Tackling climate change through energy efficiency: mathematical models to offer evidence-based recommendations for public policy

Transcription

1 Tckling climte chnge through energy efficiency: mthemticl models to offer evidence-bsed recommendtions for public policy F. Gllo (1), P. Contucci (2), A. Coutts (3), I. Gllo (2) (1) Office of Climte Chnge, UK Government (2) Diprtimento di Mtemtic, Universit di Bologn (3) Deprtment of Politics nd Interntionl Reltions, University of Oxford Abstrct Promoting nd incresing rtes of energy efficiency is promising method of reducing CO 2 emissions nd voiding the potentilly devstting effects of climte chnge. The question is: How do we induce culturl or behviourl chnge whereby people ntionlly nd globlly dopt more energy efficient lifestyles? We propose new fmily of mthemticl models, bsed on sttisticl mechnics extension of discrete choice theory, tht offer set of forml tools to systemticlly nlyse nd quntify this problem. An ppliction exmple is to predict the percentge of people choosing to buy new energy efficient light bulbs insted of the old incndescent versions; in prticulr, through sttisticl evlution of survey responses, the models cn identify the key driving fctors in the decision-mking process, for exmple the extent to which people imitte ech other. These tools nd models tht llow us to ccount for socil interctions could help us identify tipping points tht my be used to trigger structurl chnges in our society. The results my provide tngible nd deliverble evidence-bsed policy options to decision-mkers. We believe tht these models offer n opportunity for the reserch community, in both the socil nd physicl sciences, nd decision-mkers, both in the privte nd public sectors, to work together towrds preventing the potentilly devstting socil, economic nd environmentl effects of climte chnge. 1. Introduction Climte chnge is one of the gretest environmentl, socil nd politicl chllenges fcing humnkind. In order to void nd prevent climte chnge, we need to significntly reduce globl CO2 nd greenhouse gs emissions over the next couple of decdes. Energy efficiency offers method by which this cn be chieved nd tht offers number of socil nd economic dvntges. For exmple, it does not require us to reduce our stndrd of living nd could result in significnt finncil svings. Therefore, we re fced with n enormous problem: Cn we chieve ntionl nd globl culturl, behviourl chnge - structurl chnge - whereby people decide, out

2 of their own volition, to dopt more energy efficient behviours nd lifestyles? The purpose of this pper is to present tool tht will help decision-mkers chieve this gol; in prticulr, to induce our society to mke trnsition towrds sustinble wy of life. For the ske of nlysis, one my view this issue s binry choice problem: Ntionlly or globlly popultion my choose either to continue n energy inefficient lifestyle or replce it with n energy efficient one. One key difficulty with this problem sttement is tht it is too vgue nd generl. However, we cn overcome this difficulty by breking the problem into smller, more trctble, components tht cn be clerly specified, quntified nd ttcked. Figure 1 shows schemtic illustrtion of the pproch. As n exmple, we could focus on energy efficiency mesures nd view them individully s binry choices: for instnce buying new energy efficient light bulbs insted of the energy guzzling incndescent bulbs. In this wy, the pprently intrctble problem of shifting our society s behviour from n energy inefficient lifestyle to sustinble one is reduced to simpler problems such s inducing people in specific geogrphicl res nd from specific socio-economic bckgrounds to chnge specific choices, such s buying energy efficient bulbs. Reducing greenhouse gs emissions through energy efficiency Household heting Lighting Trnsport Other Disggregte geogrphiclly Disgreggte bsed on socio -economic group (e.g. ge, income) Figure 1: Schemtic illustrtion of how the gol of chieving globl culture chnge my be broken into smller components tht re esier to nlyse. The models presented in this pper offer rigorous, quntittive methodology to obtin the evidence to inform policy-mkers. The purpose of this pper is to introduce new multidisciplinry fmily of models tht my help policy-mkers tckle the bove problem. In prticulr, these models my help decision-mkers dopt policy options tht will induce widespred behviour chnge, nd perhps even structurl or culturl chnge. To this end, this fmily of models offers two specific tools to decision-mkers: 1. First, frmework to systemticlly deconstruct this pprently intrctble problem into smller more mngeble pieces, s shown in Figure 1. This would llow reserchers to focus on nd nlyse one specific problem t the time: find the most relevnt policy option nd then

