Climate change nudges are behavioral interventions for mitigating global warming. I suggest that we are at the dawn of the era of climate change nudges. In this connection I would cite the recent article by New York Times columnist David Leonhardt who explains the problem with relying on carbon taxes to mitigate the emissions of green house gases.
In truth, Leonhardt makes no mention in his article of words like “behavioral” or “nudge.” However, nudges and behavioral concepts lie at the heart of what he writes, and in this post I explain why.
I begin with carbon taxes. For decades, Nobel laureate William Nordhaus has argued for the necessity of instituting sensible carbon tax policies at the global level. In February of this year, over 3,300 economists from across the U.S. signed the Economists’ Statement on Carbon Dividends, making it the largest public statement in the history of the economics profession. The statement called for the institution of a carbon tax to address climate change.
I was among the signatories of the Carbon Dividends Statement; and, in a series of previous blog posts, I have consistently warned about the danger of avoiding carbon taxes.
Even as I wrote about the importance of instituting sensible carbon tax policies, the behavioral economist in me realized that there was strong psychological resistance by the public to imposing these taxes. In 2016, shortly after the Paris climate agreement was negotiated, Nordhaus and I had an exchange about potential climate change nudges. Nordhaus thanked me for the thoughts, but stated that he was not sure any were sufficiently powerful to deal with such a high hurdle. Leonhardt makes the same point, writing that to Nordhaus and some other economists, carbon taxation “remains the only policy powerful enough to be worth the effort.”
Nevertheless, I would suggest that half a loaf is better than none; and Leonhardt makes the important point that by pursuing strategies that mitigate green house gas emissions, even if only modestly successful, it might be possible to find a way to overcome the resistance to carbon taxes. In this regard, keep the “Green New Deal” in mind.
With the preceding remarks as preamble, let me explain why behavioral economics, and especially nudges, lie at the heart of what Leonhardt writes.
Leonhardt makes use of a specific behavioral term, “framing” when he writes that “framing is crucial.” Framing is a behavioral term made famous by psychologists Amos Tversky and Daniel Kahneman , which refers to how outcomes are described. Tversky and Kahneman’s work emphasizes that people frame outcomes as gains or losses relative to reference points, and that people can respond differently to situations depending on how outcomes are framed. This is important because as a general matter, people are more sensitive to losses than they are to gains of the same magnitude. Relatedly, behavioral economist Richard Thaler introduced the notion of hedonic framing, which focuses on the way people evaluate “packages” of gains and losses.
Most people code taxes as losses. Therefore, the benefits of programs that are funded with taxes must produce gains large enough to compensate for the psychological asymmetry in the way that people weigh losses and gains in their minds. Moreover, the benefits from programs funded by taxes must be salient, in order for those programs to be attractive. If benefits are opaquely framed, then the inherent asymmetry will only be exaggerated.
Leonhardt makes the point that no matter what traditional economists say about the merits of carbon tax policies, tax framing inherently leads most people to view carbon taxes as unattractive. In particular, low income households, who find it difficult to make ends meet, will be especially resistant to supporting carbon tax policies.
For my money, the most significant portion of Leonhardt’s article is his discussion about framing climate change mitigation policies to make them appealing. To be viewed favorably, he tells us, such policies need to focus on the gains from mitigating global warming, not the costs/losses. Leonhardt makes the point that in ballot measures held in Michigan and Nevada, climate change mitigation policies passed when initiatives were framed to emphasize the benefits of improved health and job creation.
Climate change nudges are in their infancy. Richard Thaler and Cass Sunstein, the authors of the book Nudge, include climate change challenges in their list of nudge applications: see Chapter 12, Saving the Planet, and an interesting article by Sunstein and Lucia Reisch, applying the nudge approach to climate change.
Political discourse about a Green New Deal is just beginning. A carbon tax is likely to be part of this discourse; however, given the historical resistance, such a tax is unlikely to be front and center when it comes to any serious Green New Deal proposal. Of course, a sensible carbon tax is still immensely important medicine for addressing global warming, albeit medicine with a bad taste. The challenge will be to use behavioral “packaging” techniques that make it palatable for humans to take that medicine.