Can Cheap Information Save the Environment?

What if electric vehicles were the new status symbol? People who could afford to get a new car would consider buying an electric one instead. On the other hand, people who are less likely to make such a change immediately would be curious to try out the popularity-struck option and plan their purchase. Economists describe this mechanism as signaling as it signals people to buy a product when in fashion. 

When green is the new gold, people become less hesitant to get their hands on it regardless of their concern for the environment. Though climate change is a well-recognized threat to the human race, some work tirelessly to abort it, while others criticize its enormity. 

Small steps, rather than large leaps, are required to solve the problem at hand. While free markets do not provide solutions, enforcing environmental regulation has not improved the depleting conditions either. What helps is experimenting with new techniques, eco-friendly ideas nudging human behavior to pocket-friendly and environment-friendly choices.

One such idea, as behavioral economists Richard Thaler and Cass Sunstein study in their book, Nudge: Improving Decisions about Health, Wealth, and Happiness, involves a simple experiment around electricity bills. 

People receive their electricity bills at the end of the month, recording the watts of power they spent within the month. If we supplement this by added information on what your neighbors spent in that month, you will become more aware of your consumption. You will cut extra hours of the night-lamp that you could have otherwise switched on. You will carefully deduct the number of hours you want to watch the television. And all this is for one reason – you anticipate that your peers’ energy consumption is much less than yours and that you want to look good when the next bill comes in. So, you cut on power for the next month and saved yourself some extra cash at no additional cost apart from printing another line in the power bill. The same goes for your gas bills, water bills, and much more.

However, this action might have an (equal and) opposite reaction. Suppose the next month your energy bill comes in, and you find that you used much less power compared to your peers. It would encourage you to switch on a couple of more hours of light or television the next month. Oops!

Information is powerful but dangerous at the same time. It is how well we can incline peoples’ incentives, therefore, intentions. Every individual does want to maximize their benefits and minimize their costs. But they are also concerned about relative costs and, well, absolute gains. 

Eco-friendly products are expensive to purchase, but they are cheaper to maintain further. The information needs to unfold in a way that makes such products desirable. Buying a LED bulb or a Compact Fluorescent Lamp (CFL) may seem costlier than purchasing an incandescent light bulb, but, in the long-run, the former is much more cost-effective than the latter. 

The average cost per incandescent light bulb is $1, whereas the same is $4 for an LED. However, the total estimated cost over 20 years for both the bulb options are $211 and $34, respectively. (Viribright Lighting, n.d.) A step as small as conveying accurate information will help people make this shift and do their part in saving the environment. 

Similarly, in the case of industries that cause pollution, regularly publishing the amount of waste generated, the power used, and pollutants emitted on global websites could generate awareness among the people and industries alike. Bringing these figures to light will help governments and policymakers set limits while aiding civil societies to advocate environmental sustainability. 

Another way to protect the environment while saving money is by using the tool of default rules. Laziness is often one characteristic of human beings as they shelve unimportant and unnecessary work for later. In most of the cases, we do not change the default rules or the already chosen rules. Take your monthly subscriptions to magazines or even Netflix. Every month, on a set date, a fixed amount is debited from your bank account – as a default option. Unless you don’t opt-out of these services, the monthly transaction takes place on its own. 

Similarly, there are policies – insurance, subscriptions, and others – which have some default options, in case people are too lazy to fill any. If a green option of energy is the default, in place of another non-green option, most people will not change it to another option. Within this method, people are provided with the choice to switch while maintaining the default option as an eco-friendly one. But this is effective only when people do nothing. 

There could be other iterations of providing options such as a green default along with a costly opt-out. Setting such default choices can achieve much more than standard tools like bans, taxes, or subsidies that often face economic and political backlashes if unfavorable to stakeholders. 

In a paper titled Automatically Green: Behavioral Economics and Environmental Protection (2013), Sunstein and Reisch argue how carefully determining the ‘choice architecture‘ can help achieve sustainability goals for the environment. Techniques such as nudging cultural norms to relate eco-friendly products as status symbols and providing symmetric information produce significant results. 

Developing and developed countries face environmental degradation alike. The economic concept of the Kuznets curve visualizes the level of degradation as an inverted U-shaped graph. 

When countries develop, the level of degradation increases – factories expand and pollute the natural resources in an economy. As countries move towards development, the polluted environment becomes a concern, leading governments and policymakers to act. But such cost-effective models can be applied to developing countries without much hassle and, therefore, should be considered before it is too late.