Questions in Behavioural Economics -  Reducing Your Carbon Footprint

Doug Swift

We know that Climate Change is one of the greatest perils facing modern man. Stronger hurricanes, rising sea levels, heat waves and droughts are all predicted to have occurred with virulent force before this century is out, yet such a global issue typically avoids individual action. Perhaps ‘Behavioural Economics’ can help us understand why.

We know that Climate Change is one of the greatest perils facing modern man. Stronger hurricanes, rising sea levels, heat waves and droughts are all predicted to have occurred with virulent force before this century is out, yet such a global issue typically avoids individual action. Perhaps ‘Behavioural Economics’ can help us understand why.

Without a doubt, the rational human race comprising of 6 billion rational humans would have done enough to return the earth to a sustainable environmental position. But we are not always rational, and if we are, we are often rational in the most unexpected of ways, as in the case of ‘Giffen Goods’ – goods which, when their price is raised, are bought more, excluding so-called ‘snob’ or ‘speculative’ goods. For example, if a family spends 25% of their income on drinking water, and 25% on whisky, and the price of water rises, they still have to consume a base amount of liquid for survival, and as they now have lower purchasing power, they are forced to buy water more, at the expense of whisky.

Increasingly, the part of the individual in addressing climate change is being addressed by economists and governments alike, and Thaler and Sunstein in their book Nudge suggest a way in which guilt, altruism and especially ‘choice architecture’ or ‘framing’ can have tangible and substantial effects.

An obvious suggestion to reduce communities’ carbon footprints would be to measure and publish individual household carbon emissions. However, in line with the ‘law of unintended consequences’, it was found that those who were below the average carbon expenditure level relaxed and felt morally justified in raising their electrical consumption, which most duly did. This effect was – for the most part – nullified by the smallest of rewards – a smiley face on their bill.

While such tactics have come under criticism for being too local to have an impact, we should let Obama fight the diplomatic front and start ‘nudging’ closer to home.