Eco-Labelling and Non-Product-Related Process and Production Methods (PPMs)

Abstract

Eco-labeling has caused some concerns about international trade, particularly between developed and developing countries, owing to the incorporation of non-product-related process and production methods (PPMs) into eco-labeling criteria. Most countries prefer inclusion of non-product-related PPMs for effectiveness and efficiency of eco-labeling. Using a simple duopoly model, this article compares two eco-labeling schemes: one with inclusion of non-product-related PPMs and the other without. This is done for the case where there has already existed a regulation on the production phase in the form of an emission tax. Counterintuitively, the analysis shows that the exclusion scheme is socially desirable under certain conditions. It reminds us of the importance of the policy mix when introducing eco-labeling. The paper concludes with a discussion of future research directions.