Choosing to Pay More for Electricity: an experiment on the level of residential consumer cooperation

Abstract

Reducing energy consumption and carbon emissions are two cornerstones of the fight against climate change. Signaling negative externalities of individual consumption on the environment is at the heart of public policies, and usually materializes through an increase in the price of polluting good and services. However, social resistance typically arises when such policies are implemented. In this experiment, we are interested in testing the context in which individuals would be willing to pay more for electricity. We use the situation of Québec (Canada), where low-cost hydropower sold below market value, akin to a consumption subsidy, leads to high residential consumption. Increasing regulated prices closer to their market value would result in a direct welfare gain and free some green energy, reducing greenhouse gases (GHG) in other sectors. The choice to pay more is a prisoner’s dilemma, and we find in this framework that giving clear and transparent information on the consequences of the price increase induces a majority of people to choose to pay more. In addition to the economic benefit of the public good, the presence of the environmental benefit increases contributions. Participants with a more severe budget constraint tend to contribute less. These results are encouraging for the development of efficient energy policies reducing GHG emissions.