Willingness to pay for the preservation of

geothermal areas – the contingent valuation

studies of Eldvörp and HverahlíðDavid Cook, GEORG Geothermal Workshop – 25th November 2016

Purpose of the project

• Studies part of GEORG Project 11-04-002: ‘Evaluating the cost of

environmental impact due to geothermal utilization’

• One previous global study – Thayer (1981) – examined the economic

value of preserving a geothermal region rather than developing a

power project

• Contingent valuation studies of Eldvörp and Hverahlíð estimate the

economic value of preserving geothermal areas from development –

i.e. provide an aggregated cost estimate of environmental impacts in

monetary terms

Background

• Aim of neoclassical economics is to maximise economic efficiency in cost-benefit

analysis (CBA)

• CBA need to be extended and/or supplemented to account for environmental

impacts – these are currently only described in qualitative terms in

Environmental Impact Assessments

• Trade-offs between access to unspoiled natural resources and industrial

developments have stimulated heated debate in Iceland in recent years

• OECD’s Environmental Performance Reviews have repeatedly requested that

Iceland begins accounting for the environment in the economic assessment of

development projects:

“develop some cost-benefit analysis process which gives appropriate consideration

to all dimensions of power development (environment, tourism, social and regional

development, project profitability)” (OECD, 2014, p.115)

Energy projects in Iceland – current planning

and regulatory context

More renewable energy to be harnessed:

• Iceland a member of the European Economic Area since 1994 – fulfils all EU

legislation common to this agreement

• Directive 2009/28/EC on promotion and use of renewable energy resources

stimulated the formation of the Icelandic National Renewable Energy Plan

(2012) – main target is for Iceland to increase utilisation of renewable energy

resources in transport to 10% of energy demand by 2020

Environmental issues:

• Government issued a white paper in 1997 on sustainability in Icelandic society

– document stressed need for long-term planning concerning future energy

projects

• Master Plan for Nature Protection and Energy Utilization in Iceland

commenced in 1999, enshrined in law in 2013 – akin to a form of Strategic

Environmental Assessment

• EIA also required on all energy projects as per EIA Act (106/2000)

Contingent valuation method (CVM)

• Survey based technique, akin to opinion polling, discovering ‘stated

preferences’ based on willingness to pay (WTP)

• Widely adopted in the US and EU, especially in regulatory analysis and

assessments of natural resource damages

• Very useful in cases where the values people hold about an environment

mainly relate to aspects of ‘non-use economic value’ – bequest, altruistic and

existence sources

• CVM able to facilitate an estimate of the costs of environmental impacts for

individuals and affected populations

• Very few CV studies so far in Iceland – Lienhoop and MacMillan (2007) only

published work on Kárahnjúkar

Study sites – Hverahlíð and Eldvörp

Hverahlíð Eldvörp

CV surveys

• Conducted in conjunction with University of Iceland’s Social Science Research

Institute

• Issued in April 2016 to samples of 1,000 drawn from their panel – complete

responses: Eldvörp (n=474); Hverahlíð (n=448)

• Samples found to be representative of the Icelandic population

• Three main stages in the survey: (1) attitudinal questions; (2) scenario

description and elicitation of WTP; and (3) socio-demographic questions

• Participants provided with scenarios of development and environmental

impacts as set out in EIA’s by VSO Consulting

• WTP elicited through the dichotomous choice, double bounded format

Results – attitudinal (1)Most Pressing Least Pressing

Response Frequency Percentage Frequency Percentage

Affordable housing to

buy or rent

192 20.82 56 6.07

Reducing air pollution 36 3.90 53 5.75

Reducing water pollution 9 0.98 71 7.70

Improving educational

quality

41 4.45 42 4.56

Economic growth 58 6.29 142 15.40

Diversifying the economy 64 6.94 103 11.17

Protecting important

natural areas, their

habitats and wildlife

113 12.26 37 4.01

Improving waste

management

6 0.65 149 16.16

Improving healthcare 361 39.15 30 3.25

Don’t know 29 3.15 196 21.26

Chose not to answer 13 1.41 43 4.66

Total 922 100.00 922 100.00

Table 1: Most and least pressing issues for Icelandic society to address

Results – attitudinal (2)

