35 Using Behavioural Economics to Address Sustainability Challenges
When it comes to addressing sustainability issues, it’s important to recognise that the solution doesn’t always lie in just technological advancements or strict regulations alone. If we approach these challenges with a scientific mindset, particularly by incorporating insights from behavioural economics, we can craft policies that not only encourage better choices but also fundamentally shift societal behaviour. Sustainability issues, such as waste reduction, energy conservation, and pollution control, are deeply rooted in the way people think, make decisions, and act on a daily basis. The key to tackling these problems effectively lies in understanding these behaviours and leveraging that understanding to create policies that can truly drive change. In this section, we will explore how behavioural economics can offer practical solutions to some of the most pressing sustainability challenges, particularly in relation to consumption patterns, resource management, and individual decision-making.
While traditional economic models often assume that people make decisions in a perfectly rational way, behavioural economics acknowledges that humans are influenced by psychological, social, and emotional factors that can lead to suboptimal choices, especially when it comes to the environment. We are often unaware of the long-term costs of our actions, or we may fail to properly value the benefits of sustainability. Here, behavioural economics helps us design policies that nudge people toward making better choices, while still respecting their freedom to choose. From introducing small fees or incentives to altering the context in which decisions are made, the insights provided by behavioural economics offer a new way to create policies that promote sustainability without the need for heavy-handed regulation.
As we dive into the case of the 10p plastic bag charge, we’ll see how a simple, behaviour-driven approach led to a massive reduction in plastic bag consumption. But the power of behavioural economics goes far beyond that. By using the principles of loss aversion, framing, nudging, and other psychological factors, policymakers can encourage individuals and businesses to make more sustainable choices, from reducing energy consumption to promoting the use of reusable products. These techniques not only create an environment where sustainable choices are easier and more appealing but also help shift long-held habits and practices that are detrimental to the environment.
The beauty of these behavioral approaches is that they don’t require massive changes to existing systems. Instead, they work with human nature, using subtle shifts in incentives, information, and decision-making environments to achieve big results. Whether it’s encouraging consumers to use less plastic, conserve water, or switch to greener energy sources, the potential to use behavioural economics to address sustainability is vast. Let’s explore some of these ideas further, beginning with one of the most successful examples: the 10p plastic bag charge.
The story of the 10p plastic bag charge is a powerful example of how behavioral economics can be harnessed to shape policy that influences real-world behaviour. When this policy was first introduced in the UK in 2015, it had an immediate and tangible effect on reducing plastic bag usage. But the story behind it isn’t just about a small charge on plastic bags – it’s a story of how governments and societies can learn to nudge people toward more sustainable behaviors by understanding the way humans think, make decisions, and respond to incentives.
Before the introduction of the plastic bag charge, plastic bags were freely distributed in stores across the UK. People took them without thinking, using them for a range of purposes, from carrying groceries to collecting laundry. But, while these plastic bags were free to the consumer, they were not without cost. In fact, the environmental cost was enormous. According to estimates, around 7.6 billion plastic bags were used in the UK alone each year, contributing to pollution, wildlife harm, and the growing mountain of plastic waste in our oceans. The bags were single-use, and even though people might have been aware of the harm they caused, they didn’t truly internalise this as their problem. They didn’t see the impact of a single plastic bag on the environment because the cost wasn’t made apparent to them. This is where behavioural economics comes in – it offers insight into why people make these choices and how policy can change those behaviours.
The solution, in this case, was to impose a charge. The 10p plastic bag fee introduced a simple yet powerful nudge. It wasn’t a ban on plastic bags, nor was it a massive fine – it was just enough to make people think twice before taking that free bag. The results were striking. In the first year after the policy was enacted, plastic bag use in the UK dropped by 80%. This reduction was a direct result of consumers now internalising the environmental cost of their actions, as they had to pay a small amount for each plastic bag they used. That 10p became a signal – it was the external cost of the plastic bag being placed squarely on the consumer. What was once free and seemingly costless now had a tangible price attached to it, and it made people rethink their behaviour.
This dramatic change in behaviour can be explained by several concepts from behavioural economics. One of the most important of these is loss aversion. Loss aversion refers to the psychological principle that people feel the pain of losing something much more intensely than the pleasure of gaining something of equal value. In the case of the 10p charge, consumers felt the pain of having to pay for a plastic bag. That small loss – a mere 10p – had a greater emotional impact than the convenience of having a free bag. It was a clear and simple economic decision for the consumer: is the 10p worth the benefit of using the plastic bag, or would they rather bring their own reusable bag to avoid the cost? This small charge, therefore, became a powerful motivator for change.
