Influence of Tax Policy on Green Power Influence of Tax Policy on Green Power Utilization:Utilization:

An Empirical Investigation of Consumer An Empirical Investigation of Consumer ChoiceChoice

Influence of Tax Policy on Green Power Influence of Tax Policy on Green Power Utilization:Utilization:

An Empirical Investigation of Consumer An Empirical Investigation of Consumer ChoiceChoice

Wendy Wilhelm, Julie Lockhart, TJ OlneyWendy Wilhelm, Julie Lockhart, TJ Olney

Western Washington UniversityWestern Washington UniversityBellingham, WashingtonBellingham, Washington

Wendy Wilhelm, Julie Lockhart, TJ OlneyWendy Wilhelm, Julie Lockhart, TJ Olney

Western Washington UniversityWestern Washington UniversityBellingham, WashingtonBellingham, Washington

Area of InterestArea of InterestArea of InterestArea of Interest

Effect of Tax Policy on Consumer ChoiceEffect of Tax Policy on Consumer Choice Compare Tax Policies:Compare Tax Policies:• Tax on Nonrenewables (punishment)Tax on Nonrenewables (punishment)• ““Green Tax” (Polluter Pays)Green Tax” (Polluter Pays)

• Subsidy on Renewables (reward)Subsidy on Renewables (reward)• Income Tax Credit (Taxpayer Incentives)Income Tax Credit (Taxpayer Incentives)

Could Tax Policy Motivate Consumers Could Tax Policy Motivate Consumers to Switch to “Green” Utility Providers?to Switch to “Green” Utility Providers?

Effect of Tax Policy on Consumer ChoiceEffect of Tax Policy on Consumer Choice Compare Tax Policies:Compare Tax Policies:• Tax on Nonrenewables (punishment)Tax on Nonrenewables (punishment)• ““Green Tax” (Polluter Pays)Green Tax” (Polluter Pays)

• Subsidy on Renewables (reward)Subsidy on Renewables (reward)• Income Tax Credit (Taxpayer Incentives)Income Tax Credit (Taxpayer Incentives)

Could Tax Policy Motivate Consumers Could Tax Policy Motivate Consumers to Switch to “Green” Utility Providers?to Switch to “Green” Utility Providers?

Focus: Electrical UtilitiesFocus: Electrical UtilitiesFocus: Electrical UtilitiesFocus: Electrical Utilities

Restructured electricity markets = residential Restructured electricity markets = residential customers can choose to purchase a green power customers can choose to purchase a green power productproduct

Low penetration rate (1-2%): WHY?Low penetration rate (1-2%): WHY?• Premium price of green productPremium price of green product• No financial incentives at consumer levelNo financial incentives at consumer level• Little customer knowledge about important Little customer knowledge about important

product attributesproduct attributes• InertiaInertia

Need for renewable fuel sourcesNeed for renewable fuel sources

Restructured electricity markets = residential Restructured electricity markets = residential customers can choose to purchase a green power customers can choose to purchase a green power productproduct

Low penetration rate (1-2%): WHY?Low penetration rate (1-2%): WHY?• Premium price of green productPremium price of green product• No financial incentives at consumer levelNo financial incentives at consumer level• Little customer knowledge about important Little customer knowledge about important

product attributesproduct attributes• InertiaInertia

Need for renewable fuel sourcesNeed for renewable fuel sources

Key Product Attributes in Consumer Key Product Attributes in Consumer Choice of Electricity ProductsChoice of Electricity Products

Key Product Attributes in Consumer Key Product Attributes in Consumer Choice of Electricity ProductsChoice of Electricity Products

Price Price Financial incentives Financial incentives Brand name of productBrand name of product Reliability of SupplierReliability of Supplier Ease of participation Ease of participation Fuel mixFuel mix Emissions profileEmissions profile

Price Price Financial incentives Financial incentives Brand name of productBrand name of product Reliability of SupplierReliability of Supplier Ease of participation Ease of participation Fuel mixFuel mix Emissions profileEmissions profile

Goals of Our StudyGoals of Our StudyGoals of Our StudyGoals of Our Study

Identify relative importance of product Identify relative importance of product attributes and attribute levelsattributes and attribute levels

Explore role of one particular attribute - Tax Explore role of one particular attribute - Tax Policy – in encouraging switching to renewable Policy – in encouraging switching to renewable power sourcespower sources• Environmental Tax on nonrenewables Environmental Tax on nonrenewables

