Centre for Environmental Policy, Imperial College London

Valuing consumer preferences for sustainable biofuels MSc Environmental Technology, EEP Option Group Project

Matthieu Bergère, Hookyung Kim, Hannah Kyrke-Smith and Lorcan Lyons 13th March 2009

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Acknowledgments:

Thanks to Clive Potter and Jose Olmo for the opportunity to undertake this project and

their useful advice

To Susana Mourato, Eleni Fimereli, and George MacKerron for their practical advice

To Rob Sheldon and Deevya Chudasama without whom the survey would have not been

possible

To all our respondents for their time and their availability

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Contents Abstract ............................................................................................................................... 5

Introduction ......................................................................................................................... 6

Background ..................................................................................................................... 6

What are biofuels? ...................................................................................................... 6

Recent trends in biofuels ............................................................................................. 7

The biofuels controversy: food prices, greenhouse gas emission savings ...................... 8

Rising food prices ....................................................................................................... 8

Greenhouse gas emissions reduction .......................................................................... 9

The role of certification in ensuring sustainability of biofuels ....................................... 9

Sustainability Criteria ......................................................................................................... 9

International - Version Zero by the Roundtable on Sustainable Biofuels ................ 10

Europe – Renewable Energy Directive proposal by the European Commission ..... 10

UK – Renewable Transport Fuels Obligation by the Renewable Fuels Agency ...... 11

Further criteria ......................................................................................................... 11

This study in context ..................................................................................................... 12

Greenhouse gas emissions ........................................................................................ 12

Land use .................................................................................................................... 13

Social benefits ........................................................................................................... 13

Literature Review.............................................................................................................. 13

Research Methods ............................................................................................................. 14

Survey design ................................................................................................................ 15

Demographic questions ............................................................................................ 15

Background and attitudinal questions ...................................................................... 16

Choice experiment .................................................................................................... 17

Contingent valuation ................................................................................................. 18

Motivation and follow-up questions.......................................................................... 18

Hypothesis..................................................................................................................... 18

Data Analysis and Results ................................................................................................ 19

Data analysis ................................................................................................................. 19

Results ........................................................................................................................... 21

Demographic/Attitudinal questions .......................................................................... 21

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Choice experiment .................................................................................................... 22

Contingent valuation ................................................................................................. 25

Economic theory and our model ................................................................................... 26

Conclusions and recommendations................................................................................... 27

Policy implications........................................................................................................ 27

Further research ............................................................................................................ 29

References ......................................................................................................................... 31

Appendices ........................................................................................................................ 35

List of Figures Figure 1 - World biofuels production (IEA, 2008) ............................................................. 7

Figure 2 - Survey screenshot............................................................................................. 16 Figure 3 - Example choice set for a user who currently pays £40 for a tank of petrol ..... 17

Figure 4 - Contingent valuation by price per litre............................................................. 26

List of Tables Table 1 - RFA sustainability criteria ................................................................................. 11

Table 2 - Variables of the conditional logit model ........................................................... 21

Table 3 - Results of conditional logit analysis .................................................................. 22

Table 4 - Willingness-to-pay expressed as a percentage change in price ......................... 23 Table 5 - WTP expressed as a trade-off with rainforest protection .................................. 24

Table 6 - Willingness-to-pay of the whole sample in pence per litre (Model 1) .............. 25

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Biofuels Group Project:

Valuing consumer preferences for sustainable biofuels

Matthieu Bergère, Hookyung Kim, Hannah Kyrke-Smith and Lorcan Lyons.

Abstract

Biofuels for use in the transport sector have been promoted in recent years as a response

to energy security and climate change concerns. However, questions have been raised as

to their sustainability. The European Commission and others have proposed

“sustainability criteria”, which are currently under discussion. This Group Project aims to

quantify the value to consumers of a range of sustainability criteria (economic, social and

environmental). Choice modelling was the primary methodology used to determine

willingness-to-pay for sustainable biofuels, along with a contingent valuation exercise for

the purposes of benchmarking. Choice modelling reveals how survey respondents value

individual sustainability attributes as well as giving an overall value. A web-based survey

was carried out, with 308 complete responses. The relationships between variables were

evaluated using a conditional logit model.

The main findings were that there is a willingness to pay for sustainability criteria, and

within criteria respondents value greenhouse gas emissions most highly. Respondents

were also found to place a significant value on biodiversity and rainforest, but social and

food factors were valued distinctly less. The overall value placed on the criteria ranged

from 16.1 pence per litre for 60% greenhouse gas emissions reduction to 5.8 pence per

litre to ensure no diversion from food crops.

Some policy implications that can be drawn from our results are that sustainability

criteria are justifiable on the grounds of consumers‟ preferences and economic efficiency,

with greenhouse gas emissions reduction as a key factor. In addition, promoting increased

awareness of the RTFO would be recommended.

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Introduction

Background

Given growing demand for energy diversity and awareness of environmental issues,

considerable attention and concern is now focusing on biofuels as a new energy source.

Oil prices seem to be increasingly unstable while climate change has become the critical

issue to be addressed at the national and international level, in both the private and public

spheres. The Kyoto Protocol has created a binding agreement for European Union

member states to reduce greenhouse gas emissions by an average of 8% by the year 2012.

It seems to have become the conventional wisdom that the extensive use of fossil fuels is

not sustainable, and that renewable sources have the potential to provide energy in the

required forms and at an appropriate scale as part of the energy mix (Gross et al, 2003).

In the case of the UK the transport sector is responsible for 33% of UK energy

consumption (EAC, 2006) and is the sector with the fastest rate of emissions growth

(Hammond et al, 2008). Reducing transport‟s 98% reliance on fossil fuels would help

diversify and improve the security of fuel supply, as well as provide alternative sources

of income in rural areas (Hammond et al, 2008).

In recent years, biofuels have been strongly supported by some governments, including

those of the UK and the US, and international trade has been vigorous. Despite

uncertainty over when 2nd

-generation biofuels will become commercially available (see

below), biofuels are perceived as one of the most promising alternative energy sources

and have established a more mature market and policy development than most other

renewable sources. The EU has established the goal to achieve 20% of its energy supply

from renewable energy by 2020, and biofuels use is considered by the EU to be one of

the ways in which it can meet its Kyoto targets. The UK target was set at 5% of all

transport fossil fuels by volume to be replaced with biofuels by 2010.

What are biofuels?

Biofuels are liquid fuels produced from organic matter primarily for use in transport.

They can substitute and be blended with fossil fuel-based gasoline and diesel, and in low

concentrations can be used in regular combustion engines of cars and trucks (Hammond

et al, 2008). As a result they can be distributed by oil companies relying on existing

infrastructure. They have the potential to be more efficient and less polluting than

petroleum fuels (Bozbas, 2008).

1st-generation biofuels are found in two different forms depending upon their source

materials (EAC, 2008). Biodiesel is produced from oils such as rendered animal fats,

rapeseeds and palm oils (EAC, 2008). Bioethanol is produced from the fermentation of

any feedstock that contains a high content of sugar or starch. Typical feedstocks are

sugarcane, sugar beet and maize. 2nd

-generation biofuels are produced from the whole

plant, not just from sugar and oil-rich parts. These fuels are expected to have greater

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potential for greenhouse gas savings, smaller input requirements and a higher yield per

hectare than 1st-generation biofuels. However, 2nd-generation technologies are not

commercially viable yet, requiring considerable further research and investment. As a

result, these fuels are not likely to reach the market for a number of years (Banse &

Grethe, 2008; Keyzer et al, 2008; Dickie, 2007).

