Environmental and Resource Economics

, Volume 64, Issue 2, pp 173–204 | Cite as

Determinants of the Price-Premium for Green Energy: Evidence from an OECD Cross-Section

  • Chandra Kiran B. Krishnamurthy
  • Bengt Kriström


Using data from a survey of households in 11 OECD countries, this paper investigates the determinants of preferences for a completely green residential electricity system. Three important questions are addressed: (i) how much are households willing to pay to use only renewable energy? (ii) does willingness-to-pay (WTP) vary significantly across household groups and countries? and (iii) what drives the decision to enter the (hypothetical) market for green energy and, given entry, what drives the level of WTP? The analysis here differs from previous studies on green energy in two ways: first, data and analyses are comparable across countries and second, a comprehensive attempt is made to understand 0 WTP, and to accommodate—using a censored quantile regression (CQR) framework—unobserved heterogeneity. The survey data indicate a low WTP, at 11–12 % of current electric bill. This study also addresses a key question: how important is income for understanding WTP, relative to more “attitudinal” determinants? The effect of income overall appears ambiguous, with Tobit-like models indicating that income is not significant while the CQR indicates that income exerts a significant effect near the center of the distribution of WTP. Across all frameworks used, a key determinant of WTP appears to be environmental attitudes, particularly membership in an environmental organization.


Green electricity Willingness-to-pay Censoring  Quantile regression Renewable energy 

