MEASURING WILLINGNESS TO PAY FOR GREEN OPTIONS

Charisma Choudhuryab, Flavia Tsanga, Peter Burgea, Charlene Rohra Rob Sheldonc
a b c
RAND Europe, Massachusetts Institute of Technology, Accent

1 INTRODUCTION
The need for social change is being regarded as an essential pre-requisite for
preventing climate change and ensuring environmental sustainability. Given the
current level of emissions and resource consumption, this requires a behavioural
shift towards sustainable and environmentally friendly options. Following the
Stern Review and the Intergovernmental Panel on Climate Change’s
Assessment, it is generally believed that there is an increased awareness of
environmental issues. But the critical question is does this awareness translate
into willingness to pay (WTP) for greener options?
This paper reviews research findings from seven recent studies in three different
sectors, all conducted in order to better understand customers’ WTP for service
improvements, including environmental improvements. Our analysis focuses on
three main issues: i) heterogeneity of the sample of population, (ii) packaging
effects and (iii) diminishing marginal returns of utility. The paper is organised as
follows. First we present the background of this study, a general overview of the
case studies and the methodology applied for measuring WTP. A summary of the
results is then presented. This is followed by a discussion of our key findings on
the three main issues. Finally, we discuss our conclusions and directions of
future research.

2 BACKGROUND
Over the years, many econometric approaches have been deployed to quantify
environmental benefits and measure people’s associated willingness to pay: the
most effective ones being direct (close-ended) contingent valuations (DCV),
ranking exercises (RE), hypothetical referendum approaches (HRA) and stated
preference choice exercises (CE). The CE technique is based on the notion that
a good or service can be described by attributes and levels which respondents
are willing to trade-off between one another and differs from other approaches in
terms of the nature of the choice task. In the CE approach, respondents make
choices among hypothetical choice scenarios where multiple attributes can vary;
in DCV, they are directly asked to state a specific value for a particular aspect of
improvement (e.g. how much are you WTP for reducing 5% emissions) ; in RE,
they are asked to rank the attributes of interest according to their preference; in
HRA, they are told how much they would have to pay if the measure passed and
are then asked to cast a simple "yes" or "no" vote (e.g. would you be willing to
contribute D pounds to cover the cost of avoiding environmental damage X?) .
CE experiments offer some important advantages over the other methods,
principally the ability to estimate values for attributes of a good, including its
environmental characteristics and the trade-offs among multiple attributes of
interest (see Hanley et al. 1998 for a critical comparison). However, as in other
stated preference methods, the obtained WTP values are sensitive to details of
the survey instrument used and are vulnerable to upward bias (Arrow et al.
1993).
Review of literature on previous WTP studies related to environment related
options revealed interesting findings, the key ones being as follows:
§ Environmental attributes in which self-interest is unimportant are unlikely to
be appropriately valued when mixed in a trade-off with attributes in which
there is strong self-interest, unless noticeable gains in self-interest
accompany desirable levels of attributes defining environmental impacts
(Daniels and Hensher 2000).
§ There is substantial heterogeneity in respondent preferences (Layton and
Brown 2000, Morey and Rossman 2003, Arana and Leon 2005 ).
§ Respondents often derive moral satisfaction or a ‘warm glow’ from the act of
giving per se and overstate their WTP (Kahneman and J. Knetsch 1992,
Arrow et al. 1993, Nunes 2003).
§ Voluntary or opt-in programs and non-voluntary programs result in difference
WTP for green options, the WTP being higher for voluntary programs
(Borchers et al. 2007).
§ There are often significant differences in hypothetical and actual WTP
(Duffield and Patterson 1991, Seip and Strand 1992, Arrow et al. 1993)
though there are exceptions (Horowitz and McConell 2002, Carlsson and
Martinsson 2004).
§ People are often willing to pay significantly more to correct problems caused
by humans than by nature (the ‘‘outrage effect’’) (Bulte et al. 2005).
§ Willingness to accept money for reductions in service levels (WTA) is usually
substantially higher than pay money for service improvements (WTP)
(Horowitz and McConell 2002).
This paper is a review of a number of recent CE studies to address some of
these issues. It draws on the findings of seven stated choice modelling studies
carried out by Accent and RAND Europe in various contexts, including one in
transport, one in electricity distribution (which included data from thirteen
electricity distribution operators) and five in water services. Brief overviews of
the case studies are presented next.