(punishment) versus Tax Credit on (punishment) versus Tax Credit on renewables (reward)renewables (reward)

• Expect Tax Credit to be more effectiveExpect Tax Credit to be more effective

Identify relative importance of product Identify relative importance of product attributes and attribute levelsattributes and attribute levels

Explore role of one particular attribute - Tax Explore role of one particular attribute - Tax Policy – in encouraging switching to renewable Policy – in encouraging switching to renewable power sourcespower sources• Environmental Tax on nonrenewables Environmental Tax on nonrenewables

(punishment) versus Tax Credit on (punishment) versus Tax Credit on renewables (reward)renewables (reward)

• Expect Tax Credit to be more effectiveExpect Tax Credit to be more effective

MethodsMethodsMethodsMethods

Choice-Based Conjoint AnalysisChoice-Based Conjoint AnalysisChoice-Based Conjoint AnalysisChoice-Based Conjoint Analysis

Validated Model for Assessing Consumer Preferences: Validated Model for Assessing Consumer Preferences: Realism of Choice TaskRealism of Choice Task

Combines Experimental Design Methods and Combines Experimental Design Methods and Multivariate AnalysisMultivariate Analysis• Based on models of discrete choice (logit)Based on models of discrete choice (logit)• Interaction of product attributes is measuredInteraction of product attributes is measured

Results (part-worth utilities) can be used to:Results (part-worth utilities) can be used to:• Determine attribute/levels importanceDetermine attribute/levels importance• Identify “ideal” productIdentify “ideal” product• Simulate share of preference (market share) for a Simulate share of preference (market share) for a

specified set of productsspecified set of products

Validated Model for Assessing Consumer Preferences: Validated Model for Assessing Consumer Preferences: Realism of Choice TaskRealism of Choice Task

Combines Experimental Design Methods and Combines Experimental Design Methods and Multivariate AnalysisMultivariate Analysis• Based on models of discrete choice (logit)Based on models of discrete choice (logit)• Interaction of product attributes is measuredInteraction of product attributes is measured

Results (part-worth utilities) can be used to:Results (part-worth utilities) can be used to:• Determine attribute/levels importanceDetermine attribute/levels importance• Identify “ideal” productIdentify “ideal” product• Simulate share of preference (market share) for a Simulate share of preference (market share) for a

specified set of productsspecified set of products

 

Fuel Mix: 75% of electricity

from renewable fuel

 

Fuel Mix: 25% of electricity

from renewable fuel

 

Renewable Fuel: Solar Energy

Renewable Fuel: Hydro Power

Emissions Profile: < 50% regional

average

Emissions Profile: > 25% regional

averageMonthly Electric Bill (before tax/credit): $80  [8 cents/kWh]

Monthly Electric Bill (before tax/credit): $60   [6 cents/kWh]

Tax Policy:   20% income tax

credit on renewable fuel content

Tax Policy:   20% environmental

tax on non-renewable content

Total Monthly Cost:$68.00

Total Monthly Cost: $69.00

Choose by clicking one of the buttons above.

Example of Choice Task

Methods: 5 Product AttributesMethods: 5 Product AttributesMethods: 5 Product AttributesMethods: 5 Product Attributes Fuel mixFuel mix (% electricity from renewable fuels) (% electricity from renewable fuels)• 5%; 25%; 50%; 75%; 95%5%; 25%; 50%; 75%; 95%

Renewable Fuel TypeRenewable Fuel Type• Solar; Wind; Biomass; Hydro; GeothermalSolar; Wind; Biomass; Hydro; Geothermal

Emission profileEmission profile (nonrenewable, (nonrenewable, vs.vs. regional avg.) regional avg.)• no change; 25% or 50% more or less no change; 25% or 50% more or less

CostCost: Avg. monthly electric bill (before tax/credit): Avg. monthly electric bill (before tax/credit)• $40; $60; $80; $100; $120 (4-12 cents/kWh)$40; $60; $80; $100; $120 (4-12 cents/kWh)

Tax PolicyTax Policy: : • 10% or 20% Tax on nonrenewable fuel10% or 20% Tax on nonrenewable fuel• 10% or 20% Income Tax Credit, renewable fuel10% or 20% Income Tax Credit, renewable fuel• No Tax or Tax CreditNo Tax or Tax Credit

