benefit to society of £80 million, but would result
overall in an ongoing cost to society of approximately £310
million (-£390 + £80 = -£310).
58.It should thus be noted that
Options 3 and 4 are estimated to result in an ongoing cost to
society. Table 1.0 indicates that Option 2 might also result in an
ongoing cost to society should the level of charge per bag amount
to 10p or below; however, a level of charge in the range of 10p to
15p per bag is estimated to produce an overall benefit to
society.
59.Regardless of the level of
charge introduced under Option 2, Table 1.0 indicates that Options
3 and 4 generate the lowest relative NPVs. Option 2 is thus
preferable since it is estimated to produce the highest additional
benefit relative to the reference case.
60.
The
recommended level of charge to be introduced under Option 2 is
outlined in detail in the following section.
Recommended
Level of Charge on Single-Use Bags
Responses to the Consultation
Process
61. The first consultation
process (see Reference 8) highlighted the incidence of two
retailers having achieved around an 85% reduction in SUCB usage
through applying a 5p charge to each single-use bag; others had
also achieved reductions through similar charges.
62. However, on balance
this data should not be seen as representative for Wales as a
whole, since the retailers in question do not represent the average
consumer base. For instance, one of the retailers tends to have a
clientele from higher income groups who may be more environmentally
conscious so as to reduce their consumption of SUCBs, but at the
same time could afford to purchase more bags for life which could
potentially offset this reduction. If there is a substantial
increase in the level of production of BfL (i.e. above that which
is used in the calculations for this IA) and this is sustained over
the longer term, it could have a detrimental effect on the
environment since the social cost of producing a BfL is estimated
to be much higher than that of a SUCB.
63.The responses to the first
consultation also indicated that a majority would find a charge per
bag of between 5p and 15p preferable, with the lower end of the
range proving the most popular. However, in attempting to achieve a
reduction in the level of SUCBs consumed annually in Wales, a
charge is intended to challenge consumers’ willingness to pay
for each SUCB. The preferable response to a 5p charge suggests,
therefore, that this would be too low to prevent consumers from
purchasing SUCBs. It was therefore originally proposed that the
minimum level of charge should be 7p per SUCB, based on the
estimated social cost per bag. This level of charge formed the
basis for the second consultation, in 2010.
64.However, responses to the second
consultation indicated that the majority of retailers would
recommend a charge per bag of 5p or lower, based on a desire
to secure a positive response from consumers to the charge and
existing evidence of charging. A level of charge of 7p –
based on the estimated social cost per SUCB – was seen to be
impracticable and ‘odd’, with either 5p or 10p being
preferable.
65.According to the consultation
responses, there is a general view that a level of charge which is
too high could generate a negative reaction to the policy
altogether, and that gentle encouragement to adapt towards more
sustainable behaviour is more likely to be effective in the first
instance. A lower charge of 5p was therefore suggested, since this
level is seen to be less of a ‘punishment’ to consumers
(than a 7p charge) for needing a bag.
66.There was also some concern that
several bags-for-life are offered for sale in Wales at 5p per bag;
if the price of a SUCB were set higher than the price of a BfL this
could simply encourage consumers to use BfL as a substitute for
SUCBs and to throw them away after only one use. As outlined at
Annex 3 the social cost of a BfL is estimated to be much higher
than that of a SUCB; hence, if bags-for-life were simply to be
substituted for SUCBs this could generate a greater environmental
cost and would therefore reduce the net environmental benefit
arising under Option 2. This would place downward pressure on the
overall NPV of Option 2 and could make it a less desirable option
overall.
67.There is, however, a difficult
balance to strike in setting a level of charge, with the need to
both fulfil the objectives of the policy whilst at the same time
attempting to ‘nudge’ people towards re-usable
alternatives to SUCBs. While economic theory suggests that in order
to correct for an externality the ‘external’ costs of a
good should be ‘internalised’ – i.e. in this
case, the consumer should pay the full ‘cost’ to
society should they choose to consume a SUCB – many
uncertainties still persist at this stage; other important factors
have thus been considered in setting the minimum level of
charge.
Internalising the Social Cost
per Bag
68.The social cost of producing a
single-use bag should be evaluated in assessing the level of charge
required. The policy aims to reduce the ongoing cost to society of
producing the 445 million SUCBs currently consumed annually in
Wales. Therefore, the charge should be set at a level which
‘internalises’ the social cost of consuming a
single-use bag.
69.The estimated social cost of
producing each single-use bag is 7p: this consists of the emissions
created in the production of each bag, and the disposal costs
associated with the consumption of each bag. Further explanation of
the calculation of the social cost can be found at Annex 3 (it was
not possible to calculate the social cost of a paper bag at this
stage; hence, for the purpose of this analysis it was assumed that
the social cost is the same as for a single-use plastic
bag).
70.Setting the charge at 7p or
above could ‘internalise’ the negative externality
created in the consumption of SUCBs, by ensuring consumers pay the
‘full price’ (i.e. the total external cost, consisting
of private cost plus cost to society) of their action. The private
cost to retailers (estimated at 2p per bag) is assumed to be
already included in the price of shopping.
Generating a Net Benefit to
Society
71.It is estimated, however, that
any of the policy options outlined above would create an additional
benefit to society relative to the reference case, such that any of
the charge levels detailed in Table 1.0, including 5p, would be
preferable to ‘doing nothing’. Nonetheless, a higher
level of charge is estimated to result in a greater net benefit to
both Consumers and the Environment.
72.
However, in
terms of generating an overall net benefit to society (i.e.
wholly eliminating the ongoing social cost), Table 1.0 indicates
that a level of charge somewhere between 10p and 15p would be the
minimum required out of the four charges evaluated; i.e. to create
an additional net benefit to society, relative to the reference
case, which takes the overall net present value of policy action to
greater than zero.
73.The aim of the policy, however,
is to achieve a more sustainable level of consumption and to cut
down on the wasteful use of resources: although an overall net
benefit to society would be preferable in terms of improving
welfare, reducing the overall social cost would also contribute to
achieving these objectives.
74.Furthermore, since it is
estimated that the majority of bags-for-life are the heavy gauge
‘LDPE’
type which tend to
have an average price of 10p, setting the charge above this level
could potentially cause a ‘shift’ in consumption
patterns. Consumers could simply replace consumption of the now
more-expensive SUCBs with that of BfL, effectively using
bags-for-life as single-use bags. Since the estimated social cost
of a BfL is higher than that of a SUCB, an increase in BfL demand
could ultimately have a detrimental effect on the environment if a
higher level of consumption was sustained over the longer term.
However, any shift in consumption patterns will depend upon a
number of factors, including personal preference, and will also
depend upon the average price of an LDPE bag-for-life.
75.A level of charge of between 7p
and 15p was therefore recommended in the previous IA, based on the
objectives of the policy and the estimated social cost of producing
the bags. However, other key factors such as public acceptability
also need to be considered in setting the level of charge. Although
willingness to pay would need to be challenged in order to reduce
consumption of SUCBs to a desirable level, the responses to the
second consultation indicated that the majority of larger retailers
are confident that a minimum charge of 5p per SUCB would be
sufficient to achieve a desirable reduction in demand for
SUCBs.
Sensitivity
Analysis
76.The estimates for the Costs and
Benefits by Policy Option in Table 1.0 are based on a range of
assumptions taken from varying sources, including data from studies
of the Irish levy on SUCBs (the ‘PlasTax’);
the Scottish Executive;
and findings from the Environment Agency
on the life-cycle
analysis of carrier bags.
