Behavioral economists think big savings in carbon emissions can be gained by nudging people to make small changes that increase energy efficiency and cut waste
A couple of weeks ago President Barack Obama stopped by OPOWER, a small Arlington-based energy company, to talk about green jobs and clean power. The White House doesn't schedule just any company for a Presidential visit, so you might wonder why OPOWER made the cut.
The company doesn't make shiny new solar panels, or massive wind turbines; it's not brewing algae to distill into next-generation biofuel. Rather, OPOWER works with electric utilities to send out detailed notices to customers letting them know exactly how much electricity they're using — and importantly, how their energy use compares with their friends' and neighbors'. OPOWER's reports encourages its hundreds of thousands of customers — spread across the country — to cut back on needless energy waste, enough to reduce average household consumption of electricity by more than 2% annually.
As Obama said in a speech to the company's personnel: "The work you do here...is making homes more energy efficient, it's saving people money, it's generating jobs and it's putting America on the path to a clean energy future."
That might sound like heady praise for a company that has fewer than 100 employees, but OPOWER is at the forefront of what could be the cheapest and fastest way to reduce carbon emissions and attack climate change: by modifying consumer behavior. A new analysis released on Mar. 12 by the Natural Resource Defense Council (NRDC) and the Garrison Institute's Climate Mind Behavior Project found that personal actions could reduce U.S. carbon emissions by 1 billion metric tons by 2020 — 15% of national totals — at little to no cost. Sure, clean-energy companies may get all the attention — and research and venture-capital funding — but a company like OPOWER that uses behavioral economics to get people to make energy-saving choices can start reducing CO2 emissions immediately. "These are actions that can take place right now," says Peter Lehner, NRDC's executive director. "We can't ignore actions that would make such a difference."
Those actions include simple and consistent behavioral changes: for instance, reducing engine idling time in cars and trucks by 50% would save 40 million metric tons of CO2. If everyone who flew more than three times a year eliminated one flight, it would reduce emissions by 55 million tons. Cutting food waste by 25% would save 65 million tons, and replacing red meat with poultry twice a week would save another 105 million tons. These behaviors wouldn't just save the climate — they'd save consumers money too, starting now. "People really do think wasting energy is a bad thing," says Alex Laskey, the president and founder of OPOWER. "We give them data that makes this all easily digestible to the average consumer in no time at all."
In a recent paper in the journal Science, Hunt Allcott of the Massachusetts Institute of Technology and Sendhil Mullainathan of Harvard University found that instituting a program similar to OPOWER would cost utilities roughly 2.5 cents per kilowatt-hour (kWh) of electricity saved. (Generating a kWh of electricity through coal plant or any other method costs utilities at least twice as much, so conservation is a good deal for both electricity generators and customers.). If scaled nationwide, a program like OPOWER could reduce U.S. CO2 emissions from electric power by 0.5%, at a negative cost of $165 metric tons. That means that society would be cutting carbon and saving money at the same time. (By contrast, cutting carbon by switching to wind power costs an estimated $20 per metric ton reduced.)
But while small behavioral changes, like shutting off an idling engine, seem fairly easy to accomplish — most people could cut their energy consumption without noticing a difference — but the larger changes NRDC suggests might give people pause. Why should you give up one flight a year and perhaps forgo a vacation? Why should you have to eat fewer hamburgers? Or carpool to work twice a week — saving 75 million tons — rather than driving your own car? Is it reasonable to expect people to sacrifice for the greater good, when classical economics teaches us that human beings will seek to maximize their own gain?
Behavioral economists think so. They say people's decision-making processes are not so binary; they're influenced by emotion and complicated by irrational altruism. "Simple models of human behavior where I pursue only my own interests are far too limited," says Rebecca Henderson, co-director of the Harvard Business School's Business and Environmental Initiative. "Humans are much more cooperative and empathetic than that."
Environmentalists might even have better luck appealing to people's sense of community and collective justice, instead of their concern about green jobs or money, say behavioral economists. In fact, talking about cap-and-trade or gas taxes could actually turn people off. A paper by the economist John Gowdy of the Rensselaer Polytechnic Institute argued that notions of the common good (implicit in any environmental campaign) are undermined by the mention of money. People want to be good — they just need to be convinced in the right way.
Of course, anyone who spent time at the contentious U.N. climate change summit in Copenhagen last year might be surprised to hear that humans can be cooperative. And an attempt in 2009 to introduce a bill that would fund a Department of Energy study on the application of behavioral sciences to energy policy was stalled after conservative critics suggested — ludicrously — that it represented a government attempt at mind control.
Realistically, any strategy focused on behavioral changes would only work if people could be persuaded that more consumption does not equal more happiness; psychological studies have shown that to be true, but it's still a hard sell, especially during a recession. And even if people maximize their energy efficiency and choose to conserve, there's still no guarantee that it will translate into the level of emission cuts that groups like NRDC predict, thanks to something called the rebound effect: if we can save $165 for every metric ton of CO2 saved by an OPOWER-like program, that saved money has to go somewhere — and if it's spent on consumption that involves some form of energy powered by fossil fuels, like the vast majority of the energy we use today, the net carbon savings might be far lower than we expect. "These things can have unintended consequences," says Gowdy.
But from an economic perspective, cutting waste will always be a good thing — even if we just use it to buy more stuff. "There really is no downside to pursuing efficiency for business," says Daryl Dulaney, the U.S. CEO for Siemens Industry. "It's truly win-win." If we're really going to save the planet, however, we'll need to convince people not just to become more efficient, but to actually consume less. And that could take some powerful psychology.