Fuel mixFuel mix (% electricity from renewable fuels) (% electricity from renewable fuels)• 5%; 25%; 50%; 75%; 95%5%; 25%; 50%; 75%; 95%

Renewable Fuel TypeRenewable Fuel Type• Solar; Wind; Biomass; Hydro; GeothermalSolar; Wind; Biomass; Hydro; Geothermal

Emission profileEmission profile (nonrenewable, (nonrenewable, vs.vs. regional avg.) regional avg.)• no change; 25% or 50% more or less no change; 25% or 50% more or less

CostCost: Avg. monthly electric bill (before tax/credit): Avg. monthly electric bill (before tax/credit)• $40; $60; $80; $100; $120 (4-12 cents/kWh)$40; $60; $80; $100; $120 (4-12 cents/kWh)

Tax PolicyTax Policy: : • 10% or 20% Tax on nonrenewable fuel10% or 20% Tax on nonrenewable fuel• 10% or 20% Income Tax Credit, renewable fuel10% or 20% Income Tax Credit, renewable fuel• No Tax or Tax CreditNo Tax or Tax Credit

Methods:Methods:Respondents Asked to AssumeRespondents Asked to Assume

Methods:Methods:Respondents Asked to AssumeRespondents Asked to Assume

May choose any offered electricity productMay choose any offered electricity product 6 month trial period6 month trial period By current supplierBy current supplier May switch supplier after 6 month trialMay switch supplier after 6 month trial All sources highly & equally reliableAll sources highly & equally reliable

May choose any offered electricity productMay choose any offered electricity product 6 month trial period6 month trial period By current supplierBy current supplier May switch supplier after 6 month trialMay switch supplier after 6 month trial All sources highly & equally reliableAll sources highly & equally reliable

Methods: Sample SelectionMethods: Sample SelectionMethods: Sample SelectionMethods: Sample Selection

Pilot Study (2001)*Pilot Study (2001)* CBC analysisCBC analysis Homeowners in WAHomeowners in WA

• Survey Sampling, IncSurvey Sampling, Inc

• Probability SampleProbability Sample

• Owned PC/Windows 98Owned PC/Windows 98

Disk by mailDisk by mail 1000 Disks Sent 1000 Disks Sent 228 responses (23%)228 responses (23%)

Pilot Study (2001)*Pilot Study (2001)* CBC analysisCBC analysis Homeowners in WAHomeowners in WA

• Survey Sampling, IncSurvey Sampling, Inc

• Probability SampleProbability Sample

• Owned PC/Windows 98Owned PC/Windows 98

Disk by mailDisk by mail 1000 Disks Sent 1000 Disks Sent 228 responses (23%)228 responses (23%)

Current StudyCurrent Study CBC analysisCBC analysis Nationwide (USA)Nationwide (USA)

• Survey Sampling, IncSurvey Sampling, Inc

• Probability SampleProbability Sample

• Utility Bill payersUtility Bill payers

• Opt-in email panelOpt-in email panel

Web-basedWeb-based 3000 emails sent 3000 emails sent 355 responses (12%)355 responses (12%)

Current StudyCurrent Study CBC analysisCBC analysis Nationwide (USA)Nationwide (USA)

• Survey Sampling, IncSurvey Sampling, Inc

• Probability SampleProbability Sample

• Utility Bill payersUtility Bill payers

• Opt-in email panelOpt-in email panel

Web-basedWeb-based 3000 emails sent 3000 emails sent 355 responses (12%)355 responses (12%)

*NW Journal Bus & Econ, 2001;43-66.*NW Journal Bus & Econ, 2001;43-66.*NW Journal Bus & Econ, 2001;43-66.*NW Journal Bus & Econ, 2001;43-66.

 

Fuel Mix: 75% of electricity

from renewable fuel

 

Fuel Mix: 25% of electricity

from renewable fuel

 

Renewable Fuel: Solar Energy

Renewable Fuel: Hydro Power

Emissions Profile: < 50% regional

average

Emissions Profile: > 25% regional

averageMonthly Electric Bill (before tax/credit): $80  [8 cents/kWh]

Monthly Electric Bill (before tax/credit): $60   [6 cents/kWh]

Tax Policy:   20% income tax

credit on renewable fuel content

Tax Policy:   20% environmental

tax on non-renewable content

Total Monthly Cost:$68.00

Total Monthly Cost: $69.00

Choose by clicking one of the buttons above.