Recent trends in biofuels

Bioethanol and biodiesel are both produced around the world, showing upward trends

since their early development. More bioethanol is produced than biodiesel; the former is

mainly produced and consumed in the US and Brazil, whilst the main producer of and

market for the latter is the EU (Dufey, 2006) (See Appendix A).

Brazil in particular has been leading the world in production of bioethanol, prompted by

the increase in oil prices in the early 1970s. The US has been the second largest producer

for bioethanol. In 2005, Brazil and the US were responsible for more than 70% of the

world ethanol production (RFA, 2006). However a significant growth in bioethanol

production has occurred over the past few years, and in 2007 the US overtook Brazil‟s

production, becoming the largest bioethanol producer (IEA, 2008). Several countries

such as China and India are trying to replicate Brazil‟s success, and are introducing

measures to stimulate bioethanol production (Junginger et al, 2006).

Figure 1 - World biofuels production (IEA, 2008)

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Biodiesel started to be widely produced in the early 1990s and since then production has

been increasing steadily. The EU is the main producer of biodiesel, accounting for about

95% of global production, and this situation is expected to persist (Dufey, 2006). At

present only limited amounts of biodiesel from the EU enter the international market,

however promising export markets are likely to be Asian countries such as Japan, Korea

and Taiwan, which have very little land available for increased production (Dufey, 2006).

The biofuels controversy: food prices, greenhouse gas emission savings

Despite this growth in consumption, recent research has raised some doubts about the

sustainability of 1st-generation biofuels. In particular, rapid increases in food prices in

2008 are argued to have resulted from the latest expansion of biofuels production (EAC,

2008). Also, there is uncertainty about the contribution of biofuels to the reduction of

greenhouse gas emissions. Both claims need to be addressed for the future of biofuels to

be sustainable.

Rising food prices

Internationally traded food commodity prices have increased sharply since 2002 and the

prices of major staples, such as grains and oilseeds have doubled in just the past two

years (Mitchell, 2008). Rapidly increasing food prices have become a real concern,

imposing an increased burden on the poor in developing countries. Some research has

proposed that growing demand for biofuels might have contributed to the increase in

prices. Notably, the World Bank claims that there has been a large increase in biofuels

production from grains and oilseeds in the US and EU. It has been argued that without

these increases, global wheat and maize stocks would not have been declined appreciably

and the price change would have been moderate (Mitchell, 2008). In agreement with this

view, the Gallagher Review (RFA, 2008b) stated that an increasing demand for biofuels

might lead to an increase in the price of some food commodities.

Nevertheless it is also generally accepted that the methodologies for measurement may

vary significantly due to the nature of this subject, which is enormous in scale. Moreover,

it is widely accepted that this recent increase in food prices results from various factors

such as population growth, increasing energy prices in general and economic growth; and

that the scale of their effects is complex and rather uncertain. As for a global food crisis,

there is a view that it is more about the accessibility of and ability to obtain sufficient

food (Junginger et al, 2006), rather than a lack of food, which means that there is enough

to feed the population but the distribution system is not efficient or equitable. Therefore,

the growth of the biofuels industry might be a possible cause of the global food crisis, but

perhaps not the most significant factor.

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Greenhouse gas emissions reduction

It was initially believed that biofuels would not cause any net increase in emissions of

CO2 (the main greenhouse gas) because the CO2 that is emitted into the atmosphere when

they are burnt is offset by the CO2 that the crop absorbs as it grows (DEFRA, 2008a).

However, recent research published in the Gallagher Review has revealed that biofuels

may not necessarily reduce CO2 emissions, and could accelerate deforestation (RFA,

2008b). Whether bioethanol produces more or less CO2 than fossil fuels is a function of

how it is produced (Fargione et al, 2008; Kirchgaessner & Allison, 2008). Major land use

change and inefficient plant operation can completely negate the carbon saving from

biofuels as well as reduce biodiversity and damage other ecosystem resources (DEFRA,

2008a). Some US corn-based ethanol plants are powered by electricity from coal-fired

power plants; it is likely that emissions from such power plants are much higher than the

reduction in emissions from the energy sources they produce (Kirchgaessner & Allison,

2008).

Nonetheless, in the case of the UK, it is believed that biofuels will help the government to

reduce greenhouse gas emissions from transport significantly, and the 5% biofuels target

for transport fuel would save around 0.7 to 0.8 million tonnes of carbon per year

(DEFRA, 2008a). This target would need to be based on the efficient operation of the

whole transportation system.

The role of certification in ensuring sustainability of biofuels

The biofuels industry involves a wide range of stakeholders, including producers,

consumers and other facilitators in the international market. In addition, biofuels are

heterogeneous products and are grown under different conditions. In this respect and in

light of the controversy discussed above, the role of certification and standards is

considered to be very significant. Certification is the process whereby an independent

third party assesses the quality of management in relation to a set of predetermined

requirements (standards) (Vandam et al, 2008). It can give a more firm and universal

credibility to the biofuels production system, and also ensure the sustainability of biofuels

(Biomass Technology Group, 2008).

Sustainability Criteria

There are currently several sets of sustainability criteria under discussion

worldwide, some of which are discussed below. Despite policy-makers having the

common goal to develop criteria that will result in biofuels being deemed 'sustainable',

the criteria proposed by different groups are in some ways quite different to each other,

perhaps as a result of the term 'sustainability' having no single definition.

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International - Version Zero by the Roundtable on Sustainable Biofuels

Working on an international level with stakeholders such as farmers, NGOs and

governments, the RSB aims to ensure that the production and processing of biofuels is

sustainable. In August 2008 they released Version Zero (RSB, 2008), a draft of their

principles and criteria for sustainable biofuels, as developed through working group

discussions with stakeholders from across the world. Following feedback on Version

Zero, Version One is expected to be published in April 2009.

Version Zero comprises a set of twelve principles, each accompanied by its own criteria

and guidance, that if implemented would be followed by farmers and producers to

prevent unintended negative consequences of biofuel production. The principles are as

follows:

1. Legality [following both the laws of the country in which biofuel production

occurs, and relevant international treaties]

2. Consultation, planning and monitoring

3. Climate change and greenhouse gas [reducing emissions in order to contribute

to climate change mitigation]

4. Human and labour rights

5. Rural and social development

6. Food security

7. Conservation and biodiversity

8. Soil [improving soil health and minimising degradation]

9. Water [optimising resource use, and minimising contamination or depletion of

resources]

10. Air [minimising air pollution along the supply chain]

11. Economic efficiency, technology and continuous improvement [for cost-

effective production]

12. Land rights

Europe – Renewable Energy Directive proposal by the European Commission

As part of this proposal there is a requirement that biofuels produced both within and

outside the Community will have to meet certain sustainability criteria. Article 15 of the

Directive (EC, 2008) puts forward three such criteria for biofuels and other bioliquids,

namely:

Land with high carbon stocks should not be converted for biofuel production

Land with high biodiversity should not be converted for biofuel production

Biofuels should achieve greenhouse gas savings of at least 35%

The Commission also suggests that there should be rewards for the production of

2nd

-generation biofuels (produced from more diverse feedstocks), and penalties for

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biofuels that fail to comply with the criteria. The proposal states that it will be necessary

to develop a tracking system to identify biofuels that comply with the criteria, in order to

reward them with a price premium compared to those that don‟t comply.

