Policy Recommendations
In order to encourage companies to make tradeoffs between social, environmental, and economic concerns, steps must be taken to lower the barriers to consuming sustainable products: (1) high price, (2) lack of information, and (3) lack of availability, and (4) concern for capital so they may experience sales growth. By breaking down these barriers consumers may begin to see the real costs of the products they purchase, which may diminish their concern for capital, or their willingness to preference capital over sustainability concerns when they are in conflict.
(1) Price
Price is the largest obstacle to purchases of green products, according to a survey of 3,600 consumers by the UK Department for Environment, Food, and Rural Affairs (McKinsey, 2008). Many of these products are more expensive than their equivalents for good reasons. First, there may be a relatively small market for these products, there are additional costs associated with certification, and there is relatively more money going to the producer in terms of income as well as for business development.
While there may be costs associated with sustainable goods, there are also significant costs associated with unsustainable production, which are considered negative externalities[1]. In the case of externalities, prices do not reflect the full costs or benefits of producing or consuming a product or service, and too much or too little of the good will be produced or consumed in terms of overall costs and benefits to society. For example, when workers are severely underpaid for their labor (as in the case of unregulated sweatshop and agricultural labor), inadequate wages impose significant costs on the laborer and his or her family as well as the society who must address the multiplicity of problems related to poverty -- inadequate access to nutritional food, education, health care, housing, transportation, etc. When the full cost labor is not taken into account the product is produced too cheaply and does not reflect the costs of production like providing an adequate standard of living for those employed producing it. Another example of an externality is that automobiles are not priced to take into account the costs of the pollution they generate. Because this cost is not included, the price of an automobile does not fully reflect the cost of the automobile to society.
Pigouvian Taxes: To confront parties with the issue of externalities the economist Arthur Pigou proposed taxing the goods that were the source of the negative externality. These Pigouvian taxes would correct the price to accurately reflect the cost of the goods' production to society, thereby internalizing the costs associated with producing the good (Baumol, 1972). An example of a Pigouvian tax is a carbon tax, which increases the competitiveness of non-carbon technologies like solar, hydro, wind, and nuclear power compared to the traditional burning of fossil fuels, thus helping to protect the environment while raising revenues for non-carbon technologies.
A carbon tax, however, must be administered worldwide in order to ameliorate the global warming already under way (Nader & Heaps, 2008). It would probably require a global body to adjust and regulate this tax, but considering the unsuccessful nature of the Copenhagen climate summit, we may be quite far from establishing any sort of legally binding agreement to reduce greenhouse gas emissions. Furthermore, within Pigou's framework, the changes involved are marginal, and the size of the externality is assumed to be small enough not to distort the rest of the economy. Some argue, however, the impact of climate change could result in catastrophe and non-marginal changes (Helm, 2005).
The California Effect: The California Effect, or the use of market incentives to promote the ratcheting upward of regulatory standards provides evidence that it may be possible for developed countries to impose higher regulatory standards without a significant loss of capital. In 1970 the Clean Air Act Amendment permitted California to enact stricter emissions standards than the rest of the United States. Although automobile manufacturers had to spend extra capital to produce more efficient cars, they did not simply abandon California as a market. This shows political jurisdictions that develop stricter product standards may have the ability to force producers to design products that meet those standards or else deny them access to its markets (Vogel, 1997).
Developed countries, like the state of California, are in a position to establish higher standards to encourage the adoption of social and environmental standards around the world. These standards might ensure things like living wages, safe working conditions, corporate community engagement and environmental stewardship in developing as well as developed nations. As developing countries look for ways to access the markets of developed countries to fuel their economic growth, these market incentives may actually bolster the social and environmental standards of companies and countries. Without these market incentives from developed countries, however, governments and companies around the world would have relatively little reason to bolster their social and environmental standards. Instead, they may focus on creating cheap exports, which may not be compatible with regulation in favor of sustainability.
The United States’ decision to import sustainably produced goods may be especially helpful to temper the populist anger that my respondents expressed toward big businesses that produce overseas. While it is not necessarily true that these companies are the least sustainable, my respondents negative attitudes toward them and were quick to characterize them as exploitive. If the U.S. made it known that they would only import goods that met certain socially and environmentally sustainable criteria, the citizens would have little reason to assume that the goods they purchase were made in undesirable conditions.
It is unlikely, however, that the U.S. would decide unilaterally to begin exclusively importing sustainable goods, as it would put them at a distinct disadvantage in the market. Again, it may be most effective to establish an international body of developed countries that are willing to condition access to their markets on producing goods sustainably. To avoid unreasonable or unequal expectations, I suggest that each of the developed countries also adopt these standards of sustainability.
Creating international bodies to levy carbon taxes and set global labor standards, however, is a very difficult process. In light of this difficulty, perhaps the real question we should ask is not “how expensive are sustainable products,” but “how do my purchasing habits affect the global population and environment?” One way to do this is to ensure that consumers understand the financial and environmental returns on their investment in sustainable products. Indeed, consumers may be more willing to try new ones—especially those that cost more—when they find it easy to track the savings (McKinsey, 2008). One way to do this is to educate the consumer about the product decisions he could potentially make.
[1] An externality is a cost or benefit not transmitted through prices, which is incurred by a party who did not agree to the action that caused the cost or benefit.
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