50 Cents for the Environment

Newspapers and political parties are an endless source of nonsense with numbers and statistics. Normally, I ignore both, living by the philosophy that anything of real importance will reach me soon enough, without any effort to looking for it myself.

Last week, the Norwegian environmental party, MDG, has proposed to raise the price of fuel for cars with five Norwegian kroner (ca. 50 Euro cents) per liter. This would mean an over 30% raise, compared to today’s price which at the moment hovers in the high end of the 14 to 17 kroner range for gasoline (and slightly less for diesel). Combined with some proposed tax reduction, the aim is to “motivate to use less gasoline and diesel”.

Superficially, this sounds like a reasonable strategy and rational application of incentives to change people’s behaviour into some wanted direction. After all, people tend to model their behaviour in accordance to what happens to them because of that behaviour. No one likes to pay too much for fuel and it appeals to “common sense” that individual fuel use drops with a substantial rise in price levels.

However, human behaviour is much more complex than this oversimplified (also, I would say, na?ve) ABC thinking about incentives and behaviour. As Thaler and Sunstein say in their famous book Nudge, we are not Homo Economicus, we are Homo Sapiens. We do not make decisions solely based on simple economic incentives and calculations.

There are many factors playing a role here, and the price of your car trip is just one of many competing objectives that people juggle with on an everyday basis. And not only ordinary people try to balance a variety of objectives, also regulators and authorities have competing objectives, like trying to keep rural areas populated which creates the need of either mobility or moving jobs out of the city (either of which requires energy).

Also, while it may have a short time effect for some people, soon enough the +5 NOK-price will be the new normal. I recall very well filling my tank for only 11 kroner only a few years ago, and now we speak of 14 kroner as “cheap gas”. Whom are we actually fooling here?

Besides, for many people there is no viable alternative like public transport and they need to take the car to get anywhere. MDG has actually thought about this, proposing to give these people greater tax advantages, thereby adding more complexity to the mix.

Simplifying a problem by ignoring some details and making it a bit more abstract can be a useful strategy. Knee jerking a linear cause-and-effect solution and dumbing down a complex problem - actually two, first the environment, second, people’s behaviour - into a simple number and incentive shows a gross lack of appreciation for how the world really is. Yet, this is what we see continuously in organisations and society. Despite these so-called solutions backfiring on many a time. Sure, they work in some situations, but not everything is a nail to our hammers. Let us try to make a greater effort finding the right tools for the right situation.

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You can read more about sub-optimal or wrong application of numbers and incentives in the brand new book If You Can't Measure It - Maybe You Shouldn't. Thirty compact chapters offer a critical view on measuring, indicators, metrics, goals and statistics within a context of safety. The book also tries to offer some useful and practical suggestions for different (possibly even better) approaches, or at least different ways to think about these subjects.

Find the book on Amazon (And note that it is cheap, you can not buy many liters of fuel for that money!)

www.mindtherisk.com