UK – Renewable Transport Fuels Obligation by the Renewable Fuels Agency

The Renewable Fuels Agency (RFA) was established in 2007 with the task of

implementing and administering the Renewable Transport Fuels Obligation (RTFO), a

voluntary scheme which commenced in April 2008. This requires that a certain

percentage (2.5% for the year 2008-9) of road fuels supplied in the UK consists of

renewable fuels. In addition, the RTFO requires fuel suppliers to submit reports relating

to the sustainability and greenhouse gas emissions savings of the biofuels they supply,

before they can receive Renewable Transport Fuel Certificates. By making information

on supplier performance available to the public, the RFA aims to help consumers make

decisions as to which fuels to purchase. A „meta-standard‟ approach has been adopted,

consisting of seven environmental and social principles, as shown in the table below

(RFA, 2008a):

Table 1 - RFA sustainability criteria

Environmental principles

1. Biomass production will not destroy or damage large above or below ground carbon

stocks

2. Biomass production will not lead to the destruction or damage to high biodiversity

areas

3. Biomass production does not lead to soil degradation

4. Biomass production does not lead to the contamination or depletion of water

sources

5. Biomass production does not lead to air pollution

Social principles

6. Biomass production does not adversely affect workers rights and working

relationships

7. Biomass production does not adversely affect existing land rights and community

relations

Further criteria

In addition to these three sets of criteria, there are others that have also been proposed

and in some countries even implemented. An example of this is in Sweden, where since

August 2008 an ethanol company called SEKAB has been selling sustainable ethanol,

verified by an independent international company (BEST, 2009). The ethanol is produced

in Brazil, and as such Brazilian producers helped to develop the criteria, which cover the

whole production chain in terms of environmental and social sustainability.

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As can be seen, there is considerable agreement between the sets of criteria discussed

above, but also some divergence as to where priorities lie and therefore which specific

principles and criteria have been put forward. Each group believes their criteria need to

be met by producers and suppliers of biofuels in order for the entire life cycle of biofuels

to be sustainable. It is generally accepted that the same criteria would apply to both

imported and domestically produced biofuels in order to comply with international trade

agreements (Cockerill & Martin, 2008; Dickie, 2007).

This study in context

Arguably all of the components of the above criteria are important for the sustainability

of biofuels, but there is a need for a consensus as to which to include in a framework that

can be applied internationally. This is a critical issue in particular for countries who

obtain biofuels in part through domestic production and in part through imports. In this

instance, the existence of just one set of criteria would reduce the administrative burden

(for example, in terms of monitoring the entire supply chain) and increase the ease of

compliance for biofuels suppliers and producers.

For transparency and simplicity this study includes just three principal criteria, which are

in part taken from the various proposed criteria discussed above. These are:

The reduction of greenhouse gas emissions

The use of land that is not (a) rainforest, (b) of high biodiversity, (c) used for food

crops

Social benefits

Greenhouse gas emissions

Due to increasing concerns relating to climate change and the growth of the transport

sector (Hammond et al, 2008) the potential to reduce greenhouse gas emissions has been

a key reason for the development of biofuels. However, without any sustainability criteria

in place it is possible that certain biofuels could actually lead to a net increase in

emissions (for example due to indirect effects of changing land use, and the energy

needed for their production and transportation). The European Commission's criteria state

that the greenhouse gas emissions savings from biofuels should be at least 35%, but it is

possible for this figure to be as high as 60% for pure biofuel (Bozbas, 2008). In terms of

CO2 specifically, 100% biodiesel can reduce emissions by more than 75% compared to

petroleum diesel (Bozbas, 2008). Although these figures will not be as high when using a

mix of biofuel with conventional fuel in a vehicle, it can be seen that emission reductions

can potentially be quite substantial.

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Land use

One of the concerns relating to the production of biofuels is that it may result in energy

crops being grown on land that was previously used for other purposes, thus reducing the

amount of that land available for its original use. As discussed previously, a major

controversy relating to biofuels has been the „food vs. fuel‟ debate surrounding the

diversion of land away from food crops towards energy crops, and whether this plays a

part in increasing food prices (Keyzer et al, 2008; Koh & Ghazoul, 2008; Cassman &

Liska, 2007). In the tropics, there is also the problem of deforestation taking place in

order to clear land for the growth of feedstock crops for biofuels (Koh & Ghazoul, 2008).

In addition, the expansion of agricultural lands for biofuels in any area of the world could

lead to the reduced availability of habitats for many species of plants and animals, thus

leading to a reduction in biodiversity in these areas (Groom et al, 2007). One potential

resolution for these issues is the use of 2nd

-generation biofuels, but as discussed above

these fuels are not yet commercially viable.

Social benefits

With a considerable proportion of feedstock crop growth taking place in developing

countries, it is important to consider the benefits and costs to local communities,

labourers and land owners in these regions. These benefits should include

the development of the rural economy (Koh & Ghazoul, 2008) through the creation of

jobs, giving people a fair wage and labour rights, clearly defined land use rights,

maintaining community relations, and ensuring food security. In addition to developing

countries, the development of the rural economy in terms of domestic production needs to

be considered, although it has been acknowledged that the land capacity of the UK is not

sufficient to meet the UK target set by the EU for 2010 (EAC, 2008; Perry & Rosillo-

Calle, 2008; Hammond et al, 2008; UK Biomass Strategy, 2007), so as a result the major

considerations relate to imports.

Literature Review

In recent years there have been a large number of studies which have attempted to place a

value on renewable energy sources through stated and revealed preference techniques.

Two examples are studies by Longo et al (2007) and Bergmann et al (2006), both of

which used choice experiments to investigate consumer willingness-to-pay for electricity

from renewable energy sources, and found that consumers place a higher value on these

alternative sources. There have been studies relating to the willingness-to-pay for

alternative fuelled vehicles, for example Potoglou & Kanarolgou (2006) who use choice

modelling to study the potential demand for vehicles running on hydrogen gas and those

that are hybrid electric. This study found that costs were an important consideration in the

choice of a particular alternative.

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At the same time, biofuels have increasingly appeared in the literature in recent years, in

particular relating to the benefits and controversies surrounding the promotion of biofuels

as an alternative transport fuel (for example, the „food vs. fuel‟ debate, see Cassman &

Liska, 2007). There has also been a plethora of discussion and policy papers published in

the last few years relating to the sustainability of biofuels, for example the Gallagher

Review on the indirect effects of biofuels (2008), the Environmental Audit Committee

(EAC) paper entitled ‘Are biofuels sustainable?’ (2008), the Royal Society paper on

sustainable biofuels (2008) and the EU Strategy for biofuels (2006). While the Gallagher

Review and the EAC came to similar conclusions that biofuels may not currently be

sustainable and that their use should not be as actively encouraged until more sustainable

production processes are in place, the Royal Society came to the more optimistic

conclusion that biofuels do have the potential to be a part of the future energy mix, and

can contribute to greenhouse gas emissions reduction. The EU Strategy paper also

supports the promotion of biofuels, whilst giving regard to the need to develop

sustainable biofuel production.