3 CASE STUDIES
Transport
In the transport case study, consumer choices relating to car ownership and use
under an emissions-based charging system have been studied. The transport
case study surveyed 1,100 car travellers to central London and investigated the
likely traveller response under various emissions-based charging schemes.
Possible responses included (i) continuing to drive, using the existing vehicle, (ii)
continuing to drive, using a less polluting vehicle available in the household, (iii)
continuing to drive, purchasing a new vehicle that would be in a lower emissions
category, choosing to use public transport, or (iv) not travelling. With regard to
purchasing new vehicles, respondents were asked to trade-off fuel efficiency
alongside car purchasing cost, speed, acceleration, car size and level of charge
for driving in to central London.
Electricity
The case study of the electricity sector was based on a large survey of 1,942
respondents carried out on behalf of thirteen electricity distribution operators in
the UK. The aim of this study was to better understand consumers’ expectations
and quantify their WTP for improvements in electricity distribution services.
Estimating customers’ WTP for environmental options was just one aspect of the
study. Environmental attributes, in this case replacing equipment with those
using less polluting fuels and undergrounding power lines for amenity reasons,
were valued alongside other improvements, such as reduction in power cuts,
reduction in short interruptions and timeliness of power restoration.
Water services
The case study of the water sector is based on five studies carried out on behalf
different water services providers in the UK1. The attributes and levels of
improvement examined therefore vary slightly from study to study; however, the
SP design, survey implementation, and modelling methodology were executed in
a similar manner. The main objectives for these five water WTP studies were to
better understand consumers’ priorities and to quantify their WTP for possible
improvement in water and sewerage services. A number of environmental
attributes, including reduction in greenhouse gas emissions, reduction in river
pollution, and increase in the use of renewables, are valued alongside a wide
range of water and sewerage service attributes, including frequency of flooding
(internally and externally) to hardness and colour of water. Precise descriptions
of the environmental attributes examined in these studies are listed in Table 1;
descriptions of the water and sewerage services which were evaluated alongside
are shown in section 6 (Figures 8a to 8c).
Table 1 summarises the environmental attributes examined in the water and
electricity sector case studies. We have examined different levels of
improvement (and in some cases deterioration) for each of the attributes. For
brevity, we have only presented the maximum improvement possible in the table.
We have broadly categorized the environmental attributes into seven topics:
reduction in greenhouse gas emissions, move to renewable energy sources,

1 The sample sizes of these five case studies are: 977 respondents for water company A, 991 for
water company B, 600 for water company C, 1001 for water company D and 754 for water
company E.
reduction of river pollution, improvement of low flow rivers, investment in
researching sustainability of aquifer supplies, investment in replacing habitats,
and reducing visual intrusion.
Table 1: An overview of the environmental attributes examined in the utility
case studies2
Case Study Description
Reduction in greenhouse gas emissions
Water Company C WTP for 20% reduction in greenhouse gases produced
(by 2015)
Water Company D WTP for 20% reduction in greenhouse gases from
operations
Water Company E WTP for 20% reduction in greenhouse gases from
operations
Electricity Distributors A to M WTP for replacing 10% of equipment and vehicles with
those using less polluting fuels
Move to renewable energy
Water Company A WTP for moving from 0.6% of energy requirements from
renewables to 20% of energy requirements from
renewables
Water Company B WTP for increasing renewable electricity generated from
equivalent of 40,000 to 100,000 homes
Reduction of river pollution
Water Company A WTP for moving from improving 17% to improving 37% of
rivers of rivers by reductions in discharges from plants and
pipes
Water Company B WTP for change to river ecology due to pollution from 43%
to 20% of length unable to sustain wildlife
Water Company D WTP for reduction in percentage of water returned to
rivers not capable of supporting a good environment for
salmon, trout, plants and animals from 17% to 5%
Improvement of low flow rivers
Water Company B WTP for reducing low flow rivers from 16% to 5% of length
unable to sustain wildlife
Investment in researching sustainability of aquifer supplies
Water Company C WTP for moving from investigating impact of water
extraction of aquifers from “as required” to a more
proactive investigation of all current and future
Investment in replacing habitats
Water Company C WTP for replacing and enhancing all habitats where an
area of land is removed by engineering works, compared
to level of minimum replacement
Reducing visual intrusion
Electricity Distributors A to M Undergrounding of power lines for amenity reasons, from
1.5% per year to 5% per year