3 move to the next problem. It is importnt to note tht this lso possible becuse these choices re generlly independent of ech other: for exmple, the choice of buying energy-efficient light bulbs my be ssumed to be independent of the mode of trnsport used to go to work. 2. Second, these models offer rigorous nd quntittive bottom-up tool to identify nd understnd the key incentives tht drive people s decisions. As will be shown in the following sections, the end product of this nlysis is formul - known s utility function tht describes people s preferences in given context. This formul cn be designed so tht it includes vribles, or policy-levers, tht decisions-mkers cn mnipulte to induce behviour chnge. An exmple could be the level of txtion on given consumer product, sy energy efficient light bulbs. As will be explined lter in more detil, this utility function is obtined empiriclly from dt. The reminder of this pper is structured s follows. Section 2 introduces the behviourl models. Section 3 provides detils of energy efficiency in the context of climte chnge nd gives further evidence of the benefits of using the bove behviourl models in this context. Finlly, Section 4 concludes nd proposes some ides for further reserch. 2. Behviourl models: beyond Rtionl Mn nd Homo Economicus This section presents fmily of behviourl models tht cn be directly pplied to the bove stted problem of incresing energy efficiency through behviour chnge. These models hve been developed to overcome the min limittions of the Homo Economicus or Rtionl Mn model (Persky 1995),: including: Access to limited informtion nd emotions, nd imittion nd socil interctions. The next subsection gives n overview of discrete choice theory, which is n econometric tool tht hs been used for over three decdes to understnd people s preferences in issues rnging from trnsport to helthcre. This model not only describes the rtionl spects of humn choice, but cn lso ccount for fctors such s emotions or imperfect informtion. The following section presents more recent extension of this model tht llows us to rigorously ccount for imittion in humn behviour, including socil norms nd peer pressure. Bsed on well-estblished theories in mthemticl physics, these models predict the existence of tipping points nd structurl chnges (see Figure 2). This could potentilly be used to devise highly cost-effective socil policies to induce culturl chnge s well s behviour chnge t the individul level. For exmple, we my find tht smll subsidy on the costs of cvity wll insultion my induce enough people to chnge their behviour nd hit criticl mss whereby, through imittion, suddenly lrge frction of the popultion decides to insulte their homes just becuse their societl peers seems to be doing it.

4 2.1 Bounded rtionlity nd emotion: Discrete Choice Anlysis Discrete choice nlysis is well-estblished reserch tool tht hs been pplied to rel socil phenomen for more thn thirty yers. Due to the development of this theory, Dniel McFdden ws wrded the Nobel Prize in Economics in 2000, for bringing economics closer to quntittive scientific mesurement. Figure 1 shows n exmple where the model prediction ws 98% ccurte. Figure 1: Discrete predictions ginst ctul use of trvel modes in Sn Frncisco, 1975 (source: McFdden 2001) The purpose of discrete choice is to describe people s behviour. It is n econometric technique to infer people s preferences bsed on empiricl dt. In discrete choice the decision mker is ssumed to mke choices tht mximise their own benefit. Their benefit is described by mthemticl formul, utility function, which is derived from dt collected in surveys. This utility function includes rtionl preferences, but ccounts for elements tht devite from rtionl behviour. Discrete choice models, however, do not ccount for peer pressure or herding effects : individul decisions re ssumed to be driven by influences such, s prices for goods nd overll qulity of services. In other words, discrete choice ssumes tht people s decisions re unffected by the choices mde by other people. We shll see in Section 2.2 however tht there re good resons, both empiricl nd theoreticl, to believe tht mutul influence between people themselves might hve crucil nd quntifible role in the overll behviour of society. It is nonetheless fct tht the stndrd performnce of discrete choice models is close to optiml for the nlysis of mny phenomen where peer influence is perhps not mjor fctor in n individul s decision: Figure 1 shows n exmple of this. The tble (tken from McFdden 2001) compres predictions nd ctul dt concerning use of trvel modes, before nd fter the introduction of new ril trnsport system clled BART in Sn Frncisco, We see remrkble greement between the predicted shre of people using BART (6.3%), nd the ctul mesured figure fter the introduction of the service (6.2%).

