A Behavioral Economist Thinks About Energy and Climate Change

When examining environmental, energy, and climate change policy, the methods and the topic of behavioral economics arise with some regularity.  In my podcast series, “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program,” we’ve talked about such behavioral research in regard to energy-efficiency policies with Michael Greenstone and others.  And, much more recently, in a podcast episode just released, I had the opportunity to talk with a behavioral economist who is now on the faculty of a school that’s focused on environmental studies.  I’m referring to Hunt Allcott, who is Professor of Global Environmental Policy at the Doerr School of Sustainability at Stanford University, and who – I’m proud to say – is a graduate of the PhD program in Public Policy at Harvard.  You can listen to our podcast conversation, produced by the Harvard Environmental Economics Program, here.

Allcott serves as Co-Director of the Stanford Environmental and Energy Policy Analysis Center, and is a Research Associate at the National Bureau of Economic Research, as well a member of the board of editors of the American Economic Journal: Economic Policy.

The crux of Allcott’s research focuses on the ways in which human behavior affects economic decisions and outcomes in a variety of contexts, and the lessons those have for policymaking. In our conversation, he cites several examples where government policy can influence consumer decisions in ways that will benefit both consumers and the environment.

“It’s like what behavioral economists call a shrouded attribute. It’s a future cost that’s kind of easy to forget when you’re making a purchase decision. So, if it’s… true that consumers aren’t thinking very hard about these future energy costs, then we’re probably erring on the side of buying too many gas guzzling cars and energy guzzling air conditioners and light bulbs. And so, as a result, the government can make us better off by pushing us in the direction of being more energy efficient,” Allcott remarked. “It was fun for me to… work with a group of others to develop actual empirical tests of, okay, how would you substantiate those consumer protection arguments in the data? So, that’s some of the work that I’m most proud of.”

Allcott also discusses the federal electric vehicle tax credits, which are designed to incentivize consumers to reduce carbon emissions.

“You subsidize a new electric vehicle, that’s a new EV on the road, [and] that’s good for the environment in most places. You give somebody a tax credit to buy a used EV, that’s just trading an electric vehicle from one person to another, and so there’s no new net vehicle on the road, at least [not] directly,” he stated. “Is the incidence really on the used vehicle buyer, in which case there’s no environmental benefit, or maybe the prices of used electric vehicles are going up because they’re worth more upon resale. That’s not as good for the buyers, but then it might induce more new electric vehicle sales because when you buy a new EV, you then recognize that the resale value might be higher.”

Allcott officially joined the faculty at the Doerr School in September 2022, just as the school was being launched.

“There are 60 existing faculty members that were moved into that school as part of earth systems, energy systems, civil engineering, and some other departments. I was actually… the first external hire of this school to reach through the provost and actually show up on campus. And so, I’ve been here for, I guess, 15, 16 months so far, and it’s just been a great experience trying to help Stanford have an even bigger imprint in this space of impact on energy and environmental issues.”

Ironically, Allcott notes that much of the research taking place at the Doerr School and in which he’s now engaged is not focused on behavioral economics.

“This has been an opportunity to step back and rethink what is the right research direction for the next five to ten years. And perhaps interestingly, all the topics that our group is now working on are what I would call non-behavioral topics. There’s not really a behavioral economics angle to them,” he explained. “Upon arriving at Stanford [I asked] ‘okay, I’m in the sustainability school. What are the most important environmental economics topics?’ I think energy efficiency and behavioral economics is still on that list, but there’s so much other stuff. There’s the Inflation Reduction Act, there is electricity market design, and then within each one of those two, there’s a lot of different sub-areas that we’re actually focusing on.”

You can hear this and much more in my conversation with Hunt Allcott, which is the 59th episode over the past four years of the Environmental Insights series, with future episodes scheduled to drop each month.  You can find a transcript of our conversation at the website of the Harvard Environmental Economics Program.  Previous episodes have featured conversations with:

“Environmental Insights” is hosted on SoundCloud, and is also available on iTunesPocket CastsSpotify, and Stitcher.