77.Since the Irish
‘PlasTax’ is one of only a few real-world examples of a
charge on SUCBs, and is the only known example which has produced
robust findings, there exists some uncertainty surrounding the
assumptions used in the calculations for this IA. It was therefore
deemed necessary to undertake sensitivity analysis to determine
whether varying the baseline assumptions would alter the outcome of
each policy option.
78.The detailed assumptions used in
the calculation of costs and benefits for each option are outlined
at Annex 3. The main baseline variables used are as
follows:
·
Percentage change in
quantity demanded of SUCBs
·
Percentage change in
quantity demanded of BfL
·
Composition of BfL
demand
·
Average price of a
BfL
·
Social cost of a
BfL
Using sensitivity analysis,
these assumptions were varied under each policy option and
evaluated against the four levels of charge shown in Table 1.0, in
order to assess their relative impact on the costs and benefits and
overall NPV for each option. The assumptions used under Option 4
were also amended for the purpose of sensitivity testing, in
response to suggestions resulting from the second consultation (see
paragraph 190 for results).
79.The only indicator which had any
real effect on the overall ranking of the policy options (in terms
of the overall NPV per option) was the composition of bag-for-life
(BfL) demand, which altered both the average cost and,
subsequently, the social cost of a BfL. The ranking of the policy
options in each case also depended upon the level of charge under
consideration. The outcome of the analysis is detailed in the
following sections.
Percentage Change in
Quantity Demanded of SUCBs
80.
Using
results from the experience in Ireland following the introduction
of the ‘PlasTax’, regression analysis was undertaken in
order to evaluate the percentage reduction in SUCBs associated with
differing levels of charge. For instance, the Irish levy was
€0.15 when it was first introduced in 2002, which
corresponded to around a 94% reduction in quantity of SUCBs
demanded, relative to the 2001 level, in the first year following
implementation (averaging 91% overall by 2008). Using the 2008
exchange rate, which corresponds to the latest available Irish
data, the results of the regression analysis showed that the
following average percentage reductions in SUCBs demanded were
associated with the relative levels of charge:
·
5p
(€0.06) = 59% reduction in SUCBs demanded
·
7p
(€0.08) = 68% reduction in SUCBs demanded
·
10p (€0.13) =
83% reduction in SUCBs demanded
·
15p (€0.17) =
92% reduction in SUCBs demanded
81.The original recommended level
of charge to be introduced under Policy Option 2 was between 7p and
15p. The calculations for Policy Option 2 in the
‘Final’ (Consultation) stage IA therefore used an
associated reduction in SUCBs demanded of 68%, based on the central
recommendation of a minimum 7p charge. However, the minimum
level of charge has now been proposed at 5p per SUCB, based on the
responses to the second consultation. The Costs and Benefits
outlined in the ‘Summary: Analysis and Evidence’ page
for Option 2 are therefore now based on a charge per SUCB of 5p,
rather than the 7p originally recommended in the previous IA. [Note
that the differing levels of charge in Table 1.0 use the associated
percentage reductions in SUCB demand].
82.The range of values given on the
‘Summary: Analysis and Evidence’ page for Option 2 was
found by altering the relative percentage change in quantity
demanded of SUCBs following the introduction of a charge, holding
all other assumptions constant. Table 2.0 shows the percentage
reductions used in the calculation of the ranges for Costs and
Benefits on the ‘Summary’ page, based on a 5p
charge.
Table 2.0 Effect of altering
Percentage Reduction in
Quantity of SUCBs
demanded
|
£ million
|
|
Reduction in, and New Quantity
Demanded of, SUCBs
|
Total
Cost to Consumers
|
Total Benefit to
Consumers
|
Average Annual Cost
|
Average Annual
Benefit
|
Overall NPV
|
|
59% (185m)
|
7
|
14
|
8
|
18
|
-260
|
|
68% (145m)
|
8
|
16
|
9
|
21
|
-240
|
|
83% (75m)
|
9
|
19
|
11
|
25
|
-210
|
|
92% (40m)
|
10
|
21
|
12
|
28
|
-190
|
|
100% (0m)
|
11
|
23
|
13
|
30
|
-170
|
Note: Figures
are rounded to the nearest £1 million; overall NPV figures are
rounded to the nearest £10 million. New quantities demanded of
SUCBs are rounded to the nearest five million.
83.Table 2.0 indicates that
altering the percentage reduction in quantity of SUCBs demanded
affects both the net benefit to consumers and the overall NPV of
the policy option. Hence, the outcome of Option 2 is estimated to
be largely dependent upon the percentage reduction in demand for
SUCBs achieved following the introduction of a charge.
84.For all four levels of charge
evaluated in Table 1.0, altering the percentage reduction in
quantity of SUCBs demanded had an effect on the overall NPV for
Option 2. However, the relative ranking of each policy option was
unaffected by this change, i.e. the introduction of a charge had
the highest NPV, followed by a ban, with the extended voluntary
agreement having the lowest NPV.
Percentage Change in
Quantity Demanded of BfL
85.Based on an estimate used in the
AEA WAG Single-Use Bag Study, the quantity demanded of BfL was
assumed to increase by around 170% following the introduction of a
5p charge. This relative increase corresponded to the percentage
reduction in quantity demanded of SUCBs; hence, altering the
reduction in SUCBs demanded simultaneously changed the percentage
increase in BfL demand.
86.For each level of charge,
altering the percentage increase in BfL demand in isolation
affected the ranking of Options 3 and 4 after a point, but did not
affect the ranking of Option 2 as having the highest overall NPV in
each case.
Composition of BfL
Demand
87.Based on discussions with
retailers, it was estimated that the composition of demand for
bags-for-life consists of around 90% heavy gauge LDPE (costing the
consumer an average of 10p per bag) and around 10% of the stronger,
more durable bags such as jute, cotton or hessian (costing the
consumer an average of around 65p per bag). Based on data from the
Environment Agency study the 10p (LDPE) bags were assumed to be
re-used 5 times, whilst the 65p bags were assumed to be re-used an
average of 94 times (i.e. 14 uses for a non-woven PP bag and 173
uses for a cotton bag). Altering this composition of demand for
each level of charge had the largest effect on the overall NPVs of
each policy option, and had the only real impact on the ranking of
the policy options out of all the indicators which were varied in
the analysis.
88.Assuming that the composition of
demand is as described above (90% LDPE, 10% durable), the weighted
average price of a BfL was estimated to be 16p. When the
composition of demand was altered (e.g. to 50% of each, and then to
100% of the more expensive 65p bags), however, the weighted average
price therefore also changed. In addition, the weighted average
social cost increased as the composition of demand tended toward a
greater proportion of the more expensive (65p) bags.
89.As a result of increasing both
weighted average price and social cost, in most cases the NPVs for
each option became increasingly negative, or worsened (i.e.
indicating an even higher ongoing social cost of undertaking policy
action). However, in the majority of cases, when composition of
demand was altered to 50% of each type of BfL, Option 2 was still
ranked highest (i.e. it was estimated to be the ‘best’
policy option in terms of the overall NPV).
Compliance with
Hampton Principles
90. The Hampton
Review
sets out the key principles that should be consistently applied
throughout the regulatory system. The Climate Change Act 2008
requires that before any powers in relation to civil sanctions are
conferred on local authorities in Wales, the Welsh Assembly
Government (WAG) must be satisfied that they will act in accordance
with the Hampton principles. The Local Better Regulation
Office(LBRO) has been commissioned to establish this and will be
reporting back to the Welsh Ministers during the consultation
period.