Examples of responses to series of statements:

• Economic diversification (78%) and economic growth important

issues (75%)

• Harnessing untapped sources of renewable energy – 41%

agreed, 32% disagreed

• 18% agreed that the economic benefits of renewable energy

generation were of greater importance than protecting affected

natural areas

• 48% said they would be willing to pay for the protection of

natural areas that they had visited and considered important

WTP preservation tax

WTP Tax Eldvörp Hverahlíð

Yes 264 (55.70) 211 (47.10)

No 210 (44.30) 237 (52.90)

Total 474 (100.00) 448 (100.00)

Second bid (Eldvörp / Hverahlíð)

Yes No Total

First bid

(Eldvörp)

Yes 101 (38.40) 100 (38.02) 201 (76.43)

No 30 (11.41) 32 (12.17) 62 (23.57)

Total 131 (49.81) 132 (50.19) 263 (100.00)

Yes No Total

First bid

(Hverahlíð)

Yes 88 (41.71) 78 (36.97) 166 (78.68)

No 24 (11.37) 21 (9.95) 45 (21.32)

Total 112 (53.08) 99 (46.92) 211 (100.00)

Willingness to pay for the preservation of

Eldvörp and Hverahlíð – interval regression

modelVariables Eldvörp Hverahlíð

Socio-demographic:

Gender 0.312 (0.157)** 0.133 (0.180)

Age groups 0.044 (0.079) -0.036 (0.103)

Residence 0.129 (0.154) 0.344 (0.185)*

Education 0.341 (0.161)** 0.351 (0.191)*

Job market participation 0.152 (0.187) 0.000 (0.207)

Number of children 0.074 (0.123) -0.011 (0.123)

Number in home -0.035 (0.100) 0.028 (0.102)

Marital status -0.189 (0.188) -0.038 (0.225)

Income dummy 1 0.129 (0.280) -0.122 (0.343)

Income dummy 2 0.183 (0.262) 0.219 (0.309)

Income dummy 3 0.460 (0.263)* 0.093 (0.315)

Income dummy 4 0.484 (0.259)* 0.215 (0.317)

Income dummy 5 0.826 (0.324)** 0.279 (0.384)

User:

Visitor 0.074 (0.154) 0.419 (0.182)**

Constant 7.861 (0.448)*** 8.022 (0.522)***

σ 0.964 (0.069) 1.023 (0.084)

N 247 203

Log-likelihood -277.946 -231.76

LR Chi2 36.95 22.95

Prob > Chi2 0.0007 0.0611

Mean and total WTP (ISK)

Mean WTP (ISK) Standard deviation (ISK) 95% confidence interval

(ISK)

Eldvörp (n=304) 8,433 6,246 7,728 9,138

Hverahlíð (n=258) 7,122 7,270 6,231 8,013

Mean WTP (ISK) Population of taxpayers

(2015)

Total WTP (ISK)

Eldvörp 8,433 249,094 2.10 billion

Hverahlíð 7,122 249,094 1.77 billion

Implications of results

• Estimated costs approximate to 2% of the estimated total construction

costs of Hellisheiði

• Sufficient in these pilot studies to suggest merit to OECD’s call for the

commencement of accounting for such values in CBA

• Supportive policy and decision-making context needs to be established to

incorporate such values – steps necessary set out in ‘Energy Projects in

Iceland – Advancing the case for the use of economic valuation techniques

to evaluate environmental impacts’:

http://www.sciencedirect.com/science/article/pii/S030142151630146X

• More research and studies needed in many areas – economic impacts to

recreational amenity; pipelines; other forms of energy generation

Any questions?