The Internalization of Externalities in the Production of Electricity: Willingness to Pay for the Attributes of a Policy for Renewable Energy

43 Pages Posted: 15 Nov 2006

See all articles by Alberto Longo

Alberto Longo

Queen's University Belfast - Institute of Agri-food and Land-Use School of Biological Sciences

Anil Markandya

Basque Centre for Climate Change (BC3); University of Bath

Marta Petrucci

University of Bath

Date Written: November 2006

Abstract

This paper investigates the willingness to pay of a sample of residents of Bath, England, for a hypothetical program that promotes the production of renewable energy. Using choice experiments, we assess the preferences of respondents for a policy for the promotion of renewable energy that (i) contributes to the internalization of the external costs caused by fossil fuel technologies; (ii) affects the security of energy supply; (iii) has an impact on the employment in the energy sector; (iv) and leads to an increase in the electricity bill. Responses to the choice questions show that our respondents are in favour of a policy for renewable energy and that they attach a high value to a policy that brings private and public benefits in terms of climate change and energy security benefits. Our results therefore suggest that consumers are willing to pay a higher price for electricity in order to internalize the external costs in terms of energy security, climate change and air pollution caused by the production of electricity.

Keywords: Non Market Valuation, Choice Experiments, Willingness to Pay, Renewable Energy, Energy Security, Greenhouse Gases Emissions

JEL Classification: Q42, Q48, Q51

Suggested Citation

Longo, Alberto and Markandya, Anil and Petrucci, Marta, The Internalization of Externalities in the Production of Electricity: Willingness to Pay for the Attributes of a Policy for Renewable Energy (November 2006). FEEM Working Paper No. 132.06, Available at SSRN: https://ssrn.com/abstract=944466 or http://dx.doi.org/10.2139/ssrn.944466

Alberto Longo (Contact Author)

Queen's University Belfast - Institute of Agri-food and Land-Use School of Biological Sciences ( email )

25 University Square
Belfast, BT7 1NN
Ireland

Anil Markandya

Basque Centre for Climate Change (BC3)

Gran Vía 35-2
Bilbao, Vizcaya 48009
Spain

University of Bath ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

Marta Petrucci

University of Bath ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

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