Carbon footprint labels are spreading

First, Tesco introduced carbon footprint labels on 70,000 of its products including orange juice, potatoes, energy-efficient light bulbs, and detergent. The plan was developed in conjunction with the British Carbon Trust (a private company set up by the British government). Then the French retailer Casino followed. Now Japan has announced plans to launch carbon labels next year. Unlike in Europe, the Japanese Trade Ministry is overseeing the project, which will include some of Japan’s largest retailers including Aeon Corporation of Japan, Seven & I Holdings, and Sapporo Breweries.

Sapporo has already affixed labels to some of its products, like the one below. Since grams of carbon don’t mean much to consumers, we think a simpler labeling scheme that tells how this product compares with other similar products (like energy star labels) would be a better approach.

Sunstein and Thaler in the Financial Times and the Wall Street Journal

From “The Dramatic Effect of a Firm Nudge” by Sunstein and Thaler in the Financial Times:

In the past three decades, psychologists and behavioural economists have learnt that people’s choices can be dramatically affected by subtle features of social situations. For example, inertia turns out to be a powerful force. If people’s magazine subscriptions are automatically renewed, they renew a lot more than if they have to send in a renewal form. More­over, people are influenced by how problems are framed. If told that salami is “90 per cent fat-free” they are far more likely to buy salami than if they are told it is “10 per cent fat”. Social norms matter a lot. If people think others are recycling, or paying their taxes, they are far more likely to recycle and to pay their taxes. The important message is that small details can induce large changes in behaviour.

Read the full piece in which the two respond to recent critics who wonder how nudges can ever be expected to fix massive, complex problems like terrorism or global warming.

Separately, Thaler reports this amusing bit about his frustrating experience with food labels.

“I wanted to check the fat content of some food items. It turns out that the standard tables I found are in a format that makes calculating the most relevant number (% of calories from fat) about as difficult to calculate as possible. That is, the fat content is listed as grams per ounce! You have to look up the number of grams in an ounce just to get started!”

From the Wall Street Journal, “Disclosure is the Best Kind of Credit Regulation.”

The two will participate in a Financial Times online Q&A session Friday at 11 a.m. EST or 4 p.m. BST. You can submit questions now.

Traffic lights + taxes on food = A possible nudge

Reader Tom Allchurch from the U.K. writes the Nudge blog with an idea to revamp the value added tax (VAT) system’s rules and presentation.

VAT rules on food are truly bizarre and incomprehensible. Almost no one understands them. I recently met Ed Balls the Minister for Children who admitted that he didn’t. The original logic back in the 1970’s for no VAT vs. 17.5 percent VAT was “luxuries” vs “essentials.” So VAT is payable on hot food (eat-in or take away), food eaten on the premises, all beverages (water, soft drinks, juices, coffee), confectionery and processed savoury snacks. It is not payable on food that you heat up yourself, cold food taken away or taken home, coffee granules, beans, tea bags, bakery, and cakes, nuts in their shells. Read the full rules here.

As a result some foods high in sugar and fat have a high tax (Coke, potato crisps), while some which are low in fat also have a high tax (Diet Coke, mineral water, baked potato crisps). Some very unhealthy foods have no tax (Krispy Kreme donuts and milk shakes). Fries you cook yourself. Chocolate Cake. Sugar. Frying oil. Some very healthy foods have a high tax like fruit eaten on the premises, and salads eaten on the premises.

Allchurch’s idea is to revamp the VAT on food by taxing unhealthy foods at a higher rate and labeling them with a red circle (like a traffic light). Healthy foods would not be taxed (or taxed at a low VAT) and be labeled with a green circle.

The traffic light labelling system already exists from our National Food Standards Agency covering fat, saturated fat, sugars and salt. But it is not mandatory. If it were then it would be simple to set the tax rate in steps. The total tax revenue might stay same, but would be focused on unhealthy foods. The combination of clear front of pack labelling and price differences would be a powerful influence on consumer behaviour. It would also be a powerful influence on food manufacturers and retailers who would see big changes in profitability from different foods encouraging further investment and focus. Imagine if the price of Diet Coke were 20 percent lower than Coke. Imagine if low fat chips were 20 percent cheaper than high fat ones.

Which green labels have an impact on customer buying decisions?

A study of consumer trends by the Natural Market Institute says the Energy Star and Recycled labels have a large impact on customer buying decisions. Department of Agriculture Organic and Fair Trade Certified labels aren’t nearly as successful.