Emissions Trading for Households? A Behavioral Law and Economics Perspective

This is the first article on expanding the European Union Emissions Trading Scheme (EU ETS) to households in which law and economics is combined with behavioral science. The article gathers relevant theoretical insights and discusses how established empirical findings can be used to design a workable scheme. The article not only presents an overview of possible economic and behavioral barriers, but also creates a feedback to its institutional design by presenting solutions to overcome them. The conclusion is that allowance trading for households is economically feasible. Downstream allocation creates a more direct and visible carbon incentive, whereas administration costs can be reduced by concentrating monitoring and enforcement upstream. Behavioral acceptance can be boosted via strategic communication, for instance by stressing that allowance trading is both effective (emissions are capped) and fair (those who emit less, pay less). Energy conservation can be stimulated by sending households monthly updates of their transactions to make the consequences of their behavior more noticeable. Whether these necessary conditions are also sufficient to ensure political acceptance remains an open question