5 2.1.1 Theory In discrete choice ech decision process is described mthemticlly by utility function, which ech individul seeks to mximize. As n exmple, binry choice could be to either cycle to work or to ctch bus. The utility function for choosing the bus my be written s: U x y. Eq. 1 The vribles x re ttributes tht describe the lterntives. For exmple, the bus fre or the journey time. On the other hnd, the y re socio-economic vribles tht define the decision-mker, for exmple their ge, gender or income. It is this ltter set of prmeters tht llows us to zoom in on specific geogrphicl res or socioeconomic groups. The nd re prmeters tht need to be estimted empiriclly, through survey dt. The key property of these prmeters is tht they quntify the reltive importnce of ny given ttribute in person s decision: the lrger its vlue, the more this will ffect person s choice. For exmple, we my find tht certin people re more ffected by the journey time thn the bus fre; therefore chnging the fre my not influence their behviour significntly. The next section will explin how the vlue of these prmeters is estimted from empiricl dt. It is n observed fct (Luce nd Suppes 1965, Ariely 2008) tht choices re not lwys perfectly rtionl. For exmple, someone who usully goes to work by bus my one dy decide to cycle insted. This my be becuse it ws nice sunny dy, or for no prticulr reson. This unpredictble component of people s choices is ccounted for by the rndom term. The functionl distribution of my be ssumed to be of different forms, giving rise to different possible models: if, for instnce, is ssumed to be norml, the resulting model is clled probit model, nd it doesn t dmit closed form solution. Discrete choice nlysis ssumes to be extreme-vlue distributed, nd the resulting model is clled logit model (Ben-Akiv nd Lermn 1985). In prctice this is very convenient s it does not impose ny significnt restrictions on the model but simplifies it considerbly from prcticl point of view. In prticulr, it llows us to obtin closed form solution for the probbility of choosing prticulr lterntive, sy ctching bus rther thn cycling to work : V e P, 1 V e Eq. 3 where V is the deterministic prt of the utility U in Eq. 1, i.e. V x y. In words, this describes the rtionl preferences of the decision mker. As will be explined lter on, Eq. 3 is nlogous to the eqution describing the equilibrium stte of perfect gs of heterogeneous prticles: just like gs prticles rect to externl forces differently depending, for instnce, on their mss nd chrge, discrete choice describes individuls s experiencing heterogeneous influences in their decision-mking, ccording to their own socio-economic ttributes, such s gender nd welth. This offers mthemticl nd intuitive link between

6 econometrics nd physics, more specificlly sttisticl mechnics. The importnce of this lucky coincidence cnnot be overstted, nd some of the implictions will be discussed lter on in more detil Empiricl estimtion Discrete choice my be seen s purely empiricl model. The utility function given by Eq. 1 is very generl: it my be seen s describing the decision process of n rchetypl humn being. In order to specify the ctul functionl form ssocited with specific group of people fcing specific choice, empiricl dt is needed. The ctul utility function is then specified by estimting the numericl vlues of the prmeters nd. As mentioned erlier, these prmeters quntify the reltive importnce of the ttribute vribles x nd y. For exmple, costs re lwys ssocited with negtive prmeters: this mens tht the higher the price of n lterntive, the less likely people will be to choose it. This mkes intuitive sense. Wht discrete choice offers is quntifiction of this effect. There re two types of dt tht my be used to estimte the vlues of the prmeters nd : 1. Reveled preference dt, nd 2. Stted preference dt. Reveled preference refers to choices tht people hve mde in the pst. For exmple, rodside interviews collect informtion bout people s ctul trvel choices, including the chosen route, time of dy nd the mode of trnsport. On the other hnd, stted preference dt is bsed on hypotheticl questions. For exmple, businesses my be interested to lern bout people s preferences in view of the imminent lunch of new product. Once the dt hs been collected, the model prmeters my be estimted by stndrd sttisticl techniques. In prctice, Mximum Likelihood estimtion methods re used most often (see, e.g., Ben-Akiv nd Lermn (1985), chpter 4) Applictions Discrete choice hs been used to study people s preferences since the seventies (McFdden 2001). Initil pplictions focused on trnsport (Trin 2003, Ortuzr, J. nd Wilumsen, L. 2001). These models hve been used to develop ntionl nd regionl trnsport models round the world, including the UK, the Netherlnds (Fox et l 2003), s well s Copenhgen (Pg 2001). Since then discrete choice hs lso been pplied to rnge of socil problems, for exmple helthcre (Gerrd et l 2003; Ryn nd Gerrd 2003), telecommunictions (Tknori nd Korud 2006) nd socil cre (Ryn et l 2006). In prticulr, discrete choice is especilly well suited to inform policy-mking. This is due to number of resons. First, the fct tht it is rooted in empiricl dt nd its rigorous nd trnsprent methodology mke it trustworthy tool to inform evidencebsed policy-mking. Second, the utility functions tht re produced llow reserchers to test concrete policy scenrios by vrying vribles such s the level of txtion.

