The Macroeconomic Role of Efficiency: Eco-Labels’ Missing Story
By Sarah LeFever, Undergraduate Researcher in Environmental and Ecological Engineering*
Introduction
One widespread way of communicating environmental impact information is with labeling schemes known as “eco-labels.” Eco-labels involve seals, logos, pictures, or words present on products with the intention of communicating environmental benefits (ISO, 2019). Take, for example, Amazon’s Climate Pledge Friendly label:
Figure 1. Amazon Climate Pledge Friendly label (Seidel, 2023)
Many people may recognize the green hourglass figure that frequently appears on the online shopping platform, and it is just one of the many eco-labels found all around us. Often, the labels feature environmental imagery such as a green leaf, and they can be seen in a wide range of industries. The Ecolabel Index, a database of eco-labels used on products worldwide, has compiled information on over 450 such labels (Big Room Inc., 2024).
Our interest in investigating eco-labeling schemes began with casual observations of a few such logos used by large, well-known corporations such as Amazon, Apple, and Google. Apple, for example, packages their new line of smart watches in boxes featuring an eco-label: a five-point star made up of green leaves paired with the declaration, “carbon neutral.” Apple claims that their watches produce at least 75% fewer emissions than traditional smart watches through clean energy, recycled or renewable materials, and avoidance of air transportation. They claim the remaining emissions are offset by “high-quality carbon credits” (Apple Inc., 2023).
These carbon claims are based on calculations at the product level, i.e. for a single watch. Most eco-labels are focused on the product level and thus ignore macroeconomic effects known as rebound effects. An example rebound effect could be that using less air transportation for the watches frees up space in cargo planes. This would reduce the cost of air transportation for other goods, keeping the total level of air transport the same as before, if not causing an increase. The emissions saved by Apple’s manufacturing and shipping tweaks could rebound via such macroeconomic forces, making their carbon neutrality claims less reliable.
Figure 2. Apple Carbon Neutral logo (Apple Inc., 2023)
Rebound effects are well known and have been studied thoroughly for some time. One study on freight transportation in Portugal calculated a direct rebound effect of 24.1% when efficiency improvements caused shipping costs to drop (Matos & Silva, 2011). That percentage of energy that isn’t saved by improvements must be accounted for in calculations and claims regarding environmental benefits for them to be accurate. Environmental accountants are recognizing that a full and accurate claim of environmental benefits should include rebound effects (Lange et al., 2021; Meshulam et al., 2022).
Rising awareness of rebound effects motivated our study on eco-labels. We sought to identify if any eco-labels actually consider or account for rebound when calculating environmental impact reductions. This would help determine if the information communicated truly allows consumers to make an educated decision about their environmental impact. Additionally, our findings could point to useful guidance for eco-labels to provide greater accuracy in their environmental claims.
Background
To understand how macroeconomic forces affect eco-label calculations and communication, it is important to understand rebound effects and the potential resulting efficiency fallacy. As explained, rebound effects occur when a change is made to reduce harmful environmental impacts, but that change also facilitates economic forces that partially or fully offset the potential environmental benefit.
We draw on one eco-label from our study to develop an example of product-level claims and macroeconomic rebound. Amazon developed an eco-label called Compact by Design to highlight products that had reduced packaging volume or were more concentrated (Amazon.com Inc., 2024b). They claim that more compact products result in fewer carbon emissions because the products are shipped more efficiently (Amazon.com Inc., 2024a). This line of thinking is vulnerable to the efficiency fallacy because the larger scale economic effects are not considered. If fewer trucks were used to ship these compact products, more trucks would be available. The cost of shipping would decrease, and more products would end up getting shipped overall. The increase in carbon emissions on that larger scale could offset the savings that Amazon claims to be making. Such discrepancies between expected environmental benefits and actual benefits can easily be overlooked. Causal loop diagrams are helpful ways to visualize rebound effects and the efficiency fallacy in situations such as the Compact by Design example (Fig 3)(Zellner et al., 2023).
Figure 3. Amazon Compact by Design causal loop diagram
With the efficiency fallacy, efficiency is often equated to conservation, but that is clearly not an accurate assumption when rebound is accounted for. Rather than doing the same amount of work with fewer resources, efficiency tends to lead to the same resources doing more work (Hallett, 2013). There is a real potential that, in the end, no environmental impact is actually avoided. Vulnerability to this fallacy could be avoided in efficiency-based eco-labeling schemes by including rebound effects in calculation methodologies. Searching for that inclusion was one of our main objectives in conducting this research in order to draw conclusions about accuracy.
Methods
To conduct our research, we began by creating a matrix to organize our data. We found a sample size of 28 ISO Type II eco-labels with a focus on carbon emissions impact categories (ISO, 2019). Type II essentially means that the labels were internally developed and not necessarily independently verified, as with Type I and III eco-labels. To identify our sample size, we used a combination of online search, personal observation, and informal surveying of students and colleagues to find as many Type II eco-labels as possible.
