Environmental attitude and the demand for green electricity in the context of supplier choice: A case study of the New Zealand retail electricity market

Abstract

There is growing interest in non-market valuation research to explore the importance of attitudes and perceptions in explaining heterogeneity of preferences among consumers. Previous research on environmental attitude (EA) and its influence on preferences has been criticised for the non-systematic way in which researchers have measured EA. This paper investigates the effect of environmental attitude on the demand for green electricity in New Zealand, identifies groups (latent classes) with homogenous preferences, and estimates willingness (WTP) for “green” electricity in the context of supplier choice or switching. The New Ecological Paradigm (NEP) Scale is used to measure EA, and we examine the effect of using sub-scales of the NEP Scale on posterior class membership probabilities. To generate the data required for this research, an online choice experiments survey targeting residential electricity bill payers in New Zealand was conducted in February 2014. A usable sample of 224 respondents was achieved. Data was analysed using a latent class framework in which the integration of EA with stated choice is either direct via the utility function as interactions with the attribute levels of alternatives or as a variable in the class membership probability model. We identify three latent classes with different preferences for the attributes of electricity suppliers. A typical respondent with a high NEP Scale score is willing to pay on average $12.80 more per month on their power bill to secure a 10% increase in electricity generated from renewable energy sources compared to respondents with low NEP scores. Furthermore, the results suggest that the sub-scales of the NEP Scale are less accurate in assigning respondents to environmental classes and that the sub-scale with 5 items is less accurate than the sub-scale with 10 items.