Mandatory vs. Voluntary Payment for Green Electricity Elcin Akcura University of Cambridge

1. Mandatory vs. Voluntary Payment for Green Electricity Elcin Akcura University of Cambridge

2. Outline of the Presentation • Motivation • Survey Description • Modelling WTP • Results • Conclusions

3. I. RESEARCH MOTIVATION

4. Research Questions • What is the preferred mechanism of support for renewable energy by UK households - voluntary or mandatory? • Does the type of payment mechanism impact stated WTP valuations? • Do these preferences change over time? • Does the type of payment have an impact on the certainty of respondents of actually paying their stated WTP?

5. Contingent Valuation Method • A survey approach that directly asks people’s willingness to pay for a good or attribute • Open Ended Contingent Valuation “How much will you be willing to pay per month to secure a quality improvement?” • Closed Ended Contingent Valuation “Would you be willing to pay £X to secure a quality improvement? (yes or no)”

6. Payment Effects on WTP for RE • Wiser (2006) CVM survey in the US • higher WTP under collective mechanism compared to voluntary • Ivanova (2005) CVM survey in Queensland Australia • higher WTP under voluntary payment option compared to mandatory

7. II. Survey Description

8. Survey Summary • Online surveys of households in England, Scotland and Wales • Conducted in October 2008 and December 2009 • Sample size of 2000 households each • Split sample approach • Bids • bids presented as percentage of utility bill

9. Mandatory vs. Voluntary Payment If renewable energy is to be supported, the extra money needed to increase the supply of renewable energy could be collected in a number of ways. Of the two possible approaches listed below, which one would you most prefer? 1- The extra money should be raised through a mandatory surcharge on the electricity bills of all homes and businesses in the UK 2- The extra money should be raised through a voluntary surcharge on the electricity bills of only those homes and businesses in the UK that volunteer to support renewable energy

10. III. Modelling WTP

11. Ordered Response Models • Respondent’s true willingness to pay is an unobserved variable, y* • Observed WTP • Probability of observing is (1) (2) (3)

12. WTP Categories

13. WTP Distribution

14. Zero Inflated Ordered Probit (ZIOP) • Split the distribution into two components: • The first hurdle, r, is a binary variable • The second hurdle is an ordered variable (4) (5) (6)

15. Zero Inflated Ordered Probit (ZIOP) • The distribution under ZIOP is given by (7)

16. Distribution of Certainty

17. Certainty Weighted ZIOP • Uncertainty of the respondent can incorporated into ZIOP • ZIOP weighted by certainty (8) (9)

18. IV. Results

19. RQ 1: Preferred Payment Mechanism Voluntary or Mandatory?

20. RQ 2: Payment Method Effects on WTP?

21. Payment Method Effects on WTP

22. Payment Method Effects on WTP

23. RQ4: Payment Vehicle Effect on Certainty of WTP

24. Conclusions • What is the preferred mechanism of support for renewable energy by UK households - voluntary or mandatory? Voluntary preferred • Does the type of payment mechanism impact stated WTP valuations? Yes, higher likelihood of non-zero WTP under the mandatory scheme • Do these preferences change over time? Lower WTP in 2009 • Does the type of payment affect the certainty of respondents of actually paying their stated WTP? Only depends on the grouping, compared to MM, groups VM and VV were less certain of payment