Attachment 5

Office of Sustainability and the Environment

200 Santa Monica Pier, Ste. J

Santa Monica, CA 90401-3126

(310) 458-2213

www.sustainablesm.org

environment@smgov.net

 
Description: Description: colorstd-R.jpg

 

 


Analysis of Cost Pass-Through

December 20, 2010

In response to concerns regarding the environmental impacts related to single-use plastic and paper carryout bags, the Santa Monica City Council on February 26, 2008 directed city staff to prepare an ordinance prohibiting retail stores from distributing single-use plastic bags and regulating the use of paper bags through collection of a fee.  Following the passage of Proposition 26 on November 2, 2010, which redefined some fees established by local governments as taxes, staff has revised the proposed ordinance for City Council consideration and adoption.  Under the revised ordinance the City would not collect a fee on paper bags, but stores would not be allowed to distribute paper bags to customers for free.   The revised ordinance requires stores that decide to make available recycled paper carry out bags to pass-through the “reasonable cost” of providing such bags to their customers and complying with the ordinance.  The proceeds of the sale of recycled paper carry out bags to customers would be retained by the retailer for cost reimbursement; no portion of the cost pass-through would be received by the City. 

This report provides the basis for determining the minimum “reasonable cost” for paper bags that stores would be required to pass-through to customers.  The report also includes an evaluation of the effect that single use bag fees in other jurisdictions have had on reducing the use of those bags.  The evaluation is intended to establish the basis for an estimated reduction factor that could be expected in single use paper bag usage if stores pass-through the cost of the bags to the customer.

 

 

 

Costs to Stores for Paper Bags

The City conducted research in September of 2008, which included a telephone survey of Santa Monica retail stores and an outreach meeting hosted by the Santa Monica Chamber of Commerce and the City’s Office of Sustainability and the Environment.

Attendees at the outreach meeting included the following stores:

The purpose of the research was to identify the costs of various types of carryout bags. Based on the information provided by the six stores at the outreach meeting and the information collected from the phone survey of retailers the following costs were developed as summarized below: [1]

 

City of Santa Monica Bag Cost Estimates (2008)

 

Bag Type                                    Low End Estimate                           High End Estimate

Plastic Bag                                          $0.005                                                 $0.09

Paper Bag                                           $0.045                                                 $0.25

Biodegradable Bag                             $0.08                                                  $0.22

Reusable Bag                                       $0.70                                                  $10.00

 

In November 2010 Santa Monica city staff also contacted representatives from the counties of Los Angeles[2], Santa Clara[3], and Marin[4] and the City of San Jose[5] to obtain the results of research that each of those jurisdictions had conducted regarding the cost to stores for paper carry out bags.  This data is summarized below:

Paper Bag Cost Estimates (other Jurisdictions)

Jurisdiction                             Low End Estimate                              High End Estimate

Los Angeles Countya                          $0.05                                                   $0.23

Santa Clara Countyb                           $0.129                                                 $0.19

Marin Countyc                                                $0.02                                                   $0.08

City of San Josed                                 $0.07                                                   $0.12

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Notes

a Includes prices for bags with and without handles, and of various quality and various recycled content

b Price range is for 100% recycled content, 40% post-consumer content bags

c Price for conventional paper bags purchased in bulk by large grocery stores

d Price range for 40% recycled content bags purchased in bulk

 

In addition to the data noted above, the Master Environmental Assessment (MEA) on Single-Use and Reusable Bags prepared by Green Cities California dated March 2010 estimates the range of costs for paper carry out bags to be $0.15 to $0.25 per bag.[6]

Reasonable Cost

A summary of the cost data described above collected by the cities of Santa Monica and San Jose, the counties of Los Angeles, Santa Clara and Marin, and the estimates included in the Green Cities California MEA indicates that the cost to stores for the purchase of paper bags is within the following ranges:

·       100% recycled, 40% post-consumer content paper bags:   $0.07 - $0.25

·       Paper bags (recycled content unspecified):                          $0.02 - $0.25

Based on interviews with stores in Santa Monica the cost per bag varies greatly with the number of bags purchased.  It is likely that larger stores that purchase more bags will be able to buy the bags in the lower range and the smaller stores will likely pay more. Santa Monica’s ordinance specifies that the paper bags be 100% recycled with 40% post-consumer content. 

The costs to a store for complying with the proposed ordinance in Santa Monica would include the cost to provide recycled paper carry out bags. Based on the data above, a minimum cost pass-through of $0.10 per bag would cover the “reasonable cost” to a store for complying with the ordinance.  This is near the bottom end of the range for recycled paper bag costs based on survey data.  Because this would be a minimum cost pass-through, stores with higher costs for bags would be able to increase the pass-through amount to cover their actual costs.  As noted above, this cost pass-through would be entirely retained by the retailer for cost reimbursement, and would only be collected if the retailer chose to offer paper carry out bags to its customers.  This amount is consistent with the amount adopted by the Los Angeles County Board of Supervisors on November 16, 2010.  The staff report that transmitted the County’s Single Use Bag ordinance to the Board of Supervisors states: “Subsequent discussions by staff with paper bag manufacturers and review of other references indicates that ten (10) cents is a reasonable average cost.”

 

Reduction Factor Based on $0.10 Fee for Paper Bags

In order to establish the basis for an estimated reduction factor that could be expected in single use paper bag usage if stores pass the cost of the bags through to the customer, city staff researched the effects of single use bag fees imposed by Washington D.C., the Commonwealth of Ireland, and three retail stores (Marks and Spencer, IKEA, and 99 Cents Only stores) on reducing bag use.  The results are summarized below.

 

Washington D.C.

