Saturday, May 19, 2007

Carbon Credits and Israeli Daycare

I apologize to my loyal reader for a long absence. But really, Who Has Time For This?

This week KQED's Forum produced an hour on workplace ethics, and toward the end of the show discussed the unusual behavior that can result from mixing ethical and economic incentives. The show discussed the oft-cited study of fines imposed by an Israeli day care center on parents who came late for their children. Surprisingly, the rate and duration of late arrivals increased markedly. The new hypothesis is that without fines, parents felt they were violating a social contract by being late and were reasonably responsible. Once fines were imposed, parents were likely to feel the entire social cost was captured in the "price" of the fine. They now made more purely economic decisions, being late much more frequently.

Are there any lessons to draw from this in the growing market for carbon offsets? Increasingly consumers are buying offsets from services like Terrapass, Carbon Fund and NativeEnergy. But are these offsets appropriately priced, and could this early market have adverse consequences on consumers' overall behavior?

Naturally, the first offsets are the cheapest. But in this ethics-linked market, the first to buy them are likely among the highest emitters of carbon, who could potentially do the most to limit their footprint without dramatic economic harm. Instead, they can buy cheap offsets (much cheaper, anyway than the world's median ton of carbon would cost to offset), and emit worry-free. Could putting a price on these emissions have unintended consequences? Might the small but growing handful of consumers who feel an ethical obligation to cut emissions simply pay the fine rather than change their behavior? Note that most credits do not actually adjust well to usage. Once I've purchased my sticker for the year, there is no further incentive to make the marginal choice to work from home rather than burn three gallons to make the round trip to the office. Ideally, I'd be subsidizing industrial carbon decreases AND shrinking my own footprint.

(I am working out an example of how carbon offsets might affect my pending decision about a new car. I will try to post the results shortly.)

Furthermore, in the day care study, the new proclivity to lateness continued even after the fines were removed. Apparently, parents assumed the cost of lateness had already been revealed. It's great if they aren't charged for it (free daycare!), but it is now an economic, not an ethical issue.

I do not mean to suggest carbon pricing cannot be an important tool in reducing emissions. Indeed, I think it is one of the most critical. But like any early market, structure and incentives are critical to success. Is it possible that while ethical concerns around carbon emissions are on an upswing, we should focus on those as incentives and abandon the pricing mechanisms until we can structure the mandatory cuts that increasingly seem likely?

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At 5/20/2007 7:39 AM, Blogger Jay said...

David, I just discovered your blog and I enjoyed reading your posts. You have a refreshing perspective.


At 5/20/2007 7:43 AM, Blogger Jay said...

I beg your pardon Justin.

I referred to you as David in my comment, didn't I?

Feel free to correct the post.

At 5/20/2007 11:08 AM, Blogger Tom said...

A nice theory, but the data doesn't really support this. In fact, public display of carbon offset actions like TerraPass decals actually help enforce the social norms of trying to fight climate change.

There is a tremendous amount of research on this in the recycling literature -- just google scholar search social norms and recycling and start reading.

Everyone marketing carbon offsets is careful to educate that the best carbon offset is one you never need to buy (because you reduced it on your own).

Other misconceptions abound.

1) Most carbon offset customers are low emitters. The number one TerraPass member car is the Toyota Prius. The number two is the Honda Civic.

2) Carbon offsets actually help people get turned on to the broader message of reorienting their lives to low-carbon living. Our members have stopped using dryers, bought CFLs, sold cars, moved, took local vacations -- all *after* buying carbon offsets.

3) Simply changing behavior is enough to solve climate change. This is probably the most naive deep-green argument around. We need to cut emissions 80% by 2050 to avoid dangerous climate change. Unless we want people to live in mud huts, you will need tools like green power and carbon offsets to get there. Conservation will help as well, but saying that conservation alone is the only moral approach to solving climate change is like saying abstinence is the only way to solve our population troubles.

At 5/20/2007 12:17 PM, Blogger Justin Label said...

Tom, thank you for sharing some interesting data points.

Re: 1) Do we know they are low emitters? I would venture that Prius owners, e.g., emit more carbon than the average American, simply by dint of the fact they are likely high earners and therefore high consumers. I'd welcome any data.

Re: 2) That is very encouraging. Carbon offsets as the on-ramp to a carbon-conscious lifestyle!

Re: 3) Absolutely. The bulk of the long-term cuts must come from low- or zero-carbon energy generation and industrial processes. I would submit, however, that conservation is our biggest lever in the short-term, perhaps even for the next 10 years. The replacement cycle on my lightbulbs is a lot shorter than on my power plant.

Finally, you make a great point about displaying a badge as a motivator for greater social consciousness. The Israeli day care study obviously did not address this. Perhaps they need a new study where on-time parents are rewarded with "My child was on-time departure of the month at Ben-Gurion Middle School" bumper stickers!

At 5/20/2007 9:19 PM, Blogger Tom said...

RE: 1) Are they large emitters? Probably, due to the higher incidence of airline travel amount the middle to upper classes.

But that's not the point. The point is that carbon offsets don't stop the drive (no pun intended) to reduce carbon emissions. Do you throw a bunch of trash out on the highway just because you diligently recycle? No! If anything it makes you more aware and more conscientious. It activates more norms, and you share those norms when you put your blue bin out on the curb.

That's kind of the broader point that I am making. Yes we need conservation. Yes we need green power. Yes we need carbon offsets.

Slamming one of these tools based on unfounded claims about behavior is dangerous given the mathematics of climate change. We need all the help we can get.


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