HOW TO CHANGE BEHAVIOUR?Evidence on incentives measures on firms

I use the colour orange because of the heat ;-)

Environmental footprint

One of the additional exercises was to calculate your personal environmental footprint. As an economist I am always interested why most companies do not change their behaviour themselves in order to use greener inputs, have greener production processes and produce greener products. In other words: the environmental footprint of companies and other organisations. It would take into account not only CO2 emissions, but also other environmental impacts such as those on air, water, land, etc. as we have learnt in this course.

Why Western countries have to act The legacy of the past points to high

responsibility of Western countries to have their environmental act together.

The Industrial Revolution started in England and spreaded to the European continent, so European countries should start also early in taking drastic measures to change current Business as Usual behaviour.

Why I focus on Europe

I focus also in Europe as I live in the Netherlands (City of Rotterdam).

Why Europe has to act

The Turning Down the Heat report shows evidence that European countries will be less affected by the consequences of climate change compared to other parts of the world. However, they can contribute significantly to climate change solutions and act actually as a role model. As said in week 4 of this course: “switch to a low-carbon world through technological innovation and complementary institutional reforms have to start with immediate and aggressive action by high-income countries to shrink their unsustainable carbon footprints.” (See WDR 2010, p. 2).

Time is not anymore on our side

How does behaviour of firms change?

Many countries have instituted various incentives schemes to change behaviour of firms. I do not think this works anymore. A significant behavioural change can only achieved by drastic measures, preferably agreed upon together with the private sector, but if not possible simply enacted and enforced by governments.

Do firms’ behaviour change? If not, what can be done more?

I look at measures used by governments to change behaviour of firms

I looked for evidence. What do we know about the many current incentives schemes? What has been the effect and what has not been achieved (see references - end of PPT).

I suggest some options to change their behaviour drastically so we actually may have a chance to Turn Down the Heat from 4 to 2 degrees Celsius in the future.

INCENTIVE SCHEMES

Different incentives schemes can be distinguished:1. Administrative2. Economic3. Reputational

INCENTIVE SCHEMES

Administrative incentives comprise legislation and regulation, instruments that reduce the burden of regulatory compliance, including specific guidance and technical specifications, and regular inspections.

INCENTIVE SCHEMES

Economic incentives influence the costs and benefits of processes or technologies, as well as the relative prices of products, raw materials and other inputs. Examples are taxes, tax incentives, subsides, lower charges, grants, tradable permits.

INCENTIVE SCHEMES

Reputational incentives affect the reputation of firms through publication, sustainability indices, benchmarking and league tables.

DOES IT WORK? Administrative incentives, such as

rules and regulations remain an important driver of environmental behaviour for many firms. When regulations are effectively enforced they force a firm to achieve minimum levels of environmental performance. Many businesses and associations are instinctively against further regulation. So there is a lot of resistance and behaviour does not change necessarily. Small firms respond to administrative incentives if supported well.

DOES IT WORK?

Effective incentives appear to be those that relate to economic and reputational factors.

DOES IT WORK?

Economic incentives work only in combination with other incentives.

DOES IT WORK?

Size matters! Smaller firms do respond on administrative incentives, but larger ones respond to some extent to economic ones.

DOES IT WORK? Reputational incentives, such as peer

recognition, naming and shaming actually works. Some sectors are much more reputation conscious, than others, for instance services, food and beverages. For large primary industries and manufacturing reputational incentives can be effective, especially in case of multinational companies where these are international, high profile and investor opinion orientated.

However, not much is being done, except some artificial changes, promoted by their strong PR.

DOES IT WORK?

National or region-wide incentives differ a lot and that diminish their effectiveness across countries and regions. Large firms move their activities.

WHAT IS NEEDED? We KNOW by now that GLOBAL ACTION

is the best solution, but is still meeting a lot of resistance from countries and large companies lobbies.

This was the case, is the case and without determined action at a global level will stay the same inhibiting to turn down the heat.

It will require a well-fitted combination of administrative, economic and behavioural incentives and more drastic measures.

HOW TO ACT? Since large firms do not respond well to

incentives, we need to think cleverly and as said in session 4 of this course: WE HAVE TO ACT NOW, TOGETHER, GLOBALLY AND DIFFERENTLY.

We need true change. Much has been suggested already, such as technological innovation, financial support to developing countries and others as mentioned in the WDR 2010 report.

I suggest few out-of-the-box suggestions

MY OUT-OF-THE BOX SUGGESTION 1 Corporate culture and individuals can be

barriers to change, so we need NEW leaders

Revise MBA programmes certifying environmental consciousness.

No CEO, COO, CFO without demonstrating environmental consciousness (and proven evidence).

May be also: no CEO, CFO, COO or whatever without succeeding this course!

MY OUT-OF-THE BOX SUGGESTION 2 Turn economics education upside down to

demonstrate the meaning of economic progress using other measures than GDP.

Now all courses start with GDP context, but they can start with “true” improvements of living standards, stressing:The right for access to water, fresh air, green and bio-diverse environment and safe and secure environment.

MY OUT-OF-THE BOX SUGGESTION 3 Change can start with small step-by-step actions

but can then lead onto larger scale changes in behaviour. Some solutions are not so complex.

The buzz word is: TRANSPARENCY. Transparency about future regulation or standards.

Firms with a pro-active attitude may well decide to change their behaviours early and radically. Publication of bad and good environmental behaviour need to be strengthened.

This does not mean a ‘one size fits all’ approach, but it implies a hard commitment from all governments to change behaviour of those firms which resist to change, and work with those which proved to have changed.

MY HOPE

HOPEFULLY BEHAVIOURAL CHANGE WILL HAPPEN.

MAY THE FORCE BE WITH US

References

European Environment Agency, State of the Environment Report,, various years, 2011, 2012, 2013

World Bank, World Development Report, 2010 World Bank, 4 Turning Down the Heat, 2012 European Commission, Information retrieved from

website of Directorate General Environment OECD, Pro-active Policies for Green Growth and the

Market Economy, 2010 Ecorys, Study on Incentives Driving Improvement

of Environmental Performance of Companies, 2012

THANK YOU