Mobile Edition
Print
Get the Mag
Weekly Updates1. INTRODUCTION
Renewable energy sources (RES) are considered to be environmental sound from the viewpoint of dangerous emissions and resource depletion. Traditionally, in the past much of emphasis on climate change action has been based on the precautionary principle; now population awareness has increased and it is more widely accepted that climate change is a real issue to be dealt with. Also in Italy public interest in RES arose, as new efficient technologies to reduce carbondioxide emission and slow resource depletion have become commercially available on the market. Since 2005, among different sources, after the initial diffusion of wind farms, photovoltaic technology is approaching the stage of commercial operation narrowing the gap by comparison with wind power generation technology; in addition, in the last year biomass energy is also regarded as potential energy sources and studies have been carried out on the future exploitation of these RES. Unfortunately the supply cost of energy from RES is usually high with two important consequences on public opinion: (i) it prevents the widespread uptake of renewable energy systems in spite of their environmental soundness; (ii) there is need of public funding in order to support RES development. In this context, I assume that if consumers regard some environmental problems as important and think that promoting RES use will mitigate environmental damages, they are likely to attach a value to these RES. Therefore, insofar as consumers think positively of renewable energy technologies, this attitude will influence their willingness to pay (WTP), augmenting the premiums they are potentially apt to pay for such new technology and consequently will, potentially, reduce the needed amount of public funding. In this context and in reference to the "Renewable Sources" EU Directive 2001/77/CE the Italian Government goal, for 2010 is to attain the share of 22% in RES electricity production. More recently, in early 2007, UE new goals have indicated that RES should reach 20% of total energy resources by year 2020, together with a 20% goal of energy savings. In such context it becomes crucial to explore the existence of consumer's WTP in order to decisively increase the use of RES in electricity production.
The goal of this study is twofold. The first purpose of this study is to estimate consumers' WTP for the development of the RES use in Italy. To this end I use both a Stochastic payment card (SPC) method and a referendum approach. The SPC method allows me to consider that consumers have a range of economic values, or a valuation distribution in their mind (Cameron and Quiggin, 1994; Duborg et al. 1994) instead of a single economic value point estimation. In my framework I obtain the consumer's WTP with two different approaches (downward vs. upward elicitation format) but I don't focus much on the different elicitation formats while I focus on the different uncertainty degree that affects respondent's choices. There are several approaches to take care econometrically of this issue: i) individual stochastic valuation approach, and ii) dichotomous choice or so called referendum approach. After estimation of both, this paper introduces a comparison among these different approaches. Further econometric analysis allows to investigate how socio-demographic characteristics of respondents affect the WTP and whether these relations depend systematically on bids amount. The dependence of consumers' WTP on their views on the potential usefulness of alternative energy sources is also analyzed. In other words the aim is to examine to what extent various attitudinal, behavioural, and demographic variables are associated with WTP and also whether these relationships are function of bids amount.
The second purpose of this study is to estimate the market sustainability of the 22% Italian goal in renewable electricity production. The setup of this paper is as follows: section 2 briefly reviews the theoretical background and shows the methodology approach while section 3 sets out some detail on survey design and on data description; section 4 refers to empirical study and presents results from regression analysis; further discussion on the empirical results and their policy implications is provided in the final section.
2. BACKGROUND AND METHODOLOGY
The contingent valuation (CV) method is becoming a common technique for evaluating goods that are not physically traded and it has been used to evaluate environmental benefits in financial terms when markets do not exist, in order to provide information necessary for conducting cost-benefit analysis. On the use of RES several surveys have been performed in the United States (Farhar, 1999; Roe et al. 2001; Vossler et al. 2003), United Kingdom (Batley et al. 2001), Australia (Ivanova, 2005) Spain (Alvarez-Farizo and Hanley, 2002) and Japan (Nomura and Akay, 2004). As far as I know in Italy, only one survey (Bollino and Polinori, 2006, 2007) has been performed and data have been collected to draw suggestions about consumer energy sources preferences. These prior studies have found a modest consumer's WTP if compared with national policy energy goals, as in Ivanova (2004) for Queensland and Batley et al. (2001) for UK.