On June 16, 2009 the District of Columbia adopted an ordinance requiring stores to charge a $0.05 fee for each single use disposable carry out bag provided to customers.  This ordinance went into effect on January 1, 2010.  The District of Columbia Office of Tax and Revenue reported that following one month of implementation single use bag distribution had dropped by an estimated 86 percent from 22.5 million bags per month to 3.3 million bags in January 2010.  During the same period large retailers in the District reported that disposable bag use dropped more than 50 percent, with some businesses reporting decreases greater than 80 percent.[7],[8],[9]

 

Republic of Ireland

In March 2002, Ireland instituted a fee on single use plastic bags throughout the country.  The initial fee was approximately equivalent to $0.20 (USD).  The Irish Department of Environment, Heritage and Local Government reported a reduction in per capita bag use of more than 93% shortly after introduction of the fee.  Bag usage increased slightly by 2006 but remained 90% below pre-fee levels.  The Department also reported that the per capita use of reusable bags in Ireland increased from 36% in 1999 to over 90% in 2003 as a result of the fee on disposable bags.  The fee was raised to $0.25 (USD) in 2007 to promote a further reduction in the usage of single use bags.[10],[11],[12]

 

Marks and Spencer Stores

In May 2008, the Marks and Spencer retail chain in the United Kingdom began charging a fee of 5 pence (approximately $0.08 USD) per single use plastic bag.  The company reports that by 2009/10 overall usage of single use bags had dropped 64% in their UK stores, with an 81% reduction in their grocery stores, as a result of the fee.[13],[14]

 

IKEA Stores

In March 2007, IKEA retail stores began charging a $0.05 fee for single use plastic bags in its stores in the United States.  The company reported that by April 2008 single use plastic bag use had decreased by 92%.  Based on the success of this program in October 2008 IKEA discontinued the distribution of all plastic and paper carry out bags at their US stores, with all customers required to use only reusable bags.[15],[16]

99 Cents Only Stores

In September 2008, 99 Cents Only began charging customers a $0.03 fee for each single use plastic bag at three of its stores in Southern California.  The company expanded this program to five stores in January 2009.  Company owner Eric Schiffer reports that the fee resulted in a 68% average reduction in single use bag usage, from 33,545 bags per week per store before the fee, to 10,750 bags per week after institution of the fee.[17]

 

Single Use Bag Fees - Summary

Jurisdiction                             Fee Amount (USD)                             Reduction in Bag Usage

Washington, D.C.                               $0.05                                                   86%

Republic of Ireland                            $0.20                                                   93%

Marks and Spencer Stores                 $0.08                                               64% - 81%

IKEA stores                                         $0.05                                                   92%

99 Cents Only Stores                          $0.03                                                   66%

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Conclusions

Based on the data included in this report, a minimum cost pass-through of $0.10 per bag would cover the “reasonable cost” to a store for complying with Santa Monica’s proposed ordinance. 

For the five examples of single use bag fees examined, the fees ranged from $0.03 to $0.20 per bag.  These fees resulted in reductions in the usage of single use bags of between 64% and 93%.  Based on these reported numbers, we believe it is reasonable and conservative to assume that the imposition of a $0.10 fee on single use paper bags in Santa Monica will result in a 50% reduction in single use paper bag use for the purposes of a CEQA analysis on the proposed Santa Monica ordinance.



[1] City of Santa Monica Nexus Study, prepared by R3 Consulting Group, Inc., January 2010

[2] County of Los Angeles, Board of Supervisor, Single-Use Plastic and Paper Carry Out Bags Certify The Final Environmental Impact Report, Adopt Ordinance, Nov 16, 2010

[3] County of Santa Clara, Personal communication, Elizabeth Constantino, Division of Integrated Waste Management Program Manager, Sept 17, 2010

 

[4] County of Marin, Personal communication, Maureen Parton, County Planning Director, Sept 17, 2010

 

[5] City of San Jose, Personal Communication, Emy Mendoza, Environmental Services City Staff, Sept 17, 2010

[6] Master Environmental Assessment (MEA) on Single Use and Reusable Bags, for Green Cities California (GCC), Prepared by ICF International, March 8, 2010

[7] Ferguson Foundation, 22nd Annual Potomac river Watershed Cleanup Final Report, April 10, 2010 http://www.fergusonfoundation.org/trash_initiative/rc_results10.shtml

[8] Washington D.C. Ward 6 Councilmember Tommy Wells Press Release: First Report of Anacostia River Cleanup & Protection Act Shows Dramatic Progress, March 29, 2010

[9] District of Columbia Department of the Environment (DDOE), Anacostia River Clean Up and Protection Act of 2009, July 6, 2009

 

[10] Ireland Plastic Bag Levy, March 4, 2002 and July 1, 2007 http://www.environ.ie/en/Environment/Waste/PlasticBags/FAQs/

 

[11] Ireland National Litter Monitoring System, http://www.litter.ie/system_survey_results/index.shtml

 

[12] Ireland Environmental Fund uses, http://www.environ.ie/en/Environment/Waste/EnvironmentFund/

[13] Marks and Spencer, 2010 Annual Report: Plan A, http://plana.marksandspencer.com/about

[14] Marks and Spencer, 2010 Groundwork Charity: http://plana.marksandspencer.com/we-are-doing/waste/stories/24/

 

[15] IKEA, April 2, 2008 National Press Release, http://www.ikea.com/ms/en_US/about_ikea/press_room/press_release/national/blue_bag_thank_you.html

 

[16] Los Angeles Times, Ikea to Nix All Disposable Bags by October 2008, April 3, 2008 http://latimesblogs.latimes.com/emeraldcity/2008/04/ikea-to-nix-all.html

 

[17] 99 Cents Only Stores, Personal communication, Owner Eric Schiffer, September 17, 2010