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Lecture 14: Incentives for Sustainable Behaviour (Principles for designing…
Lecture 14: Incentives for Sustainable Behaviour
economic theory of externalities
No incentive to pay for external costs
need to internalise the externalities
Pay individually for environmental damage
Auction of environment use (eg. hunting licenses, waste release licenses)
Charge for use of resources in excess of what a supplier would charge (eg. carbon tax)
Property rights (commons divided into plots->increase incentive to conserve)
consumers only willing to pay for value they expect to receive
Mass transit use & transport
Everett & Oregon Expt
Flash pass
Unlimited rides
Discounts for shops & services
Mutually rewarding
Transit gets more business
Shops/services get more business
Riders get discount
Reward tokens
redeemable at shops
Structural barriers (disincentives)
Good highways
Home ownership
Low gasoline prices
Can't be changed quickly due to
physical environment
political environment
interests of commuters & homeowners institutionalised in lobby groups & in legislators who depend on their votes
Many focus on using more efficient cars, than trying to switch ppl to mass transit
eg. Gas guzzler taxes, gas sipper incentives, offer more than market value to buy back polluting vehicles
these affect oil companies & manufacturers more than individuals->meet strong, organised lobbies
ppl prefer driving to mass transit when given a choice
Reserve lanes for high occupancy vehicles (buses, carpool)
Incentives for recycling & Waste production
Study by Jacobs (1978)
Results
Payment->increase to 9%
Lottery->increase to 14%
Information only->increase to 8%
3-4% baseline
Relatively ineffective->results did not pay for even ⅓ of program
Rewards
1 cent per pound of newspaper
offered chance for a $5 prize given by lottery
Curbside pickup for recycling in Florida households
Convenience is key to promote recycling
providing recycling receptacles at workers' desks
Environmental Protection Agency collected 12.5 tons of paper from 2700 employees in 1975
Curbside pickup is better than recycling centers
increasing freq of pickup had as much effect as 1cent payment
Geller dormitory study at Virginia Tech (1982)
Program was cost-effective
low proportion of residents delivering paper
Both rewards increased recycling compared to baseline
low yield of recyclable paper from drive
Rewards for recycling wastepaper
Raffle ticket per pound of wastepaper
chance to win prizes from merchants
Contest between dorms
dorm that produced more paper per resident received a $15 cash prize
Bottle Bill
those who fail to return, are paying for the litter/waste
Benefits
Save space in landfills
Save energy & resources to make new bottles
Reduce litter
Encourage reuse of containers
Vigorously opposed by soft-drink industry cos of high cost of collecting, cleaning & reusing
Deposit returned when empty container returned
Legislation mandating deposits on soft drink containers, usually 5cents
background statistics
US
864kg of solid waste/person/year in US in 1986
Singapore
60% recycling rate
waste production is rising
Lower recycling rate for domestic waste
0.79kg domestic waste a day per person
Trash disposal
Other methods
charge per pound
sticker charge affixed to bag or can for pick up
Discounts for low-income households
Seattle
early 1980s->average of 3.5 cans/week per household
By 1992 averaged 1 can
Crushing trash
Bought fewer throw-away materials
Less strain on landfills
Pay-per-can began in early 1980s
Given choice to pay either flat rate or per can rate
per-trash-can fees work better than flat taxes & fees
Reducing energy use in homes
Financial rewards
To change behaviour
payments for usage patterns
or set the Air conditioner temp above a threshold
Paid households that reduced energy use by a certain % on a weekly basis
Make homes energy efficient PALA
Partial rebates
Reduce cost of new household equipment
Auditing
recommend changes
Offer good loans & rebates for the improvement
Energy auditor enter homes & assess energy efficiency of homes
Loan subsidies
loans for energy efficiency below usual rates
Attracting interest in incentives
Requires good marketing of info
Higher incentives don't reliably attract more attention
only after attracting attention
incentives will reliably predict whether ppl will decide to make an energy improvement
Simplification of the task
Fitchburg,Massachusetts
Fitchburg Action to Conserve Energy
formed by
Advisory council of prominent citizens
Organised labourers & volunteers
City Govt
Actions
organised instructional workshops
weatherisation kits given to anyone earning less than 80% of median income
encouraged to install themselves
volunteers helped those that could not install themselves
No knowledge or $$ to make improvements
within 6 weeks
1/6 of homes weatherised
old, poorly insulated, oil-heated houses in a poor community
low cost, low effect program
Not enough money available for greater amounts of energy savings as well as for better repair
Giving away energy-saving equipment
Geller (1981) distributed water flow restrictors for shower heads & provided info how to install them
Combines tangible reward of cost-free eqpt with convenience of avoiding considerable effort of deciding what eqpt to buy & shop for lowest price
Barriers of action
Uncertainty
Complexity of the choice
lack of knowledge
Energy price changes
Becomes a Problem
No incentives for residents to curtail
Better to have meters and to charge