91. For instance, WAG must
ensure that enforcement activities are carried out in a fair and
transparent manner and that actions taken are appropriate and
proportional to the problem. It is anticipated that the enforcement
regime relating to the proposed charge on single-use bags will be
complaint driven, as has been the experience with the Irish
PlasTax. Local Authorities will be required to investigate breaches
of regulation related to:
·
Not charging for bags;
·
Not keeping records;
·
Not publicising records.
92. Hampton principles
state that businesses should not have to give unnecessary
information, nor give the same piece of information twice. Hence,
in the case of reporting in relation to a charge on single-use
bags, businesses (apart from those exempt from publishing
requirements) will be required to produce the necessary information
once a year.
EU
Requirements
93. There is currently no
specific EU requirement to limit the number of single-use bags in
circulation. The current legislation of ‘Directive 2006/12/EC
of the European Parliament and of the Council’ on waste
states that member states should take measures to restrict the
production of waste; in particular by promoting clean technologies
and products which can be recycled and reused. However, single-use
carrier bags are currently not mentioned in the list of recognised
waste types under Decision 2000/532/EC.
94. The proposed charge on
single-use carrier bags will therefore go beyond minimum EU
requirements relating to waste.
Value of
Offsetting Measures
95.When introducing new regulation
the need for compensatory simplification measures should be
considered, creating a balance between introducing new measures and
simplifying or removing existing requirements.
96.No offsetting measures have been
introduced in this case since the proposed regulation relating to a
charge on single-use bags does not overlap with any existing
requirements.
Change in
Greenhouse Gas Emissions
97.Production of single-use carrier
bags creates carbon emissions of approximately 3p per bag. A
proposed charge of 5p per bag on all single-use bags is expected to
reduce their demand by an estimated 59%, leading to a corresponding
reduction in production of SUCBs. This will lead to an anticipated
reduction in carbon emissions of an estimated £8 million (i.e.
a fall in SUCB demand of around 260 million, multiplied by carbon
emissions from production of around 3p per bag).
Impact on Admin
Burdens Baseline
98.In respect of the charge on
single-use bags, it is proposed that all those who sell goods in the
course of trade or business to customers in Wales will be
required to
keep records and provide returns relating to the number of bags
sold annually. This requirement will impose an administrative
burden on businesses which would otherwise not necessarily have
existed in the absence of the charge; although, it is likely that
retailers already keep a record of the number of bags given out,
for stock-take purposes. Small businesses operating below a certain
threshold and selling fewer than 1000 bags per annum are to be
exempt from the requirement to publish records, so could be less
affected by this additional administrative burden.
99.It is estimated that the total
annual administrative cost of recording and reporting the number of
bags sold each year in Wales will amount to around £1.0
million for all businesses combined. In 2005 prices, the additional
administrative burden on retailers is estimated to amount to around
£0.8 million (although this figure could be lower, since a
portion of this admin burden will be accounted for by those
businesses already recording the number of SUCBs given out as part
of their normal stock control).
Specific Impact
Tests
Competition
Assessment
100.
The policy might
have an adverse impact on single-use bag manufacturers, although
this is likely to be minimal since there are relatively few of
these producers situated in Wales. Positive competition effects may
result from the increased demand for reusable bags (BfL) such that
manufacturers of these bags would benefit from producing a greater
volume of bags-for-life. Positive competition effects may also
result from the development of other sustainable alternatives to
single-use carrier bags.
Small Firms Impact
Test
101.
The policy might
have a disproportionate effect on SMEs, since a charge may lead to
a reduction in impulse purchases from these retailers. However,
this might also affect larger retailers, although such effects are
not quantifiable at this stage.
102.
Larger retailers
might also have an unfair advantage with regard to non-compliance
and possible court proceedings, and might find it logistically
easier to implement new charging and administration systems.
However, concessions are being made for small firms operating below
a certain threshold and selling fewer than 100 bags per year, in
order to reduce the administrative burden on these
businesses.
Legal Aid
103.
The policy would
have a legal impact on firms in cases of non-compliance. The
estimated resulting impact on Government of providing legal
assistance is accounted for in the calculation of costs and
benefits by policy option, in the evidence base; further detail
regarding the derivation of the figures is outlined at Annex
3.
Sustainable
Development
104.
The policy
contributes to the principles of sustainable development through
both strengthening the emphasis on waste prevention and resource
efficiency. The policy would create positive impacts in terms of:
litter reduction; reuse of resources; increased awareness of
packaging and its impact on waste disposal and climate change; and
increased awareness of reuse and recycling. Concerns have been
raised with regard to the impacts arising from the possible
transfer of consumption, from single-use carrier bags to
heavy-gauge LDPE reusable bags (i.e. the 10p bags-for-life).
However, it is estimated that BfL consumption will fall, following
an initial surge with the introduction of a charge on SUCBs, as
consumers become more waste-aware and more likely to reuse carrier
bags.
Carbon Assessment
105.
The estimated
greenhouse gas impacts are accounted for in the calculation of the
social cost per bag and are included in the main evidence
base.
Other Environment
106.
Anticipated
environmental impacts resulting from a charge on SUCBs are outlined
in the evidence base. The main impacts on the environment will be
the reduction in emissions from the production and disposal
processes, along with the reduction in SUCB litter. However, wider
environmental impacts could result if the policy encourages people
to change their behaviour and to become more aware of other
environmental issues, for example the need to recycle or to use
‘greener’ modes of transport.
Health Impact
Assessment
107.
The policy is
expected to result in less single-use plastic bag litter,
potentially reducing the number of accidents involving slippages on
single-use plastic bags.
108.
Responses to the
second consultation indicated that a charge on SUCBs could add
further complication to the relationship between pharmacists and
patients. However, as indicated at Annex 2, to uphold patient
confidentiality and safety an exemption has been placed on SUCBs
which are used: solely to contain products sold or supplied in
accordance with a prescription; provided free as part of other NHS
services; or solely for Pharmacy medicines (i.e. restricted over
the counter medicines from a qualified pharmacist or ‘P
medicines’). It is anticipated that a charge
could impact
upon patient-pharmacist relationships in certain circumstances,
although this exemption seeks to minimise that impact.
Race Equality
109.
We do not consider
that the policy is relevant to the Government’s
responsibilities under the race equality duty.
Disability Equality
110.
Around 30% of
disabled respondents to the Office for Disability Issues’
survey, ‘Experiences and Expectations of Disabled
People’,
reported that they received assistance with shopping. In
implementing the policy it would therefore be necessary to ensure
that their support and carers were aware of the charge and
considered reusing bags.
Gender Equality
111.
According to
Defra’s (2009) Survey of Public Attitudes and Behaviours
towards the Environment,
there was a higher incidence of females (78%) than males (71%)
claiming to have previously reused shopping bags and with the
intention of doing so again. The policy might therefore have a
slightly larger impact on males than females, since with a lower
incidence of bag reuse males are more likely to have to purchase
single-use bags following the introduction of a charge.
Human Rights
112.
We consider that the
policy is compatible with the European Convention on Human
Rights.
Rural Proofing
113.
We do not consider
that the policy will have a significantly different impact in rural
areas.
Annex 2: Details of the Charge
Contents:
·
Description of Bags to be Covered by the Charge
·
Exemptions from the Charge
·
Impact on Retailers
Description of Bags to be
Covered by the Charge
114.
The draft
regulations defines the term ‘single-use carrier bag’
(SUCB) as meaning a bag:
Ø which is made
wholly or partly of any type of plastic, paper, plant based
material or natural starch; and
Ø which is not
specifically manufactured or intended for multiple reuse.
Therefore ‘Bags for
Life’ and other reusable bags such as cotton, jute and
hessian are not covered by the charge.
Exemptions from the
Charge
115.
