Emissions trading for households? A behavioral law and economics perspective

This is the first research article on expanding emissions trading in the EU to households in which law and economics is explicitly and systematically combined with behavioral science. The goal of the article is neither to plead in favor nor against emissions trading for households, but rather to provide an analysis of such a scheme. To that end, the article gathers relevant theoretical insights and discusses how established empirical findings can be used to design a potentially workable scheme. The analysis not only presents an overview of possible economic and behavioral barriers, but also creates a feedback to its institutional design by presenting possible solutions to overcome them. Downstream allocation creates a more direct and visible carbon incentive, whereas administrative costs can be reduced by concentrating monitoring and enforcement upstream. Behavioral acceptance can be boosted via strategic communication, for instance by stressing that emissions trading is both effective (emissions are capped) and fair (those who emit less, pay less). Energy conservation can be stimulated by frequently sending updates to households of their carbon 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.