Disclosure as a Social Nudge

Thaler and Sunstein argue that a central step in dealing with environmental problems is getting prices and incentives right, and although we are hopeful that the nations of the world will eventually come to share that view, we realize that in many nations it is, and will likely continue to be, a hard political pill to swallow. In the United States, at least, presidential candidates have not been willing to campaign on a promise to raise gasoline prices and utility bills. It is a good sign that in his 2020 presidential campaign, Joe Biden said that he favored a carbon tax. But in many nations, including the United States, a serious obstacle to improved incentives is that the costs of pollution are hidden, while the price at the pump or on the utility bill is quite salient.

That is why we suggest a kind of “all tools on deck” approach to climate change. Sensible regulations, going well beyond nudges, might be imposed in many domains. But there are also a wide variety of useful interventions that fully qualify as nudges that should be part of the environmental tool kit. By themselves, those steps will not eliminate the risks of climate change. But they will help, and as former President Obama likes to say about initiatives that merely dent large-scale problems: “Better is good.”

One class of sensible initiatives improves the feedback consumers receive on the implications of their actions through better information and disclosure. Such strategies can improve the operation of markets and government alike; they also tend to be inexpensive. To be sure, many people fear that disclosure by itself is ineffective and will accomplish too little. This view is often right. But sometimes, information can be a surprisingly strong motivator.

A particularly significant success story for disclosure requirements is the Emergency Planning and Community Right-to-Know Act, a law enacted by Congress in 1986 in the aftermath of an industrial chemical accident at a U.S.-owned plant in Bhopal, India.[19] Understood as a modest and uncontroversial step, it was essentially a bookkeeping measure, intended to give the EPA and local communities a sense of what hazardous materials might be lurking undetected. The statute ended up doing a lot more. In fact, the requirement of disclosure, captured in the Toxics Release Inventory, counts among the most unambiguous success stories in all of environmental law.

Under the Toxics Release Inventory, covered facilities report releases and other waste-management information for specified chemicals to the federal government. The information is readily available on the EPA website to anyone who wants it. Tens of thousands of facilities now disclose detailed information on hundreds of chemicals, covering billions of pounds of on-site and off-site disposal or other releases. Other community right-to-know reporting provisions concern the locations, types, and quantities of stored chemicals and information supplied to local authorities. And they must disclose information about potential adverse health consequences.

The surprising fact is that without directly mandating specific emissions reductions by firms, the law had beneficial effects, spurring large reductions in toxic releases throughout the United States.[20] This unanticipated consequence suggests that all by themselves, disclosure requirements can sometimes produce significant emissions reductions. Disclosure requirements are used in countless other environmental areas and countries, from an Italian sea resort cleanliness and recycling initiative to a climate index for Swedish municipalities.

Why, exactly, has the Toxics Release Inventory had such beneficial effects? A major reason is that environmentally concerned groups, and the media in general, draw attention to serious offenders, producing a kind of “environmental blacklist.” [21] This is a nice example of a social nudge. Few companies want to appear prominently on the Toxics Release Inventory list. The bad publicity can result in all sorts of harm, including lower stock prices.[22] Companies that end up on the list have strong incentives to reduce their emissions. Even better, companies are motivated to ensure that they do not end up on the list. The result is a kind of competition, in which companies enact more and better measures to avoid appearing to be significant contributors to toxic pollution. If companies are able to reduce emissions at low cost, they will do so, simply in order to avoid the bad publicity and the resulting harms.