Example of Choice Task: 13 Choices

Methods: Quantitative AnalysisMethods: Quantitative AnalysisMethods: Quantitative AnalysisMethods: Quantitative Analysis

Choice Data:Choice Data:• Multinomial LogitMultinomial Logit• Hierarchical BayesHierarchical Bayes• Chi-SquareChi-Square

Part-worth utilities = importance “weights”Part-worth utilities = importance “weights” Market SimulationsMarket Simulations• Share of preference for various market Share of preference for various market

scenarios:scenarios:

• Scenario = set of products on marketScenario = set of products on market

• Share of Preference = Market ShareShare of Preference = Market Share

Choice Data:Choice Data:• Multinomial LogitMultinomial Logit• Hierarchical BayesHierarchical Bayes• Chi-SquareChi-Square

Part-worth utilities = importance “weights”Part-worth utilities = importance “weights” Market SimulationsMarket Simulations• Share of preference for various market Share of preference for various market

scenarios:scenarios:

• Scenario = set of products on marketScenario = set of products on market

• Share of Preference = Market ShareShare of Preference = Market Share

Estimation of Estimation of individualindividual

part worthspart worths

Results and DiscussionResults and DiscussionResults and DiscussionResults and Discussion

USAUSA SampleSample

IncomeIncome $41,994 $41,994 $45,500$45,500

High SchoolHigh School 29% 29% 33% 33%

CollegeCollege 16% 16% 19% 19%

Female Female 51% 51% 70% 70%

CausasianCausasian 75% 75% 95% 95%

USAUSA SampleSample

IncomeIncome $41,994 $41,994 $45,500$45,500

High SchoolHigh School 29% 29% 33% 33%

CollegeCollege 16% 16% 19% 19%

Female Female 51% 51% 70% 70%

CausasianCausasian 75% 75% 95% 95%

Results: Sample DemographicsResults: Sample DemographicsResults: Sample DemographicsResults: Sample Demographics

No demographic differences in No demographic differences in attribute importance weightsattribute importance weights

Relative Importance of 5 Product AttributesRelative Importance of 5 Product Attributes

on Choice of Electricity Producton Choice of Electricity Product Relative Importance of 5 Product AttributesRelative Importance of 5 Product Attributes

on Choice of Electricity Producton Choice of Electricity Product

  

Product AttributeProduct AttributeRelativeRelative

ImportanceImportanceweightweight

Within Within AttributeAttribute

Chi-squareChi-square(p value)(p value)

Monthly Electric Bill (before tax/credit)Monthly Electric Bill (before tax/credit) 47.5147.51 767.11767.11 (p<.01)(p<.01)

Emissions Level (vs. regional average)Emissions Level (vs. regional average) 15.4915.49 71.31 71.31 (p<.01)(p<.01)

Fuel Mix (% renewable fuel)Fuel Mix (% renewable fuel) 12.3412.34 37.2037.20 (p<.01)(p<.01)

Tax PolicyTax Policy 11.7311.73 30.3630.36 (p<.01)(p<.01)

Type of Renewable Fuel Type of Renewable Fuel 6.836.83 11.2311.23 (p<.05)(p<.05)

Discussion: Product AttributeDiscussion: Product AttributeDiscussion: Product AttributeDiscussion: Product Attribute

Cost is 3 times more importantCost is 3 times more important

than the 2than the 2ndnd ranked attribute, ranked attribute,

Emissions LevelEmissions Level

Tax policy has a Tax policy has a

statistically significant influence on statistically significant influence on choice.choice.

Cost is 3 times more importantCost is 3 times more important

than the 2than the 2ndnd ranked attribute, ranked attribute,

Emissions LevelEmissions Level

Tax policy has a Tax policy has a

statistically significant influence on statistically significant influence on choice.choice.

