Putting your money where your mouth is

By Legal Eagle

For those who live overseas, the Australian Prime Minister has recently unveiled a plan to introduce a carbon tax, after brokering an acceptable deal with independent and Green MPs. In this post, I want to look at a possibly interesting shift in opinion about the need for direct action on climate change, upon which the futures of our political leaders may hinge.

The Lowy Institute recently released a report which suggested that the enthusiasm of the Australian public for immediate and economically costly action had dwindled since 2006 (report available here).

(Click on the graph to get a larger, clearer image – I can’t seem to make it appear larger in the post itself). The graph discloses that in 2006, 68% of respondents agreed with the statement: “Global warming is a serious and pressing problem. We should begin taking steps now even if this involves significant costs.” In 2011, the proportion of respondents who agreed with this had dropped to 41%. In 2006, 24% of respondents agreed with the statement: “The problem of global warming should be addressed, but its effects will be gradual, so we can deal with the problem gradually by taking steps that are low in cost,” but in 2011, the proportion of respondents who agreed with this statement had risen to 40%. Finally, in 2006, only 7% of respondents agreed with the statement: “Until we are sure that global warming is really a problem, we should not take any steps that would have economic costs,” but in 2011, the proportion of respondents who agreed with this statement had risen to 19%. You can see from the attached graph how the support for radical action has fallen, and the support for gradual or no action has risen over time.

Similarly, respondents were asked “if it helped solve climate change how much extra would you be willing to pay each month on your electricity bill?”, rounded to the nearest $10. In 2011, the most popular response was nothing at all, with 39% of respondents choosing this option. When this question was first asked in 2008, only 21% were prepared to admit that they did not want to pay anything. Previously, the majority of respondents had been prepared to pay between $1 and $10. Interestingly, in 2011, the percentage of people who said they were prepared to pay $21 or more had also increased since 2008. The groups which had decreased were those who were prepared to pay between $1 and $10 extra per month, and those who had been prepared to pay between $11 and $20 per month.

There have been criticisms of the way in which the Lowy poll was framed. Nonetheless, let’s presume for the sake of argument that there is an identifiable trend backing away from immediate action. Why would that trend have increased from 2006 to 2011? I think there are a number of relevant factors.

First, there was the failure of the Copenhagen Summit in 2009 to produce a legally binding agreement whereby countries agreed to reduce carbon dioxide emissions. If a large country had taken the plunge (such as the US) things may have been different. Secondly, the GFC affected people’s opinions. People are less likely to want to be financially burdened during an economic downturn when times are tough, although I’ll note that Australia weathered the GFC fairly well. Thirdly, I suspect that people may be worried about the capacity of the Gillard government to implement the carbon tax effectively after the failures of the insulation scheme and the Green loans scheme, and the cost blow-outs associated with the BER project. And people are scared — they have no idea of what they are getting themselves into. When people are afraid, they do not want to take risks.

Fourthly, however, I think we’re seeing the gap between stated preferences and revealed preferences appearing as carbon tax becomes an imminent reality rather than a mere abstract possibility in the future. Let me explain the difference between stated preferences and revealed preferences. Economists use both measures to try to work out how we value certain things in society. As the name suggests, stated preferences are what you say you’re willing to pay for a particular resource. Related to this, economists use a technique called “contingent valuation” to try to work out money values for difficult-to-value resources like biodiversity. Putting it simply, they do so by asking people how much they would be prepared to pay to keep a certain resource (eg, biodiversity). In this way, they seek to value it.

Revealed preferences, on the other hand, are gleaned from the patterns of consumers, and reflect what people actually choose to pay (or not to pay, as the case may be). As Tim Harford notes in The Undercover Economist, one way of measuring how people value certain aspects of life is to look at their revealed preferences – what do they actually choose to value in the way they live their lives? Harford explains at page 88:

If you pay more to avoid a noisy area when you rent an apartment or a hotel room, then you have implicitly put a value on peace and quiet. If you decide to wait for the bus rather than flagging down a cab, you are implicitly putting a value on your time. If you decide you can’t be bothered buying a smoke alarm, you have traded off saved time and expense against an increased chance that you will die. However, when you make any of these decisions, you probably don’t come clean to anyone, even yourself, about the price you’ve put on quiet, time, or life.

One of the best ways of estimating…subjective values is to look at what people actually do. Economists have a theory of “revealed preference,” which is that people’s preferences are revealed by the choices that they make as consumers.

Janet Albrechtsen had an interesting piece on carbon credits and plane flights in The Australian in June this year:

You go online to buy an airline ticket. Say it’s Jetstar. You choose your flights, fill in the passenger and contact details, answer some more questions, then you are given this option: “Help reduce your climate change impact by offsetting the carbon emissions (CO2) from your flight for just $1.96.” The airline tells you all its carbon offsets are independently accredited, its program is certified under the government’s National Carbon Offset Standard Carbon Neutral initiative, that the airline passes on all funds and does not profit from this purchase. Sounds like a small, low-cost way to help reduce emissions?