2 The attributes examined in the transport case study is not included in this overview as they are
not directly comparable with the water and electricity sector case studies.
4 METHODOLOGY
All case studies discussed in this paper have been undertaken using stated
responses from choice experiments. Each choice experiment consisted of
multiple service alternatives comprised of a group of attributes presented at a
range of levels and a corresponding cost value. In the transport case study, an
extensive literature review was performed to identify the critical attributes
associated with choices in an emissions-based charging scenario. In the utility
case studies, the attributes presented in the experiments were chosen based on
findings from a series of focus groups. The attributes and the associated levels to
be included thus varied slightly based on the context, local preferences and the
organisation involved.
For the utility case studies, there were far too many attributes to evaluate in detail
in a single SP choice exercise, alongside cost. As a result, the attributes were
divided into a number of groups (two/three) which were evaluated in separate
stated preference exercises. In all studies, the environment and sustainability
related attributes were presented in the same group to provide some coherence
to respondents as well as to allow us to capture any correlation that may exist in
respondents’ valuations of these attributes. Moreover, previous experience in
conducting SP experiments indicated that respondents can sometimes overstate
their WTP for environmental improvement, and we believe that this was likely to
be more pronounced if the environmental improvement measures were being
evaluated on their own. So other attributes were presented alongside the
environmental attributes to help respondents make more realistic trade-offs.
The data from the simple (lower level) choice experiments allow us to estimate
customers’ WTP for improvements in each of the service attributes. However,
there is concern that the estimation of WTP from multiple experiments using a
subset of the attributes can lead to an overstatement of the total WTP for all of
the improvements; the “packaging effect”. Many theories exist to explain this
effect including budgeting effects, non-linearities in cost, and halo effects (where
respondents assume that because one attribute is improving that there are other
improvements in other dimensions, which can then lead to double-counting in
aggregation) (e.g. Jones 1997 and Thorndike 1920). Either way, it is appropriate
in studies where the total attribute list is split into a number of sub-groups to test
whether an aggregation effect can be observed. If such an effect is observed
then this must be controlled for in the final valuations. As a result an additional
experiment was also designed to explore packaging effects, where all of the
attributes were presented simultaneously. In this experiment it would have been
too complicated for respondents to vary all of the attributes simultaneously, so
the task was simplified by presenting the attributes in blocks of two or three
attributes, and presenting the attributes within each of these blocks
simultaneously at one of three levels (level 0 – as now, level 1, and the top level),
such that all of the attributes in the same block are either at the same level as
now or are at the highest level. This was explained to respondents in the
introduction to the experiment. An example of the packaging experiment is
shown in Figure 1. Each respondent was presented with at least three
experiments, i.e. at least two lower level experiments and the packaging
experiment. In each case the designs were tested and refined through the use of
a pilot survey.

Figure 1: Example choice screen of the packaging experiment from the

case study of water company B
Choice 1
Which of the following options would you prefer?

Alternative 1 Alternative 2
Customer contact 1 in 100 calls 1 in 100 calls
Sewer Flooding - Internal 150 out of 3.7 million 150 out of 3.7 million
Sewer Flooding - External 1,600 out of 3.7 million 1,600 out of 3.7 million
Metering 66% on meters 66% on meters

Leakage & Bursts 160 litres per day 110 litres per day
Interruptions to supply 11,500 out of 3.7 million 3,500 out of 3.7 million
Low Pressure 15,000 out of 3.7 million 2,000 out of 3.7 million
Hosepipe ban frequency 1 in 10 years 1 in 100 years

