Behavioral research has fundamentally changed the field of economics by putting it on an experimental basis (Camerer, Loewenstein, and Rabin, 2004; Gintis, 2006). The climate change challenge is unique compared to other challenges that we face as it involves changing the organizing principle of the economy.
The CO 2 levels were well under control for the past 650,000 million years but in 2006, there was a shoot from 300 ppm to 384 ppm and is expected to increase to 600 ppm by 2050. There are also studies by Kasting (1998) which show that the CO 2 level will shoot to 1200 ppm by the next century. Burning of fossil fuels and deforestation rose the global temperatures by 0.6 C in the 20th century but this rate seems to be escalating at a faster rate which can lead to a temperature between 1.4 C and 5.8 C by 2100. The source of these problems are either burning of petroleum or natural gas and after reading heaps of research, we know that coal burning is the main culprit. Most of the coal is burnt to produce electricity and the problem we are facing is to find a substitute to coal or to decrease the burning of coal. We rule out re-forestation and Nuclear Power because re-forestation has negligible effect and Nuclear fuel reserves are limited and radioactive waste disposal is also an unsolved problem.
A broad reasoning for all the Climate Change related problems is because people living in the present want a stable climate for the future generations but they definitely cherish their luxuries. Problems related to Climate Change involve an interaction between economic production and characteristics of the atmosphere. Using the general Darwinism approach, we can see that macroeconomic outcomes are based on actions of individuals which are based on behavioural incentives. These actions are choices which can be because of a number of reasons, we will discuss some in the later sections. Behavioural Scientists have focused on many kinds of incentives and ways to reduce these actions. Monetary incentives can also be used as a way to the kinds of behaviours needed to solve collective social problems as Frey, 1997 discusses that financial incentives can be used to crowd out feelings of civic responsibility. Ofcourse we can not only rely on monetary incentives as this can have perverse effects. Materialism and Consumerism depend on human culture based on our history. We can take the example of emerging economies like China and India which are looking at the west and indulging into material consumption to achieve a certain type of lifestyle which is because of the easy malleability of human behaviour.
When it comes to policy making, bounded rationality, framing effects, willpower and self-interest play a major role. Bounded rationality is important because it explains that when an individual makes decisions, their rationality is limited to the tractability of decision problem, limitation of their mind and time available. Framing effects also plays a major role because it does matter how the choices are being presented to an individual as individuals draw different conclusions from same information and all this depends on how it is presented to them, therefore we say ‘You eat with your eyes first’. Individuals take social norms and fairness also into consideration when making decisions. People compare their own behaviour to others before taking decisions, this is called bounded self-interest.
This shows that diagnosing the behavioural biases and implementing them to policy making can help tackle environmental problems. There have been several examples in which behavioural economics came to the rescue of Climate Change. Many countries have set up an inhouse behavioural insights team at a centralised or regional level to work specifically on environmental policy.
Some interventions focused on the framing of energy efficiency labels. The goal behind this was to increase the demand of more energy efficient goods. Consumers are considered to be more sensitive to the way the energy efficiency scale is presented. A study showed that estimates including lifetime running costs tend to encourage people to choose the more efficient good. Other interventions which showed a decrease in energy consumption include providing a real-time feedback on energy consumption via in-home displays. This way the consumer feels more engaged with the energy consumption as they the option to change the energy saving settings and test their own energy consumption and compare it with their peers.
As discussed before, fuel efficiency is a very important component to reduce CO2 emissions. Evidence from research has shown that labels with information about expected fuel costs over a period of multiple years and comparing these costs with those of most fuel-efficient cars in the same range. This is a model used to promote purchase of more fuel-efficient models. The US Environmental Protection Agency took this into account while designing labels.
Sustainable Food consumption is also something that is being talked about these days with emerging governmental initiatives like “Zu Gut für die Tonne!” and private initiatives like “Good Food Shop”. Zu Gut für die Tonne! Is a German government initiative by the Federal Ministry of Food and Agriculture, the motive behind it is to avoid the food waste and not throw the good usable leftovers in the bin. They particularly use persuasive messages so as to make consumers purchase imperfect looking food products. This has been an effective way of saving money and as well as not wasting leftovers. This also helps in changing the mindset of the people and they will prefer to use up the leftovers.
- Gowdy, John. (2008). Behavioral Economics and Climate Change Policy. Journal of Economic Behavior & Organization. 68. 632-644. 10.1016/j.jebo.2008.06.011.
- 2015. “Behavioral Economics and Public Policy 102: Beyond Nudging.” American Economic Review, 105 (5): 396-401.
- OECD (2017), Tackling Environmental Problems with the Help of Behavioural Insights, OECD Publishing, Paris, https://doi.org/10.1787/9789264273887-en.