Addicted to Oil: Implications for Climate Change Policy

This paper applies a behavioral economics model of cigarette addiction to the issue of oil usage and climate change. Both problems involve consumption of a product that causes long-term detrimental effects and for which current reductions in usage induces an adjustment cost. The paper argues that the problem of oil addiction is much more complex than cigarette addiction and thus may be more difficult to resolve. It also suggests that oil addiction, like cigarette addiction, may generate a long period of time in which individuals express sincere desire to convert to clean energy, but do little to accomplish that outcome. Finally the paper uses the model to argue that policies to reduce the present cost of alternative non-carbon energy sources to induce voluntary adjustments in energy usage are likely to be more effective than an approach to emphasize the long term catastrophic effects of climate change coupled with policies to force changes in current energy consumption.