In addition to loss aversion, externalities played a key role in the success of this policy. An externality is an unintended consequence of an activity that affects other people. In the case of plastic bags, the externalities were environmental: the pollution of oceans, harm to wildlife, and the long-lasting impact of plastic on ecosystems. People, however, typically do not account for these externalities when making everyday decisions. By introducing a charge, the government effectively forced consumers to internalise the external cost of using plastic bags. This made them more conscious of the broader impact of their choices.
The success of the 10p plastic bag charge is not just a UK story – it’s been replicated across the globe, and it highlights how small nudges can make a big difference. In 2002, Ireland became the first country in the world to introduce a plastic bag tax. The results were immediate: plastic bag use dropped by 90% in the first year. The policy was so successful that it inspired other countries, including Denmark, France, and Rwanda, to adopt similar measures. In some places, like Kenya, plastic bag use was banned altogether, and the country became one of the first in the world to criminalise plastic bag use, with severe penalties for offenders. These policies show how powerful behavioural economics can be when applied to sustainability issues. The charge or tax creates an incentive for individuals to change their behaviour, making them more aware of the environmental costs of their actions.
One of the most intriguing aspects of the 10p charge, and policies like it, is how they reflect our tendency to respond to small, immediate incentives rather than long-term benefits. Environmental degradation, like climate change or plastic pollution, often feels distant and abstract to most people. It’s hard to feel the immediate impact of using a plastic bag, especially if it’s something we’ve been doing for years. However, by imposing a small, immediate cost, policymakers are making the environmental cost more tangible. The beauty of this approach is that it doesn’t require people to fully understand the complexities of environmental science or climate change – it just taps into a simple human reaction to paying for something they once got for free.
Framing is another important concept that helps explain why policies like the plastic bag charge are so effective. People’s decisions can be heavily influenced by how choices are framed. In the case of the 10p charge, the government framed the policy as a way to reduce waste and protect the environment. It wasn’t just a charge for the sake of raising money – it was presented as a step toward making a more sustainable society. The framing of the charge as a “green” initiative, rather than just a tax, helped shift public perception. People were more willing to accept the charge because they understood that the money wasn’t going into the government’s pocket but was part of a broader effort to tackle an urgent environmental issue.
Nudge theory also plays a key role in the success of the plastic bag charge. The concept of nudging, popularised by Richard Thaler and Cass Sunstein, suggests that people can be guided toward making better decisions without limiting their freedom of choice. The 10p charge didn’t ban plastic bags or make it illegal to use them – it simply nudged people toward making a more sustainable choice by making the costs of plastic bags more visible. Instead of using force, the policy relied on altering the environment to encourage the desired behaviour. People could still choose to use plastic bags, but they were now more likely to think twice before doing so.
The effectiveness of these policies also brings us to another concept in behavioural economics: bounded rationality. This is the idea that humans are not always perfectly rational and are limited in their ability to process information and make decisions. In many cases, individuals may not be fully aware of the environmental impacts of their actions, and they often make decisions based on convenience rather than long-term consequences. By introducing a policy that makes the environmental cost explicit, the government helps overcome this limitation by simplifying the decision-making process. The 10p charge creates a clear, easy-to-understand choice: either use a plastic bag and pay a small fee, or bring your own reusable bag and avoid the charge.
But the impact of these policies goes beyond plastic bags. They offer a blueprint for how we can tackle other sustainability challenges. Whether it’s reducing carbon emissions, minimising food waste, or promoting energy efficiency, behavioural economics provides the tools to design policies that influence behaviour in meaningful ways. The key is to understand that people don’t always act in their own long-term best interest or the best interest of society – but with the right incentives and nudges, they can be guided toward making choices that benefit both themselves and the environment.
As we look toward the future, the success of policies like the 10p plastic bag charge offers hope. If we can continue to build on these insights from behavioural economics, we can create a world where sustainability becomes the default, not the exception. While the challenges we face, such as climate change and resource depletion, are daunting, the success of these simple, behaviour-driven policies demonstrates that change is possible. It’s not about imposing drastic measures or restricting freedom – it’s about nudging people toward better choices, making sustainable behaviour the easy choice, and creating a world where we all live in harmony with the planet.