However, there is a clear gap in the existing literature in terms of the valuation of

biofuels in particular. Our literature search brought us to just one study by Jeanty et al

(2007), which used contingent valuation to elicit the willingness-to-pay for biodiesel in

diesel engines in Ohio, USA. Their results suggested that consumers would be willing to

pay more for biodiesel due to the environmental benefits it provides. However, despite

being quite recent, this paper makes no reference to the sustainability of biofuels. In

2008, the consultancies Ecofys and E4Tech produced a report on sustainable biofuels

labelling. The study looked at public awareness of and attitudes towards biofuels, as well

as consumer opinions about how much they would be willing to pay for labelled biofuels.

More than half the respondents said that they have good knowledge about biofuels and

their various environmental impacts, as well as the existence of the RTFO. More than a

third of fuel buyers also responded that they would be willing to pay extra for

environmentally friendly fuels. However, this study did not use an actual valuation

technique (such as choice modelling or contingent valuation), but merely assessed

opinions on and attitudes towards these issues through a consumer survey.

As a result of these findings, this study aims to fill the gap in the literature by attempting

to elicit consumer willingness-to-pay for sustainable biofuels, thus taking into

consideration the current discussions surrounding the development of sustainability

criteria.

Research Methods

Our main research method is choice modelling, a survey-based methodology “for

modelling preferences for goods, where goods are described in terms of their attributes

and the levels that these take” (Hanley et al, 2001). In our case, the attributes relate to the

sustainability of biofuels. We aim to determine willingness-to-pay for changes in the

levels of these attributes. In choice modelling, statistical inferences are made by sampling

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a population of individuals, thereby revealing economic preferences through decisions

(choices) made by economic agents (survey respondents). We apply the standard

assumptions from economic theory that individuals are economically rational and have a

common utility function (behaviour rule). Choice modelling is in fact grounded in

microeconomic theory (Lancaster, 1966) and has been widely used in marketing and

transport research for a longer period than in environmental economics. It draws on the

random utility modelling pioneered by Luce, McFadden and others and was initially

developed as a distinct methodology by Louviere and others in the 1980s.

Choice modelling is a particularly attractive methodology because it allows policy-

makers to take account of both consumer preferences and economic efficiency

(Bergmann et al, 2006). It also avoids the major biases associated with standard

contingent valuation (Hanley et al, 2001). A stated preference technique such as

contingent valuation alone would not have been sufficient in this study since in designing

criteria, policy-makers need to know the relative values of a multidimensional range of

sustainability attributes, rather than simply the value of sustainability as a whole.

Nevertheless, contingent valuation is still an important exercise in order to benchmark the

choice modelling results. Choice modelling places a high cognitive burden on

respondents, leading to a risk of satisficing behaviour (choosing an alternative that is

acceptable but not necessarily the best) (Hanley et al, 2001). As a result, it is important to

design the choice modelling carefully.

Survey design

The survey was created using proprietary software developed by Accent Market Research

with the co-operation of senior staff and by their kind permission. The survey was

programmed in a proprietary language similar to html and hosted on an Accent Market

Research web server.1 The survey was disseminated primarily via email, twitter.com

(using a shortened URL)2 and the creation of a Facebook Group.

3

The survey launches in a pop-up browser window and begins with two paragraphs

introducing the issue, i.e. that biofuels currently have advantages in terms of energy

security and climate change as well as potential disadvantages in terms of sustainability,

and noting that attempts are being made to develop sustainability criteria in order to

address these disadvantages. It is also pointed out that the survey is anonymous. A

progress bar lets respondents know what proportion of the questions they have answered.

Demographic questions

The survey asks people their gender, age (categorical) and place of residence (UK, rest of

EU or Other). This last question is relevant as it dictates the extent to which biofuels are

currently available at the pump, the regulatory regime in place and the policies and

measures under discussion. We then ask whether the respondent would prefer to

1 http://accent 1.cust.host it.co.uk/survey5/biofuel.aspx?urn=opensurvey (now closed) 2 http://twitter.com/lorcan/status/1215043103 3 http://www.facebook.com/group.php?gid=51383558390&ref=ts

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complete the survey in Pounds Sterling or Euros. We ask demographic questions

establishing the respondent‟s level of education, current employment status, level of

household income (categorical), household size and number of children. Finally, we ask

whether the respondent is a member of or donor to an environmental or international aid

organisation. These questions allow us to analyse the choice modelling and contingent

valuation results in more detail.

Figure 2 - Survey screenshot

Background and attitudinal questions

These questions are intended to gauge a respondent‟s pre-existing general level of

concern for the environment and familiarity with biofuels. First, respondents are asked to

rank (1 to 5) the issues Environment, Health, Education, Economy and Security in order

of importance. Second, a list of issues associated with biofuels such as biodiversity, food

prices and greenhouse gas emissions is presented and the respondent is asked to indicate

which issues he or she is concerned about. Third, a choice is presented between

technology options aimed at addressing energy security and climate change. The options

listed include biofuels as well as nuclear power, electric cars and clean coal, and a write-

in “Other” box. Next, specific questions about biofuels are posed, concerning

self-perception of level of familiarity with biofuels, awareness that there are criticisms of

biofuels, awareness of the UK RTFO and a question to establish whether or not the

respondent considers that biofuels are already part-blended with their gasoline.

Car-related information

These questions establish whether the respondent drives a car, how regularly they drive,

and whether they pay for fuel. Finally, we ask how much it costs the respondent to fill a

tank. This is done on the assumption that respondents are more likely to be familiar with

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the cost of a tank of petrol than the price per litre that they pay. The respondent‟s answer

affects how the price attribute is presented to them in the choice experiment (see below).

Choice experiment

The choice experiment is the key element in the survey and begins with a reminder that

respondents should try to answer as if they were being presented with real life choices.

Brief explanations are provided of the attributes “greenhouse gas emissions reduction”,

“land use considerations” and “social benefits”, as well as the broad concept of

sustainability criteria.

A scenario is then described in which it is 2010 and the respondent has a choice to make

between a regular (15%) biofuels blend and a biofuels blend that meets certain

sustainability criteria. It is pointed out that neither blend would require any vehicle

modification and that the sustainable blend could potentially cost more.

The respondent is presented with six choice sets in turn, each consisting of three options.

Options A and B present two sustainable biofuels blends with varying attributes. “N/A”

for an attribute means that it has not been considered in the production of the biofuel

feedstock, though it could still be sustainable. Option C is always the status quo, i.e. a

regular 15% biofuels blend with N/A for all sustainability attributes and using the

baseline price.

Figure 3 - Example choice set for a user who currently pays £40 for a tank of petrol

The attributes and their levels were selected based on a literature review of current policy

proposals and stakeholder initiatives, as described earlier, in order to make them as

realistic as possible. There are four levels of Emission reduction: N/A, 0%, 5% and 9%

(corresponding to 0%, 35% and 60% emissions reduction of a 15% biofuels blend). There

are also four levels of the Land use attribute: N/A, no diversion from food production, no

destruction of high biodiversity land (including rainforest) and no destruction of

rainforest. There are two levels of Social benefit: yes and N/A. Finally, there are five

price levels: no price change and 5%, 10%, 15% and 20% above what the respondent

normally pays for a full tank (if he or she provided this information) or above 90 pence

18

per litre (the price set for respondents who do not know the price of a full tank or who do

not drive). Price is the key attribute that allows estimation of willingness-to-pay.