Ranking of Attribute Level PreferencesRanking of Attribute Level PreferencesRanking of Attribute Level PreferencesRanking of Attribute Level Preferences

  

RankingRanking

Monthly Monthly Electric Electric

BillBill

LevelLevel(part-worth)(part-worth)

Emissions LevelEmissions Levelvs. regional vs. regional

averageaverage

LevelLevel(part-worth)(part-worth)

Fuel MixFuel Mix % renewable fuel% renewable fuel

Level Level (part-worth)(part-worth)

  

Tax PolicyTax Policy    

LevelLevel(part-worth)(part-worth)

Renewable Renewable Fuel TypeFuel Type

  LevelLevel

(part-worth(part-worth))

11 $40 $40 (134.72)(134.72)

50% less 50% less (32.17)(32.17)

95% 95% (31.96)(31.96)

20% credit 20% credit (34.62)(34.62)

SolarSolar** (7.94)(7.94)

22 $60 $60 (67.09)(67.09)

25% less 25% less (25.10) (25.10)

75% 75% (23.24)(23.24)

10% credit 10% credit (11.56)(11.56)

HydroHydro** (6.65)(6.65)

33 $80 $80 (3.82)(3.82)

Same Same (6.51) (6.51)

50%50%** (-8.13)(-8.13) 2 2

No tax/credit No tax/credit (-8.88)(-8.88)

WindWind** (4.24) (4.24)

44 $100 $100 (-63.64)(-63.64)

25% more 25% more (-17.91)(-17.91)

25%25%** (-9.13)(-9.13) 2 2

10% tax 10% tax (-15.11) (-15.11)

Geothermal Geothermal (-3.01)(-3.01)

55 $120 $120 (-141.99)(-141.99)

50% more 50% more (-45.87)(-45.87)

5% 5% (-37.95)(-37.95)

20% tax 20% tax (-22.19)(-22.19)

Biomass Biomass (-15.83)(-15.83)

Most Preferred in GroupMost Preferred in Group

*Not Statistically Different*Not Statistically Different

Discussion: Preference RankingDiscussion: Preference RankingDiscussion: Preference RankingDiscussion: Preference Ranking

Consumers strongly preferConsumers strongly prefer

a a Tax CreditTax Credit on renewable sources on renewable sources

to either to either Status QuoStatus Quo or or

to a to a TaxTax on nonrenewable sources. on nonrenewable sources.

Consumers do not significantly differentiateConsumers do not significantly differentiate

between Solar, Wind, & Hydro sources. between Solar, Wind, & Hydro sources.

Consumers strongly preferConsumers strongly prefer

a a Tax CreditTax Credit on renewable sources on renewable sources

to either to either Status QuoStatus Quo or or

to a to a TaxTax on nonrenewable sources. on nonrenewable sources.

Consumers do not significantly differentiateConsumers do not significantly differentiate

between Solar, Wind, & Hydro sources. between Solar, Wind, & Hydro sources.

Market Simulations:Market Simulations:Two Products available: which preferred?Two Products available: which preferred?

Market Simulations:Market Simulations:Two Products available: which preferred?Two Products available: which preferred?

Status QuoStatus Quo GreenGreen

Renewable SourcesRenewable Sources 5%5% 95%95%

Non-Renewable 95%Non-Renewable 95% 5% 5%

EmissionsEmissions Avg. Avg. 50% 50% lessless

Cost (before tax/credit) $100Cost (before tax/credit) $100 $120$120

Status QuoStatus Quo GreenGreen

Renewable SourcesRenewable Sources 5%5% 95%95%

Non-Renewable 95%Non-Renewable 95% 5% 5%

EmissionsEmissions Avg. Avg. 50% 50% lessless

Cost (before tax/credit) $100Cost (before tax/credit) $100 $120$120How Does Tax Policy Affect Consumer Preference How Does Tax Policy Affect Consumer Preference

for Hypothetical Green Products?for Hypothetical Green Products?

Effect of Tax Policyon Share of Preference for Renewable Fuels

0

20

40

60

80

100

20% tax 10 % tax no tax/credit 10% credit 20% credit

Tax Policy

Preferencefor

Green Product(% of

respondents)

Geothermal

Biomass

HydroWind

Solar

Discussion: Effect of Tax PolicyDiscussion: Effect of Tax PolicyDiscussion: Effect of Tax PolicyDiscussion: Effect of Tax Policy

Certain fuel types may be insensitive to tax policyCertain fuel types may be insensitive to tax policy For those fuel types – wind, hydro, biomass - sensitive For those fuel types – wind, hydro, biomass - sensitive

to tax policy:to tax policy:• At least half of customers will choose a GP At least half of customers will choose a GP

regardless of tax policy (even with a $20 premium)regardless of tax policy (even with a $20 premium)• Asymmetrical Threshold Effect: Asymmetrical Threshold Effect:

