A caveat: Are non-product-related product and process methods (PPMs) in eco-labelling criteria efficient?

Abstract

Eco-labelling can be said to be the practice of informing consumers about the environmental characteristics of a commodity. Although eco-labelling is a good environmental policy tool from both domestic and international perspectives it has raised considerable concern in relation to international trade, particularly, between developing and developed countries. These concerns arise mainly from the inclusion of non-product-related process and production methods (PPMs) in eco-labelling criteria. Using a game theoretical model, this article compares different alternatives including, and excluding, non-product-related PPMs in eco-labelling criteria when an emission tax is imposed on the production phase. Through this comparison it is possible to deduce much in terms of policy implications as well as the possible direction of future research in this area.