Single-Use Cup Charge: Can Scotland’s Latte Levy Promote Environmental Responsibility?

In an effort to reduce waste and encourage environmentally responsible behaviour, the Scottish Government is proposing a 25p charge on single-use cups. This initiative echoes similar successful schemes, such as the charge on single-use plastic bags, which led to an 80% reduction in their usage. With 388 million single-use cups used in Scotland in 2021-22 alone, the environmental impact is significant. But beyond the environmental rationale, what are the economic implications of such a charge, and how might it shape consumer behaviour and business practices?

The idea behind the proposed charge is rooted in economic principles of externalities and behavioural incentives. Single-use cups, while convenient, create negative externalities—unintended costs like pollution and waste that society must bear. By imposing a charge, the government aims to internalise these externalities, making consumers more aware of the true cost of their choices.

One of the key economic ideas at play here is the concept of Pigovian taxes imposed to correct negative externalities. The 25p charge is designed to make the environmental cost of single-use cups more apparent to consumers, thereby incentivising them to switch to reusable alternatives. The expectation is that, much like the success seen with single-use plastic bags, this charge will lead to a significant reduction in the use of disposable cups.

However, the proposal is not without controversy. Critics argue that the timing of the charge could place additional financial pressure on consumers, especially during a period of economic stagnation and falling real incomes. Moreover, some believe that businesses, particularly small retailers, might struggle with the administrative burden of implementing the charge.

The consultation also raises important questions about the allocation of the funds raised. Should the proceeds go to businesses to cover implementation costs or fund environmental initiatives? Or should they be collected by the government as a tax to support broader environmental programmes? This debate reflects the tension between public and private sector roles in addressing environmental issues.

The proposed charge also brings into focus the broader concept of a circular economy, where products and materials are reused and recycled, minimising waste. By reducing reliance on single-use items, Scotland can move closer to achieving its net-zero emissions targets and promoting a more sustainable economy.

Summary of Key Points

• Externalities: The negative environmental impact of single-use cups, such as waste and pollution, is a classic example of a negative externality.
• Pigovian Tax: The 25p charge on single-use cups is a form of Pigovian tax aimed at correcting these externalities by incentivising more sustainable consumer behaviour.
• Behavioural Economics: The charge is expected to influence consumer behaviour, encouraging the use of reusable cups, similar to the success seen with the plastic bag charge.
• Circular Economy: The initiative aligns with the principles of a circular economy, aiming to reduce waste and promote the reuse and recycling of materials.

Exam-Style Questions

1. Discuss the concept of externalities and how a Pigovian tax, such as the proposed 25p charge on single-use cups, can be used to address them.
2. Evaluate the potential economic impacts of the single-use cup charge on both consumers and businesses in Scotland.
3. Critically assess the argument that the proposed single-use cup charge is poorly timed given the current economic conditions in Scotland.

Glossary of Key Economic Terms

• Behavioural Economics: A field of economics that examines how psychological, cognitive, emotional, cultural, and social factors affect economic decisions.
• Circular Economy: An economic system aimed at eliminating waste and the continual use of resources through recycling, reusing, and reducing materials.
• Externality: A cost or benefit for a third party who did not agree to it; externalities can be positive or negative.
• Pigovian Tax: A tax imposed on any market activity that generates negative externalities, intended to correct the market outcome.
• Sustainability: Economic development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

Retrieval Questions for A-Level Students

1. What is a Pigovian tax, and how does it relate to the proposed charge on single-use cups?
2. How do negative externalities impact society, and what role do government interventions play in addressing them?
3. Explain the concept of a circular economy and how the single-use cup charge fits into this model.
4. What are the potential benefits and drawbacks of implementing a 25p charge on single-use cups in Scotland?
5. In what ways can consumer behavior be influenced by economic incentives like the single-use cup charge?