20% Credit = 20% Credit = 10% Tax 10% Tax

(GP=$97, SQ=$100) (GP=$97, SQ=$100) (GP=$120, SQ= $110)(GP=$120, SQ= $110)

Both equally effective in motivating consumers to Both equally effective in motivating consumers to

choose the green product (70-78% share) choose the green product (70-78% share)

Certain fuel types may be insensitive to tax policyCertain fuel types may be insensitive to tax policy For those fuel types – wind, hydro, biomass - sensitive For those fuel types – wind, hydro, biomass - sensitive

to tax policy:to tax policy:• At least half of customers will choose a GP At least half of customers will choose a GP

regardless of tax policy (even with a $20 premium)regardless of tax policy (even with a $20 premium)• Asymmetrical Threshold Effect: Asymmetrical Threshold Effect:

20% Credit = 20% Credit = 10% Tax 10% Tax

(GP=$97, SQ=$100) (GP=$97, SQ=$100) (GP=$120, SQ= $110)(GP=$120, SQ= $110)

Both equally effective in motivating consumers to Both equally effective in motivating consumers to

choose the green product (70-78% share) choose the green product (70-78% share)

Conclusions & ImplicationsConclusions & ImplicationsConclusions & ImplicationsConclusions & Implications

Cost remains most important considerationCost remains most important consideration Tax policy impacts choice of an electricity productTax policy impacts choice of an electricity product• Effectiveness of tax policy varies with renewableEffectiveness of tax policy varies with renewable

Income tax credits are viable toolsIncome tax credits are viable tools• Encourages switching to green power productsEncourages switching to green power products• More politically viable than Environmental Tax More politically viable than Environmental Tax • Implications for government budgetsImplications for government budgets

Threshold level is important to effectiveness of toolThreshold level is important to effectiveness of tool Combination of policy tools Combination of policy tools • Green tax could fund income tax creditGreen tax could fund income tax credit• Need education and awareness = relearn Need education and awareness = relearn

product categoryproduct category No demographic or psychographic differencesNo demographic or psychographic differences

Cost remains most important considerationCost remains most important consideration Tax policy impacts choice of an electricity productTax policy impacts choice of an electricity product• Effectiveness of tax policy varies with renewableEffectiveness of tax policy varies with renewable

Income tax credits are viable toolsIncome tax credits are viable tools• Encourages switching to green power productsEncourages switching to green power products• More politically viable than Environmental Tax More politically viable than Environmental Tax • Implications for government budgetsImplications for government budgets

Threshold level is important to effectiveness of toolThreshold level is important to effectiveness of tool Combination of policy tools Combination of policy tools • Green tax could fund income tax creditGreen tax could fund income tax credit• Need education and awareness = relearn Need education and awareness = relearn

product categoryproduct category No demographic or psychographic differencesNo demographic or psychographic differences

Limitations of StudyLimitations of StudyLimitations of StudyLimitations of Study

Impact of income tax credit is deferredImpact of income tax credit is deferred• Tax would be applied to utility billTax would be applied to utility bill

Assumptions: reliability & credibility of supplierAssumptions: reliability & credibility of supplier

Study sample: early adoptersStudy sample: early adopters

Findings limited to electricity productsFindings limited to electricity products• What about other green products?What about other green products?

• alternative fuel automobiles?alternative fuel automobiles?

Impact of income tax credit is deferredImpact of income tax credit is deferred• Tax would be applied to utility billTax would be applied to utility bill

Assumptions: reliability & credibility of supplierAssumptions: reliability & credibility of supplier

Study sample: early adoptersStudy sample: early adopters

Findings limited to electricity productsFindings limited to electricity products• What about other green products?What about other green products?

• alternative fuel automobiles?alternative fuel automobiles?

