Two and a half billion coffee cups are used and thrown away each year in the UK, but less than 1 in 400 – just 0.25% – are recycled. Due to the environmental issues, some MPs are calling for a “latte levy” of 25p per cup .
Would this work? More generally, how can insights from behavioural economics help to reduce the number of cups that are thrown away?
Start with the 5p carrier bag charge that was introduced in England and elsewhere in 2015 and that has been so successful.[1] Five pence is not very much for a plastic bag (even for a poor person), so why did it work so well? Behavioural economics would suggest that before the bag charge consumers (and supermarkets) paid little attention to the environmental issues concerned, and people often used far too many bags (often more than they actually needed). The bag charge has drawn consumers’ attention to i) the environmental damage they cause, and ii) that they may not need that many plastic bags when they pack their stuff at the till. At its core, the bag charge is a habit-breaking attention-drawing and awareness-increasing behavioural “nudge” (moreover, we may add, it is very unlikely that the bag charge has had any negative economic impact on shopping habits or overall shopping quantity).
Could something similar to the bag charge work for disposable coffee cups? Imagine we introduce a 25p cup charge. So you can get your coffee for say £3, but if you want a cup as well you need to pay 25p more (£3.25 in total). The bag charge suggests that this will work: Just as the bag charge made people more likely to bring their “bag for life”, it can make more people buy and use a reusable “cup for life” and thus save on the nonrecyclable coffee cups. Could such a 25p fee (which as a percentage of the price of the coffee is much higher than the 5p bag charge out of a grocery charge) as a byproduct also reduce demand for coffee? We cannot rule this out, but one can consider a smaller fee, of 10p or even smaller.
Behavioural economics also suggests that framing of the cup charge is going to matter. Economist Richard Thaler, who won the Economics Nobel Prize in 2017, pointed out many years ago that it matters how a price difference is explained (“framed”) to consumers.[2] He considered debit and credit cards, where consumers often have to pay a charge for paying with a credit card, while paying with a debit card (or cash) is free. Consider now two ways to communicate this to consumers – one is that “there is a surcharge for paying with your credit card”, and the second is “you get a discount if you pay with debit or cash”. Which one should we expect will make people more likely to avoid the credit card? Prospect theory postulates that people are loss averse – losses loom larger than gains.[3] The surcharge wording suggests that you lose money from using a credit card, which will make using debit card or cash more attractive. To the contrary, the discount frame suggests that using a credit card is like foregoing a discount (a gain) which is weighted less heavily, and so has a less detrimental effect on the popularity of the credit card.
Back to the coffee. Thaler’s insight suggests that if our aim is to reduce the use of non-recyclable coffee cups, a 25p (or 10p) cup charge policy should in the stores be explained to consumers as “There will be a 25p charge of getting a disposable cup”, rather than “You will get a 25p discount if you bring your own cup.” It is interesting to observe that Starbucks are currently experimenting with the charge (see BBC, 2018), while Costa are using a discount frame (The Independent, 2018).
[1] See DEFRA’s recent carrier bag charge and usage data, at https://www.gov.uk/government/publications/carrier-bag-charge-summary-of-data-in-england
[2] Thaler, Richard. “Toward a positive theory of consumer choice.” Journal of Economic Behavior & Organization 1, no. 1 (1980): 39-60.
[3] Kahneman, Daniel, and Amos Tversky. “Prospect Theory: An Analysis of Decision under Risk.” Econometrica 47, no. 2 (1979): 263-91. doi:10.2307/1914185