7 verge opinion verge opinion 2.2 Imittion nd socil interctions: Sttisticl Mechnics A key limittion of discrete choice theory is tht it does not formlly ccount for socil interctions nd imittion. In discrete choice ech individul s decisions re bsed on purely personl preferences, nd re not ffected by other people s choices. However, there is gret del of theoreticl nd empiricl evidence to suggest tht n individul s behviour, ttitude, identity nd socil decisions re influenced by tht of others through vicrious experience or socil influence, persusions nd snctioning (Akerlof 1997; Bndur 1986). These theories specificlly relte to the interpersonl socil environment including socil networks, socil support, role models nd mentoring. The key insight of these theories is tht individul behviours nd decisions re ffected by their reltionships with those round them with prents, peers nd so on. Mthemticl models tking into ccount socil influence hve been considered by socil psychology since the 70s (see Scheinkmn 2008 for short review). In prticulr, influentil works by Schelling (1978) nd Grnovetter (1978) hve shown how models where individuls tke into ccount the men behviour of others re cpble of reproducing, t lest qulittively, the drmtic opinion shifts observed in rel life (for exmple in finncil bubbles or during street riots). In other words, they observed tht the interction built into their models ws unvoidbly linked to the ppernce of structurl chnges on phenomenologicl level in the models themselves. 1 0,9 0,8 0,7 0,6 0,5 0,4 0,3 0,2 0, ,5 1 1,5 2 vlue of ttribute 1 0,9 0,8 0,7 0,6 0,5 0,4 0,3 0,2 0, ,5 1 1,5 2 vlue of ttribute Figure 2: The digrm on the right illustrtes how structurl chnges re unvoidbly linked to the interctions between decision mkers. This is fundmentl improvement to trditionl discrete choice nlysis. Figure 2 compres the typicl dependence of verge choice with respect to n ttribute prmeter, such s cost, in discrete choice nlysis (left), where the dependence is lwys continuous one, with the typicl behviour of n interction model of Schelling or Grnovetter kind (right), where smll chnges in the ttributes cn led to drstic jump in the verge choice, reflecting structurl chnges such s the disppering of equilibri in the socil context. The reserch course initited by Schelling ws eventully linked to the prllel development of the discrete choice nlysis frmework t the end of the 90s, when Brock nd Durluf (2001; 2005) suggested direct econometric implementtion of the models considered by socil psychology. In order to ccomplish this, Brock nd Durluf hd to delve into the implictions of model where n individul tkes into ccount the behviour of others when mking discrete choice: this could only be

8 done by considering new utility function which depended on the choices of ll other people. Such new utility function ws built by strting from the ssumptions of discrete choice nlysis. The utility function reflects wht n individul considers desirble: if we hold (see, e.g., Bond nd Smith 1996) tht people consider desirble to conform to people they interct with, we hve tht, s consequence, n individul s utility increses when he grees with other people. Symboliclly, we cn sy tht when n individul i mkes choice, his utility for tht choice increses by n mount J ij when nother individul j grees with him, thus defining set of interction prmeters J ij for ll couples of individuls. The new utility function for individul i hence tkes the following form: U i j J ij j x ( i) y ( i) Eq. 4 where the sum j rnges over ll individuls, nd the symbol j is equl to 1 if j grees with i, nd 0 otherwise. Anlysing the generl cse of such model is dunting tsk, since the choice of nother individul j is itself rndom vrible, which in turn correltes the choices of ll individuls. This problem, however, hs been considered by sttisticl mechnics since the end of the 19 th century, throughout the twentieth century, until the present dy. Indeed, the first success of sttisticl mechnics ws to give microscopic explntion of the lws governing perfect gses, nd this ws chieved thnks to formlism which is strictly equivlent to the one obtined by discrete choice nlysis in Eq. 3. The interest of sttisticl mechnics eventully shifted to problems concerning interction between prticles, nd s dunting s the problem described by Eq. 4 my be, sttisticl physics hs been ble to identify some restrictions on models of this kind to mke them trctble while retining gret descriptive power s shown, e.g., in the work of Pierre Weiss (Weiss 1907) regrding the behviour of mgnets. The simplest wy devised by physics to del with such problem is clled men field ssumption, where interctions re ssumed to be of uniform nd globl kind, leding to mngeble closed form solution. Such n ssumption leds to model coherent with the models of Schelling nd Grnovetter, nd is shown by Brock nd Durluf to be closely linked to the ssumption of rtionl expecttions from economic theory, which ssumes tht the observed behviour of n individul must be consistent with his belief bout the opinion of others. By ssuming men field or rtionl expecttions we cn rewrite Eq. 4 in the tmer form U i Jm x ( i) y ( i), Eq. 5 where m is the verge opinion of given individul, nd this verge vlue is coupled to the model prmeters by closed form formul. If we now define V i to be the deterministic prt of the utility, similrly s before, ( i) ( i) V Jm x y, i we hve tht the functionl form of the choice probbility, given by Eq. 4,

