Apart from a minority of die-hard climate-change deniers, there are few in the world who oppose efforts to increase sustainability. Generally it is recognised that cutting waste, saving energy and improving efficiency make business sense, even before the environmental and social benefits are factored in.
Yet globally progress in cutting overall energy consumption remains slow. One important reason is the resistance of emerging economies, who argue that lifting their people out of poverty is more important than curbing emissions.
Less well known though are behavioral challenges to reducing energy consumption. These challenges are ingrained in both emerging as well as advanced economies like Singapore.
A major factor influencing behavior is what economists call sunk investments – in other words, a cost or investment that has already been incurred and cannot be recovered. Let us take the example of transport, one of the biggest factors in global energy consumption and hence in environmentally damaging emissions.
In Singapore, as in other major urban centres, the government is spending billions to expand the MRT network and improve bus services. But to what extent will these investments lure people out of their cars?
Sunk investment
Recently, the government opened another stretch of the Downtown line, which passes many top schools in the Bukit Timah area. Yet, the new MRT service has lured only a small fraction of parents to let their children go to school by train instead of car.
Many families have already bought a car and made a large sunk investment. In deciding whether to drive their children to school or let them take the train, they compare the price of a ticket and longer time with the marginal cost of driving and shorter time.
Having already paid out for the high cost of the car and associated COE, the marginal cost of driving is relatively low – indeed, with the recent plunge in the price of oil, it has actually decreased. So, for many families, the answer is to use the car.
Moreover, this rational behavior is reinforced by what is known as a sunk cost fallacy. In a nutshell it is commonly acted on belief that because you have spent money on something, you would be wasting your money if you didn’t use it.
In the case of our car-owning family, having spent in excess of $100,000 to buy a car, they feel that to justify the expenditure the car should become the primary mode of transport even if it is not always the best, cheapest or quickest option. The result is that they send their kids to school by car.
In reality of course, the $100,000-plus is sunk. Whether the car is used to send the kids to class or they go by train, that money is still gone.
Behavioral lock-in
Indeed, in recent research, my colleagues and I show that the sunk cost fallacy influences driving behavior here in Singapore. The rising cost of the COE results in the unintended consequence of car owners actually driving more than they might otherwise, in order to “get their money’s worth”.
A second key behavior challenge to achieving sustainability is behavioral lock-in.
Again this plays a significant influence on transportation adoption in the sense that once people buy cars, they consciously or unconsciously make related commitments and choices. These include where to live, where to work, which schools to send their children to, and even what kind of leisure activities to engage in – golf at the country club rather than badminton at the community club, for example.
Choices like these take a long time to unwind, and so they have long-lasting effects. Importantly, these commitments may last longer than the 10-year life of a car and feedback to the choice of transport.
For instance, choosing a feeder primary school affiliated with a secondary school may mean a commitment of up to 12 years. Then, when the COE of their car expires, family may decide to buy a new car (or renew the COE) to continue to send their children to the affiliated secondary school.
The final challenge comes in the form of organizational disincentives. Many of us will have experienced arriving at our offices in the morning to find the air-conditioning set at a particularly icy level. Indeed many office workers keep a sweater or jacket at their desk to wrap up against the chill.
During the night in most offices, air-conditioning is usually shut down to save costs, meaning that by the time early morning cleaning staff arrive the offices are airless and stuffy. They have manual work to do, so unsurprisingly the common habit is to slam the thermostat down to the minimum – and there it tends to stay.
This may seem a trivial issue, but taken cumulatively, the problem of inducing cleaning staff to re-adjust the thermostat after they finish work is quite general. In a similar vein every factory would like their workers to switch off equipment when not in use, but it may be more convenient for workers to let the machines run idle.
Reducing energy consumption is a key step to achieving realistic sustainability, but it is not as simple as cutting waste. Cutting waste is easy, but will not get us very far.
To meaningfully reduce energy consumption, we need creative ways to overcome the behavioral challenges of sunk investments, behavioral lock-in, and organizational disincentives.