As at January this year, 88 per cent of people said no thanks to paying less than $2 to offset carbon from their Jetstar flight. When buying a ticket on a Qantas plane, only 8 per cent of online flyers consciously ticked the “yes, offset flights” button to pay $1.82. By May this year, that figure had dropped to 7 per cent.

…[M]ost people are saying no to spending less than $2 to apparently help the environment when they fly. Unless you’re travelling through the rich hippie town of Byron Bay, where you’ll find the highest uptake of those saying yes to buying carbon offsets. By contrast, those travelling through Hamilton Island, your more middle Australia holiday destination, account for the highest number of people saying a polite “no thanks” to paying for a feel-good shot of carbon offsets.

I have tried to independently verify the statistics Albrechtsen used, but they do not seem to be available online – if anyone can find them I’d be much obliged. However, I have found a report from The Age from January 2008 which stated that Jetstar had the highest take-up of carbon offset options, with 12% of passengers choosing to offset. Thus, the number of people offsetting their flights seems to have fallen by almost half since the beginning of 2008 to mid-2011. [Whoops, I thought Jetstar’s take up had fallen from 12% to 7%, whereas it is actually exactly the same, as commenter David P has pointed out.]

In the light of what I said above about stated preferences and revealed preferences, if Albrechtsen’s statistics are accurate, they tell a fascinating story about people’s values which provides an interesting counterpoint to the Lowy poll. In fact, although 60% of respondents in 2008 told the Lowy pollsters that they agreed that global warming was a serious and pressing problem which necessitated taking steps now even if it involved significant costs, and while over 70% of respondents to the Lowy Institute poll in 2008 said that they would be willing to pay extra on their electricity bills to combat climate change, only 12% of Jetstar passengers in 2008 were prepared to put their own money where their mouths were and pay for carbon offsets. [Note that this amount of 12% is the same in 2011, contrary to what I previously thought]. Nonetheless, there’s a difference right there between stated preferences and revealed preferences, perhaps one that people do not admit to others or even admit to themselves.

I wonder, too, if there is moral hazard involved. It’s much easier to agree to action when the costs are paid for out of other people’s money. Once you actually have to spend your own money, you become a lot more cautious and unwilling to pay. For a full analysis of trends and preferences, we’d also need to know what proportion of those who paid the offsets were spending their own money (as opposed to company money or government money).

I’d love to know what the statistics from other airlines are. What proportion of passengers on other airlines choose to pay offsets? The 2008 Age article said that less than 1% of Virgin Blue and Qantas passengers chose to use carbon offsets, which means that the revealed preferences for those airlines were very sharply in contrast with the stated preferences of the 2008 Lowy poll. The Albrechtsen piece seems to say that 8% of Qantas passengers were prepared to pay for carbon offsets, which represents a sharp rise for Qantas passengers from 2008 to 2011, although Albrechtsen says that it subsequently fell again to 7%. I’d also love to know how the various options are offered to passengers, what proportion of fares for which carbon offsets are paid are personal fares, what routes uptake is highest on and generally have more information.

Of course, revealed preferences aren’t perfect. There may be some other reason passengers do not want to pay carbon offsets. And people who fly in planes presumably represent a different cross-section of society to those who responded to the poll. Those who fly in planes are generally more well-off than society in general. Still, it’s food for thought.

By contrast with the revealed preferences above, if I look at the Facebook updates of my friends, almost everyone who mentions the carbon tax in a status update is in favour of it, and anyone who comments is in furious agreement. If one went off those particular stated preferences alone, one might think Gillard’s carbon tax plan is a total winner. Of course, I do have a high proportion of friends who are university educated and politically progressive, and they are more likely to accept the idea that a carbon tax is necessary. I don’t think anyone would want to gainsay them by putting up a different stated preference on an essentially friendly medium like Facebook. Hey, I’ve lost friends as a result of entering into political discussions on Facebook; I don’t do it any more. And from personal experience, if you are a reasonably politically progressive person who decides to put your head above the parapet and go against the flow on this particular issue, it isn’t pretty.

Still, I think we have to look not only at what people say, but what they do, in determining their willingness to pay to combat climate change. And it’s not just the vague question, “Would you be willing to suffer economic pain to combat climate change?” People say “yes” to that because they feel that they ought to and there’s a feeling that if you say “no”, you’re selfish, morally bad and you don’t care about the future of our children. The question is now far more pointed: “Are you willing to pay money out of your own pocket, next year, to combat climate change?” It’s an immediate possibility, not an abstract one, and I think that really changes people’s opinions of what they want to do. They have to put their money where their mouths are…and sometimes, when we’re called on to do that, we may find that our preferences were not as we said. I suspect that the number of people who are unwilling to put their money where their mouths are might increase as the carbon tax gets closer. I don’t know for sure; it’s just a suspicion based on the revealed preferences indicated by those airline figures.