9 Vi e Pi, 1 Vi e remins unchnged, llowing the empiricl frmework of discrete choice nlysis to be used to test the theory ginst rel dt. This sets the problem s one of heterogeneous intercting prticles, nd the physics of such men-field systems hs been shown to be nlyticlly trctble (see, e.g., Contucci et l 2007). Though the men field ssumption might be seen s crude pproximtion, since it considers uniform nd fixed kind of interction, one should ber in mind tht sttisticl physics hs built throughout the twentieth century the expertise needed to consider wide rnge of forms for the interction prmeters J ij, of both deterministic nd rndom nture, so tht prtil success in the ppliction of men field theory might be enhnced by browsing through rich vriety of well developed, though nlyticlly more demnding, theories. Nevertheless, n empiricl ttempt to ssess the ctul descriptive nd predictive power of such models hs not been crried out to dte: the nturl course for such study would be to strt by empiriclly testing the men field picture, s it ws done for discrete choice in the seventies (see Figure 1), nd to proceed by enhncing it with the help vilble from the econometrics, socil science, nd sttisticl physics communities. It is worthwhile to remrk tht the kind of cross-bred models considered in this pper would llow to give quntittive estimte of the role of socil interctions in decision mking process. This is relevnt fct, since sttisticl mechnics tells us tht model involving socil interctions is cpble of exhibiting deep structurl chnges tht my result, for instnce, in sudden fll in demnd of commodity due to slight increse in its price. These structurl chnges, known s phse trnsitions in physics, cnnot be predicted by stndrd discrete choice nlysis, due to the regulrity of the equtions rising from it. On the other hnd, it is fct tht sudden drmtic chnges cn be observed in the behviour of lrge groups of people. Therefore, by successfully implementing the kind of models considered here, reserchers my gin the bility to study quntittively whole new rnge of humn phenomen. As consequence, policy-mkers working in res where the interction between individuls could ply key-role, such s incresing energy efficiency of households, my cquire vluble new tool. 3. Appliction - Energy efficiency nd Climte Chnge This type of models cn be pplied to ny problem involving individuls mking choices out of finite set of lterntives. Applictions over the pst three decdes include trnsport, helthcre nd communictions. Here we focus on climte chnge, specificlly on energy efficiency, for two resons. First, this is one of the gretest chllenges fcing mnkind; second, the binry nture of the choices involved, i.e. energy-efficient versus energy-inefficient behviour, mkes climte chnge perfectly suited field of ppliction. After decdes of intense scientific debte, it hs now been demonstrted beyond resonble doubt tht climte chnge nd globl wrming re indeed tking plce. It is lmost unnimously ccepted tht humn greenhouse gs emissions ply key role (Stern 2006). Given the current nd projected levels of greenhouse gs emissions,

10 climte models predict tempertures to rise significntly over the course of the next century. If nothing is done to reduce the emissions, serious consequences re predicted for our plnet, including mss extinctions, se level rises, increse in the occurrences of extreme wether events such s hurricnes, flooding nd severe drought, just to nme few (see for exmple the IPCC s Fouth Assessment Report 2007). In recent yers, thnks lso to growing populr wreness, the debte hs moved to the top of politicl gend. No country denies the existence of the problem, nd mny re lredy tking ction to reduce emissions. The fmous Kyoto greement in 1997 resulted in set of emissions trgets for number of developed countries. Since this greement is set to expire in 2012, governments hve been ctively working to rech new greement for the Post-Kyoto frmework. The UN Conference on Climte Chnge tht took plce in December 2007 in Bli resulted in Rodmp, whereby the interntionl community greed to begin negotitions towrds new globl del on climte chnge. Mny countries re lredy tking unilterl ction. For exmple, the United Kingdom is bout to introduce new Climte Chnge Bill, which will commit the ntion to leglly binding trget of emissions reductions. Once the interntionl post-kyoto emission reduction trgets re greed, the question will be how to chieve the emission reductions. Figure 3 shows the vrious vilble options for reducing greenhouse gs emissions. Reducing the globl popultion is not n option, lthough working on reducing popultion growth my be. Alterntively, we cn reduce emissions per cpit. We could do this by reducing our level of consumption. Although this is clerly one of the cuses of the problem, it is unlikely tht this option would produce significnt emissions reductions in the short term. This is in prt becuse it would require the world to significntly chnge the current wy of life s well s the existing globl economic system. Another lterntive is to improve the crbon intensity of our energy sources. For exmple by replcing col power plnts with wind frms. A lot of work is being done in this direction.. Popultion Humn CO2 Emissions b. Emissions per cpit b1. Level of of consumption b2. Energy efficiency b3. Crbon efficiency Figure 3: All the wys to reduce greenhouse gs emissions.