In order to reduce the number of potential combinations to a workable number, software

was used to implement a fractional factorial design. The resulting total number of options

is 16 (See Appendix B). There is an unavoidable disadvantage associated with this step,

i.e. the loss of the ability to estimate indirect interaction effects created by bundling

attributes (see Data Analysis and Results below). This technique also relies on the

assumption of IIA (independence of irrelevant alternatives, which says the relative

probabilities of two options being selected are not affected by the introduction or removal

of other alternatives (Hanley et al, 2001)).

Contingent valuation

The contingent valuation exercise comes after the choice modelling and consists of the

following open-ended question: “Now imagine that the biofuel available for purchase

includes all the sustainability criteria discussed above. How much would you be prepared

to pay to fill up your tank?”. The values given are compared with the amounts that

respondents currently pay for a tank of petrol, the difference being equivalent to the value

placed on sustainable biofuels. This premium can in turn be compared with the value

derived from the choice modelling.

Motivation and follow-up questions

A range of follow-up questions are then asked in order to help determine the motivations

of respondents for choosing the options they did and in order to discover and eliminate

any bias inherent in the survey. The key motivation question is “Which characteristics

were most important in your decision?”. Respondents are then asked whether they feel

they understood the questions, whether enough information was given, and whether they

feel the survey was neutral or biased for or against biofuels. A comment box is included

at the end of the survey for any outstanding remarks that respondents wished to make.

Hypothesis

What we are trying to test in this study is that consumers would be willing to pay more

for biofuels blends when the biofuel component of that blend meets sustainability criteria.

Furthermore, it is expected that those who drive and pay for their fuel will be more

sensitive to price, and therefore their willingness-to-pay will be lower. In addition, we

expect other factors to have an influence on willingness-to-pay, including environmental

awareness and knowledge of the RTFO (for UK respondents).

19

Data Analysis and Results

Data analysis

To explain the consumer choice, we are using the random utility theory (Thurstone,

1927). For each consumer i and each choice j, the consumer‟s utility is divided into a

rational part and a random part:

𝑈𝑖𝑗 = 𝑉𝑖𝑗 + 휀𝑖𝑗

with the assumption that the random part is normal, with an expected value of zero.

The rational part form has been chosen during the design of the choice modelling

experiment since we decided to use a fractional design, allowing us to access only the

direct effect of each attribute.

𝑉𝑖𝑗 = 𝐴𝑆𝐶𝑖 + 𝛽𝑖𝑘𝐴𝑗𝑘

𝑘

with 𝐴𝑆𝐶𝑗 as the alternative specific constant (0 for baseline scenario)

𝛽𝑖𝑘 as the influence of the parameter k for the individual i.

𝐴𝑗𝑘 as the parameter k for the alternative j.

An important assumption is that the coefficients are identical for the whole population

and that all differentiation between individuals is carried by the random part. The ASC

parameter catches the influence of all others variables not expressed in the model

(Bennett, 1999). These influences are assumed to be identical for all alternatives different

from the baseline.

With a binary response variable (chosen or not chosen), the utility influences the

probability of each outcome. As each card of the choice modelling experiment displays

three alternatives and only one can be chosen, we use a conditional logit model to take

into account the relationship between the alternatives displayed, especially for the base

line scenario which is always displayed.

The link between the utility and the probability in the conditional logit model is given by

𝑃 𝑗 𝑐ℎ𝑜𝑠𝑒𝑛 𝑜𝑣𝑒𝑟 𝑘 𝑎𝑛𝑑 𝑙 =𝑒𝜇𝑉 𝑗

𝑒𝜇𝑉 𝑗 +𝑒𝜇𝑉 𝑘 +𝑒𝜇𝑉 𝑙

(Gazzani & Marinova, 2007)

All the utilities are linked by the relationship 𝑒𝑉𝑘𝑘 = 1

The model is run using a statistics software type SPSS (STATA in our study).

The willingness-to-pay (WTP) is the relative influence of an attribute in comparison to

the influence of price on the utility.

20

𝑊𝑇𝑃𝑘 = −𝛽𝑘

𝛽𝑝𝑟𝑖𝑐𝑒

In our model, the increase of price is expressed as a percentage change in price, so our

monetary unit is the percentage increase. This unit relies on the assumption that the

influence of the price of the consumer‟s utility is linear for a wide range of prices. This

assumption will be discussed later.

Two models of utility have been used for the analysis. Model 1 deals with only the

characteristics of the alternatives, whereas the Model 2 introduces three demographic

variables in order to look at interactions with the WTP:

- Link between being member of an environmental organisation and the WTP for

the highest emission reduction

- Link between declaring the food price as a sustainability issue and WTP for land

use criteria to protect food crops

- Link between being a member of an international aid organisation and the WTP

for social criteria

Model 1:

𝑉𝑖 = 𝛽𝐸𝑚𝑖𝑠𝑠𝑖𝑜𝑛 1 × 𝛿𝑖 ,𝐸𝑚𝑖𝑠𝑠𝑖𝑜𝑛 1 + 𝛽𝐸𝑚𝑖𝑠𝑠𝑖𝑜𝑛 2 × 𝛿𝑖 ,𝐸𝑚𝑖𝑠𝑠𝑖𝑜𝑛 2 + 𝛽𝐸𝑚𝑖𝑠𝑠𝑖𝑜𝑛 3 × 𝛿𝑖 ,𝐸𝑚𝑖𝑠𝑠𝑖𝑜𝑛 3

+ 𝛽𝑅𝑎𝑖𝑛𝑓𝑜𝑟𝑒𝑠𝑡 × 𝛿𝑖 ,𝑅𝑎𝑖𝑛𝑓𝑜𝑟𝑒𝑠𝑡 + 𝛽𝐵𝑖𝑜𝑑𝑖𝑣𝑒𝑟𝑠𝑖𝑡𝑦 × 𝛿𝑖 ,𝐵𝑖𝑜𝑑𝑖𝑣𝑒𝑟𝑠𝑖𝑡𝑦 + 𝛽𝐹𝑜𝑜𝑑 × 𝛿𝑖 ,𝐹𝑜𝑜𝑑

+ 𝛽𝑆𝑜𝑐𝑖𝑎𝑙 × 𝛿𝑖 ,𝑆𝑜𝑐𝑖𝑎𝑙 + 𝛽𝑝𝑟𝑖𝑐𝑒 × 𝑃𝑟𝑖𝑐𝑒𝑖+ 𝐴𝑆𝐶 × (1 − 𝛿𝑖 ,0)

Model 2:

𝑉𝑖 = 𝛽𝐸𝑚𝑖𝑠𝑠𝑖𝑜𝑛 1 × 𝛿𝑖 ,𝐸𝑚𝑖𝑠𝑠𝑖𝑜𝑛 1 + 𝛽𝐸𝑚𝑖𝑠𝑠𝑖𝑜𝑛 2 × 𝛿𝑖 ,𝐸𝑚𝑖𝑠𝑠𝑖 𝑜𝑛2 + 𝛽𝐸𝑚𝑖𝑠𝑠𝑖𝑜𝑛 3 × 𝛿𝑖 ,𝐸𝑚𝑖𝑠𝑠𝑖𝑜𝑛 3

