Consumption and the environment (SOER2010) - European ...

Thematic assessment | Consumption and the environment
3 Understanding what shapes current and
potential future consumption
Private consumption is shaped by an array of complex
and interrelated factors, including demographics; income
and prices; trade, globalisation and technologies; supply
of goods and services and how they are marketed;
information and transparency on products and services;
policies; housing and infrastructure, as well as social and
psychological factors such as habits, culture and taste
(Mont and Power, 2010; Power and Mont, 2010).
Some of those factors are very well understood by policy
makers — in particular income and prices, while others,
such as habits and culture, are typically less understood.
Future trends in European consumption, and the resulting
environmental impacts, will depend on how these many
factors develop. Policies at all levels, not only those directed
at consumption, also influence consumption behaviour.
These are dealt with in Chapter 8.
To develop effective policy responses to limit negative
environmental pressures and impacts from private
consumption, there is a need for a better understanding of
the many complex factors that shape people's consumption
behaviour (PSI, 2006). This chapter provides an overview of
the main factors, including how they relate to one another,
as well as some possible future developments.
3.1 Economic influences on
consumption
The most important factor influencing consumption
patterns is the level of disposable income at the individual
household level (OECD, 2008a). The growth path
hypothesis, implying an ever-growing GDP, can be
identified as one of the driving forces behind consumption
dynamics. Recent baseline projections published by the EC
— which take into account the current economic downturn
— assume that GDP in the EU‐27 will grow again between
2010 and 2020 but that this would not compensate GDP
losses from the downturn compared to earlier projections
(EC, 2010a). However, economic forecasts are very
uncertain (see also EEA, 2010b) and recent developments
show that steady growth cannot be taken for granted.
Immediately before the financial and fiscal crises began
in 2008, other major global economic trends had been
making their mark on European consumption patterns.
These included steeply rising prices of oil, steel and other
non‐renewable resources in response to global increases
in demand, and rising food prices (see Chapter 4). These
resource price increases were alleviated by the economic
downturn but could well reappear when a period of stable
economic growth returns.
Rather than growth being a driver of future consumption
patterns, the potential for growth may in future depend to
an increasing extent on how we consume. The economic
system is increasingly being recognised as being bounded
by the limits of the ecological system and is heavily
dependent on the services that ecosystems deliver to the
economy (TEEB, 2008).
The household savings rate is a key influence on the
extent to which income is translated into material
consumption; the savings rate in the EU rose by nearly
3 percentage‐points during late 2008 and 2009, and
started to fall again as consumer confidence increased
in the last quarter of 2009 (EC, 2010b). In the longer
term, the ageing population could lead to a fall in the
household savings rate, as older people tend to save less
than people of working age.
The relevance of prices for consumer decisions means
that, generally, consumers demand more of any product
if the price goes down and less if the price increases. The
degree of change in demand resulting from a variation
in price depends on the price elasticity of that particular
product or service. For example, price elasticities for basic
food items such as bread, milk and eggs are lower than for
restaurant meals, as going to a restaurant is much easier to
avoid than purchasing basic food.
However, the effects of resource use on the environment
and society, such as costs of cleaning up pollution or
climate change mitigation, are in many cases not included
in the prices of goods and services. Instead the costs
associated with negative effects are paid for by the wider
society. This lack of internalisation of external effects —
the costs to society of environmental degradation — in the
prices of products and services is a market failure driving
consumption patterns based on high resource use.
Economic instruments, such as taxes, can be applied
to overcome such market failures to ensure that prices
include economic, social and environmental costs (see also
Chapter 8). Carrying out such adjustments is one of the
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The European environment | State and outlook 2010