Environmental pricing of externalities from different sources of electricity generation in Chile

• Published in: Energy economics 2012-07, Vol.34 (4), p.1214-1225
• Main Authors: Aravena, Claudia, Hutchinson, W. George, Longo, Alberto
• Format: Article
• Language: English
• Subjects: Air pollution; Alternative energy; Alternative energy sources; Applied sciences; Chile; Consumer demand; Consumers; Contingent valuation; Damage; Dams; Economic data; Economics; Electric energy; Electric power; Electricity; Electricity generation; Energy; Energy economics; Energy policy; Energy resources; Environment; Environmental degradation; Exact sciences and technology; Externalities; Externalities of electricity generation; Fossil fuels; General, economic and professional studies; Global warming; Households; Hydroelectric power; Investments; Large scale hydropower; Patagonia, Argentina; Policies; Preferences; Prices; Production; Renewable energy sources; Renewable resources; Studies; Tariff; Valuation; Willingness to pay; Willingness to pay for renewable energy
• ISSN: 0140-9883; 1873-6181
• DOI: 10.1016/j.eneco.2011.11.004

The rapid increase in electricity demand in Chile means a choice must be made between major investments in renewable or non-renewable sources for additional production. Current projects to develop large dams for hydropower in Chilean Patagonia impose an environmental price by damaging the natural environment. On the other hand, the increased use of fossil fuels entails an environmental price in terms of air pollution and greenhouse gas emissions contributing to climate change. This paper studies the debate on future electricity supply in Chile by investigating the preferences of households for a variety of different sources of electricity generation such as fossil fuels, large hydropower in Chilean Patagonia and other renewable energy sources. Using Double Bounded Dichotomous Choice Contingent Valuation, a novel advanced disclosure method and internal consistency test are used to elicit the willingness to pay for less environmentally damaging sources. Policy results suggest a strong preference for renewable energy sources with higher environmental prices imposed by consumers on electricity generated from fossil fuels than from large dams in Chilean Patagonia. Policy results further suggest the possibility of introducing incentives for renewable energy developments that would be supported by consumers through green tariffs or environmental premiums. Methodological findings suggest that advanced disclosure learning overcomes the problem of internal inconsistency in SB-DB estimates.