The Influence of Collective Action on the Demand for Voluntary Climate Change Mitigation in Hypothetical and Real Situations

Abstract

In this experiment, we investigate demand for voluntary climate change mitigation. Subjects decide between a cash prize and an allowance from the EU Emissions Trading Scheme for one ton of \(\hbox {CO}_{2}\) that will be deleted after the completion of the experiment. Decisions were implemented either as purely individual or as a collective action using majority voting. We vary the incentives of the decision situation in which we distinguish between real monetary incentives and a hypothetical decision situation with, and without, a cheap talk script. Collective decision making affects demand positively in the hypothetical decision situation only and we observe a significant hypothetical bias in the demand for voluntary climate change mitigation.

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Notes

  1. 1.

    In this paper, all WTP values are, if necessary, converted to €  values using the 2010 ECB average reference exchange rate for US$ (€1 \(=\) US$ 1.3257) or GBP (€1 \(=\) GBP 0.8578).

  2. 2.

    This variant of the iterative bidding game with an ascending sequence may induce starting point bias (e.g. Kang et al. 2013). We tested the null hypothesis that the coefficients for the price group assigned to the respondent are jointly equal to zero. We cannot reject the null hypothesis for all treatments.

  3. 3.

    For the following hypotheses we use the cheap talk variant of the hypothetical treatment, because for stated preferences applications this is generally considered as the more robust procedure to elicit WTP.

  4. 4.

    A transaction confirmation is available under https://bsturm.htwk-leipzig.de/uehleke/fairpayclim/.

  5. 5.

    Note that 173 participants (5.6 % of the sample) decided inconsistently, because they chose the certificate at a high price, but not at a low price. We did not exclude these participants, since we are interested in the overall behavioural effect. A separate analysis shows that excluding these participants has no effect on the results.

  6. 6.

    Results can be requested from the corresponding author.

  7. 7.

    In the following we refer to the lower bound Turnbull WTP when we write Turnbull WTP or WTP.

  8. 8.

    The test statistic for the difference in average WTP constitutes \(t=\frac{\overline{WTP}_1 -\overline{WTP}_2 }{\sqrt{\hat{\sigma }_1^2 +\hat{\sigma }_2^2 }}\) (Haab and McConnell 2003, p. 76; Carson et al. 2004, p. 183).

  9. 9.

    The WTP calculation with the fitted shares is given in “Appendix 7”.

  10. 10.

    The parametric results confirm the univariate finding that there is no effect of cheap talk. We nevertheless repeated the parametric analyses without pooling which did not change results. Results can be requested from the corresponding author.

  11. 11.

    Note that it is not possible to compare effect sizes across different logit models. A test for difference in hypothetical bias between Ind and Coll requires the respective interaction effect, which in a separate regression is not significant. Thus we cannot reject the hypothesis of equal hypothetical bias in Ind and Coll.

  12. 12.

    We confirmed that the interaction effect is significant for all observations with the stata user written programme inteff (Norton et al. 2004).

  13. 13.

    Results in “Appendices 9 and 10”.

  14. 14.

    See for example https://www.europol.europa.eu/content/press/carbon-credit-fraud-causes-more-5-billion-euros-damage-european-taxpayer-1265.

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Acknowledgments

Financial support by the German Federal Ministry of Education and Research (FairPayClim FKZ 01LA1108B) is gratefully acknowledged. We thank workshop participants at the ZEW Mannheim, Carlo Gallier and two anonymous referees for valuable comments.

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Correspondence to Reinhard Uehleke.

Appendices

Appendix 1: Information Screen

Information on the European Emissions Trading System

The EU Emissions Trading System for carbon dioxide (\(\hbox {CO}_{2})\) came into force in 2005. Emission trading is the key instrument of climate policy in Europe, which is based on a simple principle: It is specified how much \(\hbox {CO}_{2}\) the participating sectors (power generators and energy-intensive industries) are allowed to emit until 2020. This total amount is distributed as emission rights from the state (so-called “Certificates”) to the companies. For each unit of \(\hbox {CO}_{2}\) emitted, the company must give such a certificate to the state. The certificates can be traded between companies.

