Scandinavian Working Papers in Economics

CERE Working Papers,
CERE - the Center for Environmental and Resource Economics

No 2013:7: Determinants of the price-premium for Green Energy: Evidence from an OECD cross-section

Chandra Kiran Krishnamurthy () and Bengt Kriström ()
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Chandra Kiran Krishnamurthy: CERE, Umeå University
Bengt Kriström: CERE, Swedish University of Agricultural Sciences

Abstract: Using data from a large, multi-country survey, 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 willingnesstopay (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 ones in the literature in two distinct ways: first, data and analyses are comparable across countries and second, a comprehensive attempt to understanding 0 WTP and to accommodating unobserved heterogeneity is pursued. The survey data indicate, in common with prior analyses and market experience, a low WTP, about 9􀀀10%. This study addresses a key aspect: how important is income for understanding WTP, relative to more “attitudinal” determinants? Surprisingly, income exerts a small (and insignificant) effect on WTP, at the margin; this result is robust to accounting for censoring and unobserved heterogeneity. Key determinants of the WTP decision appear to be environmental attitudes, particularly membership in an environmental organization.

Keywords: green electricity; willingness-to-pay; censoring; quantile regression; renewable energy

JEL-codes: C21; C24; Q42; Q51

40 pages, First version: October 27, 2013. Revised: June 30, 2014.

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