about the environment and the potential dangers of climate change, yet it has been difficult to agree on what can be done to help. One promising approach is to apply the principles of behavioral economics.
Behavioral economics is an exciting new field that combines standard economics with an understanding of human psychology. From the standpoint of behavioral economics, it is important to focus on both the economic and the psychological aspects of the climate change problem.
The economic aspect has to do with people's incentives.
Neither big companies nor individual consumers are required to pay their full share of the environmental costs they impose on everyone else. This is what economists call a "tragedy of the commons." It works like this:
Say you have a group of dairy farmers who share a pasture. Each dairy farmer has an incentive to add cows to his herd because he obtains the benefits of the additional cows while incurring only a fraction of the damage each cow does to the pasture. But collectively, the cows ruin the pasture.
Dairy farmers need to find some way to avoid this outcome, to act collectively to limit the number of cows. One way to do this is by charging a fee for every cow that grazes in the pasture. Eventually, the cost of adding a cow outweighs the benefit of the additional milk. The result is that all dairy farmers benefit by having a pasture that is not degraded.
Climate change could turn out to be the biggest tragedy of the commons in human history. We are all contributing to climate change, but like the dairy farmers, we do not bear our full share of the costs we impose on our neighbors.
If you scale back your greenhouse gas emissions, say by turning your thermostat down in the winter, you will save some money on your energy bill. But you do not receive an appropriate bonus for the benefits you contribute to the environment. Because so many others are failing to adjust their thermostats, you do not benefit from reducing climate change—the global equivalent of protecting a lush, green pasture.
A key behavioral problem involves the limits of our attention. We are all busy, with many things to think about, and we can't attend to everything. As a result, we often live our lives on automatic pilot. We go with the flow, leave things as they are, except if something captures our attention. Then we jump.
In the environmental domain, we rarely get attention-grabbing information about the environmental consequences of our actions. The economic benefits of reduced energy use are also less visible and less immediate than they could be. If you alter your thermostat setting, you may have a vague sense that you will save some money. But the actual cost of heating or cooling your home becomes highly salient only when that bill comes due in a month or two.
Addressing the problemTo make progress on climate change, we need to address the problem's economic and behavioral aspects.
The economic solution, which we support, is to line up incentives properly by getting prices right. The method preferred by most knowledgeable experts is a carbon tax, the equivalent of charging the dairy farmers for each cow they add to the pasture. A carbon tax not only helps solve the climate change problem, it also can be a source of revenue that could be used to lower other taxes, improve education or solve other social problems.
But imposing such a tax would be politically difficult right now. Americans have gotten accustomed to "cheap" gasoline. So while we wait for the political climate to change, we can get started with more palatable steps.
Greater transparency is a good beginning: Big polluters should be required to disclose their activities. Disclosure requirements improve the operation of markets and government alike. Information can be a surprisingly strong motivator.
Success storyFor example, one big success story for disclosure requirements is the Emergency Planning and Community Right-to-Know Act, enacted by Congress in 1986 in the aftermath of the Chernobyl nuclear plant disaster in the Soviet Union. This law seemed to be merely a bookkeeping measure, requiring firms to report what pollutants they were releasing.
Yet without requiring companies to change their behavior, the law has had dramatic beneficial effects, spurring large reductions in toxic releases throughout the United States. A major reason is that environmental groups and the media have drawn attention to the worst offenders, producing a kind of "environmental blacklist." Companies hate being on that list.
In the spirit of this law, we suggest that the government immediately create a Greenhouse Gas Inventory (GGI), requiring disclosure by the most significant emitters. The GGI would permit people to see the various sources of greenhouse gases in the United States and to track changes over time. Interested groups, including the media, would draw attention to the largest emitters.
Helping householdsBut companies are not the only sources of greenhouse gases: Individuals are polluters too. To help households become more environmentally friendly, we should draw people's attention, each day, to how much energy they have used.
As with most things, the details matter immensely. Consider the inventive efforts of Southern California Edison.
Early attempts to notify people of their energy use with e-mails and text messages did no good. What worked was to give people something called an Ambient Orb, a little ball that glows red when people are using lots of energy, but green when their use is modest. In a period of weeks, users of the orb reduced their energy consumption during peak times by 40 percent!
In the same vein, a design firm, DIY Kyoto (based on the Kyoto Protocol, the international effort to control emissions of greenhouse gases), now sells the Wattson, a device that shows energy use. It even allows you to transmit the data to social networking Web sites such as Facebook, thus permitting comparisons with Wattson users elsewhere.
It's not clear how many of us actually want to make our energy use public, and we don't think it should be required. But if people want to get into a kind of competition to conserve more, who could object?
Making it eco-easyAnother promising direction for improving energy use is to make it easier for people to be good citizens while still on automatic pilot. Consider just one example. In some hotel rooms, guests are required to insert their room key card into a slot by the door to turn on the lights and air conditioning. When they leave the room and take their key, the lights and AC are automatically turned off. Wouldn't it be nice if your home were similarly equipped, so you could flip one switch as you leave home and turn out all the lights but not the clocks?
If we can find ways to make energy use visible, and make it easier to be good citizens without thinking too much about it, we'll encourage people to protect the environment without mandating anything at all. Sometimes, people just need a nudge.