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Environmental Pricing of Externalities from Different Sources of Electricity Generation: Evidence from a Contingent Valuation Study in Chile

  • Claudia Aravena-Novielli, W.George Hutchinson, Alberto Longo

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    (Queens University Belfast , UK)

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    The rapid increase in electricity demand in Chile means a choice must be made between major investments in renewable or non-renewable sources for additional production. Current projects to develop large dams for hydropower in Chilean Patagonia impose an environmental price by damaging the natural environment. On the other hand, the increased use of fossil fuels entails an environmental price in terms of air pollution and greenhouse gas emissions contributing to climate change. This paper studies the debate on future electricity supply in Chile by investigating the preferences of households for a variety of different sources of electricity generation such as fossil fuels, large hydropower in Chilean Patagonia and other renewable energy sources. Using Double Bounded Dichotomous Choice Contingent Valuation we introduce a novel advanced disclosure method and internal consistency test to elicit the willingness to pay for less environmentally damaging sources. Policy results suggest a strong preference for renewable energy sources with higher environmental prices imposed by consumers on electricity generated from fossil fuels than from large dams in Chilean Patagonia. Policy results further suggest the possibility of introducing incentives for renewable energy developments that would be supported by consumers through green tariffs or environmental premiums. Methodological findings suggest that the advanced disclosure method overcomes the problem of internal inconsistency in SB-DB estimates.

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    File URL: http://laceep.org/index.php?option=com_k2&view=item&id=86:environmental-pricing-of-externalities-from-different-sources-of-electricity-generation-evidence-from-a-contigent-valuation-study-in-chile&Itemid=87
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    Paper provided by Latin American and Caribbean Environmental Economics Program in its series Working Papers with number 201016.

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    Length: 37 pages
    Date of creation: Oct 2010
    Date of revision: Oct 2010
    Handle: RePEc:lae:wpaper:201016
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