It is proposed that the following types of bags will be exempt from
the charge:
Ø bags used
solely to contain unpackaged food intended for human or animal
consumption. This includes unpackaged meat or fish, unpackaged
bread and loose items such as fruit and vegetables, bird seed or
dog biscuits etc;
Ø bags used
solely to contain loose, unpackaged seeds, bulbs, corms, or
rhizomes;
Ø bags used
solely to contain any unpackaged axe, knife, knife blade or razor
blade;
Ø bags used
solely to contain packaged uncooked fish or fish products, uncooked
meat or meat products or uncooked poultry or poultry products and
the maximum dimensions of which are 205mm (width) x 125mm (gusset
width) x 458mm (height including handles);
Ø sealed bags
supplied by a seller before the point of sale;
Ø bags used to
contain purchases made on board ships, trains, aircraft, coaches or
buses;
Ø bags used to
contain purchases made in an area designated by the Secretary of
State as a restricted zone under section 11A of the Aviation
Security Act 1982 (i.e. the area of an airport once you pass
through the security search point);
Ø bags for
packaging and delivery of mail or mail order goods;
Ø bags which are
made wholly of paper and the maximum dimensions of which are 175mm
(width) x 260mm (height) or less
Ø bags which are
made wholly or partly of plastic and the maximum dimension of which
are 125mm (width) x 125mm (height) and which do not have a
handle;
Ø bags which are
made wholly of paper and the maximum dimensions of which are 80mm
(width) x 50mm (gusset width) x 155mm (height) and which do not
have a handle;
Ø gusseted liners
used either to line or cover boxes or other items;
Ø bags used
solely to contain live aquatic creatures in water;
Ø bags used
solely to contain products sold or supplied in accordance with a
prescription, provided free as part of other NHS services or
Pharmacy medicines (i.e. restricted over the counter medicines from
a qualified pharmacist or ‘P medicines’).
Impact on Retailers
116.
The charge will apply to all those who sell goods in the course of
trade or business to customers in Wales. This includes:
supermarkets; high street retailers; small businesses; market
stalls; internet grocery deliveries; and those that provide a
service and also sell goods (e.g. a hairdressing salon which also
sells hair products).
117.
All retailers will
be required to keep a record of:
·
The number of bags
sold in each year;
·
The gross proceeds
of the charge in each year;
·
The net proceeds of
the charge in each year;
·
The breakdown of the
reduction from gross to net proceeds in each year (e.g. amount
spent on administration and communications etc.);
·
The purposes to which the net proceeds have been put in that
year.
118.
Concerns have been
raised about the administrative burden on small businesses.
Particular concern was expressed with regard to the administrative
burdens the charge will place on small businesses which give out
very few bags in a year relative to the total number of free bags
handed out.
119.
It is therefore
proposed that only retailers which operate above a certain
threshold and sell over 1000 SUCBs a year should be required to
publish information relating to bag sales.
120.
It is intended that
local authorities in Wales will be responsible for enforcement of
the charge. Enforcement action will take the form of civil
sanctions and we propose a range of penalties for breaches of the
regulations dependant on size of business and
turnover.
Annex 3: Assumptions used in the Calculation of
Costs and Benefits
Contents:
·
Calculating the Social Cost of Single-Use Bags
·
Calculating the Social Cost of Bags-for-Life
·
Assumptions used in the Calculation of Costs and
Benefits
Calculating
the Social Cost of Single-use Bags (SUCBs)
Negative Externalities from Production and
Consumption
121.
Single-use carrier
bags impose costs on the taxpayer for several reasons: firstly, due
to improper disposal they are a source of littering to the
environment and, thus, generate costs for local authorities through
having to clean up streets, countryside and beaches. Secondly, they
fill up land-fill sites due to the fact they can take hundreds of
years to decompose. Thirdly they are a hazard to wild- and marine-
life when not disposed of in an appropriate manner. Besides the
more visible impacts, there are also social costs which arise from
the production process, in the form of damage to health and the
environment as a result of carbon dioxide emissions as well as air
and water pollution.
122.
Economists refer to
these unfavourable by-products of consumption and production as
‘negative externalities’ - a source of market failure.
For Governments there is a rationale to address the market failure,
since the market will not produce the socially desirable quantity
of the good or service in question.
123.
In the case of
single-use carrier bags, the market is deemed to be over-producing
the bags, leading to an ongoing cost to society. Although
single-use carrier bags are provided ‘free’, the
private cost is essentially ‘hidden’ by being priced
into the retailers’ products and is thus not visible to the
consumer. Hence, no direct cost is attached to the bag and
consumers will therefore demand a larger quantity than if faced
with the ‘true’ cost.
124.
Furthermore, even if
the consumer were to be charged the cost of a single-use bag as
incurred by the retailer (i.e. the ‘private’ cost),
this would not be optimal since the price should be equal to the
marginal social cost, reflecting the true cost to society of
producing and consuming each additional bag.
125.
A market-based
approach can therefore be used to ‘internalise’ the
externalities; i.e. to ensure that the full social cost of each bag
is passed on to those consumers who choose to purchase
them.
Calculating the
Social Cost using Life-Cycle Analysis
126.
The typical
life-cycle of a single-use carrier bag can be considered using the
following broad stages:
·
Production processes (including extraction and production of raw
materials);
·
Transportation; and
·
Consumption and disposal.
127.
Diagram A outlines
the life-cycle of a single-use plastic bag, which is the dominant
form of carrier bag.
Diagram
A
– Life cycle of single-use carrier bag and possible sources
of externalities
128.
Academic literature
was reviewed for each of the broad life-cycle stages in order to
assess the externalities arising, and to evaluate the subsequent
cost to society in order to provide a recommended minimum level of
charge per bag.
129.
For the purpose of
this analysis it was necessary to evaluate the global warming
potential of a SUCB in terms of carbon dioxide equivalence emitted
throughout the life-cycle of a bag (i.e. during the
‘production stage’). For simplicity the
‘production stage’ has been deemed to cover not only
the production processes but also the extraction and production of
raw materials; transportation; end-of-life; and avoided products
and recycling. The consumption and disposal stage is evaluated
separately and assesses the opportunity cost of improper
disposal.
Production stage
130.
At the
‘production’ stage the producer of single-use carrier
bags would usually pay simply for the cost of inputs to production,
such as raw materials and energy. What is omitted during the
production process is the wider damage to the environment; this
includes the carbon dioxide emissions from production, and
pollutants emitted into the air and into water from chemicals
used.
131.
The valuation of
carbon emissions per bag is based on findings from a study by the
Environment Agency (2010),
which concluded that the global warming potential of a single-use
carrier bag is around 2.08kg carbon dioxide equivalent
(CO2e). This is based on the potential carbon emissions
from each of the production processes listed in paragraph 126. The
valuation of global warming potential (GWP) is based on a SUCB
being used only once as a carrier bag (having only a
‘primary’ use) and does not account for any
‘secondary’ re-use (e.g. re-using a SUCB as a bin-liner
in the home). However, if secondary re-use were to be accounted for
in the GWP then the CO2e could be lower, at around
1.58kg per bag (based on 40% secondary re-use); this is discussed
in more detail in paragraph 144.
132.
The Nolan-ITU
Australian study (see Reference 2) estimates the level of global
warming potential per bag to be higher than the 2.08kg
CO2e given by the Environment Agency, at 6.08kg carbon
dioxide equivalent. This difference could partly be accounted for
by differing assumptions having been made regarding the materials
used in the production processes, along with the number of SUCBs
consumed per household, per annum. Furthermore, production
processes may have become more efficient over time (i.e. since the
2002 publication of the Nolan-ITU study).