when heat & energy are included in rent
Rates plans for energy pricing FBT-L
Block rates
Decreasing block rate (Rate goes down the more you use->poor in limiting energy use)
Increasing block rate (Rate goes up the more you use)
changes in rates depending on amount used
Lifeline usage
Lower rate for basic service
Higher rate for use above basic needs
Flat rate
(no changes in rates)
Time-of-use pricing
Price varies on time of day, around peak usage periods->higher costs for use at peak times
Not very effective
Ppl not aware that price difference is significant
With gd info though, can have 16% drop in peak hour usage in 1 study
Included in rent->no control of usage
Minnesota Case study
Program was attractive
6% signed contracts
only in operation for few months->20% of households interested
Marketing expt
Letter from county best
Reason
ppl tend to be suspicious of unknown private companies making offers that sound too good to be true
Letter from county more reliable cos program is in public interests
marketed with 3 diff letters
Letter from company, but saying county govt co-sponsoring
Letter from chairman of county Board of Commissioners introducing energy service company as the selected contractor of the country
Letter from private energy service company
Need private company for energy audits
However, savings can't be directly calculated
Not easy to divide the value equitably bet homeowner & energy service company
shared-savings-conservation program
incentives do not work automatically, need affective informational component
Govt had to implement info & incentive program
need letters to get attention first before incentives can have effect
eg. energy price rises in 1970s->ppl still didn't improve homes
Structural barriers
Occupant lacks ability to take action on home improvements
Owners have authority to make decisions & occupants paying energy bills get the most benefit form those decisions
Rental units
Differing incentives for owners & renters->most diff barrier to overcome
Minnesota program got around this issue
after 3 years, projected savings re-calculated to adjust to actual savings
after 5 years, contract ends, with homeowner retaining improvements & all future savings
Energy service company calculated projected savings
Customer pays 75% of projected savings in 1st 3 years & 50% for the 4th and 5th year
Money return from investment in energy savings, can be larger than returns from savings, money markets, & stock market accounts
however
long return time(take 5-10yrs for investment to pay off)
Ppl lack knowledge & confidence in such programs
most ppl don't know this
Energy conservation program
Free installations of conservation measures
Guarantee that utility bills would decrease
offered homeowners free audits
Principles for designing effective incentives
Match incentives to barriers that prevent action (???clarify)
Get people to notice incentives & behaviours they are meant to change
some problems harder to identify than others
examples
electricity bills->diff to identify which appliance/behaviour caused increase in bills
loan subsidies & rebates least noticeable
those that do nth, notice nth
garbage pickup price change easy to link
Interact with ppl to understand barriers to environmentally desirable behaviour
detailed interviews
Involve target ppl in designing the program
questionnaire & conversations
Continually reassess the program
Check if working
see how to improve
Design incentive systems to discourage evasion
High Occupancy Vehicle lanes->use mannequins
Payment reward for collecting bags of litter->ppl instead brought trash from home
Make incentives credible
example in Minnesota program letters above
Make incentives large enough
But Law of diminishing returns
Big enough to be taken srsly but beyond that increases don't help much
Once big enough, more effective to focus on reducing barriers
Don't make too big
Structural barriers that make this not possible
eg. automobiles
hard to get incentive high enough with lack of convenient & cheap alternatives
Find politically acceptable forms of incentives
opposition/resistance can cause political action to stop incentives
must be perceived as fair
general principle of economists->Internalise the externalities
McDonald's Styrofoam Scandal
1990, McDonalds announced stopping Styrofoam use
used paper packaging
By 1991 hailed as leader in environmentally-sensitive marketing
McDonalds set goal of 80% reduction in solid waste
Became a larger campaign to stop Styrofoam
eg. Sierra Club refused a $700,000 grant for an Earth Day Festival
McToxics Campaigns
Citizen's Clearinghouse on Hazardous Waste (CCHW)
Organised demonstrations at McDonalds
children shown in picket lines on widespread news & media coverage
focused on children
1988 announced phase out of CFCs in packaging
But only switched chemical
Switch to CFC-22 advised by some NGOs
NGOs
National Resource Defense Council
Environmental Defense Fund
Friends of the Earth
Only partially safer
McDonalds & these NGOs criticised in Washington Post
CFC-11 and CFC-12 switched to CFC-22
Protests persisted, wanted switch to paper & cardboards
Vermonters Organised for Cleanup organised boycott
parents & children boycotted & picketed McDonald's
Tried a styrofoam recycling program
However most styrofoam taken out of store
Hard to clean them out, and most are unrecyclable
Clamshell styrofoam containers
Overfills landfills cos non-degradable
Litter problem
Uses CFCs which contribute to ozone depletion
chemical waste from manufacture
Styrene leaches into our food