Discoloured Water 1,000 complaints 5,000 complaints

Taste and Smell 5% of customers 10% of customers
Hardness 8% of customers 12% of customers
Odour & Flies 1,000 complaints 4,500 complaints

Change to river ecology due to pollution 20% of length 43% of length

Low flow rivers due to abstraction 5% of length 16% of length
Renewable electricity generated 100,000 homes 40,000 homes
Repairs and replacements Repairs paid for by company,
Supply Pipe Adoption
paid for by company replacements by customer

Cost
Decrease by £30 Increase by £30
(change to annual water bill before inflation)

Choice (tick preferred option)

Respondents were also asked qualitative questions as part of the general survey
to qualify their understanding of the choice experiments. In all cases,
respondents reported a good understanding of the choice tasks.

5 SUMMARY OF RESULTS
Contrary to Daniels and Hensher (2000) in the transport sector, we were able to
estimate statistically significant WTP values, even when the environmental
attributes were mixed with other service attributes3.
The only exception was the attribute ‘fuel efficiency’ of the transport case study. It
is suggested that this attribute was considered less salient by respondents, when
considered against potentially more important attributes such as the cost of the
emissions-related charge (which was directly related to the emissions category of
the vehicle, and hence also fuel efficiency). It was not possible to estimate a

3 Throughout this paper, a statistically significant result means the estimator was accepted at
95% confidence level.
statistically significant term for this attribute, despite respondents stating that they
found fuel efficiency to be important in an attitudinal question asked in the
survey. All other terms, however, were significantly identified. Moreover, we
observed that significant proportions of respondents stated that under an
emissions-related charge they would change the vehicle that they would use for
driving in to London, and in many cases would purchase a more efficient vehicle
to benefit from lower charges. Significant heterogeneity was observed among
different social groups, which will be discussed in section 6.

In the electricity case study it was found that customers stated that they were
willing to pay quite substantial amounts for their electricity distribution operators
to replace equipment and vehicles with those using less polluting fuels. In fact, a
10% reduction in carbon emissions was valued most highly of all of the service
attributes tested in the survey. The large number of respondents (1942
respondents) of this study has also provided a very rich dataset for the
exploration of heterogeneity among respondents, which we will discuss in section
6.

The findings were supported by the water case studies as well where it was
found that customers stated that they were willing to pay for renewable energy
sources, reduction of green house and other gases and prevention of pollution in
particular.

The ranges and means of WTP values are plotted in Figure 2 to 5. The top of the
ranges were the valuations of the highest earners, whereas the bottoms of the
ranges were the valuations of the lowest earners. The means were the average
WTP across the sample of the population. Because we are examining across
seven independent studies, many of the attributes and levels are too different
among the studies to be directly compared. The only attribute which is common
across three case studies (water company C, D, E) is “reducing 20% of
greenhouse gases from operations”. The value of this attribute across the three
water studies falls in a reasonably small range (between £1.28 and £3.99).
As seen in the other tables, there are a number of attributes which had a larger
range of WTP values, e.g. replacing 10% of equipment and vehicles with those
using less polluting fuels (from electricity sector case study), and undergrounding
of power lines for amenity reasons (also from the electricity sector case study).
The wider ranges of these values can be explained by the greater heterogeneity
in the preference of the respondents (which is discussed in more detail in section
6).
Figure 2: Willingness to pay for reduction in greenhouse gas emissions

£25.00
£22.86
Legend
£20.00 Max WTP

Mean WTP
Willingness to pay

Min WTP
£15.00

£10.00

£5.00 £5.43
£3.99
£2.95 £3.25
£2.38 £2.75 £2.94
£2.16 £2.55
£1.49 £1.28
£0.00
Reducing 20% of Reducing 20% of Reducing 20% of Replacing 10% of
greenhouse gases greenhouse gases greenhouse gases equipment and vehicles
from operations from operations from operations with those using less
(water company C) (water company D) (water company E) polluting fuels
(electricity distribution
companies)

