The Effectiveness of Carbon Labels

Carbon labels have been shown to reduce the carbon footprint of consumption choices in several contexts. But are they also an effective policy tool? This depends on how the reductions produced by carbon labels relate to what can be achieved with the alternative policy tools we have available. This paper establishes a comparison to carbon taxes, using several field experiments in the student canteen. I estimate that carbon labels reduce carbon emissions by approx. 4%, and that a carbon tax of €120 per ton would be needed to achieve similar reductions with price changes alone. This comparison conveys that carbon labels are relatively effective: €120 per ton exceeds current EU ETS trading prices by more than 150% and is three times the current German carbon tax on gasoline. Furthermore, I provide evidence that the main reason carbon labels are effective is not that they are able to correct consumers’ misperceptions about carbon footprints. Instead, they appear to primarily influence consumers by directing attention towards carbon emissions at the moment of choice.