How can understanding human nature help to better inform climate policy decisions?

Analysis: Combining a more reflective social discount rate with the Climate Action Bill may give Ireland a chance to make immediate, rapid and large-scale emission reductions.

In the introduction to every David McWilliams' podcast he explains: "To understand the economy, you have to understand human nature". I gently nod in agreement feeling that our endless pursuit of wealth is pushing the limits of the environment. I begin to wonder, how can understanding human nature help to better inform climate policy decisions?

Each day an adult makes around 35,000 choices. You would think that we have plenty of opportunity to choose the environment that we want to live in and the planet we want to leave behind. However, most of these 35,000 daily choices skip under the conscious radar of deliberations.

The majority of our choices are made subconsciously or impulsively. For the few conscious choices we do make, we are often influenced by cognitive bias, which is an unconscious process that affects our rationality. We can be biased towards our culture, community, work, friends or family, for example.

Our long-term decision making is further affected by what is known as the discount rate, which is a way to compare the value of something today against the value of something in the future. Here is an example of how the discount rate affects our long-term choices, lets say you win a €2 million jackpot. When you go to collect your winnings, they offer €2 million right now or €100,000 every year for the rest of your life.

Accounting for inflation, if you plan to live for 24 more years you will receive more money overall by choosing the €100,000 every year option, but you only walk away with €100,000 today and not €2 million. What would you choose?

Well, applying a low discount rate in your choice would mean you perceive future money would not lose much value over time, and the long-term benefits of €100,000 every year would be an attractive option.

On the other hand, a high discount rate would mean less value is perceived for future money, and the €2 million option would be more enticing.

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From RTÉ Radio One's Morning Ireland Dr Ned Dwyer, co-author, on the new report on 'The Status of Ireland's Climate'.

When making project decisions, governments use a social discount rate approach, the social discount rate accounts for both financial and non-financial benefits, unlike the discount rate which is purely financial.

However, the term "benefits" is a loose term, and can be manipulated or misinterpreted easily, like what value to we put on the benefit of having a clean river or natural forest? Or even what value do we apply to the benefit of maintaining the current climate?

In Ireland, the government’s social discount rate is set at 4% and is constant across all projects. For example, a project designed to reduce the effects of climate change and a motorway project are given the same social discount rate, even if the long-term benefits of the former project are likely to be far greater and longer-lasting.

The social discount rate is calculated using an almost 100-year old formula, which is arguably outdated. However, this formula can certainly be adjusted to consider climate change investments, but this adjustment has not happened yet.

Even in our personal lives we apply a social discount rate to decisions subconsciously; some Irish men display a high social discount rate, for example in the pre-COVID weekends when Irish pubs around the country were thronged, men drank three times more than women.

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From Radio One's Morning Ireland, Minister for Environment says climate change policies will lead to a better country.

Choices were made that they would rather enjoy their drinks at the expense of a future hangover or as previously mentioned future "benefits". The high social discount rate means less value is perceived for future benefits and in this case the benefit of drinking less, is that you reduce the effect of a hangover.

Unfortunately, it seems that it is not human nature to limit ourselves. For example, Easter Island is an isolated island in the Pacific Ocean which is 500 times smaller than the island of Ireland.

As its population and cultural ambitions grew, the dense vegetation covering the island was destroyed, and by the 17th century all trees were gone. No wood for cooking dinners, no wood for building houses for shelter and no wood for building canoes to fish.

The islanders were unable to devise a system that allowed them to find a balance with their environment. The environment and future generations were neglected by choices which did not value them, choices which had a high social discount rate. I do wonder, can we learn any lessons from Easter Island?

The new IPCC report finds that we need "immediate, rapid and large-scale reductions in greenhouse gas emissions". In Ireland, the Irish Climate Action Bill may help turn the tide, unlike the many waves of long-term national plans which have been published, the new Climate Action Bill is different - the short-term legally binding targets make the politicians accountable.

Research by Tadhg O’Mahony found the current 4% social discount rate applied in Ireland "undermines the value of public investments in transition and adaptation". Tadhg calculated that Ireland’s social discount rate for climate investments should be less than or equal to 1.3%, reporting that the current 4% rate contains an "excessive assumption of future economic growth" and doesn’t address "inescapable ethical issues".

Combining a more reflective social discount rate with the Climate Action Bill may give Ireland a chance to invest in making immediate, rapid and large-scale emission reductions. But, can we commit to making sacrifices for future benefits, by shifting to a lower social discount rate?

Can short-term politics deliver long-term solutions? Or, if it is human nature to continuously grow, can we use some of our conscious decisions to change?

The views expressed here are those of the author and do not represent or reflect the views of RTÉ