German Car Buyers' Willingness to Pay to Reduce Co2 Emissions

Abstract

Motorised individual transport strongly contributes to global CO2 emissions, due to its intensive usage of fossil fuels. Current political efforts addressing this issue (i.e. emission performance standards in the EU) are directed towards car manufacturers. Concretely, the whole car industry has to comply with an average of 120 grams of CO2 per kilometre between 2012 and 2015, with interim targets. The long-term target for 2020 is an average of 95 grams of CO2 per kilometre (by way of comparison, passenger cars currently emit 160 grams of CO2 per kilometre on average). Manufacturers who exceed the specified standard will have to pay fines. From an economic point of view this measure has to be regarded critically. But given the present EU regulation the question arises as to what the optimal strategy for car manufacturers is. Exceeding the emission standard generates costs (through the payment of fines) { but so does complying with the emission standard (through costly abatement measures). Depending on the amount consumers are willing to pay for a specific reduction in CO2 emissions it could well be optimal for manufacturers to exceed the mandatory standard. This paper focuses on the demand side. It examines whether CO2 emissions per kilometre is a relevant attribute in car choices. Based on a stated preference experiment among potential car buyers from Germany, different mixed logit specifications are estimated. In addition, distributions of willingness to pay measures for an abatement of CO2 emissions are obtained. The results suggest that the emissions performance of a car matters substantially, but its consideration varies heavily across the sampled population. In particular, some evidence on gender, age and education effects on climate concerns is provided. So, we find that women are willing to pay more for an abatement of CO2 than men, people under 45 years more than people 45 and older, and people who possess a higher education entrance qualification more than those who do not.

Keywords: CO2 emissions, willingness to pay, passenger cars, stated preferences, mixed logit

JEL Classification: C25, D12, Q51