Last week I introduced an environmental policy called distend, discard and disintegrate—an alternative to reduce, reuse and recycle. By consuming more and more natural resources, consumers can create an incentive for firms to develop ways of stretching the resource (reducing, reusing and recycling) and eventually coming up with ways to find substitutes. While DDD may “waste” a resource in the short run, the advancement that comes from the strained price incentive is with society for all time. The costs outweigh the benefits (especially if you care deeply for the environment).
History backs me up on DDD but it is still incredibly counterintuitive. So I find it helpful to point out this example—a hot water heater that doesn’t heat the water twenty-fours a day. This not only saves energy but it also reduces the metals needed for construction (there’s no tank). Note the company’s big selling point is how much money you’ll save, a point that would hold less weight if energy prices were lower.
The hot water heater example also reminds us that DDD provides advancement in areas the average government would never consider. Conventional environmental policy cannot account encourage these unpredictable types of developments because they do not possess the knowledge nor provide the incentive to spark their discovery. Carrots (prices) work a lot better as motivation than sticks (government). They encourage unpredictable benefits, are more humane and appeal to far more people. When a government tells people to use less energy, no hot water heating company is going to point out they are in need of regulation. But when prices provide a worthwhile reward, the extended order comes out of the woodwork.