A Nested Logit Model of Green. Electricity Consumption in Western. Australia. Michael Burton Chunbo Ma. School of Agricultural and Resource Economics.
A Nested Logit Model of Green Electricity Consumption in Western Australia
Michael Burton
Chunbo Ma
School of Agricultural and Resource Economics University of Western Australia
Environmental Consumerism Increasing demand and supply of environmentally friendly green products Large number of studies on green electricity programs in many countries What motivates consumers to participate? How do consumers’ characteristic and product attributes affect participation?
However, the contribution of this environmental consumerism to the overall environmental good depends on two things: Penetration of green consumers (participation) Penetration of green commitment
National GP Accreditation Program Excellent setting to commitment levels as well as product choices Most products specify the level of green content
Established in NSW 1997, now offered nationally GP products – a contract between customers and providers about premium and “green content” GP product being audited annually Need to surrender 1 LGC for every 1 MWH green electricity sale
each year + a 3-month reconciliation period (31 March)
GP marketing Eligible products can bear a GreenPower logo
Consumer Choices in WA A total of 44 GP products offered nationally by 28 NGPAP accredited retailers Local Products Green Select - Horizon Power PE Green Power - Perth Energy Easy Green and Natural Power – Synergy
National Products ActewAGL Climate Friendly Origin Energy
“Green” options but not GreenPower
eg. Earth Friendly – regular power with CO2 offset
ISEE 2012 @ Rio de Janeiro
School of Agricultural and Resource Economics @ University of Western Australia
Mimic Synergy GP Interface
Synergy GP interface Our survey GP interface Use video to introduce the interface
ICMC 2013 @ Sydney
School of Agricultural and Resource Economics @ University of Western Australia
ICMC 2013 @ Sydney
School of Agricultural and Resource Economics @ University of Western Australia
Product Attributes and Attribute Values Attributes
Attribute Values
Regular Charge
19,21,23,25,27,29
Charge Premium
0,1,2,4,6
Energy Source
Coal & Gas, Hydro, Bio, Wind, Solar
Accreditation
Yes, No
Contract Terms
Fixed (2-Year), Flexible
Location
WA, Non-WA
Alternatives Nesting Structure
3-level Nested Logit 1)
2)
3)
4)
5)
6)
Utility Functions
Sample Distribution Distribution of Respondents
% of Total Respondents
Respondents always choosing Regular Power
24.67
Respondents always choosing green products
33.21
Other respondents
42.12
Distribution of Product Choices Regular Power EasyGreen NaturalPower EarthFriendly
% of Total Choices 43.64 16.21 22.92 17.23
Distribution of Commitment Choices Easy Green
Commitment Levels
% of Choices Natural Commitment Levels Power % of Choices Earth Commitment Levels Friendly % of Choices
$10
$20
$30
$40
$50
$60
68.32 14.73 5.57 3.59 5.43 0.74 25% 50% 75% 58.36 17.41 4.81 25% 50% 75% 62.4 15.25 6.75
$70
$80
0.37 1.24 100% 19.42 100% 15.6
FIML 3-level Nested Multinomial Logit Model (RU2) Attributes Coefficient Specific to green products Carbon .0253*** Accreditation .1227*** Contract -.0905*** Location .1380*** Hydro -0.0121 Solar .0674** Wind 0.0192 ASC’s for green products
Attributes Common to all alternatives TotalCost Specific to conventional Female HighSchool TertiaryUndergraduate TertiaryPostgraduate TradeTAFE ClimateBelief2
