Financing Renewable Energy through Household Adoption of Green Electricity Tariffs: A Diffusion Model of an Induced Environmental Market

Ivan Diaz-Rainey and Dionisia Tzavara
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Ivan Diaz-Rainey: Centre for Competition Policy and Norwich Business School, University of East Anglia
Dionisia Tzavara: Department of Economics, University of Peloponnese

No 2011-03, Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) from Centre for Competition Policy, University of East Anglia, Norwich, UK.

Abstract: Green electricity tariffs are a means by which ‘green consumers' can contribute to investment in renewable energy. In order to conceptualize factors constraining the adoption of green electricity tariffs this paper develops a model that links the willingness-to-pay (WTP) literature with the established innovation diffusion literature. This concern arises from a need to reconcile the large disparities that have been empirically observed between the proportion of households actually adopting green electricity tariffs and the proportion in WTP surveys that claim they would (Stated-Willingness-to-Adopt or SWA). Using the Bass Model as the point of departure our model depicts how increasing consumer environmental concern, driven by word-of-mouth and mass media communication channels, results in an increasing proportion of households with a SWA. The presence of response bias and the free rider problem result in 'feasible adoption' being below the SWA. Feasible adoption is, in turn, differentiated from actual adoption by the extent of market imperfections, such as the supply side problems and regulatory failures often discussed in the empirical literature.

Keywords: Innovation diffusion; Willingness-to-pay; EU Energy Policy; Financing renewables; Green consumerism; Green electricity (search for similar items in EconPapers)
JEL-codes: H31 O33 Q28 Q48 Q51 (search for similar items in EconPapers)
Date: 2011-01-01
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