Figure 3: Willingness to pay for moving to renewable energy

£6.00
Legend £5.55
Max WTP
£5.00
Mean WTP

Min WTP
Willingness to pay

£4.00
£3.68

£3.00 £3.14

£2.31 £2.41
£2.00 £1.98

£1.00

£0.00
Moving from 0.6% of energy requirements from Increasing renewable electricity generated from
renewables to 20% of energy requirements from equivalent of 40,000 to 100,000 homes
renewables (water company B)
(water company A)
Figure 4: Willingness to pay for reducing river pollution

£16.00

Legend
£14.00
Max WTP
£13.43
£12.00 Mean WTP
willingness to pay

Min WTP
£10.00

£8.00

£6.00
£4.63
£4.00
£3.51
£2.35
£2.00 £2.00 £1.48 £1.62 £1.38
£0.00 £0.00
Moving from an improvement of Reducing river pollution from Reducing the amount of water
17% in river quality to an having 43% of length unable to returned to rivers which is not
improvement of 37% by reducing sustain wildlife to 20% capable of supporting a good
discharges from plants and pipes (water company B) environment for salmon, trout,
(water company A) plants and animals from 17% to 5%
(water company D)

Figure 5: Willingness to pay for various environmental improvement

£14.00
Legend
£12.00 Max WTP £11.89
Mean WTP
£10.00
Willingness to pay

£9.32 Min WTP

£8.00

£6.00

£4.00 £4.36
£2.79 £2.54 £2.88
£2.00 £2.13 £2.27
£1.77 £1.88 £1.52 £1.72

£0.00
Reducing low flow rivers Moving from Replace and enhance Undergrounding of
from 16% to 5% of investigating impact of all habitats where an power lines for amenity
length unable to sustain water extraction of area of land is removed reasons, from 1.5% per
wildlife aquifers from “as by engineering works, year to 5% per year
(water company B) required” to a more compared to level of (thirteen electricity
proactive investigation minimum replacement distribution operators)
of all current and future (water company C)
(water company C)
5 DISCUSSION
Our analysis focuses on three critical issues: i) heterogeneity of the samples of
population, (ii) packaging effects and (iii) diminishing marginal returns of utility.
Heterogeneity
The different preferences and WTP of different social groups (e.g. income,
gender, age, and education level) has been a key issue for choice modelling
(Horowitz and McConell 2002, Sonnier et al. 2007) and environmental cost
benefit analysis (Swallow et al. 1994, Hanley et al. 1998, Morey et al. 2003).
In the transport case study, significant heterogeneity in WTP and behavioural
response to emission based congestion charge has been observed. This was
reflected in the models where statistically different constants were estimated to
represent the inherent preference of different social groups to choose to drive (or
purchase and drive) a vehicle within a given emissions class in to London or
select an alternative for their journeys. Model estimation results showed that: all
else being equal, people of three socio-economic groups stated that they are
more willing to switch to public transport than others: (i) those without children,
(ii) those with only one car (compared with those with 2+ cars), and (iii) those
living in Greater London. In terms of preference for new vehicles of the least
polluting category, it was found that households with income more than £30K per
year and those belonging to the age group 25-34 were more likely than the rest
of the population to state that they would consider choosing these greener
options.
In the electricity case study, we observed that people in the highest income
group (household income over £60,000) and the lower middle class (SEG C1,
e.g. supervisory or clerical and junior managerial, administrative or professional)
were more ecologically conscious compared to the other groups. The highest
earners in SEG C1 stated that they were willing to pay £34 more per year on
their electricity bills for their electricity distribution operators to replace 10% of
polluting equipment and vehicles (see Figure 6).
Figure 6: Heterogeneity in the valuation of carbon reduction (from the
electricity sector case study)

1.6

1.4
absolute value of coefficient

1.2

0.8

0.6
SEG C1
0.4
Not SEG C1
0.2
cost sensitivity
0
over £50K to £40K to £30K to £20K to £10K to under unknown
£60K £60K £50K £40K £30K £20K £10K

Willingness to pay:
SEG C1 £34.0 £8.1 £7.8 £5.7 £5.5 £4.4 £3.8 £4.7
not SEG C1 £19.2 £5.5 £5.3 £3.9 £3.7 £3.0 £2.6 £3.2

Note: (1) the WTP are adjusted for package effects by a factor of 0.52
(2) the weighted average WTP for those with income over £60K is £22.9, as reported in
Figure 2 of section 5.