Teaching ApplicationsTeaching Applications Teaching ApplicationsTeaching Applications

Use as a case study in courses on Use as a case study in courses on Environmental Tax (Lockhart) & Consumer Environmental Tax (Lockhart) & Consumer Behavior (Wilhelm) Behavior (Wilhelm)

Use data in teaching conjoint analysis in Use data in teaching conjoint analysis in Marketing Research course (Wilhelm)Marketing Research course (Wilhelm)

Include students in projects as co-authors, beta Include students in projects as co-authors, beta testers, respondentstesters, respondents

Promote discussion of how business concepts Promote discussion of how business concepts and tools can be applied to environmental and and tools can be applied to environmental and sustainability issues sustainability issues

Use as a case study in courses on Use as a case study in courses on Environmental Tax (Lockhart) & Consumer Environmental Tax (Lockhart) & Consumer Behavior (Wilhelm) Behavior (Wilhelm)

Use data in teaching conjoint analysis in Use data in teaching conjoint analysis in Marketing Research course (Wilhelm)Marketing Research course (Wilhelm)

Include students in projects as co-authors, beta Include students in projects as co-authors, beta testers, respondentstesters, respondents

Promote discussion of how business concepts Promote discussion of how business concepts and tools can be applied to environmental and and tools can be applied to environmental and sustainability issues sustainability issues

THANK YOU!THANK YOU!THANK YOU!THANK YOU!

Limitations of Green TaxLimitations of Green TaxLimitations of Green TaxLimitations of Green Tax

Lobbying behaviorLobbying behavior• Fear of competitive disadvantageFear of competitive disadvantage• Anti-tax sentimentAnti-tax sentiment

Taxes don’t correctly price externalitiesTaxes don’t correctly price externalities• Localized vs Pervasive Localized vs Pervasive (Daly & Cobb, 1989)(Daly & Cobb, 1989)

““State Failure” State Failure” (Andersen, 1994)(Andersen, 1994)

• Integrated pollution control strategiesIntegrated pollution control strategies

Punishment StrategyPunishment Strategyhas Limited Efficacyhas Limited Efficacy

Lobbying behaviorLobbying behavior• Fear of competitive disadvantageFear of competitive disadvantage• Anti-tax sentimentAnti-tax sentiment

Taxes don’t correctly price externalitiesTaxes don’t correctly price externalities• Localized vs Pervasive Localized vs Pervasive (Daly & Cobb, 1989)(Daly & Cobb, 1989)

““State Failure” State Failure” (Andersen, 1994)(Andersen, 1994)

• Integrated pollution control strategiesIntegrated pollution control strategies

Punishment StrategyPunishment Strategyhas Limited Efficacyhas Limited Efficacy

The Tax Credit OptionThe Tax Credit OptionThe Tax Credit OptionThe Tax Credit Option

Government must fundGovernment must fund Used in US by State & Local Gov’tUsed in US by State & Local Gov’t Shifts decisions to private sectorShifts decisions to private sector• Stimulates innovative solutionsStimulates innovative solutions• Not always appropriate Not always appropriate

May be more acceptable politicallyMay be more acceptable politically

Reward Strategy Reward Strategy May Provide Better ResultsMay Provide Better Results

Government must fundGovernment must fund Used in US by State & Local Gov’tUsed in US by State & Local Gov’t Shifts decisions to private sectorShifts decisions to private sector• Stimulates innovative solutionsStimulates innovative solutions• Not always appropriate Not always appropriate

May be more acceptable politicallyMay be more acceptable politically

Reward Strategy Reward Strategy May Provide Better ResultsMay Provide Better Results

HypothesesHypothesesHypothesesHypotheses

H1: Tax Policy is a significant factor in H1: Tax Policy is a significant factor in determining choice of a residential electricity determining choice of a residential electricity product. product.

H2: An income tax credit on a green electricity H2: An income tax credit on a green electricity product is preferred over an environmental tax product is preferred over an environmental tax on a non-renewable electricity product, all else on a non-renewable electricity product, all else being equal. being equal.

H3: Consumers are indifferent between a non-H3: Consumers are indifferent between a non-renewable electricity product with a 10% tax renewable electricity product with a 10% tax and a green product with a 20% tax credit. and a green product with a 20% tax credit.

H1: Tax Policy is a significant factor in H1: Tax Policy is a significant factor in determining choice of a residential electricity determining choice of a residential electricity product. product.

H2: An income tax credit on a green electricity H2: An income tax credit on a green electricity product is preferred over an environmental tax product is preferred over an environmental tax on a non-renewable electricity product, all else on a non-renewable electricity product, all else being equal. being equal.

