Skip to ContentSkip to Navigation
About us FEB
Header image Faculty of Economics and Business Blog

Nudging out support for a carbon tax: David Hagmann on achieving green change

Date:02 March 2020
David Hagmann is a Postdoctoral Fellow at the Kennedy School at Harvard
David Hagmann is a Postdoctoral Fellow at the Kennedy School at Harvard

How to accommodate human behavior to stave off severe forms of climate change? Around this question, the FEB signature area Markets and Sustainability organized an interdisciplinary symposium on January 24–25. Researchers from economics, operations, marketing, and psychology presented their recent research and discussed the role behavioral economics can play in environmental decision making. The topics ranged from individual decision making in reducing showering time, household waste, and car use in city centers, to information avoidance and collusion in market interactions.

Mark van Oldeniel and Lennart Stangenberg (PhD Students at the EEF Department) interviewed two speakers about their research and the symposium’s theme. In this interview, we spoke with David Hagmann, who is a Postdoctoral Fellow at the Kennedy School at Harvard. His work mostly relates to information preferences. This can be about the desire not to know certain types of information, but also about the effect that information can have on decision making. 

At the Markets and Sustainability Symposium, you present your paper “Nudging out support for a carbon tax”. What is it about?

The paper came out of a concern that when we inform people about nudges [nudges are gentle, non-intrusive pushes towards the right behavior, without limiting people’s choice set, red.], they may inadvertently start treating nudges as substitutes rather than complements to existing economic policy. What we do in our study is that we give people the option to implement in one treatment condition just a carbon tax or nothing. In a second condition, we also introduce them to a green energy nudge and give them the option to introduce either both the nudge and the tax, just one of them or none. We find that when we add this nudge to the choice set in this second condition, support for the carbon tax declines substantially. And so there's a potential concern that people think “Oh, this nudge on its own is going to solve the problem. We no longer need the much more painful tax!”

Usually, many people who promote nudges say “It's just one tool in the toolbox of policymakers” but then you find that nudges can potentially be harmful. So are nudges then maybe over-hyped or used too naively?

I think that the ideal world would use both nudges and standard policies, like a carbon tax. What we find in our last study is that when we make people explicitly aware that the nudge is just going to make a very small contribution towards solving the problem, this actually fixes the issue that I described previously. So then the availability of the nudge doesn't make them less supportive of the tax and, very promising, the support for the nudge stays constant. So, I don't think we have to give up on nudges. What I think can sometimes be a general issue of nudges is that, as the business of behavioral science gets bigger, more and more organizations have an incentive to over-promise on what they can deliver. This may lead people to think “We don't actually have to solve systemic issues.”

So from your research, one could say “Use nudges but do it wisely and if you just inform people about this then you may actually keep them effective while not crowding out support”?

I think that would be the hope. So the idea is that we don't have to tell people “This is a panacea or this has a really big effect size” for them to support nudges. They're perfectly fine accepting policies that make a very small difference when they're basically free, but then without this cost of crowding out the support for other policies.

Many economists think that introducing a carbon tax or a cap-and-trade system is a good idea, but political support seems limited. Do you have any views or ideas what can be done about this?

I think people don't really understand why a carbon tax works. If they first have to pay the tax and then get a refund – via a carbon dividend – they assume the policy is ineffective because they can afford the same things as without the policy. So the fact that it changes relative costs and incentives behind the scenes is apparently really hard for people to figure out. Nevertheless, people genuinely think that they're polluting less than average which is fantastic when you're advocating for a carbon dividend because now what do people think? “Well, I pollute less than average. I'm gonna get more money back than I paid!”, and you've just turned this into “You're getting free money by supporting us!” So I think there's a way where you can make use of this sort of desirability bias or this sort of self-serving interpretation where people then start to support a carbon tax and dividend scheme.

Especially if they believe to be below average, then they should agree with this policy. This would be great for them.

Exactly, and I think in an experiment that's exactly what you could do, right? You could ask them first about their beliefs about their pollution levels and then test whether support for this policy is massively higher. But potentially even out in the real world when people aren't directly thinking about their own pollution levels, it could make a dividend super appealing.

Which then at the same time will probably immediately be framed by the opposing party as…

...it's actually not clear. There's a big group of conservatives, the climate leadership council in the US, which is basically all the big oil companies, all sorts of big business, plus Republicans, and hundreds of economists. And basically what they want to do is to implement a $40 carbon tax that then gets increased year over year. The proceeds of this tax will be refunded to the American people. In exchange, it eliminates some of the other regulation and state-by-state level regulation. I don't believe at all that is altruistic, you know. But it doesn't have to be as long as we end up with something effective.

More on this topic:

David Hagmann’s website: http://www.dhagmann.com/

David Hagmann’s paper: https://www.nature.com/articles/s41558-019-0474-0

What is nudging: https://www.independent.co.uk/news/business/analysis-and-features/nudge-theory-richard-thaler-meaning-explanation-what-is-it-nobel-economics-prize-winner-2017-a7990461.html

The climate leadership council: https://clcouncil.org/