Incentives

Introduction

Incentive-based policies are often used to encourage residents and businesses to amend their decisions and behaviours. They can be a lower-cost and more flexible alternative to regulation30 and take different forms such as economic (financial), reputational (awards and recognitions) and administrative (reduced inspections for businesses).31 Broadly, there are two types of incentives: positive incentives which offer rewards to those who do things ‘right’ and negative incentives which punish those who ‘do things wrong’.

Some cities are using the incentives offered by central government such as City Deals (such as Liverpool) and Feed-In Tariffs or implementing other low cost incentives such as carbon challenges (for example see the Bristol case study). In both cases, the proactive role that cities are playing in promoting and implementing them is proving critical to their success.

Key questions for cities

  • Which financial incentives are most effective in creating long term behavioural change? And are they financially sustainable?
  • What complementary measures (such as awareness campaigns) need to be implemented alongside the introduction of any financial incentive?

Case study 6: Cities in the UK and abroad – Encouraging more recycling

In the UK, landfill tax (currently £72 per tonne and increasing each year) is becoming a significant burden on councils’ budgets, which makes cutting the amount of waste produced increasingly important. With only 44 per cent of municipal waste currently recycled, there is substantial potential for councils to save money, reduce their environmental impact and even add recycling jobs to the economy.32

One way to incentivise recycling is by implementing Pay As You Throw schemes (PAYT) which charge customers based on the amount of waste they throw away. Waste becomes a chargeable utility and users are incentivised to produce less waste and to recycle more of that waste.

Evidence from international examples shows that PAYT schemes can be effective.33 These work best when accompanied by the supporting initiatives such as running high profile residential awareness programmes. For example, cities such as San Francisco (77 per cent recycling rate), Portland (63 per cent) or the German town of Neustadt an der Weinstrasse (70 per cent)34 all use PAYT schemes. Based on the evidence, a number of UK policy organisations including Green Alliance, IPPR,35 and Waste Watch36 have also been in favour of PAYT schemes.

Local authorities in the UK currently do not have the powers to introduce a PAYT scheme. Previous PAYT programmes introduced under the Labour Government were labelled a ‘bin tax’ by sections of the media and the opportunities for councils to introduce them was paradoxically removed in the Localism Act 2011. The strength of international evidence suggests this decision needs to be revisited.

Local authorities can instead implement Recycling Reward Schemes, whereby households are offered financial or other rewards for recycling. In 2004-2005, DEFRA pledged £3.1 million to a number of local authorities to pilot such reward schemes. Similar more recent programmes include the Recycle Bank and ‘London Green Point’.

The effects of reward schemes on recycling and waste is still not widely researched37 although some evaluations show moderate increases in recycling among targeted communities.38 Whilst more popular than PAYT programmes, reward schemes are criticised for failing to reduce waste as effectively, often encouraging the production of more recyclable material.39 Reward schemes also require longer term funding, which might not be available to councils under current conditions.

Key questions for cities

  • Which business sectors would benefit from being recognised as sustainability leaders?
  • Can the incentives be scaled up to include more sectors in the future?

Case study 7: New York City, USA – Challenging businesses to lead the way

Reputational incentives can be a low-cost way for cities to encourage businesses to reduce their carbon emissions. For example, Carbon Challenges ask businesses to reduce their CO2 emissions by a certain percentage within a deadline, in return for being recognised as top carbon-savers. Businesses respond best to the incentives when there are clear benefits such as savings on energy costs, networking opportunities and branding as leaders in sustainability.40 But there must be meaningful buy-in from the business community to ensure it is a significant and desirable prize.

In New York, the Mayor first launched the Carbon Challenge to healthcare facilities and universities in 2007. By 2013, 27 universities had cut their emissions by an average of 12.8 per cent and 22 hospitals by 8 per cent.41 The Challenge was recently scaled up to include commercial offices, residential co-ops and Broadway theatres.

In the UK, similar initiatives have also been implemented such as the West of England Carbon Challenge in Bristol and Green 500 in London.42 The cost effectiveness of such initiatives, their appeal to businesses and the potential of achieving scale through progressively including different sectors make them a feasible and effective way to induce behavioural change in local businesses.

Case study 8: The Carbon Trust, UK – Helping businesses and residents adopt greener habits

Encouraging residents and businesses to adopt greener habits and use greener products is an important way to support the move to a low carbon economy. Behaviour change campaigns can be an effective alternative to traditional campaigns.

Posters, letters, stickers and even ‘green champions’ within firms rarely change individuals’ energy use or recycling behaviour. Responding to this, the Carbon Trust has run a number of innovative projects in cities across the UK to change behaviours within both households and organisations. For example, the Trust developed online tools which help business leaders to estimate how much money and carbon they can save within their organisation.43 This simple tool, alongside information and advice, changes the emphasis towards the benefits – of a change in behaviour – to the business, and away from the more intangible arguments of environmental responsibility and “Thinking Global”.

To influence decisions and behaviours that emit CO2, incentives must understand and target the underlying motivations that inform the behaviour.44 The most successful programmes use the nudge principle to help individuals “make better choices (as judged by themselves) without forcing certain outcomes upon anyone.”45 For example, a London police authority reduced energy costs by shutting down their computers each night because they were concerned for information security rather than energy savings. And working from home initiatives have been more successful when promoted as saving workers’ time rather than saving on transport related emissions.46

Councils can use this principle more widely to reduce energy consumption and pollution, and increase recycling efforts that can support greener business practices and reduce carbon emissions in their area. For example in California, recycling became socially desirable and even competitive between residents when the waste pick up was moved from the back yard to the more visible front lawn.47 This change resulted in a significant rise in recycling and a reduction in waste. By increasing the desirability of greener lifestyles and products-through for example introducing planning criteria that supports cycle infrastructure or car clubs over private car parking-cities can nudge individuals and businesses to make green decisions.

Key questions for cities

  • Is the new technology reliable and easy-to-use, i.e. ready for mass-use?
  • Is the supporting infrastructure, both hard and soft, in place?
  • What more can local councils do to promote the new technology?

Case study 9: One to watch | London, UK – Incentives to adopt new technologies

Incentivising businesses and residents to use low carbon vehicles is important for saving energy and reducing carbon emissions. For example, a recent study suggests that if 10 per cent of vans in London became electric, this would reduce fuel costs by £200 million.48 In addition to government subsidies for the purchase of Electric Vehicles (EV) and the cost of installing charging points, the GLA offers 100 per cent discounts on the Congestion Charge and some boroughs offer free parking spaces and discounts on parking permits for EV. There is also a London wide membership scheme which allows users to charge their vehicle for free at charging points across London.49 However, despite these incentives, by spring 2012, only 2,400 EVs were registered in London and charging points were only being used rarely.

Despite good intentions, the London experience shows that incentives do not always achieve the desired results. A recent study attributed this slow take up to a lack of knowledge and awareness about EVs in general and the lack of information on the location of charging points. Other reasons include the perceived problems of the high upfront cost of the car, a short battery life and the lack of rapid charging facilities in key locations.50

While cities have little or no control over the cost or effectiveness of EV technology, they can ensure the enabling infrastructure – in this case charging points – are in place and that an effective marketing strategy is issued to build awareness. Similarly, it is not enough for cities to simply implement government incentives as given. These need to be accompanied by local actions tailored specifically to the needs of the city (such as infrastructure needs or awareness raising) in order for them to meet their purpose and accomplish the best results.

Footnotes