THE GREENPEACE ANSWER

This is not what our colleagues in economics like to hear. First, because of economists’ ongoing love affair with material consumption as a marker of well-being, and second because they are suspicious of attempts to change behavior, especially when changing preferences is involved.

The reason for this reluctance is the economists’ long-standing belief that there is something “true” about people’s preferences, and that their actions reflect deep-seated desires. Any attempt to convince people to do something different (such as consume less or consume differently) would then encroach on those preferences. But as we saw in chapter 4, there are really no such things as true well-defined preferences. If people don’t know how they feel about something as quotidian as a box of chocolates or a bottle of wine, why do we expect them to have clear preferences about climate change? Or what kind of world their grandchildren should live in? Or whether the people of the Maldives deserve to have their islands washed away by a rising sea? And to know how much are they willing to alter their own lifestyles to prevent those disasters?

Economists typically assume most people would not voluntarily sacrifice anything to affect the lives of unborn people or those who live very far away. But this is probably not true, for example, of you, the reader (or you would have shut this book a long time ago). Or for that matter of most economists themselves. Many of us probably do care about a whole range of outcomes that don’t affect us directly, even if we have a hard time assigning money values to them.

The reason this is important is that it changes the way we should think about policy interventions. If everyone has well-defined preferences and acts on them (for example, they don’t care at all about the damage to other people), the ideal environmental policy is one that sets a price for damaging the environment but otherwise lets the market do its job.

But there is a strong case for going beyond carbon credits. Take someone who thinks of themselves as having a strong commitment to fighting climate change but ends up never buying energy-efficient LED lightbulbs. The reason could be that he does not know about LEDs, or that he forgets to buy them when he goes to the shop, or that he cannot make up his mind about just how much a premium he is willing to pay for the LEDs because he has a hard time putting a number on how much he really cares about preventing climate change. Would such a person be better or worse off if the government banned non-LED bulbs?

Or if bans seem too extreme, the government could “nudge” people gently toward choices that are better for the environment. For example, smart meters now afford the possibility of charging higher prices for electricity during peak hours, compensated by lower prices the rest of the time; this would be better for the environment. A recent study in Sacramento, California, found that only 20 percent of users actively chose such plans when they were made available.²³ And yet when a plan like this was made the default for (randomly chosen) users who then had the option of switching back to the traditional plan, 90 percent of them stayed on it, and those who stayed indeed used less energy.

A larger open question is the extent to which energy consumption is a matter of habit. A particular way of consuming could become almost like an addiction simply because this is what people are used to. At the Paris School of Economics, the new “green” building provides very little heating. When we worked there, we were always cold in the winter and spring, and complained regularly about it. But somehow the simple tactic of leaving a thick sweater in the office eluded us for many months. Yet it was really not so difficult. We just were suffering from many years of overheated American offices. And once we had managed to transport the sweater, we did not feel worse off than we would have had the building been warmer. The moral brownie points from doing our bit to save the planet was enough compensation.

Many of the behaviors that influence energy consumption are repeated and habitual: taking the train rather than the car, turning off the lights when leaving a room, and so on. For such behaviors, doing what we have always done in the past is easiest. Changes are costly, but once we switch it is easy to keep going. Even more mechanically, if we buy a thermostat we can set it up once and for all to heat more in the morning and at night and less when we are away. This means today’s energy choices also affect future energy consumption. Indeed, there is direct evidence that energy choices are persistent. In an RCT, some randomly chosen households received regular energy reports telling them how much energy they were using relative to their neighbors. The report recipients began to consume less energy than the households that never got them, even after the reports stopped. And this seems largely a result of changes in their habits.²⁴

If energy consumption is a bit like an addiction, in that using a lot of energy today makes us use a lot in the future, then the appropriate response is high taxes, like those on cigarettes.

Of course, our energy consumption is not only caused by how we heat, cool, or transport ourselves. Everything we purchase contributes to it. There again, tastes probably do not fall from the sky. Economists have begun to recognize the role of “habits” in our preferences: what we grew up consuming forms our tastes today. Migrants continue to eat what they grew up eating, even when the food that was cheap in their home country is expensive in their new country.²⁵ Habits mean it is painful, in the short run, to change your behavior. But they can be changed. People even seem willing to modify their behavior in order to get ready for some future change.²⁶ Thus announcing a future tax hike on goods gobbling up energy could be an easier way for people to get used to the idea.