October 2017

Critique of Carpet Study Published

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A foundation that advocates market transformation to bring about positive changes towards a sustainable economy commissioned Eunomia to review an econometric study on the impact of Product Stewardship fees on carpet sales in California.

The Changing Markets Foundation asked Eunomia to critique a study written by consultancy Bates White, written for the Carpet and Rug Institute (CRI). The Bates White report investigated the impact of the California Carpet Stewardship Programme (CCSP) assessment fee on California carpet shipments. The assessment fee, which acts as a form of Product Stewardship, is a surcharge (currently $0.25/square yard) paid by manufactures to fund the CCSP, which seeks to stimulate carpet recycling in California.

The study by Bates White, commissioned by CRI, concludes that the fee has had a significant negative impact on shipments. However, Eunomia’s analysis finds that the study suffers from a number of methodological weaknesses which render its claims unsubstantiated. Reviewing the data presented and the analytical techniques applied, Eunomia’s econometric experts identified a range of problems, including:

  • Exclusion of the price of carpets from the analysis;
  • Exclusion of substitute products and other relevant factors that might affect demand;
  • Failure to account for variables in the Difference-in-difference regression model (which compares impacts before and after the implementation of the assessment fee); and
  • Failure to include relevant factors in price elasticity calculations (i.e. the responsiveness of demand to changes in price).

Chris Sherrington, one of the authors and Head of Environmental Policy and Economics at Eunomia, said:

“Changing Markets, which works with other organisations on carpet recycling in the US, was concerned the Bates White analysis wasn’t accurate, hence coming to us for a peer review. Based on our understanding of econometric techniques, we were able to identify, and explain clearly the shortcomings in their study. The technical information in the initial study meant it wasn’t transparent for the organisations involved.”

Eunomia has previously produced econometric modelling work for the Environment Agency in a study on the impacts of changes in water craft registration fees based on size. This work investigated the price elasticity of demand for registration by econometrically estimating its relationship to craft registration fees over both the short and long-term.

The current report for the Changing Market Foundation adds to Eunomia’s growing track record in the United States, where we opened a New York office earlier this year. Sarah Edwards, head of Eunomia’s New York office, delivered a presentation on ‘Radical Extended Producer Responsibility (EPR) Solutions to Drive the Circular Economy’ at the International Solid Waste Association (ISWA) 2017 Conference in Baltimore on Tuesday 26th September 2017.

Eunomia’s report for Changing Markets, and presentation at ISWA, both reflect an increasing interest globally in using EPR to shift a greater proportion of the financial burden of end of life management of products from citizens and tax payers to producers and consumers of those products. The Organisation for Economic Co-operation and Development (OECD) has recently published guidance on how EPR could work, and Eunomia, on behalf of the OECD, is currently undertaking research to explore the effects that online sales have on EPR schemes for electronic and electrical equipment.

Photo by Klavash (CC-BY-S.A 2.0), via www.flickr.com