Coefficient
ASCEG -4.6179***
ClimateBelife3
.6632***
ASCNP -5.9997*** ASCEF -5.3142*** ASC’s for minimum commitment ASC_WGEG 1.3957*** ASC_WGNP 2.2895*** ASC_WGEF 1.7591***
-.0608*** -.4703*** -1.3000*** -1.6378*** -1.6411*** -1.4948*** .8018***
GreenParty -1.0890*** Trust1 Trust2
-.1984*** -.1826***
Local Consistency with Utility Maximization Nest Structure Conventional(BRANCH) EasyGreen(BRANCH) NaturalPower(BRANCH) EarthFriendly(BRANCH) Conventional(LIMB) Green(LIMB)
IV parameters, RU2 1 .9019*** .5236*** .7468*** 1 1.2935***
Gil-Molto´ and Hole (2004) 1st order condition at limb level and 2nd order condition at branch level 97.6% pass these conditions Majority of the small proportion that fail to pass are those who always choose conventional product
Direct/Cross Marginal Effects Unconditional Marginal Effects of Attributes of Green Electricity† Attributes
Accreditation Contract Location Solar Premium
Change in EasyGreen On :C EG NP EF
Change in Natural Power On: C EG NP EF
Change in Earth Friendly On: C EG NP EF
-0.0161, 0.0393, -0.0132, -0.0101 0.0112, -0.0290, 0.0097, 0.0074 -0.0180, 0.0442, -0.0151, -0.0111 -0.0091, 0.0221, -0.0074, -0.0056 0.0058, -0.0096, 0.0021, 0.0016
-0.0212, -0.0134, 0.0477, -0.0131 0.0156, 0.0098, -0.0352, 0.0099 -0.0239, -0.0151, 0.0539, -0.0149 -0.0119, -0.0074, 0.0266, -0.0074 0.0054, 0.0032, -0.0104, 0.0018
-0.0163, -0.0099, -0.0132, 0.0394 0.0120, 0.0073, 0.0097, -0.0290 -0.0183, -0.0113, -0.0148, 0.0443 -0.0095, -0.0057, -0.0075, 0.0227 0.0089, 0.0047, 0.0022, -0.0159
Direct/Cross Marginal Effects Unconditional Marginal Effects of Personal Characteristics † On C EG NP EF
Variable
On C EG NP EF
Female
-0.1045, 0.0314, 0.0411, 0.0320
ClimateBelief3
0.1506, -0.0451, -0.0594, -0.0461
HighSchool
-0.2692, 0.0790, 0.1082, 0.0820
GreenParty
-0.2194, 0.0668, 0.0851, 0.0675
TertiaryUndergraduate
-0.3441, 0.1015, 0.1376, 0.1050
Trust1 (1-3) ††
-0.0891, 0.0267, 0.0351, 0.0273
TertiaryPostgraduate
-0.3448, 0.1017, 0.1379, 0.1052
Trust1 (1-5) †††
-0.1734, 0.0523, 0.0680, 0.0532
TradeTAFE
-0.3127, 0.0920, 0.1253, 0.0954
Trust2 (1-3) ††
-0.0821, 0.0246, 0.0323, 0.0251
ClimateBelief2
0.1819, -0.0543, -0.0719, -0.0557
Trust3 (1-5) †††
-0.1600, 0.0482, 0.0627, 0.0491
Variable
Marginal Effects of Simultaneous Change Unconditional Marginal Effects Attribute Values Green Total†
EasyGreen
NaturalPower
EarthFriendly
Accredited
0.0538
0.0160
0.0214
0.0164
Flexible Contract
0.0397
0.0122
0.0157
0.0119
Local Projects
0.0605
0.0180
0.0241
0.0184
Solar (vs. Hydro)
0.0348
0.0103
0.0135
0.0109
††Total
0.1871
0.0552
0.0748
0.0571
Conditional Marginal Effects of Premium on Commitment Levels EasyGreen
NaturalPower
Commitment Levels Marginal Effects Commitment Levels
Marginal Effects
25%
0.0089
$10
0.0156
50%
-0.0024
$20
-0.0001
75%
-0.0031
$30
-0.0023
100%
-0.0034
$40
-0.0030
$50
-0.0031
Commitment Levels
Marginal Effects
$60
-0.0028
25%
0.0252
$70
-0.0024
50%
-0.0056
$80
-0.0019
75%
-0.0090
100%
-0.0107
EarthFriendly
Conclusions Greater participation associated with higher education, being female, belief in climate change occurring, votes for Green Party, higher trust in the utility companies and government. The nature of GP products plays a small role although consumers do favour “local” and solar. Strong preference for minimum commitment level, which is insensitive to the level of premium – a strong indication that the commitment is largely warm glow rather than pure altruism.
