Latte Levy - a surcharge for use of takeaway paper cups

MPs are calling for a law that would introduce a surcharge of 25p for the use of takeaway paper cups used for hot drinks purchased from coffee shops.

The levy has been suggested as the huge consumption of the paper cups has a negative impact on the environment as they are difficult to recycle (they're constructed to be waterproof!). More information on the suggestion can be found in this article from the Guardian.

Addressing negative externalities

The 'latte levy' provides a useful example for Economics students of government policies to combat a negative externality. It would seem that current self-regulating policies are ineffective - attempts by the coffee shops to either re-cycle the cups in special bins located on their premises or offering discounts to customers who provide their own cups do not seem to have attracted much uptake.

The group of MPs highlight the positive impact of the plastic bag surcharge introduced in supermarkets and shops and how that has vastly reduced their use. The argument is that people will respond more positively (i.e. reduce consumption of paper cups) to a charge rather than offering discounts. Is a latte levy an effective nudge to change behaviour?

It would be interesting to know the price elasticity of demand for takeaway coffee and how an increase in price of between 7 and 10% would impact on demand (does the 'addictive' nature of coffee make it relatively inelastic?).

MPs are also suggesting several other measures for reducing consumption that could act as alternative suggestions for students. An outright ban is proposed, as well as requiring the coffee shops to pay more towards the cost of recycling cups and a cigarette-packet style display of information on the cup warning of the dangers.

Here is a link to our resources on the economics of plastic pollution

Some responses to the debate over a latte levy!

Study resources on the Tutor2u website

Negative externalities

Government intervention

Plastic bag tax