Behavioral Science and Energy Policy

To combat climate change, many economists and policymakers advocate price-based approaches, such as greenhouse gas emissions taxes and emissions trading programs, or technology-based approaches, such as R&D subsidies and public-private R&D partnerships. In the end, however, both types of approaches rely on consumers and firms to make different choices: they will need to change what they do and what they buy in response to increases in the relative prices of carbonintensive goods. A recently-growing body of research in psychology and behavioral economics suggests that nonprice interventions can be just as powerful as prices in changing consumer choices. These behavioral approaches, which include commitment devices, information provision or attentional devices, appeals to social norms, or apparently-small changes to prices, default options, or transactions costs, are quite inexpensive and can be extremely powerful. This article describes recent advances in our understanding of these phenomena, discusses how they can be applied to energy efficiency, and presents a process through which behavioral interventions can become a more integral component of climate change policy. Historically, energy efficiency has been a leading example of the difficulties in inducing people to change behaviors and adopt new technologies, even when it appears to be in their own financial interest. The great potential for energy efficiency has been detailed in consistently optimistic language in 30 years of discussion papers. Investments in fluorescent lightbulbs, new insulation, and hybrid vehicles appear to pay for themselves very quickly. Compared to these possibilities, however, the actual penetration of energy efficient technologies and behaviors has been strikingly low, a phenomenon that has been alternately dubbed the “Energy Efficiency Gap” and the “Energy Paradox” (Jaffe and Stavins 1994). This suggests that prices and