Choosing to Pay More for Electricity: An Experiment on the Level of Residential Consumer Cooperation

Abstract

Reducing energy consumption and carbon emissions is necessary in the fight against climate change. We are interested in the situation of Quebec (Canada), where low-cost hydropower sold below market value, akin to a consumption subsidy, leads to high residential consumption. We conducted an experiment to test whether individuals would be willing to pay more for electricity. Increasing regulated prices closer to their market value would result in a direct welfare gain and free some green energy, reducing greenhouse gases (GHGs) in other sectors. 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.