Willingness-to-pay for greenhouse gas reductions: A Bayesian investigation of distributional patterns
2012
Climate change has been receiving wide attention from the international community. The UK, like many other countries, has set its target to achieve a 12.5% reduction in levels of six greenhouse gases (GHG) by 2010, relative to 1990 levels. In order to gain a complete understanding of the costs and benefits of GHG reductions, the public's willingness-to-pay (WTP) must be considered. In this study the preference and WTP for GHG emissions reductions involving one of the major UK water companies’ customers were investigated using a Bayesian mixed logit analysis of survey-based choice experiment data. Advanced econometric techniques were employed to accommodate indifference and multi-modality in preferences and WTPs across various customer segments. Results show that average per unit WTP to avoid increased GHG emissions is larger than that for efforts to reduce them. In addition, customers are less likely to be indifferent to the former compared to the latter; this is particularly true when GHG emission reductions are relatively small. In this case a relatively large proportion of customers are found to be indifferent with a near-zero per unit WTP. On the other hand, as reductions in GHG emissions increase more customers become sensitized as reflected by the smaller proportion of customers with a near-zero per unit WTP. The implications of these results as related to cost-effective investment planning aimed at mitigating climate change risks are further discussed.
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