FEEM working papers "Note di lavoro" series
2006 .132

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


Authors: Alberto Longo, Anil Markandya, Marta Petrucci
Series: Energy: Resources and Markets
Editor: Carlo Carraro
Type: Journal
Keywords: Non Market Valuation,Choice Experiments,Willingness to Pay,Renewable Energy,Energy Security,Greenhouse Gases Emissions
JEL n.: Q42,Q48,Q51
JEL: Ecological Economics
Pages: Vol. 67, No. 1, pp. 140-152
Date: 08/2008

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.

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