Once we had our sample, we researched each label individually using publicly available information. We recorded data such as industry, symbol, calculation methodology, impact category, accessibility of information, and consideration of rebound effects, using sustainability reports and company websites.
The results of our matrix showed significant evidence of Type II eco-labels making potentially misleading environmental claims. Roughly two-thirds of the labels we examined were deemed to be vulnerable to the efficiency fallacy, meaning they somehow made a claim related to efficiency while not considering any sort of rebound. Only one eco-label (4% of our sample size) referred to rebound effects at all in their publicly accessible media. The pie graphs in the figures below summarize our findings.
Figure 4. Rebound effects considered in eco-labels
Figure 5. Eco-label claims vulnerable to the efficiency fallacy
Figure 6. Green leaf imagery featured in eco-labels
Out of the whole sample, only one eco-label was found to mention rebound effects at all. This outlier was Honda’s Econ mode button, which changes a car’s performance to be more fuel efficient. Honda’s Frequently Asked Questions page responds to the following question about fuel savings: “How much gas does the ECO Mode save in a Honda Civic?” They responded saying, “It's hard to say how much fuel the ECO mode saves you when driving a Honda Civic. This is because different people will adapt differently to the changes in performance caused by this driving mode” (Honda Motor Co., 2024).
Figure 7. Honda rebound effect response (Honda Motor Co., 2024)
Honda did not calculate any exact rebound effect, but they acknowledged that there could be no specific fuel saving due to the potential of rebound. In addition, we found that about two-thirds of our sampled eco-labels did not have any sort of third party verification. Without independent verification, the reliability of an eco-label drops significantly.
Discussion
In addition to the potential efficiency fallacy and lack of rebound calculations, consider the potential impact on public understanding of products’ environmental responsibility. Reliability is especially important as we acknowledge the number of consumers potentially being influenced. If we take the Amazon Compact by Design label for example again, we can form a rough estimate of the number of people that may view it each day.
There are over 600 million products listed on Amazon, and the site is estimated to have about 310 million active users (T., 2023). Currently, about 300,000 products have been given Amazon’s Climate Pledge Friendly eco-label (Nudelman, 2023). Through a brief investigation of products labeled as sustainable, I found that about 36% of Climate Pledge Friendly products have Compact by Design listed in their certifications. That would mean that any given product would have a chance of about 0.018% of being labelled Compact by Design. If we assume that an active user visits the Amazon site once a week and views eight products (the number of products that fill a typical computer screen), we could estimate that specific eco-label to be viewed about 63,770 times each day.
Considering that Compact by Design is only one of many eco-labels on Amazon and that Amazon is only one of many companies that utilize eco-labels, it is clear that these labels have a strong presence in the lives of consumers. This strong presence influences how the public understands what is “good” for the environment. That is why it is extremely important that eco-labels communicate accurate and reliable information to the public.
Conclusions
There is still much to be done in the investigation of corporate eco-labeling schemes. To fill the gaps in publicly available information, further questioning must be done in the form of surveys or interviews with representatives from the companies developing and using eco-labels. With more precise data, a more in-depth analysis could be conducted to offer suggestions regarding the reliability of eco-labels, which could even extend to lawmaking. Some studies suggest that laws regulating labeling schemes would help ensure that eco-labels work effectively to help consumers make educated decisions regarding the environment (Mogyoros, 2023).
Some policy is incoming or already in place that could be built upon or supported using such conclusions as well. For example, California recently instituted a new law called the Voluntary Carbon Market Disclosures Act which will require companies involved in the market of voluntary carbon offsets to disclose certain information. The law will, in theory, support genuine reductions in carbon emissions and encourage reliable offsets to more effectively work toward sustainability goals (Persefoni, 2024). In addition, the European Union has adopted a proposal for a directive on green claims with similar aims. The directive would require companies using environmental labels to back their claims with in-depth scientific methods and independent verification to reduce misinformation for consumers (European Commission, 2023).
These pioneering examples of environmental policy could have extremely beneficial results, and more legislation could follow with the proper support of eco-label research. Findings such as ours can be used to help raise awareness among lawmakers, environmentalists, and consumers alike to make a real difference in the world of corporate eco-labels.
*This article is based on research conducted by Sarah during Spring semester and presented at the Purdue Spring Undergraduate Research Conference in April, 2024. See the full research poster “Do eco-labels accurately convey environmental benefits? A critical assessment of corporate sustainability indexing methods” (DOI: 10.13140/RG.2.2.26980.80003).
References
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Amazon.com Inc. (2024b). Compact by Design Category Thresholds and Additional Information: US. https://m.media-amazon.com/images/G/01/Wisp/landing-page/compact-by-design/Compact_By_Design_Thresholds_and_Additional_Information_12_03_21.pdf
Apple Inc. (2023). Apple unveils its first carbon neutral products. https://www.apple.com/newsroom/2023/09/apple-unveils-its-first-carbon-neutral-products/
Big Room Inc. (2024). Ecolabel Index. https://www.ecolabelindex.com/ecolabels/
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