One of Friedrick Hayek's key insights concerned the pricing mechanism - to put it very simply, prices convey an extraordinary amount of data, and it is this aggregation of data that allows independent economic actors to coordinate their activity. This insight was central to Hayek's support of the free market over a planned economy.
However, as many have pointed out since, prices don't take into account externalities, perhaps the most notable being pollution. One solution to this is to tax products and services in proportion to the degree of negative externality involved. Prices ought to then represent the 'true cost' of the product. Tesco, Marks & Spencer, and other retailers in the UK have another idea: provide customers a carbon label. Last year, the Carbon Trust rolled out an initiative to do just that. The idea is that customers can compare products in terms of their carbon footprint and make purchases accordingly. In theory, this should mimic the price signal, but one has to wonder whether consumers will bite?
An article from ClimateChangeCorp suggests that so far carbon labelling hasn't had much of an impact. Zara Maung, in an article titled Does the future have a label?, reports on the progress of the cabon labelling initiative so far:
Carbon labelling...has come under fire, with complaints that consumers can't understand the carbon measurments on products. Last year, for example, Boots carbon labelled its shampoo range. But Richard Ellis, head of corporate social responsibility for Boots, says: "We took labels off our bottles because customers told us they found it confusing."
Now, perhaps this simply represents the normal growing pains of a new undertaking. But I have to wonder what Hayek's take would be on carbon labelling? The point of the price mechanism is that it reflects more data than could be collected together by any one individual or organization. Carbon labelling, in contrast, cannot really achieve this feat, even if it can arrive at an approximation of the carbon footprint of a product. (Of course, I should point out that taxing a product because of its carbon footprint runs into the same problem.) Yet the head of corporate social responsibility of Boots, a major UK retailer, had this to say:
"We were also able to apply the knowledge we gained from the carbon labelling process across our product lines to save elsewhere." he says. However, he adds that even if carbon labels were popular with customers, it would be practically impossible to label its thousands of products.
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