It may be noted that we observed significantly different cost sensitivity for

differing income categories, whereby respondents from higher income
households are less sensitive to cost changes for service improvements. This
means that higher income respondents will have higher willingness to pay
(because cost sensitivity is in the denominator of the calculation of willingness to
pay). Additionally, we observed that respondents from higher income
households placed a higher value on undergrounding power lines for amenity
reasons, over and above the income effect. The trends of both of these
components of willingness to pay are shown in Figure 7. Compounded by the
difference in cost sensitivity of different income groups and the range of values
for undergrounding we observe quite large variation in the resulting WTP (from
£1.6 to £11.9).
Figure 7: Heterogeneity of the valuation of undergrounding 5% of power
lines per annum for amenity reasons (from the electricity sector case
study)

0.70

0.60
absolute value of coefficient

undergrounding coefficient
0.50

0.40

0.30

0.20

0.10
cost sensitivity

0.00
household income: over £50K to £40K to £30K to £20K to £10K to under unknown
£60K £60K £50K £40K £30K £20K £10K

WTP : £11.9 £8.2 £7.9 £5.8 £4.6 £3.7 £2.3 £1.6

Note: (1) the WTP are adjusted for package effects by a factor of 0.52
(2) the lower bound reported in Figure 5 of section 5 was £2.3 because the group with
unknown income was excluded

Income was identified as a determinant of WTP in the water case studies as well.
However, it does not necessarily reflect that the rich are greener. The differences
in WTP by income group in the water studies were primarily because of the
differences in their cost sensitivity, not because of the differences in their
preference for the green attributes. Across the case studies, we observed that
the highest income group (with annual income over £100K) is 1.36 times to 3.10
times less cost-sensitive than the lowest income group (those with annual
income under £10K (Table 4). This evidence suggests that the rich are generally
willing to pay more not only for green options, but for all sorts of options.
Table 2: Differences in cost sensitivity
lowest Highest
income income ratio of their
Case study group group cost parameters
Water company A under £10K over £20K 1.59
Water company B under £10K over £60K 2.81
Water company C under £10K over £40K 1.67
Water company D under £9.5K over £100K 2.54
Water company E under £9.5K over £9.5K 1.36
Electricity distribution operators A to M under £10K over £60K 3.10
Transport under £10K over £10K 2.22

The observation that the rich are not necessarily greener is exemplified by the
emissions-based charging case study, in which the higher income group was
more willing to pay for the charge and continue to drive the most CO2 emitting
vehicles (with CO2 emissions above 225g/km) into central London.

Market segmentation tests based on age, gender and occupation did not support
statistically different coefficients related to green options among different
segments in the samples examined within the case studies.

Overstatement
The issue of overstatement of WTP for green options has been investigated by
previous researchers (Nunes and Schokkaert 2003, Kahneman and Knetsch
1992, Carlsson and Martinsson 2001, Jones P. 1993). This can either originate
from the experimental design (valuating each green attribute on its own) or from
the ‘warm-glow’ effect (moral satisfaction for choosing the ethically good option).

As discussed previously in Section 4, the problem of overstating WTP as a result

of evaluating attributes individually can be controlled through the inclusion of
package experiments. Figures 8a to 8c summarise our findings from the package
experiments across a number of studies. In these figures, the package
adjustment factor is the ratio between the sum of the values of the individual
attributes in the lower level experiments and the value of the sub-group obtained
from the package experiment. A small factor means a large adjustment, and thus
a more overstated valuation.

Figures 8a to 8c show the package adjustment factor associated with the sub-
group containing green attributes is never the smallest across all the subgroups
within each case study. This suggests that although respondents tend to
overstate their valuation in general, they do not tend to overstate their valuation
of the green attributes any more than other attributes. There is an exception with
water company D, but in this case the climate change attribute is in the same
group as three other non-environment-related attributes. Furthermore, in the
case study of water company B, the adjustment factor associated with the green
attribute was larger than 1, meaning that the respondents understated their
valuation in the lower level experiment.