133.
There are
difficulties in valuing ‘embodied’ emissions from the
production processes of a product, compared with
‘direct’ emissions (for example, CO2 emitted
from a car) which can potentially be valued using the traded or
non-traded prices of carbon. For the purpose of this analysis it
was therefore necessary to use a proxy for the price of embodied
carbon emissions. The cost per tonne of CO2 used in the
analysis (approximately £13 per tonne) is based upon the spot
price of carbon dioxide given by the European Climate Exchange - a
market place for trading carbon dioxide emissions. Based on the
carbon dioxide equivalence per SUCB of around 2.08kg, the cost of
the CO2e emitted throughout the ‘production’
process is estimated to equate to around 3p per bag (see Table
A).
134.
Based on the global
warming potential from the CO2e emissions, along with
the water and air pollutants released throughout the production
stage, the proportion of the total external cost per bag owing to
this stage is estimated to be around 5 pence (see Table A). The
remaining proportion of the total external cost per bag arises from
the consumption and disposal stage and is outlined in the following
section.
Table
A -
Estimated social costs arising from the production stage
of
Single-use
carrier bags (pence)
Consumption and Disposal
Stage
135.
Single-use carrier
bags made from HDPE are usually intended for recycling; yet,
according to a study from ‘Resource
Futures’,
single-use carrier bags made from plastic alone make up
approximately 3 per cent of landfill in terms of weight. To
approximate the proportion of the external cost per bag owing to
improper recycling, the proportion of SUCBs contained in municipal
waste intended for landfill in Wales (approximately 1 million
tonnes per annum) was multiplied by the current level of landfill
tax
(£48 per tonne
plus VAT). This ‘opportunity cost’ (i.e. the value of
the next best option given up – in this case the opportunity
to recycle a bag) equates to approximately 1p per bag (see Table
B).
136.
According to
‘Keep Wales Tidy’
single-use carrier bags make up approximately 2.7 per cent of the
total volume of littering in Wales. This results in additional
costs to local authorities through having to clean up plastic bag
litter from recreational areas such as sea- and country-side.
According to the AEA WAG Single-Use Bag Study (see Reference 1) the
proportion of the total annual cost of street cleaning in Wales
(£37 million) associated with SUCB litter is around £1
million per annum.
137.
To estimate the
associated cost of dealing with plastic bag littering to beaches in
Wales, the cost of cleaning UK beaches of such litter (around
£290,000 per annum) was proportionately applied to Wales by
equating for length of coastline in miles. Given that the UK
coastline is approximately 19,500 miles and the Welsh coastline is
approximately 1,300 miles, the proportionate cost to Wales of
cleaning beaches is estimated to be £20,000 per annum (i.e.
approximately 7% of the UK figure). Taking both the cost of street
cleaning and the cost of beach cleaning, the cost to society of
littering is estimated to amount to around 1p per bag.
138.
In total, the
externalities arising from improper disposal (through littering and
improper recycling) are estimated to be around 2p per bag (see
Table B).
Table
B -
Estimated social costs arising from disposal in pence per
bag
Total Social Cost
139.
Table C (below) sets
out the estimated total social cost of a single-use carrier bag
(approximately 7p per bag), based on the life-cycle stages outlined
above. The average ‘private’ cost (i.e. the wholesale
price which retailers pay to purchase the bags from producers) is
estimated to be 2p per bag. Based on the sum of both the social and
private costs (i.e. total external cost per bag), the recommended
minimum level of charge would thus amount to around 9p per bag,
excluding VAT.
140.
However, it is
assumed that retailers already include the private cost (2p) in the
price of shopping; the 9p would thus account for retailers lowering
the price of shopping accordingly, following the introduction of a
charge, and passing the 2p per bag on to consumers. In reality,
however, this is deemed unlikely. The recommended level of
charge based on the social cost per bag alone is therefore a
minimum of 7p per bag.
Table
C -
Estimated total social costs arising from each production and
consumption stage of Single-use carrier bags
(pence)
Sensitivities
Inclusion of VAT
141.
The minimum level of
charge is now proposed at 5p per SUCB. Allowing for the addition of
VAT at 20% the minimum level of charge per single-use bag could be
recommended at around 6p. This level of charge would also hold for
VAT levels of 15.0% and 17.5%.
Paper Bags
142.
It has not been
possible to calculate the social cost of a paper bag at this stage
due to lack of available data, relating to both the life-cycle of
such a bag and to current usage of such bags in
Wales.
For the purpose of this analysis it was assumed that the social
cost of a single-use paper bag is the same as that of a single-use
plastic bag.
143.
However, in reality
the social cost of a single-use paper bag is likely to be much
higher than that of a single-use plastic bag, due to higher
resource intensity in the production process along with the
additional cost of transporting and disposing of a typically much
larger and heavier bag. This could ultimately lead to the social
cost of a single-use carrier bag amounting to more than 7p,
although the extent of such an increase is uncertain at this
stage.
Global Warming Potential
(GWP)
144.
The Environment
Agency’s life-cycle analysis of a single-use carrier bag
indicates that the global warming potential per bag amounts to
2.08kg CO2e; this is based on the assumption that all
SUCBs have only one primary use, and does not account for secondary
re-use (i.e. re-use in a different function, for instance as a
bin-liner in the home). However, SUCBs are often re-used in the
home and so have more than one use. The Environment Agency’s
report suggested that with a 40% secondary re-use rate the GWP per
bag amounts to around 1.58kg CO2e.
145.
However, even when
this lower GWP figure is accounted for in the analysis, the social
cost of a single-use carrier bag remains unchanged, suggesting that
SUCBs would need to have a substantially higher re-use rate in
order to lower the social cost per bag.
Findings from
Australia
146.
The Australian
Nolan-ITU analysis of plastic bags suggests that a SUCB has a
global warming potential of 6.08kg CO2e, compared with
the 2.08kg suggested in the Environment Agency’s report. As
indicated in paragraph 132, this could be due to differing
assumptions between the reports, coupled with the fact that the
studies were undertaken almost a decade apart (allowing for
developments in production processes, for example).
147.
Using the 6.08kg
figure from the Australian report – instead of the 2.08kg
from the Environment Agency report – in the analysis has an
effect on the social cost of a single-use carrier bag. Allowing for
this higher CO2e per bag, the social cost could increase
to around 12p per bag. This would lead to a 7p charge per bag
generating a greater net benefit to society, although the overall
NPV would in fact be worse than if the original CO2e
figure was used since the reference case itself would also consist
of a higher ongoing cost to society and a greater negative NPV
(based on a higher social cost per bag). In this instance, the
minimum level of charge needed to generate an overall net benefit
to society (i.e. to ensure the overall NPV is greater than zero) is
estimated to be just over 15p per bag.
Calculating
the Social Cost of Bags-for-Life (BfL)
Life-Cycle Analysis of Carrier Bags
148.
Calculating the
social cost of a bag-for-life involved a similar process to that
undertaken for single-use bags. However, in this case the reference
flow of each type of bag-for-life was used, in order to compare the
social cost of a BfL relative to that of a SUCB.
149.
The reference flow
can be described as ‘the number of carrier bags required to
fulfil the functional unit’.
In the Environment Agency’s life-cycle analysis, the
‘functional unit’ is carrying one month’s
shopping, or 483 items, from the supermarket to the home. The
reference flows of each bag type are shown in Table D.