11 The lst option is to increse energy efficiency. This option hs number of significnt dvntges. For exmple, it cn potentilly led to significnt finncil svings. Some models estimte tht globlly up to US$500bn could be sved yerly by 2030, US$90bn of which in the USA lone (Creyts et l 2007). This would result from, for exmple, lower energy bills fter thermlly insulting homes or switching to energy efficient lighting. Moreover, higher energy efficiency would reduce the stress on the other options discussed bove: for exmple, if no extr energy is required, then there is no need to build wind frm insted of col power plnt. The models presented in this pper, together with the frmework for deconstructing this pprently unmngeble problem into smller mngeble chunks, offer systemtic, robust nd trnsprent pproch to tckling the problem of climte chnge. Moreover, from reserch perspective, climte chnge offers testing ground to further develop nd improve this fmily of models tht cn be pplied to problems in most policy res. 3.1 Cse study United Kingdom Up to now, governments hve mostly dopted top-down policies to increse energy efficiency which re focused on prticulr ctions nd technologies. For exmple, condensing boilers becme mndtory in the UK in 2005 nd the energy regultors in the UK require tht ny energy suppliers undertke pre-greed level of ctivity to improve energy efficiency nd sve emissions in the domestic sector; the scheme is known s Crbon Emissions Reduction Trget (DEFRA 2008). Neither Governments nor energy compnies hve yet engged in incentivising individuls to chnge their behviour. In fct energy bill structures still rewrd customers who use more energy by offering them lower per unit triff. Regulting compnies to undertke energy efficiency ctivities hs the effect of subsidising these ctivities nd potentilly undermining ny ttempts to develop profit driven mrket in these ctivities. Customers who know the energy compnies re obliged to offer insultion, energy efficiency pplinces nd energy efficient light bulbs my be less inclined to py for these things themselves. The current set of regultions in the domestic sector is set to expire in 2011, nd some energy compnies (including Scottish & Southern Energy, the second lrgest supplier of electricity nd nturl gs in the UK) re demnding less proscriptive regultory pproch. This mens tht they re sking for leglly binding trget from the Government to reduce their customers demnd but with the freedom to meet tht trget it in the most efficient wy. A similr policy is expected to be introduced in the lrge commercil sector in 2010 the Crbon Reduction Commitment - which cps prticipnts emissions from their downstrem use of energy. To put this in the context of the models presented in this pper, it is likely tht new policies could be introduced in the UK to crete new mrket in energy efficiency. In this cse lrge energy providers, nd potentilly new strt-up compnies, will be looking for wys to induce lrge segments of the popultion to dopt more energy efficient behviours in order to reduce their demnd. Prcticlly, decision mkers wnt to know, for instnce, wht should government do in order to induce the popultion to buy energy sving light bulbs. The government could invest towrd lowering the cost of ech light bulb, or educting towrds energy sving lifestyles; on the other hnd, money will be sved by reducing CO2 emissions, for exmple by generting crbon credits to be sold on the interntionl crbon mrket, or voiding penlties for non complince to interntionl greements such s

