2022 Reports

Economic impacts to consumers from extended producer responsibility (EPR) regulation in the consumer packaged goods sector

Bose, Satyajit

We construct a triangulation of the upper bound of expected consumer price impact resulting from the introduction of EPR fees in the consumer packaged goods sector. We review the estimate of the packaging cost component of US expenditure on food (a subset of the consumer packaged goods sector), as computed by the USDA based on economic input-output analysis. We use this estimate as a foundation, combined with food price elasticities and the analysis of expected burden-sharing between suppliers and consumers of the increase in packaging costs due to EPR requirements. We construct an orders-of-magnitude estimate of the maximum increase in grocery bills that an average US consumer should expect as a result of a nationwide adoption of EPR regulation. Even if EPR compliance costs were to lead to a doubling of packaging costs throughout the value chain, the computed upper bound is approximately 0.69% of grocery spending. This estimate corresponds to a maximum increase in monthly grocery bills of $4 per household. In the context of a 9.5% increase in the CPI in the latest 12 months, it would be difficult to discern such a small impact on prices. Previous research indicates that most US food, drugstore, and mass merchandise chains charge nearly uniform prices across stores even though they could increase their profits by exploiting the wide variation in demand elasticities and income levels across stores. In addition, a basic insight of economic analysis is that so long as there is some elasticity to consumer demand, then suppliers will not be able to pass on 100% of cost increases to customers. Other studies suggest that there is no discernible impact on consumer prices from the introduction of EPR requirements. These considerations are likely to dampen the response of local prices to increases in costs resulting from state-level EPR regulation.