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Determinants of the price-premium for green energy: Evidence from an OECD cross-section

Krishnamurthy, C.K.B. and B. Kriström (2016). Environmental and Resource Economics 64(2):173-204.

Abstract:

Using data from a survey of households in 11 OECD countries, this paper investigates the determinants of preferences for a completely green residential electricity system. Three important questions are addressed: (i) how much are households willing to pay to use only renewable energy? (ii) does willingness-to-pay (WTP) vary significantly across household groups and countries? and (iii) what drives the decision to enter the (hypothetical) market for green energy and, given entry, what drives the level of WTP? The analysis here differs from previous studies on green energy in two ways: first, data and analyses are com- parable across countries and second, a comprehensive attempt is made to understand 0 WTP, and to accommodate—using a censored quantile regression (CQR) framework—unobserved heterogeneity. The survey data indicate a low WTP, at 11–12 % of current electric bill. This study also addresses a key question: how important is income for understanding WTP, relative to more “attitudinal” determinants? The effect of income overall appears ambiguous, with Tobit-like models indicating that income is not significant while the CQR indicates that income exerts a significant effect near the center of the distribution of WTP. Across all frame- works used, a key determinant of WTP appears to be environmental attitudes, particularly membership in an environmental organization.

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Keywords: Green electricity; Willingness-to-pay; Censoring; Quantile regression; Renewable energy

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