For every ton of \(\hbox {CO}_{2}\) that is emitted by a facility, such as a coal power plant, the plant operator has to show appropriate authorization in the form of a certificate. This has an important consequence: If the total quantity of allowances is reduced, then the total emissions must be reduced simply because the plant operators have fewer allowances at their disposal. This means that if a certificate for a ton of \(\hbox {CO}_{2}\) is bought and deleted, the total \(\hbox {CO}_{2}\) emissions are reduced by exactly this one ton.

Emission trading has a central advantage. It ensures that avoidance of \(\hbox {CO}_{2}\) emissions takes place where it is cheapest. Companies with inexpensive ways to avoid \(\hbox {CO}_{2}\) will sell allowances. Companies where avoidance is rather expensive purchase certificates. This trade ensures that the emission target is achieved at minimal cost.

European electricity producers and the energy-intensive industry may emit a total of about 2 billion tons \(\hbox {CO}_{2}\) in 2014. In comparison, the global \(\hbox {CO}_{2}\) emissions in 2013 were approximately 36 billion tons of \(\hbox {CO}_{2}\).

To sum up: If you decrease the total amount of allowances in the EU ETS, European total emissions of \(\hbox {CO}_{2 }\)are reduced.

Appendix 2: Instruction Screen for the REAL_Ind Treatment

Instructions

  • 1. Payoff

  • You can now choose between a cash payment, and a certificate of one ton of \(\hbox {CO}_{2}\) emissions from the EU Emissions Trading System. The probability that you win and your decisions will be realized is 20 %. Therefore, it is in your interest that you make every decision as if your decision would be realized.

  • Won certificates will be removed permanently from the trade for you by the research team of the Leipzig University of Applied Sciences. Due to the deletion of a certificate, European \(\hbox {CO}_{2}\) emissions will be reduced by one ton.

  • 2. Decision

  • You will have three possibilities to decide between a cash payment and the deletion of a certificate in the following form:

  • Please choose now between the cash payment or the emissions trading certificate about one ton of \(\hbox {CO}_{2}\) with subsequent deletion.

  • I would like the ...

  • () ... €€ Euro cash payment

  • () ... emissions trading certificate about one ton of \(\hbox {CO}_{2}\)

  • For the winners one the three decisions is randomly selected and depending on how you have chosen in this situation, you receive the cash payout or a certificate that will be deleted for you by the research team.

  • The winners will be notified by email. A summary of the study and the verification of the amount of deleted certificates will be published on the website of the Faculty of Business Administration of the Leipzig University of Applied Sciences.

Appendix 3: Instruction Screen for the REAL_Coll Treatment

Instructions

  • 1. Payoff

  • You can now choose as a group between a cash payment, and a certificate of one ton of \(\hbox {CO}_{2}\) emissions from the EU Emissions Trading System. The probability that your group wins and the decision of your group will be realized is 20 %. Therefore, it is in your interest that you make every decision as if you would be realized.

  • Won certificates will be removed permanently from the trade for you by the research team of the Leipzig University of Applied Sciences. Due to the deletion of a certificate, European \(\hbox {CO}_{2}\) emissions will be reduced by one ton.

  • 2. Voting

  • You can now vote on whether each member of your group receives a cash payment or whether all members receive a certificate for deletion. Your group is composed of 100 participants. If more than half of the participants vote for the cash payment, each participant will receive the cash payment and if more than half of the participants vote for the deletion of a certificate, each participant will receive a certificate for deletion.

  • You will have three possibilities to decide between a cash payment and the deletion of a certificate in the following form:

  • Please vote now for the cash payment or for the emissions trading certificate about one ton of \(\hbox {CO}_{2}\) with subsequent deletion.

  • I vote for ...

  • () ... €€ Euro cash payment

  • () ... The emissions trading certificate through a ton of \(\hbox {CO}_{2}\)

  • For the winning group one of the three decisions is randomly chosen and depending on how the group has decided in this situation, you receive the cash payout or a certificate that will be deleted for you by the research team.

