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Last week I asked whether individuals should pay for #CDR and suggested that #carbonfootprints offer one way to think about financial contributions to compensate for residual emissions. Today I want to highlight Matthias Rodemeie‘s recent paper titled ‘Willingness to Pay for Carbon Mitigation: Field Evidence from the Market for Carbon Offsets,’ which adds valuable empirical evidence to the literature on carbon offset markets and their role in addressing climate change.
How much are consumers willing to pay (WTP) for carbon offsets?
🤲The paper reveals a substantial discrepancy between stated and revealed preferences, with stated preferences significantly overestimating WTP compared to actual consumer choices (€200/t stated against less than €20/t effectively).
🏦The analysis reveals that individuals who oppose a carbon tax generally exhibit lower willingness to pay, with a considerable portion stating zero willingness to pay. Supporters of a carbon tax demonstrate higher willingness to pay, with a modal WTP of approximately €208/tCO2.
🧵The results indicate that consumers' WTP becomes highly quantity-elastic when they realize that the compensation amount (i.e., the quantity of carbon offsets) is larger.
What are the implications for CDR providers?
🛍Caution should be exercised when estimating demand for voluntary negative emission markets. Providers must consider revealed preferences, such as actual purchasing behavior and participation rates.
📢Companies engaging in CDR initiatives should prioritize effective communication about the impact and significance of their carbon mitigation efforts. By making the information clear, transparent, and easily understandable, companies can enhance consumers' understanding of the value of their voluntary negative emission actions.
🤝Consumers’ preference for sharing the compensation costs with the firm can be leveraged by companies emphasising their willingness to contribute to the costs of carbon mitigation.
Relying solely on individual financial commitment for offsetting hard-to-abate emissions may prove challenging. Instead, companies can leverage the preference for cost sharing by investing in CDR initiatives themselves and showcasing these investments to consumers. While CDR is necessary for achieving net-zero goals, it is more likely to be facilitated through company financial commitments rather than relying solely on individuals' willingness to pay for their #emissions.
For more information about platforms like Carbonfuture where individuals can buy carbon removals directly, check out my previous post: https://lnkd.in/ezH-jNaE
Read the full paper here.
❓What do you think about consumers’ willingness to pay?
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