H3: Consumers are indifferent between a non-H3: Consumers are indifferent between a non-renewable electricity product with a 10% tax renewable electricity product with a 10% tax and a green product with a 20% tax credit. and a green product with a 20% tax credit.

Methods: SurveyMethods: SurveyMethods: SurveyMethods: Survey

Choice-based conjoint SurveyChoice-based conjoint Survey Preference for various electricity productsPreference for various electricity products 10 randomized choice tasks10 randomized choice tasks• Importance of electricity product attributes Importance of electricity product attributes

3 fixed tasks3 fixed tasks• Predictive Validity + 1Predictive Validity + 1stst task = trial run task = trial run

Other questionsOther questions• Predictors of pro-environment behaviorPredictors of pro-environment behavior

Randomized for each respondentRandomized for each respondent

Choice-based conjoint SurveyChoice-based conjoint Survey Preference for various electricity productsPreference for various electricity products 10 randomized choice tasks10 randomized choice tasks• Importance of electricity product attributes Importance of electricity product attributes

3 fixed tasks3 fixed tasks• Predictive Validity + 1Predictive Validity + 1stst task = trial run task = trial run

Other questionsOther questions• Predictors of pro-environment behaviorPredictors of pro-environment behavior

Randomized for each respondentRandomized for each respondent

Effect of Tax Policy on Preference for Green Product: Mean for 5 Renewable Fuels

0

10

20

30

40

50

60

70

80

20% tax 10 % tax no tax/credit 10% credit 20% credit

Tax Policy

Preferencefor Green Product

(% ofRespondents)

Influence ofInfluence of 10%10% vsvs 20% 20% Income Tax CreditIncome Tax Crediton Share of Preference for Green Electricity Producton Share of Preference for Green Electricity Product

  

Product Product AttributesAttributes

Status Quo Status Quo ProductProduct

Status Quo + TaxStatus Quo + Tax10% Tax10% Tax

Green + CreditGreen + Credit10%10% vsvs 20% 20%

Monthly BillMonthly Bill $100$100 $100$100 $120$120

Emissions Emissions LevelLevel

AverageAverage AverageAverage 50% less50% less

Fuel MixFuel Mix 5% renewables5% renewables 5% renewables5% renewables 95% 95% renewablesrenewables

Tax PolicyTax Policy No tax No tax 10% tax10% tax 10% credit10% credit20% credit20% credit

Total CostTotal Cost $100$100 $110$110 $109$109$97$97

Share of Share of PreferencePreference

45%45% 30%30%

2%2%2%2%

53%53% 68%68%

  

Discussion: Power of Tax Credit Discussion: Power of Tax Credit Discussion: Power of Tax Credit Discussion: Power of Tax Credit

When given a choice between status quo,When given a choice between status quo,

10% Tax, or 10% Tax Credit,10% Tax, or 10% Tax Credit,

more than half of consumers choose Credit.more than half of consumers choose Credit.

15% more consumers will convert15% more consumers will convert

to Green electrical products to Green electrical products

with a 20% Credit than with a 10% Credit.with a 20% Credit than with a 10% Credit.

When given a choice between status quo,When given a choice between status quo,

10% Tax, or 10% Tax Credit,10% Tax, or 10% Tax Credit,

more than half of consumers choose Credit.more than half of consumers choose Credit.

15% more consumers will convert15% more consumers will convert

to Green electrical products to Green electrical products

with a 20% Credit than with a 10% Credit.with a 20% Credit than with a 10% Credit.

RemarksRemarksRemarksRemarks

Main effects modelMain effects model• Income tax credit preferred Income tax credit preferred

Interaction effectsInteraction effects• 10% tax on nonrenewable 10% tax on nonrenewable • 20% credit on renewable20% credit on renewable• For wind, hydro, biomassFor wind, hydro, biomass

Threshold implicationsThreshold implications

Overall finding—Overall finding—green products preferred until they cost more!green products preferred until they cost more!

Main effects modelMain effects model• Income tax credit preferred Income tax credit preferred

Interaction effectsInteraction effects• 10% tax on nonrenewable 10% tax on nonrenewable • 20% credit on renewable20% credit on renewable• For wind, hydro, biomassFor wind, hydro, biomass

Threshold implicationsThreshold implications

Overall finding—Overall finding—green products preferred until they cost more!green products preferred until they cost more!

Same Effect