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A Nested Logit Model of Green Electricity Consumption in Western Australia

  • Ma, Chunbo
  • Burton, Michael P.

Green electricity products are increasingly made available to consumers in many countries in an effort to address a number of environmental and social concerns. Most of the existing literature on this green electricity market focuses on consumer’s characteristics and product attributes that could affect participation. However, the contribution of this environmental consumerism to the overall environmental good does not depend on participation alone. The real impact made relies on market penetration for green consumers (the proportion of green consumers) combined with the level of green consumption intensity – the commitment levels, or proportion of consumption that is green. We design an online interface that closely mimics the real market environment for electricity consumers in Western Australia and use a three-level nested logit model to analyze consumers’ choice of green electricity products as well as their commitment levels. Our main conclusions are that the choice of green products is strongly influenced by beliefs in the nature of climate change, and trust in the government and utilities in delivering the product. When green products are selected, the vast majority select the minimum commitment possible, and this is insensitive to the premium being charged on green power, suggesting that we are largely observing a ‘warm glow’ for carbon mitigation

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Paper provided by University of Western Australia, School of Agricultural and Resource Economics in its series Working Papers with number 148411.

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Date of creation: 26 Apr 2013
Date of revision:
Handle: RePEc:ags:uwauwp:148411
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  1. Herriges, Joseph A. & Kling, Catherine L., 1996. "Testing the consistency of nested logit models with utility maximization," Economics Letters, Elsevier, vol. 50(1), pages 33-39, January.
  2. Roland Menges & Carsten Schroeder & Stefan Traub, 2005. "Altruism, Warm Glow and the Willingness-to-Donate for Green Electricity: An Artefactual Field Experiment," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 31(4), pages 431-458, 08.
  3. Hensher, David A. & Greene, William H., 2002. "Specification and estimation of the nested logit model: alternative normalisations," Transportation Research Part B: Methodological, Elsevier, vol. 36(1), pages 1-17, January.
  4. Matthew J. Kotchen & Michael R. Moore, 2004. "Private Provision of Environmental Public Goods: Household Participation in Green-Electricity Programs," Department of Economics Working Papers 2004-07, Department of Economics, Williams College.
  5. Nomura, Noboru & Akai, Makoto, 2004. "Willingness to pay for green electricity in Japan as estimated through contingent valuation method," Applied Energy, Elsevier, vol. 78(4), pages 453-463, August.
  6. Andreoni, James, 1990. "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving?," Economic Journal, Royal Economic Society, vol. 100(401), pages 464-77, June.
  7. Gil-Molto, Maria Jose & Hole, Arne Risa, 2004. "Tests for the consistency of three-level nested logit models with utility maximization," Economics Letters, Elsevier, vol. 85(1), pages 133-137, October.
  8. Andreoni, James, 1989. "Giving with Impure Altruism: Applications to Charity and Ricardian Equivalence," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1447-58, December.
  9. Mewton, Ross T. & Cacho, Oscar J., 2011. "Green Power voluntary purchases: Price elasticity and policy analysis," Energy Policy, Elsevier, vol. 39(1), pages 377-385, January.
  10. Salmela, Suvi & Varho, Vilja, 2006. "Consumers in the green electricity market in Finland," Energy Policy, Elsevier, vol. 34(18), pages 3669-3683, December.
  11. Wiser, Ryan H., 2007. "Using contingent valuation to explore willingness to pay for renewable energy: A comparison of collective and voluntary payment vehicles," Ecological Economics, Elsevier, vol. 62(3-4), pages 419-432, May.
  12. Ek, Kristina & Söderholm, Patrik, 2008. "Norms and economic motivation in the Swedish green electricity market," Ecological Economics, Elsevier, vol. 68(1-2), pages 169-182, December.
  13. Scarpa, Riccardo & Willis, Ken, 2010. "Willingness-to-pay for renewable energy: Primary and discretionary choice of British households' for micro-generation technologies," Energy Economics, Elsevier, vol. 32(1), pages 129-136, January.
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