Carbon Labelling
Our research suggests that an initiative to show consumers which products are more environmentally friendly needs to be easy to understand to be effective.
The study involving the University of East Anglia investigated the impact of a carbon footprint label on detergents and whether products with the label commanded a higher price or generated more demand than those without.
The label showed a footprint with the approximate number of grams of carbon dioxide a product generates during its life cycle, for example as it is grown or manufactured, transported, stored and used. It also included a commitment to reduce the detergent’s carbon footprint, information on the footprint of a benchmark product and advice on how customers could reduce their footprint even further, such as reducing washing temperature.
The researchers found that having the carbon footprint on the detergent products had no impact on prices or demand. They suggest that the design of the label meant customers found it difficult to notice, understand and compare carbon footprints or different detergents and therefore did not reward carbon labelled or less carbon intensive products with a price premium or with higher demand.
Co-author Dr Jibonayan Raychaudhuri, of UEA’s School of Economics, said if consumers are willing to pay more for carbon labelled, or low carbon footprint, goods - and by doing so contribute to the public good - there is an incentive for firms to lower the carbon footprint of their products, label them accordingly and charge a higher price.
“Our results are somewhat surprising, since we would expect that the presence of a label should lead to an increase in price when consumers value the environmental aspect,” said Dr Raychaudhuri, who conducted the research with Dr Mika Kortelainen from the VATT Institute for Economic Research in Finland and Dr Beatrice Roussillon of Université Grenoble Alpes in France.
“However, we believe the specific design of this carbon label was responsible for its lack of success in generating an increase in price for the labelled products. A simple label of approval or a traffic light system on the front of the packaging is more likely to be noticed and to influence the purchasing decision, and therefore more likely to generate higher revenues for the firm. Making labels easy to understand could increase the likelihood of customers buying the product and would also achieve the goal of educating consumers.”
The study, published today in the journal Economic Inquiry, is one of the first to examine the effects of a carbon label using real market data. It analysed the purchase behaviour of 60,000 customers from a major UK supermarket chain.