Given the trends I’ve identified above, and the apparent differences between stated preferences and revealed preferences, I’m curious to see what will happen with the whole thing. It may be like the GST — despite initial opposition and cold feet, everyone will get used to it and things will settle down. It may also be that people who voted Labor but who did not want a carbon tax might forgive Gillard for saying that she was not going to introduce a carbon tax and then going ahead and doing it (although I have to say I’m still angry). Still, when trying to work out what people value or think, don’t just look at what they say. Look at what they do. (And herein lies one of my criticisms of the reliance by politicians on opinion polls — what people say they value does not necessarily disclose the full picture. It’s easy to click on a poll in a newspaper or to say something over the phone — it’s quite different when you’re called on to take action.) Watch this space…political futures will rise or fall based on this one, I suspect.

[Please note, this is not a  post about the science of climate change. I have no desire to ever discuss that topic on an online forum ever again. Any person trying to divert comments into a discussion of that issue will be smacked over the nose, figuratively speaking.]

Please note I have updated the post to correct a misreading of the figures.

14 Comments

  1. Patrick
    Posted July 31, 2011 at 9:40 am | Permalink

    lol, poor mel being attacked ad hom, what is the world coming too?

  2. Posted July 31, 2011 at 11:05 am | Permalink

    [email protected] I quoted from a single paper by a Melbourne scientist which happened to be hosted on that site. The paper either made pertinent claims or it did not. I quote the specific points I was referring to so readers could judge.

    According to a 1971 Washington Post article, James Hansen, as a young scientist, did computer work for S.I.Rasool who predicted global cooling as likely from human action. Perhaps he entirely disagreed with the conclusion, perhaps not. Steven Schneider went public with such predictions, I have seen the YouTube of him doing so.

    They are allowed to change their mind, i was just pointing out the tendency to catastrophism about humans and climate.

    Neither the application of economics in the policy response to the Irish potato famine nor the application of genetics to eugenics were swindles: that was not my point. My point is we have had some very troublesome past examples of new science being touted as justifying policy.

    Misrepresentation and guilt by association do not make for effective criticisms or rebuttal.

    The most worrying thing of all is the certainty and the moral bullying: you have to believe, or else you are not a “good person” and there is apparently no possibility that new information or understanding might change our understanding in a significant way.

  3. Mel
    Posted July 31, 2011 at 1:45 pm | Permalink

    Lorenzon:

    The scientist you quote, John Costella, is a JFK conspiracy theorist who loiters with moon landing and 911 conspiracy theorists. Here is one of his JFK conspiracy papers: http://www.assassinationscience.com/johncostella/jfk/intro/

    Your claim re James Hansen is an outright lie. Rasool came to the conclusion based in part on a computer model developed by Hansen that global cooling may occur if certain conditions were met. Hansen never made any such claim, nor did Hansen work for Rasool. Implicating Hansen is like implicating the owner of a pencil for its use/misuse by a third party.

    These lies have been refuted many times before, as you are well aware, and it tells us much about your character that you simply repeat them. Next you’ll be quoting conservapedia on the great evolution hoax.

  4. Henry2
    Posted July 31, 2011 at 3:49 pm | Permalink

    Mel,

    I tackled John Costella on his association with the Assassinationscience website and his response is here. As I said to another poster at the same site who believed that john should be judged by the company he keeps,

    http://assassinationscience.com/johncostella/

    Looking through Johns personal website I could find nothing in regard to the
    moon landings and it wasnt until I looked at the site which hosts his own page
    that I found the links you referred to.

    http://assassinationscience.com/

    Even once you have found your way to the host site, edited by one James H
    Fetzer, Ph.D., The links you refer to are not written by Costella or Fetzer, but
    merely hosted as banner ads on that site.
    Indeed, from a quick reading it seems as though Fetzers main game is JFK
    Conspiracy. Even there, he fairly presents both sides of the debate (even if
    only to shoot the other side down).

    For mine … Costella is at least 2 degrees of separation from the moon
    landing stuff on that site. Certainly far enough of a separation for me.

    I believe that means that you are jousting at a strawman Mel, please do better.

  5. Patrick
    Posted July 31, 2011 at 4:41 pm | Permalink

    No, because it isn’t getting any less stupid 😉

  6. kvd
    Posted July 31, 2011 at 5:18 pm | Permalink

    I agree totally that personal foibles should be set aside in the pursuit of whatever the subject of this post was.

    Therefore, I’m inclined to agree with Patrick. Not so much because of what he wrote (which I cannot parse) but based more upon the odd previous occasion when he has made some sort of sense 😉

    In reaching this decision I have set aside my discomfort with his authorship of “The Young Lawyer’s Guide To Shoplifting”, his penchant for swinging from motel light fittings, and his reported loitering near unsecure ATMs.

  7. Patrick
    Posted July 31, 2011 at 6:18 pm | Permalink

    Thanks kvd, big of you!

  8. rog
    Posted August 1, 2011 at 4:17 am | Permalink

    LE @ 101

    The forum that wish for may well exist – the IPCC.

    The IPCC has reviewed and discussed science from many sources, and the IPCC has also been the object of discussion and review. After decades of dispute and debate their conclusions are significant and robust, yes there is warming and yes, man has contributed to that warming.

  9. Patrick
    Posted August 1, 2011 at 8:19 am | Permalink

    Just close it and redirect the url to troppo’s insanity thread (nearly 600 comments so far).