ABSTRACT
This paper argues that the introduction of an ecolabelling scheme may encourage people to consume more, and in certain cases, the overall effect on the environment may be worse than the initial situation, i.e. the situation without ecolabelling scheme. A simple example will make clear the intuitive rationale for such a result. Say the market for two goods X and Y is in equilibrium respectively at prices px = 10 and py = 5 with quantities x = 10 and y = 120 for an income R = 700. For each good, one unit has a negative impact, ix = 1 and iy = 0.2. The overall environmental impact of all the products is then 34 (10 x 1 + 120 x 0.2). Now ecolabelling is introduced for the good X, which means that this product with fewer environmental impacts is launched at the same price as before. Its environmental impact is only of ix = 0.8. Let us further assume that the introduction of environmentally friendly products stops consumers feeling guilty and generates an increase in the consumption of the good X. If this increase exceeds a certain level, in our example 15 units, the overall impact on the environment will be greater after the introduction of the ecolabelling scheme. The increase in the quantity of the good X will lead to a decrease of the quantity of good Y. For a constant income, the quantity of good Y is now 60 ((700 — 10 x 40)/5). Indeed, if people consume now 40 units of good X and 60 units of good Y, then the overall impact is worse, i.e. 44 (40 x 0.8 + 60 x 0.2) which is superior to the initial level, i.e. 34. The same reasoning applies for an increase in the price of X. Although this example seems rather diagrammatic, these potential perverse effects correspond to a real concern of practitioners and policy-makers (Byron, 2001:6; European Environmental Bureau, 2003: ll) .3 In other words, the environmental improvement per unit of product is cancelled by a consumption increase. In our reasoning, consumers care about the environmental impact per product unit and do not compute the overall impact of their consumption.4 Manufacturers encourage consumers to buy the highest quantity of their products in order to maximise their profits. Consequently, manufacturers emphasise the individual qualities of their products, notably in their advertising. They have little incentives to highlight the potentially adverse effects of the total consumption.5
