Abstract

This paper analyses environmental labelling from an economic perspective. Without counteracting contrivances, the market for environmentally superior products provide less efficient outcomes, because those products mainly have experience or credence attributes. With limited ability of consumers to evaluate the environmental quality of environmentally superior products, the relevant markets are hampered by information asymmetries. Environmental labels are a contrivance to overcome those inefficiencies.

Hence, there are some economic advantages in using environmental labelling as an informational instrument of environmental policy. In particular, this instrument may stimulate a demand shift towards environmentally superior products if a number of essential prerequisites are fulfilled. The crucial problem of ensuring the credibility of environmental labelling programmes must be solved. Therefore several methodological deficits connected with the awarding of ecolabels have to be worked out. This problem can be ameliorated, for example, by the further development of life cycle assessment methods. Furthermore, ecolabelling bodies must be able to resolve the following dilemma. On the one hand, they are interested in obtaining the necessary information support from the involved interest groups. On the other hand, however, they must avoid the undue influence of those parties seeking to manipulate ecolabelling criteria and hence labelling results. Examples illustrate how existing ecolabelling programmes attempt to cope with these difficulties.

One possibility of mitigating the problems of ecolabelling is to further the competition between ecolabelling schemes with new (private) ecolabelling programmes established by producers, producer organizations or environmental organizations. An increase in programme credibility may emerge if the environmental criteria schemes become broader and more stringent compared with competing programmes. Quality improvement in the criteria schemes may occur if ecolabelling programmes seek to underline the particular environmental superiority of their ecolabelled products. Moreover, the parallel existence of different ecolabelling programmes affords both consumers and producers opportunities of choice.

However, competing ecolabelling programmes can cause consumer confusion and hence increased information costs for the consumer. As a result, consumer misperceptions can occur and consumers may then be discouraged from shifting their demand to environmentally superior products. To mitigate these problems, additional institutions (for example, governmental agencies, research and test institutes) become necessary. They can support consumer decision making with regard to different ecolabelling programmes and therefore they can suit the limited ability of the consumer to process all the available information. The tasks of these institutions may consist in the monitoring, observation and comparison of the activities and decisions of parallel ecolabelling programmes and in the evaluation of their respective qualities.

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