+ 𝛽𝑅𝑎𝑖𝑛𝑓𝑜𝑟𝑒𝑠𝑡 × 𝛿𝑖 ,𝑅𝑎𝑖𝑛𝑓𝑜𝑟𝑒𝑠𝑡 + 𝛽𝐵𝑖𝑜𝑑𝑖𝑣𝑒𝑟𝑠𝑖𝑡𝑦 × 𝛿𝑖 ,𝐵𝑖𝑜𝑑𝑖𝑣𝑒𝑟𝑠𝑖𝑡𝑦 + 𝛽𝐹𝑜𝑜𝑑 × 𝛿𝑖 ,𝐹𝑜𝑜𝑑

+ 𝛽𝑆𝑜𝑐𝑖𝑎𝑙 × 𝛿𝑖 ,𝑆𝑜𝑐𝑖𝑎𝑙 + 𝛽𝑝𝑟𝑖𝑐𝑒 × 𝑃𝑟𝑖𝑐𝑒𝑖+ 𝛽𝐸𝑚𝑖𝑠𝑠𝑖𝑜𝑛 3,𝑒𝑛𝑣 × 𝛿𝑖 ,𝐸𝑚𝑖𝑠𝑠𝑖𝑜𝑛 3 × 𝛿𝑘 ,𝑒𝑛𝑣 + 𝛽𝐹𝑜𝑜𝑑 ,𝑖𝑛𝑡 _𝑓𝑜𝑜𝑑 × 𝛿𝑖 ,𝐹𝑜𝑜𝑑 × 𝛿𝑘 ,𝑖𝑛𝑡 _𝑓𝑜𝑜𝑑

+ 𝛽𝑆𝑜𝑐𝑖𝑎𝑙 ,𝑖𝑛𝑡𝑒𝑟 × 𝛿𝑖 ,𝑆𝑜𝑐𝑖𝑎𝑙 × 𝛿𝑘 ,𝑖𝑛𝑡𝑒𝑟

+ 𝐴𝑆𝐶 × (1 − 𝛿𝑖 ,0)

with 𝛿𝑖 ,𝑉𝑎𝑟 as a dummy variable equal to 1 only if the choice i has the attribute Var

𝑃𝑟𝑖𝑐𝑒𝑖 as a vector from 0 to 4 indicating the increase in price associated with the

choice (0 is only for the baseline scenario)

𝛿𝑖 ,0 as 1 if the alternative is the baseline, 0 otherwise

21

Table 2 - Variables of the conditional logit model

Variable Explanation

Emission1 No increase in greenhouse gas emissions

(0% decrease)

Emission2 Decrease of 35% of greenhouse gas

emissions

Emission3 Decrease of 60% of greenhouse gas

emissions

Rainforest Protection of rainforest

Biodiversity Protection of high biodiversity land

(including rainforest)

Food Food crops protection

Social Social and local benefits

Price 5-20% increase in price

Emission3,env Interaction between “60% reduction of

greenhouse gas emissions” and “member of

environmental organisation”

Food,int_food Interaction between “food price is a

sustainability issue” and “food crops

protection”

Social,inter Interaction between “social benefits” and

“member of international aid organisation”

Results

Demographic/Attitudinal questions

The survey had a total of 308 respondents between the 13th and 27th of February 2009.

Although the gender split is even, our sample composition is not representative of the

population, for example 42% of our respondents are under 25 and 48% are students. This

is intrinsically linked to the method we used to distribute our survey. In addition, our

sample is UK-based with 73% of people living in this country.

For the study of sub-populations and the relationship between demographic criteria and

willingness-to-pay, the relative size of specific populations in our sample matters. 20% of

respondents are members of or donors to environmental organisations and one-third are

members of or donors to international aid organisations. 62% of respondents drive a car

which allows us to access both the willingness-to-pay of drivers and that of non-drivers.

22

Choice experiment

Of the 308 respondents completing the survey in full, 137 people answered the choice

modelling experiment with a price per litre, while 171 did the choice modelling

experiment with a full tank price.

Results for the whole population

Table 3 - Results of conditional logit analysis

Parameter Model 1 Model 2

Emission1 -0.03 -0.03

Emission2 0.83** 0.84**

Emission3 1.3** 1.24**

Rainforest 1.02** 1.02**

Biodiversity 1.03** 1.02**

Food 0.52** 0.51**

Social 0.64** 0.6**

Price - 0.36** - 0.36**

Food/int_food 0.02

Emission3/env 0.32*

Social/inter 0.16*

ASC 0.37* 0.38*

Pseudo R2 0.2212 0.2223

* P value below 0.15

** P value below 0.01

The overall explanatory power of our models, given by the pseudo-R2 values in the table

above, is adequate according to Bennett (1999) as the values are between 0.2 and 0.4.

According to Louviere (2000), it would not be expected to find R2 values as high as those

obtained in OLS (Ordinary Least Squares) regression.

The willingness-to-pay values related to these coefficients are given on the next page

with the analysis of sub-populations (Table 4). Our results are expressed as a percentage

change of the price per litre, with an assumed base price of £0.90 per litre.

According to the results, the mere stabilisation of greenhouse gas emissions is not valued

by the consumer, as it is never significantly different from zero. The legitimacy of

biofuels is contested if they produce more greenhouse gas than the baseline scenario.

There is no willingness-to-pay simply to avoid an increase in emissions linked to the use

of biofuels. A number of statements could explain this result, for example the risk of

biofuels emitting more greenhouse gas than conventional fuel may not be taken seriously.

Alternatively, the public may consider the emissions reduction as an intrinsic value of

biofuels and they may believe that governments should not support biofuels with no

reduction.

23

Table 4 - Willingness-to-pay expressed as a percentage change in price

Model 1 Model 2

All countries UK Population

All

Car

driver

Non car

driver

RTFO

aware

Non RTFO

aware All

Emission 1 -0.42 -0.13 -0.96 -1.73 0.51 -0.36

Emission 2 11.57 10.25 14.18 15.42 13.45 11.59

Emission 3 17.91 17.89 18.15 26.16 16.77 17.01

Rainforest 14.13 14.42 13.27 22.98 11.35 14.03

Biodiversity 14.19 13.94 14.34 16.69 14.20 14.00

Food 7.17 8.68 4.30 7.74 6.58 6.99

Social 8.81 9.14 8.37 9.25 9.37 8.28

Food - food 0.28

environmentalist -

emission3 P value below 0.15

4.41

International

organisation -

social

P value below 0.01

2.21

The other levels of the emissions reduction criteria result in a real willingness-to-pay, but

not in direct proportion with the emissions reduction. This shows on average a decreasing

return on utility for the emission reduction. However, people who are aware of the RTFO

in UK have an increasing return on utility for emission reduction, which could reflect an

awareness of the increasing costs of reduction resulting from more stringent emission

reduction targets. Unsurprisingly, the willingness-to-pay for further emissions reduction

is positively correlated to the personal commitment of the respondent in environmental

protection.

There is no obvious preference between rainforest and biodiversity in general; however

some sub-populations do have a clear preference (for example, those that are RTFO

aware). The lack of preference may be explained by a random error around the two

values which are not significantly different. However the significant difference presented

by some sub-populations is more difficult to account for. The rainforest criterion may

benefit from a clearer definition of the land it applies to.