Table D Reference Flow of
Alternative Bag Types
|
Alternative
Bag Types
|
Volume per bag
(litres)
|
Weight per bag
(g)
|
Items per bag
|
Reference Flow
|
|
Single-use HDPE
|
19.10
|
8.12
|
5.88
|
82.14
|
|
Reusable LDPE
|
21.52
|
34.94
|
7.96
|
60.68
|
|
Cotton bag
|
28.65
|
183.11
|
10.59
|
45.59
|
|
Non-woven PP bag
|
19.75
|
115.83
|
7.30
|
66.13
|
Source:
Environment Agency
Note: A
Single-use HDPE represents the average single-use plastic bag; a
reusable LDPE represents the average 10p bag-for-life
150.
The reference flows
in Table D allow comparisons to be made between single-use carrier
bags and alternative types of reusable ‘bags-for-life’
(i.e. around 82 SUCBs are required to carry 483 items per month,
compared with around 61 reusable LDPE bags). Since the social cost
of a single-use bag was calculated previously, each of the
reference flow figures for the alternative bag types were hence
given an index relative to the baseline (i.e. a single-use bag),
for comparison.
151.
For example, if the
reference flow of a single-use bag (82.14) was given an index of
100, for a reusable LDPE the index would be 73.87 ([60.68 / 82.14]
x 100). This essentially means that where 100 single-use bags are
needed, only 73.87 LDPE bags would be required if used as an
alternative bag type.
152.
Using indices, it
was thus possible to calculate the average social cost of a BfL by
applying the average relative index to the social cost of a
single-use bag. For instance, the index for a reusable LDPE was
73.87; based on a life of 5 uses, the social cost of this bag
relative to that of a single-use HDPE (7p) equates to around 25p.
Hence, a value of 25p was used in the analysis to represent the
social cost of a 10p bag-for-life, which was assumed to make up 90%
of the composition of BfL demand.
153.
The social cost of
the stronger, more durable bags-for-life with an estimated average
price of 65p was calculated using the same formula; these bags were
assumed to make up the remaining 10% of the composition of BfL
demand. The individual indices for the remaining bag types (cotton
and non-woven PP) were calculated using the same formula as for an
LDPE bag. Based on an average life of 173 uses for a cotton bag and
14 uses for a non-woven PP bag, the average social cost of the two
bag types (representing the average 65p bag) is around £3.70
per bag.
Average Social Cost based on
Composition of BfL Demand
154.
It was assumed in
the overall analysis that the composition of demand for
bags-for-life consisted of 90% reusable HDPE bags (i.e. the
heavy-gauge plastic bags which have an average price of 10p) and
10% of the stronger, more durable bags which have an average price
of 65p (for example calico, woven and swag bags).
155.
Based on this
estimated composition of demand, a weighted average was applied to
the individual social cost calculations in order to find the
average social cost of a bag-for-life. For instance, assuming a
90:10 composition of 10p and 65p bags respectively, the average
social cost was estimated to be around 60p ([0.90 x 25p] +
[0.10 x £3.70]).
156.
The impact on the
NPV of altering this composition of demand (and, hence, the
weighted average social cost of a BfL) was examined in the
sensitivity analysis, results of which were outlined in the
Evidence Base.
Assumptions used in the Calculation of Costs and
Benefits
Forecast Period and the use of Discounting
157.
The analysis of the
costs and benefits for each policy option was based on a 15-year
forecast period (from year 0 to year 15, based on mid-year
projections) and it was assumed that year zero was the year of
implementation of the policy (i.e. the year in which the
‘set-up’ or one-off costs would arise).
158.
Given that there is
a general public preference to receive goods and services now
rather than in the future (known as ‘time preference’),
individuals and firms require a return in order to encourage them
to invest their money now and defer their present consumption until
later. The real rate (i.e. taking account of inflation) of return
required can thus be used as the ‘discount rate’, in
order to convert future costs and benefits to present values so
that comparisons can be made between them.
159.
The net present
value of each policy option therefore represents the present value
of the stream of costs and benefits over the 15-year period, and is
used to determine whether or not Government intervention can be
justified. In general, the higher the NPV the better the expected
outcome of the policy.
160.
In line with the
‘Green Book’
recommendation, the discount rate used in the analysis was
3.5%.
Baseline Assumptions
used for all Policy Options
161.
Table E outlines the
baseline assumptions used in the calculation of costs and benefits
for each policy option; these are the baseline indicators from
which each policy option varied according to the assumptions
used.
162.
Table E shows there
are an estimated 445 million single-use bags consumed annually in
Wales, consisting of 330 million plastic and 115 million paper
bags. This assumption was taken from the Welsh Assembly
Government-commissioned AEA study on single-use bags (see Reference
1). The single-use figure is based on a 50% reduction, from the
2006 baseline figure of 660 million, following the introduction of
the existing voluntary agreement. The same report also estimated
that under the current voluntary agreement bag-for-life usage had
doubled, from the 2006 baseline figure of 7 million to the current
figure of 14 million.
Table E
Baseline Assumptions used in the Calculation of
Costs and Benefits
|
Indicator
|
Value
|
|
·
Baseline number of SUCBs consumed
annually in Wales
|
445 million (330m plastic; 115m
paper)
|
|
·
Baseline number of BfL consumed
annually in Wales
|
14 million
|
|
·
Composition of Bag-for-Life
demand
|
·
90% LDPE heavy gauge (10p reusable
bags);
·
10% Stronger, more durable bags
(average 65p reusable bags, e.g. woven, jute, hessian).
|
|
·
Average life of 10p BfL
|
5 shopping
trips
|
|
·
Average life of 65p BfL
|
94 shopping
trips
|
|
·
Weighted Average BfL
Price
|
16p
|
|
·
Weighted Average Social Cost of
BfL
|
60p
|
|
·
Price charged per SUCB under the
Extended Voluntary Agreement (assumes 30% of retailers impose a
charge under Option 4)
|
5p
|
Bags for
Life
163.
The estimate of the
composition of bag-for-life demand was based on discussions with
retailers, who approximated that around 90% of bag-for-life sales
consisted of the heavy-gauge reusable LDPE bags which have an
average price of 10p. Based on this approximation, it was assumed
the remaining 10% of demand consisted of the more expensive, more
durable bags. The AEA Technology report, produced for the Scottish
Executive on the proposed plastic bag levy in Scotland, suggested
that the average price of a more durable bag-for-life is around
65p.
164.
Based on the
composition of BfL demand, a weighted-average price was calculated
at 16p ([0.9 x 10p] + [0.1 x 65p]).
165.
The Environment
Agency report indicated that a reusable LDPE bag (e.g. with an
average price of 10p) had a life of 5 uses. The stronger and more
durable bags were assumed to have an average life of 94 uses. The
average social cost of a BfL was determined using the life-cycle
analysis findings from the Environment Agency report and the
weighted-average was based on the composition of BfL demand. Based
on the calculations outlined in the previous section the weighted
average social cost was estimated to be around 60p.
Voluntary
Charge
166.
It was assumed that
under Option 4 all retailers involved would impose a 5p charge on
each single-use bag in order to discourage consumption of the bags.
This assumption was based partly on the existing voluntary
agreement – which saw one retailer out of seven imposing a 5p
charge on SUCBs – and also on results from the consultation
process, which found that several retailers are now voluntarily
imposing a charge on SUCBs (in the region of 1p to 5p).
Costs to
Retailers
167.
For Option 2 it was
assumed that retailers would incur annual costs through having to
report on the number of single-use bags being sold per annum. The
estimated costs to retailers are based on figures from the Scottish
Executive’s Regulatory Impact Assessment (RIA) of an
Environmental Levy on plastic bags.
168.
