How environment policy can be optimised with findings in behavioural economics

On behalf of the Federal Environment Agency, adelphi examines the feasibility and effectiveness of policy instruments based on findings in behavioural economics. This project is an important contribution to the current discourse on the relevance of behavioural economics to enviromental policy.

A vast array of different instruments are used in environment policy today. These include legal and planning instruments, as well as data or market-based tools, amongst others. One thing that these instruments all have in common is that they are frequently based on the anticipated actions of a rational person interested in maximising benefits. Yet these types of conventional incentive instruments are not always able to offer satisfactory results in all areas. In such cases, it is possible to achieve significant improvements through minor optimisations based on lessons learned from behavioural economics.

A good example of work in this area is the project "INCENT II – Innovative approaches for improving the incentives of environmental instruments: Enhancing the framework of environmental economics". On behalf of the UBA, the scheme aims to assess methods of optimising environment policy instruments with the help of behavioural economics. Two practical experiments are being conducted to investigate the feasibility and effectiveness of such instruments. One experiment will test ways of optimising the design of electricity bills, while an other will look into information on running costs for household appliances at their point of sale. Highlighting the relevance and importance of findings in behavioural economics is an important step in efforts to broaden the scope of environmental policy.