The controversy around the food price is still unsettled and appears to be unresolved in

our results. Depending on the sub-population, the protection of food crops does not

always have the same willingness-to-pay. For some populations, the coefficient is not

significantly different from zero. The identification of the population involved has proven

24

to be difficult and is not related to the respondent being concerned by food price as a

sustainability issue, or to the income per capita. A survey designed especially for the

identification of this population may be needed.

The social criterion meets a more general consensus and an increased willingness-to-pay

by people already in support of an international aid organisation.

Comparison of sub-populations

Two different partitions of our sample have been considered. The first one relates to

drivers/non-drivers and the second one relates to biofuel awareness. The non-driver

population has a higher willingness-to-pay than the driver population. This difference

may be considered as a bias of the choice modelling experiment due to the fact that non-

drivers do not pay for fuel. However, when the willingness-to-pay is expressed as a trade-

off between different criteria with the value of Rainforest as a base unit, the willingness-

to-pay for climate change mitigation is higher for non-drivers. This could be explained by

external factors influencing car ownership, such as environmental awareness.

Table 5 - WTP expressed as a trade-off with rainforest protection

Car driver Non car driver

Emission 1 -0.01 -0.07

Emission 2 0.71 1.07

Emission 3 1.24 1.37

Rainforest 1.00 1.00

Biodiversity 0.97 1.08

Food 0.60 0.32

Social 0.63 0.63

Price -0.35 -0.38

Within the UK population, we studied the relationship between RTFO awareness and

willingness-to-pay. Even if the relationship is positive and people who are aware of

RTFO value the environmental criteria higher, this is not proof of causation. An external

factor may cause the correlation, but the difference is significant enough to be noticed.

The choice modelling experiment has been designed to capture the direct effect of each

criterion. Assuming that the interactions are negligible in comparison to the direct effects,

the willingness-to-pay for biofuels meeting all the criteria presented is £0.41/l in addition

to the current price paid. This value is found by summing the willingness-to-pay for the

individual attributes, not including rainforest as this has been accounted for within the

biodiversity attribute.

25

Table 6 - Willingness-to-pay of the whole sample in pence per litre (Model 1)

Pence per litre

Emission reduction: 35% 10.41

Emission reduction: 60% 16.12

Rainforest protection 12.72

High biodiversity land

protection 12.72

Food crops protection 6.45

Social benefits 5.81

Contingent valuation

After the choice modelling experiment, respondents were asked an open-ended question

for the price they would be willing to pay for a biofuel meeting all the criteria presented.

On average, once extreme responses have been removed, they declared themselves

willing to pay a 21.6% increase (for a base price of £0.90/l, it is a premium of 19.44p/l).

This result is lower than the value found by the choice experiment. Multiple reasons

could explain this difference:

- Negative interactions between the criteria may be not negligible and/or a non-

linear influence of the price may be important

- The contingent valuation may have been biased by the display of the range of

prices in the choice modelling experiment (from 5% to 20% increase) before the

question

- The package of all criteria together may be difficult to assess as a whole.

The results of the contingent valuation by price per litre raise another issue. There is

some threshold effect for £1 and £1.10 (see Figure 4 below). By the construction of our

monetary unit as a percentage increase in price, these effects are difficult to take into

account and depend on the base price per litre that we considered.

The influence of the fuel price on the willingness-to-pay is crucial. We used a percentage

increase as a monetary value in the analysis. This leads to the question: if the price of

biofuel doubles, would the willingness-to-pay double? This is unlikely since the

willingness-to-pay is the price for the environmental services provided. On the other

hand, relative value should also be considered since a decrease in purchasing power of

the money will increase the willingness-to-pay in monetary amounts. The influence is

unclear and could be an interesting subject for further research.

26

Since we have no access to the price per litre experienced by those who responded to the

choice experiment with a full tank price (i.e. we did not ask how many litres made up a

full tank in their vehicle), it may constitute a bias in our survey.

Figure 4 - Contingent valuation by price per litre

Economic theory and our model

The choice modelling experiment relies on the utility theory of the consumer. The

respondents are assumed to be rational and with a total order on the different possibilities

(preferences are complete and transitive). In our model, we assume that the utility

function is linear in the parameters. This assumption is classic and applies to the effect of

small deviations which can be replaced by the marginal influence multiplied by the

deviation. Our results show a willingness-to-pay of up to 40% which could be outside of

the scope of the linearity assumption. However, for each single parameter, the

willingness-to-pay is smaller and so is a non-linear response. On a general basis, the price

has a negative influence on the utility function and hierarchical variables have their

willingness-to-pay seemingly in the same order, which is consistent with the utility

theory.

In our study, we are also looking at the willingness-to-pay of non-drivers, i.e. non-

consumers. The consistency of this figure can be discussed as there is no obvious

incentive for the consumer to declare a reasonable price. However, since fuel is a

strategic resource, its price has an influence beyond its own market. All transport costs

could be increased and indirectly influence the whole economy. With the recent high oil

price, the influence of an increase in fuel price on the whole economy is known and can

act as an indirect cost for the non fuel consumer.

0

5

10

15

20

25

30

35

40

45

£0

.10

£0

.87

£0

.92

£0

.95

£0

.99

£1

.02

£1

.05

£1

.09

£1

.12

£1

.19

£1

.25

£1

.50

£2

.00

£5

.00

£6

7.8

0

Nu

mb

er o

f re

spo

nd

ents

Price per litre

27

The willingness-to-pay of non-drivers is a key issue in this study. Since the use of fossil

fuel is an externality for non-drivers, their willingness-to-pay can be used in a negotiation

process following the Coase theorem (Coase, 1960). People who benefit from the

removal of the externality can participate in the removal cost. In the Coase theorem, both

parties (for example, polluter and polluted) have to be organised to conduct a negotiation.

This is the main limitation of the theorem and the reason for its small scale application

only. In the case of this study, the government is an organisation able to negotiate for the

polluter side on the basis of the willingness-to-pay of the whole population. Since the

private sector can only access through the market the willingness-to-pay of drivers and

not that of non-drivers, the market solution may not be optimal for social welfare.

Conclusions and recommendations

Policy implications

The primary objective of this study was to quantify the value to consumers of a range of

sustainability criteria for biofuels, by estimating their willingness-to-pay for individual

attributes and sustainable biofuels as a whole. We have recognised that it is of

considerable interest for policy makers to know how much individuals are willing to pay

for sustainable biofuels, and within that for sustainability criteria. A number of studies

have tried to elicit the additional value of renewable energy compared to traditional

energy, and most of them have proposed a range of higher values (Menegaki, 2008;

Jeanty et al, 2007; Bergmann et al, 2006).

In our study we found out that there would be considerable support for sustainable

biofuels as willingness-to-pay is significantly different from zero for all attributes other

than 0% emissions reduction (which would be unlikely to be a feature of sustainability

criteria). This implies that policy makers are right to aim to establish sustainability

criteria, as consumers are prepared to pay more when they are assured of the

sustainability of biofuels.

Looking into each attribute of the criteria, greenhouse gas emissions reduction has been

given the highest willingness-to-pay. This suggests that greenhouse gas performance has

a considerably higher value than other attributes, and thus should be a key feature of

sustainability criteria. It has already been widely recognised that to assure greenhouse gas

savings is the essential element of sustainability assurance (Archer, 2005), which can be

seen with most proposed criteria, such as those developed by the European Commission.