Table F shows the
estimated average cost to each Scottish retail sector of keeping
and publishing annual records, and is based on 52,690 retail
outlets in Scotland in 2005 (92% of which were SMEs). For example,
the average total cost to all 48,000-plus SME food and
non-food retailers per annum is around £4.4 million (i.e. the
average of the £5.6m for SME food retailers and the £3.2m
for SME non-food retailers respectively); this equates to around
£90 per individual retailer unit, per annum (i.e. £4.4
million / 48,500 SMEs). For the 4,000-plus large retailers in
Scotland the average annual total cost is around £0.3 million,
equating to around £80 per individual retailer unit, per
annum. Based upon these estimates, the corresponding average annual
total cost for the 9,614 food- and non-food retailers
in Wales is thus estimated at just under £0.9
million.
Table
F Average Annual (Total) Costs to
each Scottish Retail Sector of Keeping Records &
Submitting Returns
|
Type of Retailer by
Sector
|
Range
of
Annual Costs by Sector
(£)
|
Average Annual Total Cost to
each Sector (£)
|
|
Large Food
|
151,750 –
315,000
|
233,375
|
|
Large Non-Food
|
303,500 –
630,000
|
466,750
|
|
SME Food
|
3,858,000 –
7,366,000
|
5,612,000
|
|
SME Non-Food
|
2,170,000 –
4,144,000
|
3,157,000
|
|
Average Annual Cost to Large
Retailers
|
227,625 – 472,500
|
350,063
|
|
Average Annual Cost to
SMEs
|
3,014,000 – 5,755,000
|
4,384,500
|
169.
Taking a five-year
average from 2005 to 2009 of all businesses in Wales (from the
IDBR), 97% (around 9,300) have fewer than 250 employees. Using this
as a measure of SMEs in Wales, based on the costs to Scottish
retailers around 9,300 businesses in Wales would therefore face
annual costs of an estimated £90 for publishing requirements.
For large retailers in Wales (around 300) the average cost is
estimated to be around £80 per annum (again based on the
Scottish figures).
170.
Several responses to
the second consultation indicated that the initial Impact
Assessment had substantially underestimated the ongoing costs to
retailers of administering and processing a charge on SUCBs. The
evidence used in the ‘Final’ stage IA was based on
analysis undertaken by the Scottish Executive and is therefore
deemed appropriate for the purpose of this IA.
171.
There were a few
estimates of average costs provided in the consultation responses.
These indicated that the total cost to retailers could amount to an
average of around £1 million per annum, based on a consumption
level of 180 million SUCBs following the introduction of a 5p
charge. This figure is based on a suggestion of ongoing admin and
operational costs of between 1/4p and 1p per
SUCB, depending on the retailer, giving an indicative range of
costs between £0.46m and £1.8m. Given that the majority
of retailers in Wales are SMEs, the total annual cost could be
towards the higher end of the scale since SMEs are likely to incur
higher costs than larger retailers. The average annual figure of
£1m, nonetheless, is similar to that outlined in the
‘Final’ (Consultation) stage IA, suggesting that the
estimated cost to retailers is not substantially different to that
expected by a majority of retailers. These indicative figures
generated by the consultation will need to be verified by
retailers, however, in order to form an accurate picture of the
actual costs incurred by retailers under Option 2.
172.
The smallest
businesses may not be affected by the requirement to submit annual
returns, since those businesses selling fewer than 1000 bags and
operating below a threshold of £68,000 are to be exempt from
the publishing requirements.
Additional Assumptions
made under Option 2 (Introduction of a Charge)
173.
Table G outlines the
additional key assumptions which were used in order to evaluate the
effect of a charge on the overall NPV. The main indicator was the
percentage reduction in consumption of single-use bags following
the introduction of a charge; the derivation of the relative
reductions for each level of charge are outlined in the
‘Sensitivity Analysis’ section of the Evidence
Base.
Table
G Assumptions under Option 2: Introduction
of a Charge
|
Indicator
|
Value
|
|
·
Level of charge for SUCB
|
5p
|
|
·
Percentage reduction in SUCB consumption
|
59%
|
|
·
Percentage increase in BfL consumption
|
172%
|
174.
The minimum level of
charge recommended under option 2 was originally based on the
estimated social cost of a single-use carrier bag (7p). However,
taking into account the level of uncertainty and the responses to
the second consultation this has now been amended to 5p per SUCB.
The corresponding percentage reduction is based on data from the
Irish ‘PlasTax’ and was adjusted according to the level
of charge under consideration. The range of values for Costs and
Benefits and NPVs given in the ‘Summary: Analysis and
Evidence’ page is based on differing percentage reductions in
SUCB consumption following the introduction of a 5p charge (see
Table 2.0 in the Evidence Base for more detail).
175.
The percentage
increase in BfL consumption following the introduction of a charge
on SUCBs is based on an assumption used in the AEA WAG Single-Use
Bag Study (see Reference 1). The AEA study estimated that demand
for reusable LDPE bags would increase by 263% following the
introduction of a charge on all single-use paper and plastic
carrier bags. This percentage increase, however, corresponded to a
90% reduction in demand for single-use bags, which was based on the
reduction in SUCBs experienced by Ireland following their
introduction of the ‘PlasTax’. The regression analysis
outlined in the Evidence Base shows that a 5p charge on SUCBs is
estimated to reduce consumption of SUCBs by approximately 59%;
therefore, the corresponding percentage increase in BfL consumption
was estimated to equate to around 172% ([263 / 90] x
59).
176.
However, the
analysis assumes that the level of BfL demand following the
percentage increase will be sustained throughout the 15-year
forecast period; in reality, this will not necessarily be the case.
It is estimated that there is likely to be an initial surge in BfL
demand following the introduction of a charge on SUCBs, provided
consumers adapt their behaviour in response and switch consumption
to the reusable bags-for-life. But given that many of the more
expensive BfL will last for up to a year, or perhaps even longer,
this level of demand might fall once consumers have purchased their
required volume of BfL.
177.
Furthermore, many of
the ‘bags-for-life’ which are sold for 10p are indeed
intended to be ‘for life’: many retailers which sell
the 10p BfL offer a promise to replace the bag free of charge once
it reaches the end of its life. However, it is not known whether
this policy would continue following the introduction of a charge
on SUCBs, or whether this will also be extended to the more
expensive reusable bags (which we have also termed
‘bags-for-life’ for the purpose of this analysis),
which would reduce the cost to the consumer over time of purchasing
BfL.
Additional
Assumptions made under Option 3 (a Ban on SUCBs)
178.
Table H outlines the
additional key assumptions used in the evaluation of the effect of
a ban on the overall NPV. As considered under Option 2, the main
key indicator was the percentage reduction in consumption of
single-use bags following the introduction of the policy and the
subsequent percentage increase in BfL.
Table
H Assumptions under Option 3: Introduction
of a Ban
|
Indicator
|
Value
|
|
·
Percentage reduction in SUCB consumption
|
100%
|
|
·
Percentage increase in BfL consumption
|
292%
|
179.
It was assumed that
a ban on SUCBs would result in a 100% reduction in the number of
SUCBs consumed. This would ultimately depend upon there being a
100% rate of compliance with the ban.
180.
The derivation of
the percentage increase in BfL demand following a ban on SUCBs is
the same as that described under Option 2; i.e. the increase
corresponds to the percentage reduction in SUCBs, based on the
assumptions used in the AEA Technology WAG study ([263 / 90] x
100).
Additional Assumptions made
under Option 4 (Extended Voluntary Agreement)
181.
Table I shows the
additional assumptions used under Option 4, the extended voluntary
agreement. As with Options 2 and 3, the main key indicators are the
percentage changes in consumption of both SUCBs and BfL.
