San Francisco supermarkets hand out 45 million plastic bags a year. It is no wonder that the board of supervisors is  thinking of passing a 17 cent tax on plastic bags. The City of San Francisco got that number based on the following calculations:

Recycling and compost contamination. Removal of bags from the recycling and composting streams, clearing machinery jams, and contamination of recycled and composted materials results in $1.09 million in added costs or lost sales. Cost per bag: 2.2 cents.

Collection and disposal. Collecting and disposing of bags costs $3.6 million annually. Cost per bag: 7.2 cents.

Street cleaning. Removing bags from city streets costs $2.6 million a year. Cost per bag: 5.2 cents.

Future landfill liability. Potential remediation and processing costs of bags in city landfills is $1.2 million annually. Cost per bag: 2.4 cents.

Total cost per bag: 17 cents (SFGOV).

 The 17 cent tax that San Francisco is thinking of passing is a Pigouvian tax. A Pigouvian tax is a tax that is levied on a polluter’s output that equals the marginal external damage that the polluter causes. This tax is probably highly effective; however, there are other techniques that make work as well. One technique would be for the city to offer a refund to anyone who returns a plastic bag for recycling. This would encourage recycling and virtually eliminate the litter in the streets and a proportion that ends up in a landfill. Another technique would be if the government levied a tax on producers of plastic bags. This would raise the cost to the grocers of purchasing plastic bags and cause the grocers to conserve the bags or perhaps charge for them.

The Pigouvian tax has two main opponents: The American Plastics Council and the California Grocers Association. The American Plastics Council is against it because plastic bags make a lot of money for many plastic manufacturers. The American Plastics Council doesn’t cite this but instead claims that they are doing it because they recycle the plastic into other things. The California Grocers Association is against the tax because it claims the grocers will receive the brunt of consumer outrage. This may be true but the end result might be positive for the grocers. If people start using reusable bags than grocers will have to buy less plastic bags and this will lower their costs, also grocers could start selling reusable bags and make a profit on those as well.

If the Pigouvian tax is passed than their will definitely be reduced use of bags. The Irish government, for example, passed a fifteen cent tax on grocery bags and reduced grocery bag use by ninety percent. This is a phenomenal reduction with much cost saving attached to it. What we need to be cautious about is not to set the tax too high. If the tax is set too high then the socially optimal level of bag use may not happen.