Common Tragedies

Thoughts on Environmental Economics

Shifty behavior

Posted by Evan Herrnstadt on November 7, 2007

In an earlier post, I wrote briefly about how carbon mitigation will likely require a mass lifestyle change amongst the richer people of the world. However, I didn’t really have time at that point to further dig into the issue. The following article sort of thrust me back into that arena.

According to the New York Times, Fiji Water has pledged to take the necessary steps to become carbon negative in its entire operation, from bottling to shipping. However, there is an inherent problem with this plan: wouldn’t it be more sustainable to just drink tap water where it’s safe and available?

Glenn Pickett of Conservation International responds,

“Maybe it would be morally preferable to carry a bottle I filled at the tap, but bottled water is a consumer reality. So rather than operate in a moralistic framework, we’ll use the economy as it exists to make a difference.”

When Pickett favors using “the economy as it exists”, he implicitly discounts the value of a shift in the supply/demand schedules in favor of movement along the supply/demand curves. The following discussion focuses on the demand side of the market for clarity and (relative) brevity. An increasing carbon price will move us along the demand curve for carbon-intensive products (CIPs) and decrease the quantity of CIPs demanded. However, we could also work for a leftward shift of the entire CIP demand schedule. This means that at any given price, the quantity of CIPs demanded (and thus, carbon emitted) would be less.

Digging into Economics 101, let’s think about what can shift a demand schedule. One is the availability/price of substitutes. In this case, one example is new “carbon-light” energy sources. We can reduce the price of this substitute, and thus shift the CIP demand curve, by investing in energy R&D. There is great promise for CCS, cellulosic ethanol, new solar and wind technologies, and improvements in basic energy efficiency.

Another way the demand curve can shift is through changing tastes. I think we are seeing this to some extent, as “green becomes the new black” (ugh, I hate that phrase). However, there is a lot of latent demand shifting that could be done.

For instance, I often catch myself feeling smug about the work that I do and the policies that I support. It’s obviously okay for me to maintain a burning pile of coal in my backyard for fun, because I support a hypothetical carbon tax or permit trading system. When a proper price on carbon exists, I won’t burn it anymore, but for now I can blame my actions on that damn Washington gridlock.

It is a testament to the value of behavioral economics that my individual demand curve temporarily shifts (or, to sound suggestive, has innumerable curves and kinks) based on whether or not I’m consciously thinking about climate change, how tired I am, or whether I’ve just been harassed by Greenpeace and feel like clubbing a seal to spite them (interesting side note: some advocacy can actually shift my curve to the right).

For the vast majority of the world, the age of parsimonious carbon usage begins when the economic incentives say it does. But there are ways to start cutting emissions without a carbon price, e.g., encouraging a friend to take public transportation to work. Take that latent demand shift and make it a reality. Just something to think about for those of us who are both environmental economists and environmentalists.

Thanks to Rich for suggesting the Micro 101 framework.

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