This feature can also be the prime justification for the further development of a

measurement and monitoring system for biofuels greenhouse gas performance (Woods &

Diaz-Chavez, 2007). However, the Gallagher Review (RFA, 2008b) argues that while

this is the best policy approach, it is not sensible to base targets for biofuels on their

greenhouse gas emissions reduction potential until we know more about indirect land use

change (for example, the displacement of agricultural production) and avoided land use

from co-products. There are not currently accurate measures of this, so as a result there

28

are many assumptions and uncertainties surrounding estimations of greenhouse gas

emissions.

Respondents were willing to pay more for rainforest and biodiversity, and these values

were very similar. This confirms that consumers place more or less the same weight on

rainforest and biodiversity (which can include rainforest), rather than considering them

differently. Thus it indicates that policy makers are right to consider improving the

current voluntary based sustainability certification system for food crops and wood, to

more a stringent scheme (Bergsma & Croezen, 2007).

Given the lowest willingness-to-pay for food and social benefits, it can be argued that

those two are not such serious considerations to consumers in determining sustainable

biofuels. It has been acknowledged that the production and supply of biofuels is a

complex process, so consumers may find it difficult to trace those benefits throughout the

whole supply chain (Bergsma & Croezen, 2007). As a result, it could be argued that these

attributes may not need to be highlighted as much as greenhouse gas emissions in terms

of enhancing sustainability criteria. Nonetheless it might be worthwhile to present a more

concrete concept of the social benefits that biofuels can offer whist the „food vs. fuel‟

debate is still under scrutiny.

Respondents who were aware of the RTFO were willing to pay considerably more than

those who were not aware, thus there is a possibility of a larger willingness-to-pay if

public awareness of the RTFO is increased (even though no causal relationship has been

proven). This could lead to the argument that the current promotion campaign for the

RTFO is not sufficient as only 25% of respondents answered that they were aware of the

RTFO. As a result, increased public awareness and a governmental promotion campaign

could be considered a significant factor in increasing the support for sustainability

criteria.

The costs of compliance with sustainability criteria may be fully covered by the

willingness-to-pay of car drivers. In this case, the private sector and the consumer have a

win-win incentive and the market will implement the sustainability criteria almost

without any intervention of the government. This change may take time so government

action could be useful to accelerate this process, especially in the creation of a reliable

certification scheme. If the costs of compliance exceed the willingness-to-pay of the

drivers, the market will not lead to the establishment of sustainability criteria. Yet, the

beneficiaries of the sustainability criteria are larger than the direct fuel consumers. The

willingness-to-pay of society as a whole may be higher than the compliance costs, in

which case it would be socially optimal to establish sustainability criteria. However, the

costs would be borne by the industry. With no compensation scheme added (pure

regulation policy), all the benefits will be taken by the public and the profits of the

private sector will be reduced. With a transfer organised from the public to the private

sector, the research and development capacity of the companies will not be diminished

and a market instrument can be used to pilot the market. The transfer possibilities include

(but are not limited to) conditional subsidies, tax exemptions and public-funded research.

29

Given the support for sustainability criteria, it is likely that the public or the government

would support increased investment in R&D to facilitate the development of 2nd

-

generation biofuels. It is likely that it will be easier for these fuels to comply with criteria,

which would lead to reduced compliance costs.

Further research

Given that the debate surrounding biofuels is on-going and the biofuels market is still

growing, it is likely that consumer preferences for biofuels will change over time,

especially as the establishment of sustainability criteria progresses. As a result, the

findings of future studies like this may well diverge from the findings presented here. The

following points may also be interesting to note for future studies:

• A larger and more representative sample would be expected to give more reliable

results and to assist in eliciting preferences of the population as a whole. For

example, 42% of respondents were in the age category 17-24, and 85% of

respondents were educated to undergraduate or postgraduate degree level, thus

suggesting that older age groups and less-educated groups were under-

represented. In order to gauge the representativeness of our sample it would be

useful to compare our demographic and attitudinal data with official data for the

UK population as a whole.

• Improvements to the survey design would be needed to avoid problems with

understanding the task at hand. For example, despite the fact that 80% of

respondents answered that they understood the questions, some respondents felt

that the introduction to the choice experiment was too wordy. In addition, some

felt they needed more information about what biofuels are, but 77% of

respondents said they either knew a little or a lot about biofuels so this was only

an issue for the minority. 40% of respondents felt the survey was biased towards

biofuels, and it would be important to bear this in mind for future studies.

• A more comprehensive contingent valuation could give more informative results

and enable us to make better comparisons with the choice experiment results. This

is useful to test the assumption when estimating total value in choice modelling,

that the value of a whole is equal to the sum of its parts (Hanley et al, 2001). It

may be that placing the contingent valuation before the choice experiment would

be more reliable, as bias could have been introduced in this study by putting the

contingent valuation after the point at which respondents had been provided with

price information. In addition, other ways of eliciting willingness-to-pay through

contingent valuation, such as by dichotomous choice or displaying a price card

with various amounts listed on it, could have given more reliable results than

simply having an open-ended question.

30

• Looking at interactions between attributes could provide more interesting and

informative results, but as previously explained this was not possible using a

fractional design to reduce the number of alternatives in our choice experiment. A

larger sample (as mentioned above) would reduce the need for a fractional design

and therefore enable us to look at these interactions.

• It would be useful to look at the consistency of our monetary unit (percentage

change in price) in terms of sensitivity to scope. The use of this as a measure of

willingness-to-pay assumes that the percentage change in price a consumer is

willing to pay for sustainable biofuels is consistent regardless of the initial price.

• Other data analysis techniques could be used to avoid the potential bias inherent

in conditional logit, for example random parameter logit (RPL). This would have

been too complicated for our study, but it avoids the assumptions of conditional

logit that all respondents have equal utility weights for site attributes, of IIA

(independence of irrelevant alternatives), and of uncorrelated errors in

respondents‟ answers (Banzhaf et al, 2001).

• Assessing compliance costs would enable us to make more accurate policy

recommendations, but this information is not currently easy to access due to the

small number of sustainability criteria schemes actually implemented. It has also

been pointed out that for small-scale producers it will be far more difficult to

comply with some criteria, with the investments required for biofuels in general

being a key barrier to investing in compliance (RSB, 2008).

31

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Appendices

Appendix A: World biofuels trends

Figure 5 - World bioethanol production (IEA, 2008)

Figure 6 - World biodiesel production (IEA, 2008)

36

Appendix B: Choice experiment scenarios (fractional factorial design)

Scenario

number

Greenhouse

gas emissions

reduction (%)

Land use

consideration

Social benefit Price

(% increase)

1 (Baseline) N/A N/A N/A N/A

2 N/A Rainforest N/A 10

3 N/A Biodiversity Yes 15

4 N/A Food Yes 20

5 0 N/A Yes 10

6 0 Rainforest Yes 5

7 0 Biodiversity N/A 20

8 0 Food N/A 15

9 5 N/A Yes 15

10 5 Rainforest Yes 20

11 5 Biodiversity N/A 5

12 5 Food N/A 10

13 9 N/A N/A 20

14 9 Rainforest N/A 15

15 9 Biodiversity Yes 10

16 9 Food Yes 5