These studies are not fully comparable because they differ in terms of survey periods, countries, institutional context, survey typology, elicitation format, as well as for methodology and econometric technique used, but it can be useful to summarize their empirical results in order to better understand different results. Roe et al. (2001) use a choice experiment procedure carried over 1000 respondents in 8 US cities (reference year 1979); response rate is 83.4%. Questions pose a choice range of relevant characteristics, such as monthly energy bill, fuel mix and related emission levels. The most relevant result is that consumers appear to be willing to pay more to achieve emission abatement targets, rather than to support an increase in renewable share. Anyway the median WTP estimates for a single percent increase in all renewables, accompanied by a single percent decrease in emissions, range from $0.11 to $14.22. Ivanova (2005) analysis is a traditional contingent variation surveying 820 respondents in the State of Queensland (Australia), via mail questionnaire, obtaining an overall response rate of 26%. Main objective is to evaluate market sustainability of the Federal Government Renewable Energy Target (RET), which sets minimum electric energy production share to be generated from RES, in terms of consumers WTP. Results show that 65% of respondents are willing to pay 22 Australian Dollars per quarter, in order to increase RES use from 10 to 12%. This result, however, shows that Government RET target would not be attainable only with market approach. Batley et al (2001) report a relatively smaller WTP in their study performed in the UK, via mail questionnaire (2250 sent, in 1997, response rate 27.2%). Results show that a 34% share of respondents declares to be willing to pay and additional 16.6% of their actual expenditure, in order to have electricity from RES; according to authors, this is anyway insufficient to eventually achieve a national target of 10% production from RES. Nomura et al (2004) investigate WTP to increase electricity production from RES, via mail questionnaire (response rate 37%), in several Japanese cities (11 large metropolitan areas and numerous medium and small municipalities). Results estimate consumer WTP about 2000 yen per month, one of the highest estimates relative to other studies conducted in Japan. Jensen at al (2004) use contingent valuation method to estimate WTP for use of biomasses only (thus narrowing analysis scope). They surveyed 2853 individuals resident in the State of Tennessee (via mail, in 2003, response rate 14.85%). Results show a WTP around 6.51 cent/kWh for wooden biomasses and 8.83 cent/kWh for dedicated cultures. Finally also in Italy, recent estimates of WTP for RES are variable and show an estimated range between 24 and 54 [euro] yearly per household. Analysis has been conducted with payment card method, but estimated WTP almost doubles when using contingent valuation method (Bollino and Polinori, 2006, 2007). Clearly a common feature of all previous survey mentioned above is the results variability. This broad range of monetary assessment of such relevant issue should not surprise; it can be the consequence of two main factors:
i) relevance of socio-demographic determinants;
ii) uncertainty in respondents' information set.
Roe et al. (2001) find that the median WTP varies significantly
from low to high income class, from low education degree respondents to
high degree respondents, and so on. (1) Different social status,
different knowledge and different environmental feeling are the crucial
determinants of individual preferences. On the other hand, individual
valuation process is pervaded by uncertainty (Wang, 1997, p. 222; Wang
Whittington, 2005, p. 144) because, mainly, the good or service in
question is uncertain, and/or the good/service quality is uncertain,
and/or the attributes of the good/service are uncertain. There always
exists uncertainty in such markets and more so as function of specific
individual's own characteristics and preferences. (2) Following a
consolidated approach to deal with uncertainty in economics, i.e. to
explicitly take into account stochastic variability (Wang and
Whittington, 2005, p. 145), I assume in this study that consumer
evaluation process is of stochastic nature, introducing a stochastic
payment card (SPC) approach. The relevant behavioural model entails the
idea that an individual is able to express preferences or evaluation of
some good or service in a way that is not mathematically exact or
certain: most of the times people refer to desirability of some good or
service in term of a blurred monetary range such as: "I would
rather pay X or at most Y" (Y>X) or "I would at most pay Z
but better W" (W
FEED