JEL Classification

Q42 Q51 C24 C21 


  1. Abdullah S, Jeanty PW (2011) Willingness to pay for renewable energy: evidence from a contingent valuation survey in kenya. Renew Sustain Energy Rev 15(6):2974–2983CrossRefGoogle Scholar
  2. Alvarez-Farizo B (1999) Estimating the benefits of agri-environmental policy: econometric issues in open-ended contingent valuation studies. J Environ Plan Manag 42(1):23–43CrossRefGoogle Scholar
  3. Amador FJ, González RM, de Dios Ortúzar J (2005) Preference heterogeneity and willingness to pay for travel time savings. Transportation 32(6):627–647CrossRefGoogle Scholar
  4. Brown Z, Johnstone N, Serret-Itzicsohn Y (2014) General household attitudes towards the environment. In: OECD (ed) Greening Household Behaviour: overview from the 2011 survey—revised edition. OECD Publishing, pp 55–75Google Scholar
  5. Carlsson F, Martinsson P (2007) Willingness to pay among swedish households to avoid power outages: a random parameter tobit model approach. Energy J 1:75–89Google Scholar
  6. Carlsson F, Martinsson P (2008) Does it matter when a power outage occurs? A choice experiment study on the willingness to pay to avoid power outages. Energy Econ 30(3):1232–1245CrossRefGoogle Scholar
  7. Chen S, Khan S (2003) Semiparametric estimation of a heteroskedastic sample selection model. Econom Theory 19(06):1040–1064CrossRefGoogle Scholar
  8. Chernozhukov V, Fernandez-Val I, Han S, Kowalski A (2012) CQIV: stata module to perform censored quantile instrumental variables regressionGoogle Scholar
  9. Chernozhukov V, Fernández-Val I, and Kowalski AE (2011) Quantile regression with censoring and endogeneity. w16997. National Bureau of Economic ResearchGoogle Scholar
  10. Clark CF, Kotchen MJ, Moore MR (2003) Internal and external influences on pro-environmental behavior: participation in a green electricity program. J Environ Psychol 23(3):237–246CrossRefGoogle Scholar
  11. Cragg JG (1971) Some statistical models for limited dependent variables with application to the demand for durable goods. Econometrica 39(5):829–844CrossRefGoogle Scholar
  12. Ek K, Söderholm P (2008) Norms and economic motivation in the swedish green electricity market. Ecol Econ 68(1):169–182CrossRefGoogle Scholar
  13. Ek K, Söderholm P (2010) The devil is in the details: household electricity saving behavior and the role of information. Energy Policy 38(3):1578–1587CrossRefGoogle Scholar
  14. Ertör-Akyazı P, Adaman F, Özkaynak B, Zenginobuz Ü (2012) Citizens’ preferences on nuclear and renewable energy sources: evidence from turkey. Energy Policy 47:309–320CrossRefGoogle Scholar
  15. Garcia J, Labeaga JM (1996) Alternative approaches to modelling zero expenditure: an appliation to spanish demand for tobacco. Oxf Bull Econ Stat 58(3):489–506CrossRefGoogle Scholar
  16. Gerpott TJ, Mahmudova I (2010) Determinants of price mark-up tolerance for green electricity-lessons for environmental marketing strategies from a study of residential electricity customers in germany. Bus Strategy Environ 19(5):304–318Google Scholar
  17. Greene WH (2012) Econometric analysis, 7th edn. Prentice Hall, Upper Saddle RiverGoogle Scholar
  18. Haab TC (1999) Nonparticipation or misspecification? the impacts of nonparticipation on dichotomous choice contingent valuation. Environmental and Resource Economics 14(4):443–461CrossRefGoogle Scholar
  19. Hansla A (2011) Value orientation and framing as determinants of stated willingness to pay for eco-labeled electricity. Energy Effic 4(2):185–192CrossRefGoogle Scholar
  20. Hansla A, Gamble A, Juliusson A, Gärling T (2008) Psychological determinants of attitude towards and willingness to pay for green electricity. Energy Policy 36(2):768–774CrossRefGoogle Scholar
  21. Jacobsen GD, Kotchen MJ, Vandenbergh MP (2012) The behavioral response to voluntary provision of an environmental public good: evidence from residential electricity demand. Eur Econ Rev 56(5):946–960CrossRefGoogle Scholar
  22. Jones AM (1989) A double-hurdle model of cigarette consumption. J Appl Econom 4(1):23–39CrossRefGoogle Scholar
  23. Jones AM (1992) A note on computation of the double-hurdle model with dependence with an application to tobacco expenditure. Bull Econ Res 44(1):67–74CrossRefGoogle Scholar
  24. Koenker R (2005) Quantile regression. Cambridge University Press, CambridgeCrossRefGoogle Scholar
  25. Koenker R, Hallock K (2001) Quantile regression: an introduction. J Econ Perspect 15(4):43–56CrossRefGoogle Scholar
  26. Kotchen MJ, Moore MR (2007) Private provision of environmental public goods: household participation in green-electricity programs. J Environ Econ Manag 53(1):1–16CrossRefGoogle Scholar
  27. Kotchen MJ, Moore MR (2008) Conservation: from voluntary restraint to a voluntary price premium. Environ Resour Econ 40(2):195–215CrossRefGoogle Scholar