  • The winners will be notified by email. A summary of the study and the verification of the amount of deleted certificates will be published on the website of the Faculty of Business Administration of the Leipzig University of Applied Sciences.

Appendix 4: Cheap Talk Script

In surveys is often observed that some respondents state to be willing to pay large amounts for environmental goods such as clean air. Probably these respondents do not account in this moment that they would have to dispense with other things, if they had to actually pay he amount of money they stated in the survey. We therefore ask you to decide in the following situations as if your decision would have real consequences, that means as if you actually received either the cash payment or the certificate. The results of the study will be published on the website of the Faculty of Business Administration of the Leipzig University of Applied Sciences.

Appendix 5: Calculation of Turnbull WTP

The lower bound Turnbull is computed in the following steps:

  1. 1.

    Calculate the share of no answers: \(\hbox {F}_{\mathrm{j}}=\hbox {N}_{\mathrm{j}}/\hbox {T}_{\mathrm{j}}\)

  2. 2.

    Compare \(\hbox {F}_{\mathrm{j}}\) with \(\hbox {F}_{\mathrm{j+1}}\), if \(\hbox {F}_{\mathrm{j}}< \hbox {F}_{\mathrm{j+1}}\) continue, if \(\hbox {F}_{\mathrm{j}}>= \hbox {F}_{\mathrm{j+1} }\) these cells are pooled and the combined no shares of these cells calculated: \(\hbox {F}_{\mathrm{j}}\)*= \(\hbox {N}_{\mathrm{j}}\)*/\(\hbox {T}_{\mathrm{j}}\)*

  3. 3.

    This is repeated until a monotonously increasing cdf is formed.

  4. 4.

    Calculate \(\hbox {f}_{\mathrm{j}}\)*= \(\hbox {F}_{\mathrm{j+1}}\)*- \(\hbox {F}_{\mathrm{j}}\)* for each bid level t. This corresponds to a consistent estimator of the probability that WTP falls between the price j and price j+1.

  5. 5.

    Multiply every bid with the according probability that WTP falls between this bid and the next higher bid t+1.

  6. 6.

    Sum over the quantities of step 5 to obtain lower bound Turnbull WTP, which is then: \(E_{LB} (WTP)=\sum _{j=0}^M {t_j (F_{j+1}^*-} F_j^*)\), and can be interpreted analogous to the consumer surplus as sum of the marginal value multiplied by the adapted quantitites, or the integer over the quantity of a demand curve (Haab and McConnell 2003).

  7. 7.

    Calculate the variance: \(V\left( {E_{LB} } \right) =\sum _{j=1}^{M^{*}} \frac{F_j^*\left( {1-F_j^*} \right) }{T_j^*}\left( {t_j -t_{j-1} } \right) ^{2}\), where \(\hbox {T}_{\mathrm{j}}^{*}\) is the common amount of observations of the eventually pooled bid cell.

Appendix 6

See Table 13.

Table 13 Lower bound Turnbull for REAL_Coll without five observations at bid=30

Appendix 7

See Table 14.

Table 14 Turnbull WTP (fitted) for REAL_Ind and REAL_Coll

Appendix 8

See Table 15.

Table 15 Covariates for the attitudes towards the environment and climate policies

Appendix 9

See Table 16.

Table 16 Hypothetical bias without different income categories (Ind)

Appendix 10

See Table 17.

Table 17 Hypothetical bias without different income categories (Coll)

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Uehleke, R., Sturm, B. The Influence of Collective Action on the Demand for Voluntary Climate Change Mitigation in Hypothetical and Real Situations. Environ Resource Econ 67, 429–454 (2017). https://doi.org/10.1007/s10640-016-0028-0

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Keywords

  • Demand for voluntary climate change mitigation
  • Public goods
  • Collective action
  • Hypothetical bias

JEL Classification

  • Q51
  • Q54
  • C93