Using Contingent Valuation to Explore Willingness to Pay for Renewable Energy: A Comparison of Collective and Voluntary Payment Vehicles

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There are a variety of ways to support renewable electricity production. Common approaches currently in use include renewables portfolio standards, system-benefits charges, and voluntary customer demand for renewable energy through green power marketing. Support for renewable energy is often paid for through explicit or implicit increases in electricity rates. Historically, all electricity consumers have been required to pay these costs, though with green power marketing some of these costs are paid through voluntary customer contributions. An ongoing debate exists on how renewable energy might best be encouraged. Relying primarily on a national contingent valuation (CV) survey of U.S. households, but supplemented by an opinion survey, this report explores the preferences held by U.S. residents for different ways of supporting and paying for renewable energy generation. In particular, this study evaluates preferences for collective renewable energy policies relative to voluntary purchases of "green power" by individual customers, as well as preferences for the degree of government involvement in these programs. As summarized in the full report, several opinion surveys have been conducted over the last five years that also explore household preferences for supporting renewable power generation. This previous research provides some evidence that U.S. residents prefer collective, mandatory payments for renewable energy to voluntary ones. None of these opinion surveys have relied on the contingent valuation method, however, and the exploration of consumer payment preferences was not the principal purpose of study for any of this previous research. Results of the present study provide practical insight on the preferences of the U.S. populace towards various approaches to encouraging the development of renewable energy, and highlight possible limitations and barriers to voluntary green power demand. In addition to having tangible relevance to policymakers and green power marketers, results presented here also have important implications for a variety of academic areas of study:

  • Contingent Valuation: By evaluating stated willingness to pay (WTP) for renewable energy under both voluntary and collective payment vehicles, our results shed light on strategic response and free-riding behavior and the incentive compatibility of different CV designs, as well as the appropriate interpretation of criterion validity studies in CV.
  • Bandwagon Effects: The report also tests whether individuals who state a higher willingness to pay for renewable energy are more likely to think that others will also contribute, and explores the implications of this work for what is sometimes called the "bandwagon" or "reciprocity" effect.
  • Discrepancy Between Environmental Attitudes and Behavior: More generally, this work helps one better understand the discrepancy between environmental attitudes (and purchase intentions) as expressed through consumer surveys and actual consumer behavior.
  • Profiling the Environmentally Responsible Individual: Finally, by examining what types of individuals state a willingness to pay for renewable energy under different payment contexts, this report builds on an extensive literature in marketing, psychology, and economics that profiles the environmentally motivated customer.

Though this executive summary principally emphasizes the practical and policy-relevant implications of the survey findings, the reader is referred to the full report for a more academic treatment of the results.

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