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Determinants of the Price-Premium for Green Energy: Evidence from an OECD Cross-Section

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  • Chandra Kiran B. Krishnamurthy

    (Umeå University
    Royal Swedish Academy of Sciences)

  • Bengt Kriström

    (SLU Umeå)

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 comparable 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 frameworks used, a key determinant of WTP appears to be environmental attitudes, particularly membership in an environmental organization.

Suggested Citation

  • Chandra Kiran B. Krishnamurthy & Bengt Kriström, 2016. "Determinants of the Price-Premium for Green Energy: Evidence from an OECD Cross-Section," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 64(2), pages 173-204, June.
    • Handle: RePEc:kap:enreec:v:64:y:2016:i:2:d:10.1007_s10640-014-9864-y
    DOI: 10.1007/s10640-014-9864-y
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    More about this item

    Keywords

    Green electricity; Willingness-to-pay; Censoring; Quantile regression; Renewable energy;
    All these keywords.

    JEL classification:

    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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