12 the Kyoto Protocol. How to blnce the choice crucilly depends on predicting the percentge of people tht will turn to energy-sving light bulbs. Tht is wht sttisticl mechnics model cn chieve fter suitble estimtion of the prmeters involved which include, in prticulr, the mesure of wht is the imittion strength between peers concerning buying hbits. More concretely, the privte sector will ply mjor role in tckling climte chnge, nd compnies re lredy looking for wys to contribute to the solution s well s to mke significnt profits. For exmple, Philips is developing nd delivering to the mrket energy-efficient light bulbs. An chievble energy sving of up to 40% on ll the lighting currently instlled globlly would sve 106 billion Euros. This equtes to 555 million tonnes of CO2 per yer, which corresponds to 1.5 billion brrels of oil per yer or the nnul output of 530 medium sized power sttions producing 2TWh per yer (Verhr 2007). There is therefore n opportunity for government nd business to work together towrds inducing behviour chnge towrds to sustinble behviour by the consumer. The fmily of models presented in this pper offer tool to provide evidence nd inform decision-mkers nd help them mke the right choices. 4. Beyond climte chnge: Why focus on behviour nd culturl chnge to chieve policy gols? The mjority of public nd socil policies re bsed on theoreticl ssumptions bout humn behviour. However, these re rrely mde explicit, or tested ginst the vilble dt. There re number of fctors tht hve encourged the growing cdemic nd especilly policy interest in how to induce behviourl chnge mongst popultion in order to generte sustinble nd cost effective socil improvements. Delivering nd chieving sustinble nd mjor policy outcomes such s climte chnge, requires greter enggement nd prticiption from ntionl popultion you cn t leve it ll up to the government thn trditionl wys of delivering public services or policies. Higher levels of spending nd better-run public services cn chieve improved outcomes. However, in order to chieve sustinble lsting outcomes nd socil improvements much depends on chnges in individul personl behviour: for exmple in chieving popultion improvements in helth nd wellbeing this mens individuls dopting better diet nd tking up more exercise, nd in eduction on children s willingness to lern nd prents willingness to help them lern (Knott et l 2007) There re lso strong morl nd politicl rguments for encourging personl responsibility nd behviourl chnge mongst popultion. Most of the dominnt trditions of socil nd politicl thought emphsise individuls nd communities bility to tke control nd ct in their own best interests s goods in themselves. They see it s better for governments to empower citizens nd provide socil nd economic context in which citizens on their own re ble to mke informed decisions regrding their behviour. And lstly policy interventions bsed on behviour chnge cn be significntly more cost-effective nd preventive thn trditionl service delivery. There is good evidence from cross rnge of policy res for exmple in helth, eduction, crime of the cost-effectiveness of behviour bsed socil interventions (for exmple ltering n individuls diet tht reduces nd prevents the risk of crdiovsculr disese is more

13 efficient nd cheper wy thn deling with the consequences of poor diet with hert surgery). 5. Discussion Climte chnge is now hovering ner the ntionl nd globl politicl gend. Motivted by incresing public wreness, pressure from environmentl orgniztions nd growing body of scientific evidence, decision-mkers re now working hrd to rech n interntionl del to reduce greenhouse gs emissions nd therefore void the devstting socil, economic nd environmentl impcts of climte chnge. Emissions trgets re expected to become incresingly stricter over the next yers nd decdes. Consequently this mens tht governments nd compnies will look for the most costeffective wys of meeting these by providing the socil nd economic context in which people re ble nd willing to mke informed choices regrding their lifestyles. This pper rgued tht incresing energy efficiency hs number of dvntges, including potentil svings worth hundreds of billions of dollrs nnully by 2030, nd will therefore ply key role. It is expected tht new regultions will llow the cretion of new mrkets in energy efficiency, whereby profits would be mde by incentivising consumers to dopt energy efficient behviours. There is lredy demnd from energy compnies, such s Scottish nd Southern Energy in the UK, for such policies. Moreover, compnies such s Philips would profit from selling new energy efficient bulbs. This mens tht there is growing demnd for behviourl models tht cn help contribute to better understnding, in concrete nd mesurble wys, the drivers behind consumer choices. In prticulr, there is interest in models tht my help policy-mkers trigger structurl chnges in the wy people behve. Given the nture of the problem of climte chnge, this demnd is set to grow drmticlly in the next few yers. This pper presented fmily of models tht cn ddress this issue. These models combine the prcticlity nd reputtion of well-estblished econometric tools with the flexibility nd rigor of dvnced mthemticl tools produced by decdes of reserch in the physicl sciences. Perhps more importntly, these models will bring together the insights from experts in both the physicl nd socil sciences. Moreover, the models presented in this pper re consistent with the concept of personl responsibility, nd my be used to empower individuls to mke choices tht re consistent with their personl interests s well s with the common good. Perhps these models my help government crete society tht spontneously protects the privte s well s the public good in wy tht reduces government interference but voids mrket filures nd trgedy of the commons scenrios (Schelling 1978). Acknowledgements F.G. nd A.C. would like to thnk Bryony Worthington nd Jmes Fox for their contributions nd the useful discussions. I.G. cknowledges prtil support from the CULTAPTATION project of the Europen Commission (FP NEST- PATH ).