In all of the studies described here, we have assigned the service attributes in
the first few experiments and the environmental attributes in the final experiment.
One may question whether the sequence of appearance has any effects on the
adjustment required for the packages. As respondents may have become more
familiar with SP exercises in later experiments, they may able to process the
information presented more effectively in choosing their preferred options (Hess
and Rose 2008). It is possible that less adjustment would be required for the later
experiments for this reason. However, if this is true, we would observe a
systematic decrease in the magnitude of adjustments in the later experiment in
each case study. The data in Figures 8a to 8c do not show a systematic pattern
which larger package adjustments are associated with later experiments. The
effect of sequencing is thus not evident in our case studies.

It is important to note that carrying out a package experiments only means that
respondents were encouraged to reconsider all the service improvements as a
whole package and were given a second chance to reconsider their total WTP.
Thus, applying package adjustment is useful for controlling any overstatement
due to budgeting effects, diminishing returns in utility, and halo effects. However,
the WTP even after adjustment are still only a stated preference, so is still
susceptible to the potential problem that people’s actual behaviour when faced
with a similar choice in a real-world situation may be different to that stated in a
survey.
Figure 8a: Summary of package adjustment (Water Company A and B)

Water Company A ... package adjustment factor

0.00 0.20 0.40 0.60 0.80 1.00 1.20

Experiment 1

no adjustment
Drinking water quality
Water pressure

Experiment 2

Interruptions to supply
Leakage
Odour

Experiment 3

External flooding of waste water

Internal flooding of waste water

Experiment 4
River water quality*
Beach water quality*
Climate change*

Water Company B...

Experiment 1
Customer contact
Sewer flooding - internal
Sewer flooding - external
Metering

Experiment 2
Leakage and bursts
Interruptions to supply
Low pressure
Hosepipe ban frequency

Experiment 3
Discoloured water
Taste and smell
Hardness
Odour and Flies

Experiment 4
Change to river ecology due to pollution*
Low flow rivers due to abstraction*
Renewable electricity generated*
Supply pipe adoption
Figure 8b: Summary of package adjustment (Water Company C and D)
Water Company C... package adjustment factor

0.00 0.20 0.40 0.60 0.80 1.00 1.20

no adjustment
Experiment 1

Hosepipe bans/ non-

essential use bans
Low pressure

Experiment 2

Hardness of water
Discoloured water
Opening hours

Experiment 3

Leakage
Unplanned interruptions

Experiment 4

Greenhouse gas
emissions*
Sustainability reductions*
Replalce habitat*

Water Company D...

Experiment 3
Discoloured water
Taste and odour of drinking
water
Low pressure
Loss of supply

Experiment 2
Internal sewer flooding
External swer flooding
Leakage
Climate change*

Experiment 1

Reducing sewage litter

Bathing water quality
River water quality*
Figure 8c: Summary of packaging adjustment (Water Company E and
Electricity Distribution Operators A to M)

Water Company E... package adjustment factor

0.00 0.20 0.40 0.60 0.80 1.00 1.20

no adjustment
Experiment 1
Discoloured water
Taste and odour of drinking water

Experiment 2

Low pressure
Loss of supply

Experiment 3

Hosepipe bans
Metering

Experiment 4

Leakage
Climate change*

Electricity distribution operators A to M...

Experiment 1
Frequency of power cuts over 3 minutes
Average duration of power cuts over 3 minutes
Number of short power interruptions
Provision of information

Experiment 2
Restoration of supply
Compensation for restoration of supply
Compensation for multiple interruptions
Advanced notice for planned interruptiosn

Experiment 3
Undergrounding of power lines for amenity
reasons*
Network resilience to major storms
Network resilence to flooding
Reduction in carbon emission*
Diminishing trend
Another issue explored in this paper is analysing whether the SP exercises only
capture the attitude to prefer sustainable options or whether we observe trends
showing linear/diminishing/increasing increase in WTP proportional to the levels
of improvement.

In the case studies analysed in this research, in general customers/users always

indicated preference for more environmentally friendly and sustainable service
options. However in terms of diminishing trend, we had mixed findings.

