Abstract
The government and city gas companies need information on the price premium that households put on the consumption of carbon neutral natural gas instead of conventional natural gas. The objective of this article is to explore the South Korean households' price premium using the data collected through a contingent valuation survey of 1000 households. Person-to-person interviews with a well-prepared questionnaire and one type of dichotomous choice question to elicit incentive-compatible willingness to pay responses were used. Since 52 % of the total respondents reported zero values, the spike model was adopted and estimated. The price premium for carbon neutral natural gas over conventional natural gas was obtained as KRW 124 per Nm 3 (USD 2.58 per mmBtu), securing statistical significance. This value, which is 20 % of the conventional natural gas price of KRW 625 per Nm 3 (USD 12.93 per mmBtu), is higher than the costs additionally incurred by carbon neutral natural gas (USD 0.75 per mmBtu). This portrays that South Korean households can bear some additional burden in the consumption of carbon neutral natural gas. Therefore, policy makers can consider using carbon neutral natural gas as one of new greenhouse gas reduction measures, and it need to establish institutional preconditions such as monitoring, reporting and verification system.
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