Prisons, incentives and how to save the planet

Criminals are refusing to leave Portugal’s prisons.  According to the International Herald Tribune, prisoners are starting to want to serve the full amount of their sentences rather than be released on parole.  This is despite the fact that there is record over-crowding and conditions inside are reported to be dire.  Motoring offenders are increasingly failing to pay fines, opting instead to serve three or even six month sentences.

This is a remarkable illustration of the effect of economic incentives.  Portugal’s economy is now in its fifth successive year of crisis.  In prison, people are at least guaranteed accommodation, clothes, hot water and three full meals a day.  Outside, many of them would be unemployed and struggling to pay for even the bare essentials.

The Coalition government is banking in the fact that people will respond to incentives in an even more straightforward way when it comes to energy.  The changes announced last Friday will eventually quadruple the charges levied on consumers to help support electricity generation from low-carbon sources.  And higher prices should mean that people will consume less.

This controversial policy is entirely in keeping with the trend in energy policy not just in the UK but in the rest of Europe.  If we want to reduce emissions, we make energy expensive.

But is it the best approach?   Unlike in the natural sciences like physics, it is hard for social scientists to conduct real-life experiments.  However, in the case of emissions, a massive experiment is being played out before our very eyes.

Europe wants to try and solve the problem by making energy expensive.  In complete contrast, the US is making energy more affordable.  And it is the American way which is delivering the better results.  Since 2006, US emissions have declined by 8 per cent, the largest drop in any country in the world.  This is quite unconnected with the economic crisis.  Energy consumption is also connected to the total amount of economic activity.  But GDP in the EU is only some 2 per cent higher now than it was in 2006, and in the US it is 6 per cent higher.

America has done this by technological innovation, by making things more efficient and, above all, by developing cheaper energy sources.  Michael Shellenberger at the Breakthrough Institute in California points out that significant investment by both government and the private sector has made solar and wind energy much more efficient.  Even more dramatically, the development of shale gas in America has led natural gas prices to fall by 80 per cent.  So gas rather than coal is used to make electricity.

Innovation is the driving force behind the stupendous increase in living standards across the world over the past 200 years.  Economics, with its emphasis on equilibrium, finds it hard to cope with the concept, because innovation means change.  But it is innovation rather than incentives which will solve our emissions problems.  To save the planet, invest in making energy cheap.

Paul Ormerod

As Published in City AM on Wednesday 28th November 2012



Share this post



t: +44 020 8878 6333

Alex O’Byrne, Associate at Volterra, is an experienced economic consultant specialising in economic, health and social impact, economic strategy, project appraisal and socio-economic planning matters.

Alex has led the socio-economic and health assessments of some of the most high profile developments across the UK, including Battersea Power Station, Olympia London, London Resort, MSG Sphere and Westfield. He has significant experience inputting to EIAs and s106 discussions as well as drafting economic statements, employment and skills strategies and affordable workspace strategies.

Alex is also experienced at economic appraisal for infrastructure. He was project manager of the economic appraisal for the City Centre to Mangere Light Rail in Auckland. He also led the economic and financial appraisals of the third tranche of the Transport Access Program for Transport for New South Wales, in which Alex developed and employed innovative methodological approaches to better capture benefits for individuals with reduced mobility.

He is interested in the limitations of current appraisal methodologies and ways of improving economic and health analysis to ensure it is accessible to as many people as possible. To this end, Alex recognises the importance of transparent and simple to understand analysis and ensuring all work is supported by a robust narrative.

Alex holds a BSc (Hons) in Economics from the University of Manchester and he was a member of the first cohort of the Mayor’s Infrastructure Young Professionals Panel.


Senior Partner

t: +44 020 8878 6333

Ellie is a partner at Volterra, specialising in the economic impact of developments and proposals, and manages many of the company’s projects on economic impact, regeneration, transport and development.

With thirteen years experience at Volterra delivering high quality projects to clients across the public and private sector, Ellie has expertise in developing methods of estimating economic impact where complex issues exist with regards to deadweight, displacement and additionality.

Ellie has significant experience in estimating the economic impact across all types of property development including residential, leisure, office and mixed use schemes.

Project management of recent high profile schemes include the luxury hotel London Peninsula, Battersea Power Station and the Nova scheme at London Victoria. Ellie has also led studies across the country estimating the economic and regeneration impact of proposed transport investments, including studies on HS2 and Crossrail.

Ellie holds a degree in Mathematics and Economics from the University of Cambridge.