For some of the variables in some of the case studies, we observed clear
diminishing trend. For example, in water company A, customers clearly preferred
alternatives with lower environmental impact represented by the percentage of
energy used from renewable sources. However, comparison of models with
linear and non-linear WTP revealed that a linear approximation provided a
significant loss of model fit, as would be expected from Figure 9. In fact, the
piecewise-linear model shows that respondents placed a positive and significant
value on moving from 0.6% from renewables to 10% from renewables, but then
did not place a statistically significant value on moving from 10% to 20% of
energy coming from renewables. This would seem to suggest that customers
want water company A to do something, but are relatively indifferent to how
much they do.
Figure 9: Diminishing sensitivity to shift to renewable energy
Water Company A

0.40

0.35

0.30

0.25
Utility

0.20

0.15

0.10

0.05

0.00
0 5 10 15 20 25
% from renewable sources

Some other variables that exhibited diminishing trends included improving the
river water quality (water company A), and reduction of carbon and greenhouse
gases (water company D, water company E and the thirteen electricity
distributors).
However, in one case (water company C) a linear function was sufficient to
explain the sensitivity to green house gas reduction (i.e. the hypothesis that WTP
for greenhouse gas reduction is non-linear was rejected); that is, no diminishing
trend was observed (Figure 10). Another such examples include improving
beach water quality (water company A),

Figure 10: Linear sensitivity to greenhouse gas reduction

Greenhouse
Water gasC
company
0.7
0.6
0.5
Utility

0.4
0.3
0.2
0.1
0.0
0 5 10 15 20 25
Percentage of GHG
Percentage of reduction
reduction

However, it should be noted that extent of linear or non-linear effects may also
depend on the range explored and it may be the case that the range was not
wide enough in case of the two exceptions where linear increases in WTP have
been observed.

6 CONCLUSIONS

In this paper, we have presented a review of WTP for green options using SP
choice exercises conducted in contexts involving transport and utility services. In
transport, drivers’ choices relating to car ownership and use under an emissions-
based charging system have been studied. Significant heterogeneity in
behavioural responses has been identified with substantial stated willingness to
shift from currently revealed behaviour, particularly in terms of purchasing new
lower-emitting vehicles. In utility sectors, the research has been conducted
among domestic customers of five water service providers and thirteen energy
suppliers. The attributes and improvement levels evaluated in the exercises vary,
depending on the context of the study. Examples of evaluated variables include
reduction of carbon emissions and other greenhouse gases, sustainability of
water extraction procedure, improvements in disposed waste water quality,
replacement of habitats affected by service operations, use of renewable energy
sources and provision of advice on energy efficiency. The richness of the data
allowed us to explore the some of the methodological issues associated with
using SP choice exercises for quantifying environmental benefits. Main findings
include the following:

§ Contrary to Daniels and Hensher’s findings about “the challenge of self-

interest proximity” (2000), we were able to estimate statistically significant
 WTP values in our utility sector case studies, even when the environmental
attributes were mixed with other service attributes. However, we were not
able to estimate statistically significant WTP values for ‘fuel efficiency’ in our
transport sector case study but as discussed in section 4, this may be due to
the design issues.

§ Income is a major determinant of WTP; however, the differences in WTP by

income group were primarily because of the differences in their cost
sensitivity, not because of significant differences in their preferences. We
found no significant heterogeneity in WTP across people of different age,
gender, and occupation.

§ Respondents tend to overstate their valuations of the attributes when asked

about these in isolation, but we did not observe higher overstatements for
green attributes compared to those of other utility service attributes.

§ For most of the green options evaluated in our case studies, respondents
clearly prefer companies to pursue greener options but diminishing trends in
WTP were observed in most case studies.

The findings from the case studies provided useful practical insights in measuring
WTP for sustainable options in transport as well as other sectors. This is of
particular importance given the limited availability of corresponding revealed
preference data for policy analyses. The results thus draw important implications
for research, marketing, and policy decisions.

ACKNOWLEDGEMENT
This material is based upon work supported by Accent and RAND Europe’s
clients in various public sectors. Any opinions, findings and conclusions or
recommendations expressed in this publication are those of the authors and do
not necessarily reflect the views of these public sector clients.
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