  28. Kowalski AE (2014) Censored quantile instrumental variable estimates of the price elasticity of expenditure on medical care. Working Paper 15085, National Bureau of Economic Research IncGoogle Scholar
  29. Krishnamurthy C, Kriström B (2013) Energy demand and income elasticity: a cross country analysis. Working Paper 2013–05, Center for Environmental and Resource Economics (CERE)Google Scholar
  30. Kriström B (2011) Residential energy use. In: OECD (ed) Greening Household Behaviour: the role of public policy, Chapter 4. OECD Publishing, Paris, pp 59–80Google Scholar
  31. Kriström B (2014) Household behaviour and energy use. In: OECD (ed) Greening Household Behaviour: overview from the 2011 survey—revised edition. OECD Publishing, Paris, pp 77–112Google Scholar
  32. Lei S (2014) Econometric analysis of renewable energy promotion. chapter The share of renewable energy and policy support. PhD thesis, Department of Forest Economics, SLU UmeåGoogle Scholar
  33. Lewis RA, McDonald JB (2014) Partially adaptive estimation of the censored regression model. Econom Rev 33(7):732–750CrossRefGoogle Scholar
  34. Liu X, Wang C, Zhang W, Suk S, Sudo K (2013) Company’s affordability of increased energy costs due to climate policies: a survey by sector in china. Energy Econom 36:419–430CrossRefGoogle Scholar
  35. Meyerhoff J, Liebe U (2006) Protest beliefs in contingent valuation: explaining their motivation. Ecolog Econ 57(4):583–594CrossRefGoogle Scholar
  36. Mozumder P, Vásquez WF, Marathe A (2011) Consumers’ preference for renewable energy in the southwest USA. Energy Econ 33(6):1119–1126CrossRefGoogle Scholar
  37. OECD (2014) Greening Household Behaviour: overview from the 2011 survey (revised edition). OECD Publishing, ParisGoogle Scholar
  38. O’Garra T, Mourato S (2007) Public preferences for hydrogen buses: comparing interval data, ols and quantile regression approaches. Environ Resour Econ 36(4):389–411CrossRefGoogle Scholar
  39. Oliver H, Volschenk J, Smit E (2011) Residential consumers in the cape peninsula’s willingness to pay for premium priced green electricity. Energy Policy 39(2):544–550CrossRefGoogle Scholar
  40. Ozaki R (2011) Adopting sustainable innovation: what makes consumers sign up to green electricity? Bus Strategy Environ 20(1):1–17CrossRefGoogle Scholar
  41. REN21 (2013) Renewables 2013 global status report. Technical reportGoogle Scholar
  42. Scarpa R, Willis K (2010) Willingness-to-pay for renewable energy: primary and discretionary choice of british households’ for micro-generation technologies. Energy Econ 32(1):129–136CrossRefGoogle Scholar
  43. Shi L, Zhou W, Kriström B (2013) Residential demand for green electricity. Environ Econ 4(1):39–50Google Scholar
  44. Soskin M, Squires H (2013) Homeowner willingness to pay for rooftop solar electricity generation. Environ Econ 4(1):102–111Google Scholar
  45. Strazzera E, Genius M, Scarpa R, Hutchinson G (2003a) The effect of protest votes on the estimates of WTP for use values of recreational sites. Environ Resour Econ 25(4):461–476CrossRefGoogle Scholar
  46. Strazzera E, Mura M, Statzu V (2012) Powering the change: a contingent valuation study on the determinants of demand for green vs. brown energy. J Environ Econ Policy 1(2):146–173CrossRefGoogle Scholar
  47. Strazzera E, Scarpa R, Calia P, Garrod GD, Willis KG (2003b) Modelling zero values and protest responses in contingent valuation surveys. Appl Econ 35(2):133–138CrossRefGoogle Scholar
  48. Werner M (1999) Allowing for zeros in dichotomous-choice contingent-valuation models. J Bus Econ Stat 17(4):479–486Google Scholar
  49. Wooldridge JM (2010) Econometric analysis of cross section and panel data, 2nd edn. The MIT Press, LondonGoogle Scholar
  50. Yoo S-H, Kwak S-Y (2009) Willingness to pay for green electricity in Korea: a contingent valuation study. Energy Policy 37(12):5408–5416CrossRefGoogle Scholar
  51. Yu X, Abler D (2010) Incorporating zero and missing responses into CVM with open-ended bidding: willingness to pay for blue skies in beijing. Environ Dev Econ 15(05):535–556CrossRefGoogle Scholar
  52. Zhai P, Williams ED (2012) Analyzing consumer acceptance of photovoltaics (PV) using fuzzy logic model. Renew Energy 41:350–357CrossRefGoogle Scholar
  53. Zorić J, Hrovatin N (2012) Household willingness to pay for green electricity in slovenia. Energy Policy 47:180–187CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2015

Authors and Affiliations

  • Chandra Kiran B. Krishnamurthy
    • 1
    • 2
  • Bengt Kriström
    • 3
  1. 1.Center for Environmental and Resource Economics and Umeå School of Business and EconomicsUmeå UniversityUmeåSweden
  2. 2.The Beijer Institute of Ecological EconomicsRoyal Swedish Academy of SciencesStockholmSweden
  3. 3.Center for Environmental and Resource Economics and Department of Forest EconomicsSLU UmeåUmeåSweden

Personalised recommendations