Using contingent valuation to explore willingness to pay for renewable energy: A comparison of collective and voluntary payment vehicles

Some of the most basic questions about the organization and functioning of society involve issues raised by the existence of public goods. With respect to environmental public goods, how should funds used to support environmental improvement be collected and used? In particular, are collective, mandatory payments superior to voluntary, charitable payments due to the possibility of free riding? And to what degree should the government be involved in spending these funds: should the government directly fund environmental improvement projects or should the private sector be used to collect funds and determine funding priorities? This report explores these questions from the perspective of renewable energy: wind, geothermal, biomass, hydropower, and solar. In particular, this report analyzes the payment preferences of U.S. households through the implementation of a large-scale contingent valuation (CV) survey of willingness to pay (WTP) for renewable energy. Renewable energy can be supported through a mandatory ''tax'' on electric bills or through voluntary payments via green power marketing; the government may or may not be heavily involved in the collection and expenditure of such funds. The question of how households prefer to pay for renewable energy is therefore highly relevant. The primary objective of this study is to explore variations in stated WTP for renewable energy under the following four payment and provision contexts: (1) A mandatory increase in the electricity bills of all customers, the funds from which are collected and spent by the government on renewable energy projects. (2) A voluntary increase in the electricity bills of those customers who choose to pay, the funds from which are collected and spent by the government on renewable energy projects. (3) A voluntary increase in the electricity bills of those customers who choose to pay, the funds from which are collected and spent by electricity suppliers on renewable energy projects. (4) A mandatory increase in the electricity bills of all customers, the funds from which are collected and spent by electricity suppliers on renewable energy projects. These payment and provision scenarios are consistent with contemporary forms of support for renewable energy. The first scenario--mandatory payments and government provision--is consistent with a system-benefits charge policy, a policy that has been adopted in 15 U.S. states. The third scenario--voluntary payments to an electricity supplier--is consistent with competitive green power marketing. The fourth scenario--mandatory payments through electricity suppliers--is consistent with a renewables portfolio standard, a policy adopted in thirteen U.S. states as of mid 2003. The second scenario--voluntary payments and government provision--has only been used in a limited fashion in the United States. In addition to having contemporary policy relevance, these four contingent valuation scenarios allow one to distinguish differences in stated WTP based on: (1) the payment method--is WTP affected by whether payments are to be made collectively or voluntarily? and (2) the provision arrangement--does the manner in which a good is provided, in this case through the government or the private sector, affect stated WTP? A split-sample, dichotomous choice contingent valuation survey of 1,574 U.S. residents was developed and implemented to test the sensitivity of stated WTP to these variables at three different payment levels, or bid points. Three secondary objectives also influenced research design, and are discussed in this report. First, this study indirectly and tentatively evaluates the importance of ''participation expectations'' in contingent valuation surveys: specifically, are individuals who state a WTP for renewable energy more likely to think that others will also contribute? Such relationships are commonly discussed in the sociology, social psychology, and marketing literatures, and are also frequently referenced in the collective action literature, but have yet to be tested thoroughly in a contingent valuation context. Second, this report assesses the effects of socioeconomic, demographic, and attitudinal variables on willingness to pay for renewable energy through regression analysis. This analysis helps test the construct validity of the contingent valuation method, and informs our understanding of who is and is not willing to pay for renewable energy under different payment and provision contexts. Finally, through the implementation of a concurrent opinion survey with 202 respondents, this study compares the results of the CV surveys to a more direct approach of eliciting individuals' payment preferences. Responses to the opinion survey also allow a deeper exploration of other issues related to payment preferences