Table
I Assumptions under Option 4:
Extended Voluntary Agreement
|
Indicator
|
Value
|
|
·
Percentage reduction in SUCB consumption
|
18%
|
|
·
Percentage increase in BfL consumption
|
51%
|
|
·
Charge imposed under Voluntary Agreement
|
5p
|
182.
The percentage
increase in BfL consumption (51%) was calculated using the same
method as for Options 2 and 3, i.e. relative to the percentage
reduction in SUCB consumption and based on the AEA estimate ([263 /
90] x 18).
183.
The estimate of the
percentage reduction in SUCB consumption under Option 4 was based
on data from a report by Nolan-ITU,
on plastic bag consumption in Australia between 2002 and 2004. The
report indicated that, with a voluntary code of practice
encompassing targets for bag usage set by the Environment Protection and
Heritage Council, SUCB usage had fallen by between 10% and 25%
between 2002 and 2004. Based on the average of this range, it was
estimated that with an extended voluntary agreement in Wales which
achieved an additional participation rate of 30% of the remaining
retailers, a reduction in SUCB usage of 18% could potentially be
achieved.
184.
It was assumed for
the purpose of this analysis that all retailers involved in the
agreement would impose a charge of 5p on each single-use bag. This
assumption was based on responses to the consultation process,
which indicated that several retailers already impose a charge on
SUCBs outside of the voluntary agreement which is currently in
place.
185.
The percentage
reduction in SUCBs demanded under Option 4 was not based on the
Irish data, since it was assumed that not all retailers would be
involved in the extended voluntary agreement. Furthermore, some may
choose to reduce SUCB consumption via means other than the
imposition of a charge. It should be noted, thus, that the costs
and benefits estimated to arise under Option 4 could potentially be
over- or under-estimates (for instance, if the percentage reduction
in SUCB demand was lower or higher, respectively) and should
therefore be considered accordingly.
186.
Responses to the second
consultation indicated that there was a high level of support for
an extended voluntary agreement. However, there was no further
evidence provided to support the case for Option 4.
187.
For illustrative purposes,
sensitivity analysis was undertaken to give an indication of the
impact of Option 4 under revised assumptions. For example, if
Option 4 were able to reduce SUCB demand by a further 50% relative
to the baseline (i.e. 445 million reduced by 50%, to 223 million)
it is estimated that, provided 50% of remaining retailers took part
(rather than the 30% assumed in the original model) and all
voluntarily charged 5p per bag, this could create an additional
benefit of around £50 million relative to the original
estimated NPV. This would give a new overall NPV of -£320
million. If participating retailers only charged 1p per SUCB on
this voluntary basis the additional benefit relative to the
original NPV is likely to be smaller at around £10 million,
generating an overall NPV of an estimated -£360 million. These
adjusted NPV figures also account for the anticipated relative
increase in bags-for-life that would arise under this option. These
illustrative figures indicate, therefore, that Option 4 is not
likely to rank any differently among the policy options even if the
modeling assumptions were amended.
Annex 4: Amendments to the Single Use Carrier
Bags Charge (Wales) Regulations 2010
188.
The Amendment Regulations make a number of minor changes to the
Single
Use Carrier Bags Charge (Wales) Regulations 2010 to ensure that
they give effect to the policy consulted on. They also make
two substantive changes.
189.
The minor changes relate to:
·
clarification of VAT;
·
clarification of how amounts above the 5 pence minimum charge are
to be treated for reporting purposes;
·
removing the exemption for sealed bags;
·
clarification of the exemption for packaging and delivery of mail
order goods in polythene mailbags;
·
preventing a notice of intent to impose a fixed monetary penalty
from being served if a seller has previously discharged liability
to a penalty in relation to the same breach of the Regulations.
190.
This annex is concerned with the two substantive changes to the
Single Use Carrier Bags Charge (Wales) Regulations 2010, which are
based on feedback from businesses and the business sector in Wales
and relate to:
·
removing the reporting requirements for sellers who employ fewer
than 10 full-time equivalent (FTE) members of staff on the first
day of a reporting year;
·
costs incurred by sellers prior to implementation being deductable
from the amount they report as their net proceeds of the charge in
the first year.
191.
Following the consultation process and feedback from businesses, it
is apparent that the requirement to keep records is likely to
introduce a level of practical complexity for micro businesses that
is disproportionate to the contribution they make to the number of
SUCBs supplied in Wales. On balance it is therefore considered that
the regulatory burden on the smallest of businesses outweighs the
public benefit of having access to those records. Hence, the
record-keeping requirements for retailers employing fewer than 10
full-time equivalent (FTE) staff at the beginning of any particular
reporting year are being removed (though these businesses will
not be exempt from the requirement to charge for SUCBs).
192.
The 2010 Regulations do not currently allow set-up costs incurred
by retailers to be included in the definition of ‘reasonable
costs’, since they are not incurred during the actual
reporting period (which in the first year covers the period 01
October 2011 to 06 April 2012). The Regulations are thus being
amended so that these set-up costs count as ‘reasonable
costs’ for the first reporting year and consequently, can be
deducted from the amount sellers receive from charging 5 pence each
for SUCBs in the first reporting year. This will produce a
more accurate picture of the additional money that sellers receive
by having to charge 5 pence per single-use carrier bag.
Exemptions from
Reporting Requirements
193.
The exemption from reporting requirements for micro businesses aims
to release the smallest retailers in Wales from the record-keeping
duty. The threshold upon which the exemption is set is a headcount
of fewer than 10 FTE staff. Data from the UK department for
Business Innovation and Skills (BIS) indicates that 95% of
businesses in Wales fall within the threshold of fewer than 10 FTE
staff, suggesting that the majority of businesses in Wales would be
exempt from the reporting requirements (but not from the charge
itself).
194.
The IDBR
suggests that in total there are around 9,600 food and non-food
retailers in Wales, all of which will be affected by the single-use
carrier bag (SUCB) Regulations. Applying the BIS assumption to the
number of retailers in Wales, the exemption could mean there would
be around 500 retailers (the majority of which will have multiple
outlets throughout Wales) having to comply with the reporting
requirements (with the remaining 9,100, or 95%, being exempt).
Table J shows the reduction in the overall costs to retailers as a
result of this amendment to the 2010 Regulations.
Table J Average Annual (Total) Costs to Retailers
of Keeping Records
and Submitting Returns
|
|
Number of Retailers in Wales
|
Average Annual Cost of Record-Keeping
Requirements, with no exemption (£)
|
Average Annual Cost of Record-Keeping
Requirements, with exemption (£)
|
|
Fewer than 10 FTE*
|
9,100
|
830,000
|
0
|
|
10 or more FTE
|
500
|
40,000
|
40,000
|
|
Total
|
9,600
|
870,000
|
40,000
|
*Number of retailers with fewer than 10 FTE is
estimated to be 95% of all retailers in Wales.
195.
As indicated in Table J, the average annual cost to retailers would
fall from around £870k to around £40k per annum if 95% of
retailers were exempt from the reporting requirements. However,
since the charge is intended to be cost-neutral to retailers, the
annual cost of the reporting requirements can be recouped from the
proceeds of the charge; hence, these amendments will not have any
effect on the overall NPV of the policy option (since any reduction
in annual costs to retailers will be accompanied by an equivalent
reduction in annual benefits).
Non-Quantified
Impacts
196.
Since there will only be around 500 retailers having to report the
number of SUCBs being sold each year, it could be difficult to
monitor the impact of the policy according to the original
objectives: namely, a reduction in the number of SUCBs being
consumed annually. The Post-Implementation Review should seek to
identify gaps in information and to assess whether or not the
record-keeping requirements are contributing to the overall
evaluation process.