New Study: Willingness to Pay for Offsets

EKO ECO Guest Blogger on September 17, 2009 Comment

by Caroline Ott, Intern for the Water and Carbon Markets Programs

How much are you willing to cough up to offset harmful emissions from air travel? And what can policymakers do to make you pay more? Call me a nerd, but these questions have plagued me for months. After many hours of reading, writing, and number crunching, I am pleased to put forward my best responses in the form of my Economics Thesis from Barnard College, Columbia University: Willingness to Pay for Opt-In Offsets in the Voluntary Carbon Market.pdf Go on, open it!

If you're crunched for time, here's the gist: this study used contingent valuation to elicit airline passengers' willingness-to-pay (WTP) for voluntary carbon offsets. Four hundred survey respondents were asked to state WTP based on three variables: tax deductibility of the offset, market participation rate, and market transparency.

In an offset market with low participation, little transparency, and no option of tax deductibility - a rough description of the current market - 49% of respondents were willing to buy offsets. Mean WTP in this market was about $12 per ton of CO2 equivalent.

Tax deductibility and market participation had the most significant impact on demand, together raising WTP to $32. This premium amount is considerably higher than the current offset price of about $10 per tCO2e, suggesting that there are significant opportunities for market growth.

Of the variables tested, tax deductibility has the greatest potential to expand the offset market, for the simple reason that the benefits of this policy would go far beyond tax revenue. Because the tax variable had a significant effect on proportion of people willing to pay, the market participation variable would ride on the back of a tax policy. In other words, tax deductibility would increase the number of people willing to pay, which would in turn influence even more people to pay, which would in turn influence even more people to pay and so on.

For a more detailed analysis of these results, please download the complete thesis, and feel free to post any feedback here or by emailing cott@ecosystemmarketplace.com.