14 References AKERLOF, G. (1997) Socil distnce nd economic decisions, Econometric 65, pp ARIELY, D. (2008) Predictbly irrtionl the hidden forces tht shpe our decisions, Hrper Collins Publishers, London. BANDURA, A. (1986) Socil Foundtions of Thought nd Action: A Socil Cognitive Theory. Englewood Cliffs, NJ: Prentice Hll. BEN-AKIVA, M. nd LERMAN, S. R. (1985), Discrete Choice Anlysis, The MIT Press, Cmbridge, Mss. BOND, R. nd SMITH, P. B. (1996), Culture nd conformity: A met-nlysis of studies using Asch s (1952b,1956) line judgment tsk. Psychologicl Bulletin 119, BROCK, W. nd DURLAUF, S. (2001), Discrete Choice with Socil Interctions, Review of Economic Studies, 68: BROCK, W. nd DURLAUF, S. (2007), Identifiction of Binry Choice Models with Socil Interctions, Journl of Econometrics, 140: CONTUCCI, P., GALLO I. nd GHIRLANDA, S. (2007) Equilibri of culture contct derived from ingroup nd outgroup ttitudes, rxiv: CONTUCCI, P. nd GHIRLANDA, S. (2007) Modeling society with sttisticl mechnics: n ppliction to culturl contct nd immigrtion, Qulity nd Quntity. CONTUCCI, P. nd GIARDINA, C., (2008) Mthemtics nd Socil Sciences: A Sttisticl Mechnics Approch to Immigrtion, ERCIM News 73: CREYTS, J., DERKACH A., NYQUIST S., OSTROWSKI K. nd STEPHENSON J. (2007) Reducing U.S. greenhouse emissions: how much nd t wht cost?, McKinsey&Compny Report, DEFRA (2008) Household energy supplier obligtions The Crbon Emissions Reduction Trget Published on the DEFRA website: FOX, J., DALY, A.J. nd GUNN, H. (2003) Review of RAND Europe s trnsport demnd model systems. Published on RAND s website: GERARD, K., SHANAHAN, M. nd LOUVIERE, J. (2003) Using stted Preference Discrete Choice Modelling to inform helth cre decision-mking: A pilot study of brest screening prticiption, Applied Economics, 35, (9): GRANOVETTER, M. (1978), Threshold Models of Collective Behvior, The Americn Journl of Sociology, 83: IPCC (2007) Fourth ssessment report: climte chnge 2007 Published on the IPCC s website: KNOTT, D. MUERS, S. nd ALDRIGE, S (2007) Achieving Culturl Chnge:A Policy Frmework. The Strtegy Unit, Cbinet Office, UK Government. LUCE, R. nd SUPPES, P. (1965), Preferences, Utility nd Subjective Probbility, in Hndbook of Mthemticl Psychology, Vol. 3, Luce R., Bush R. nd Glenter E., eds. Wiley, New York. MCFADDEN, D. (2001), Economic Choices, The Americn Economic Review, 91: ORTUZAR, J. nd WILUMSEN, L. (2001) Modelling Trnsport. Wiley, Chichester, UK. PAAG, H., DALY, A.J., ROHR, C. (2001) Predicting use of the Copenhgen hrbour tunnel. In Trvel behviour reserch: the leding edge Dvid Hensher (ed.), Pergmon. PERSKY J. (1995) Retrospectives: The Ethology of Homo Economicus, The Journl of Economic Perspectives, Vol. 9, No. 2, pp RYAN, M nd GERARD, K (2003) Using discrete choice experiments to vlue helth cre progrmmes: current prctice nd future reserch reflections, Applied Helth Economics nd Helth Policy, 2, (1): RYAN, M., NETTEN A., SKATUN D. nd SMITH P (2006) Using discrete choice experiments to estimte preference-bsed mesure of outcome An ppliction to socil cre for older people Journl of Helth Economics, 25, (5): SCHEINKMAN, J. A. (2008), Socil interctions, The New Plgrve Dictionry of Economics, 2nd Edition, Plgrve Mcmilln. SCHELLING, T. (1978), Micromotives nd Mcrobehvior, W. W. Norton & Compny, New York. STERN, N. (2007) The economics of climte chnge The Stern Review, Cmbridge University Press, Cmbridge.

15 TAKANORI, I. nd KORUDA, T. (2006) Discrete choice nlysis of demnd for brodbnd in Jpn Journl of Regultory Economics, 29, (1): 5-22 TRAIN, K. (2003) Discrete choice methods with simultion. Cmbridge University Press, Cmbridge, UK. VERHAAR, H. (2007) Reducing CO 2 emissions by 555 Mton through Energy Efficiency Lighting. Presented t the UNFCCC Conference in Bli, December 8. WEISS, P. (1907) L hypothèse du chmp moléculire et l propriété ferromgnétique, J. de Phys., 4 série, VI: