South Korean Household’s Willingness to Pay for Replacing Coal with Natural Gas? A View from CO2 Emissions Reduction

Coal is currently a major electric power generation source in South Korea when considering that forty-three percent of electricity that was generated during the first quarter of 2017 came from coal. The amount of CO2 emissions from coal-fired power plant is two times larger than that from natural gas (NG)-fired power plant in the country. In this regard, the Korean government is trying to replace some amount of coal that is used for generation with NG to reduce CO2 emissions. However, the cost of NG-fired generation is about 1.25 times higher than that of coal-fired generation. Thus, the policy-makers demand information about the household willingness to pay (WTP) for the replacement to mitigate CO2 emissions. This paper applies the contingent valuation (CV) approach, and assesses the household’s WTP for replacing one kWh of coal-fired power with that of NG-fired power. For this purpose, a total of 1000 South Korean households were involved in the CV survey employing a dichotomous choice question. In addition to the current electricity price, KRW 121.52 (USD 0.11) per kWh, the respondents were willing to pay KRW 25.35 (USD 0.02) per kWh. The costs of NG-fired and coal-fired generation are KRW 100.13 and 78.05, respectively, per kWh. The difference between the two is KRW 22.08 per kWh, which is smaller than the mean additional WTP (KRW 25.35 per kWh). The household’s additional WTP is bigger than the actual additional cost. It is concluded that the switch of power generation source from coal to NG to reduce CO2 emissions can be supported by South Korean households.

[1]  S. Yoo,et al.  Assessing the benefits of the greenhouse gas emission reduction policy: a pilot case study of Korea , 2001 .

[2]  Christian A. Vossler,et al.  Contemporary Guidance for Stated Preference Studies , 2017, Journal of the Association of Environmental and Resource Economists.

[3]  Yuk-shing Cheng,et al.  Residential willingness to pay for deep decarbonization of electricity supply: Contingent valuation evidence from Hong Kong , 2017 .

[4]  Richard T. Carson,et al.  Incentive and informational properties of preference questions , 2007 .

[5]  Anna Alberini,et al.  Preferences for Energy Efficiency vs. Renewables: What Is the Willingness to Pay to Reduce CO2 Emissions? , 2018 .

[6]  S. Yoo,et al.  Train travel passengers' willingness to pay to offset their CO2 emissions in Korea , 2014 .

[7]  B. Kriström.  Spike Models in Contingent Valuation , 1997 .

[8]  J. Ladenburg,et al.  How Spatial Relationships Influence Economic Preferences for Wind Power—A Review , 2015 .

[9]  Leon A.G. Oerlemans,et al.  Willingness to pay for green electricity: A review of the contingent valuation literature and its sources of error , 2016 .

[10]  S. Yoo,et al.  Estimating the public’s value of implementing the CO2 emissions trading scheme in Korea , 2015 .

[11]  Thomas C. Brown,et al.  A primer on nonmarket valuation , 2003 .

[12]  S. Yoo,et al.  Is the Korean public willing to pay for a decentralized generation source? The case of natural gas-based combined heat and power , 2017 .

[13]  S. Yoo,et al.  Public's willingness to pay for preventing climate change , 2010 .

[14]  Konstantinos P. Tsagarakis,et al.  Towards a common standard – A reporting checklist for web-based stated preference valuation surveys and a critique for mode surveys , 2016 .

[15]  Ian J. Bateman,et al.  Bound and path effects in double and triple bounded dichotomous choice contingent valuation , 2001 .

[16]  W. Michael Hanemann,et al.  Statistical Efficiency of Double-Bounded Dichotomous Choice Contingent Valuation , 1991 .

[17]  I. Krinsky,et al.  On Approximating the Statistical Properties of Elasticities , 1986 .

[18]  Seung-Hoon Yoo,et al.  WILLINGNESS TO PAY FOR GREEN ELECTRICITY IN KOREA: A CONTINGENT VALUATION STUDY , 2009 .

[19]  S. Yoo,et al.  The Environmental Costs of Photovoltaic Power Plants in South Korea: A Choice Experiment Study , 2017 .

[20]  Great Britain. Foreign,et al.  United Nations Framework Convention on Climate Change , 2019, The ‘Earth Summit’ Agreements: A Guide and Assessment.

[21]  W. Michael Hanemann,et al.  Welfare Evaluations in Contingent Valuation Experiments with Discrete Responses , 1984 .

[22]  Chul-Yong Lee,et al.  Estimating willingness to pay for renewable energy in South Korea using the contingent valuation method , 2016 .

[23]  Seema Narayan,et al.  An investigation of renewable and non-renewable energy consumption and economic growth nexus using industrial and residential energy consumption , 2017 .

[24]  Seul-Ye Lim,et al.  External benefits of waste-to-energy in Korea: A choice experiment study , 2014 .

[25]  S. Yoo,et al.  Using a spike model to deal with zero response data from double bounded dichotomous choice contingent valuation surveys , 2002 .

[26]  Edward E. Leamer,et al.  Report of the NOOA Panel on Contingent Valuation , 1993 .

[27]  Hyo-Jin Kim,et al.  Household willingness to pay for expanding fuel cell power generation in Korea: A view from CO2 emissions reduction , 2018 .