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The objective in this report is to examine international economic issues in food miles and carbon labelling. In the food miles campaign, consumers are encouraged by some environmental, community and farmer groups to purchase products with lower food miles, mainly to reduce energy use in transport and, hence, carbon emissions in the food supply chain. In recent years, there has also been increasing interest in carbon labelling to provide consumers with reliable information on the carbon footprint of food and other products.
The food miles campaign has been a key issue for the agricultural sector because of its potential to distort international trade outcomes and, in particular, to reduce market access for Australia’s agricultural exports.
The failure of private markets to produce a socially optimal level of goods and services provides the economic rationale for considering government intervention. Greenhouse gas emissions (referred to as carbon emissions in this report) are a negative externality, the key market failure in the climate change debate — externalities occur as an unpriced by-product or side effect of the production or consumption of a good or service. The climate change policy response also needs to take into account the presence of information and other market failures.
Major international climate change policy assessments advocate a range of information and education policies, including product labelling and mandatory disclosure, to address information market failures. Product labelling aims to provide consumers with information about credence attributes of a product — these are attributes of a product which typically may not be reasonably checked by consumers, even after consumption.
There is significant empirical evidence that non-eco labels, such as nutrition labels, can change market behaviour, although research concerning the impact and effectiveness of eco labels is more limited.
The food miles concept originated in the United Kingdom (UK) in the early 1990s and has been supported by a range of environmental, community and farmer groups. Reflecting community concern about the carbon intensity of air transport and the rapid growth in air freighted food imports, two major UK retailers (Tesco, and Marks and Spencer) now place plane stickers on fresh produce that has been air freighted from abroad.
Empirical evidence indicates that food miles is an unreliable indicator of carbon emissions in the food supply chain. For example, in 2006 a major study on the validity of food miles found that New Zealand is substantially more energy efficient, and less carbon intensive, than UK producers in producing and delivering lamb and dairy products to the UK market.
Importantly, while food miles may have intuitive appeal among some consumers, the food miles concept results in less informed consumption choices and does not reflect the carbon emissions embodied in many products.
A survey undertaken by the UK Carbon Trust in 2006 found that three-quarters of UK consumers were concerned about climate change and the carbon footprint of their purchases, with two-thirds indicating they would purchase products with a low carbon footprint.
In 2007, the Carbon Trust introduced a carbon reduction label in partnership with several companies. Companies that choose to place the carbon reduction label on products agree to undertake a comprehensive carbon audit of the supply chains (including production and transport), and commit to reducing carbon emissions over a two year period. The PAS 2050 methodology, developed by the British Standards Institute (BSI), was launched in October 2008 and now underpins the carbon reduction label.
The Carbon Trust is reported to be working toward carbon reduction labels with Coca Cola, PepsiCo and other companies in the United States, and with the China Energy Conservation Investment Corporation. Other carbon labelling initiatives have been introduced or are under development in several other countries in Europe, the United States and Asia.
The Carbon Trust is reported to be working with the International Organisation for Standardisation (ISO) and the World Resources Institute (WRI) to develop a universally accepted standard for measuring embodied carbon emissions. In response to concerns about the high cost of implementing PAS 2050, the World Business Council for Sustainable Development (WBCSD) is developing a simplified low cost standard to achieve widespread adoption by businesses in both developed and emerging economies.
Carbon labelling provides information on the carbon footprint of a product — a carbon footprint is a credence attribute which cannot be reasonably checked by consumers.
Carbon labelling may encourage behavioural change in consumers to achieve more sustainable consumption patterns. The costs of adjusting toward a low emissions economy may be reduced when both price and non-price signals are used to reduce demand for relatively carbon intensive products.
More generally, carbon labelling may facilitate consumer participation in climate change responses. For example, carbon labelling can help raise consumer awareness about environmental issues. However, the benefits of carbon labelling are uncertain because they depend on consumer perceptions of the reliability of the information and access to that information — especially where carbon labelling schemes are voluntary.
The administrative costs of carbon labelling are likely to vary according to the methodology or standards adopted. A more complex methodology would tend to increase the cost of data collection and calculation of the carbon footprint as well as the cost of the verification process. Mandatory disclosure imposes costs on all producers, while voluntary labelling would occur only if the investment is assessed by producers to be profitable.
There are various issues associated with each stage of the carbon labelling process — identifying the methodology; data collection and calculation of the carbon footprint; verification; and disclosure — which should be considered in assessing the benefits and costs of any given option.
There is a risk of consumer confusion about the reliability and interpretation of information provided in a carbon label. Third party verification of the estimate of the carbon footprint can enhance the reliability and credibility, and hence effectiveness, of carbon labelling. For example, market research may be used to test carbon labelling options, to reduce the risk of consumer confusion. Complementary information programs would also have a role.
Food miles is a misleading indicator of the carbon footprint of food products that, if widely used, would distort international agricultural markets and possibly increase global carbon emissions.
Carbon labels are a potential alternative to food miles, but it is important to ensure that carbon labelling, where implemented, represents a cost effective contribution to the climate change response on the part of consumers.