Sunday, May 22, 2011

Workshop: Benefits of Environmental Information Disclosure - U.S. EPA National Center for Enviromental Economics

Description: The overarching theme of the Benefits of Environmental Information Disclosure meeting was how to improve or create effective information disclosure policies in the context of governmentbased environmental programs. Ongoing research was presented in a broad array of fields including: environmental labels, voluntary reporting, consumer willingness to pay, “greenwash,” and audits.

For full proceedings go to:$file/EE-0567-01.pdf

Table of Contents

Executive Summary
Session I: The Effectiveness of Energy Efficiency Labels
  • Consumer Willingness-to-Pay for Energy STAR and Green Power Labeled Refrigerators Christopher Clark, University of Tennessee
  • Evaluating Alternative Approaches to Energy Efficiency Labeling: Designing and Implementing a Choice Juha Siikamaki, Resources for the Future
  • Discussant: Chris Moore, EPA, National Center for Environmental Economics
  • Discussant: Maureen McNamara, EPA, Climate Protection Partnerships

Session II: What Causes Reductions in TRI Emissions?
  • The Impact of Quasi-Regulatory Mechanisms on Polluting Behavior: Evidence From Pollution Prevention Programs and Toxic Releases Linda Bui, Brandeis University
  • Discussant: Ann Wolverton, EPA, National Center for Environmental Economics
  • Discussant: Sheila Olmstead, Resources for the Future
Session III: Information, Audits, and Enforcement
  • Regulatory Enforcement With Dynamic Targeted Audit Mechanisms Christian Vossler, University of Tennessee
  • Strategic Environmental Disclosure: Evidence From DOE’s Voluntary Greenhouse Gas Registry Thomas Lyon, University of Michigan
  • Competing Environmental Labels, Carolyn Fischer, Resources for the Future
  • Discussant: Jon Silberman, EPA, Office of Enforcement and Compliance Assurance
  • Discussant: Sarah Stafford, College of William and Mary

Session IV: Panel: Perspectives on Information Disclosure, Emissions, and Compliance
Panelists: Economic Perspectives on Environmental Information Disclosure Jay Shimshack, Tulane University and Cody Rice, EPA, Office of Chemical Safety and Pollution Prevention
Participants List

The Effectiveness of Energy Efficiency Labels
Consumer Willingness-to-Pay for Energy Star and Green Power Labeled Refrigerators
by Christopher Clark, University of Tennessee
In the United States, environmental labeling programs usually identify both a public and a private benefit for making a particular consumer choice. Does this make sense from a policy point of view? Providing both public and private benefits could lead to more energy efficient choices, but small extrinsic rewards can sometimes “crowd out” intrinsic motivation (e.g., financial incentives for blood donors actually decreases the number of people willing to donate blood). This study analyzed consumer willingness to pay (WTP) for an environmental attribute (energy efficiency) in refrigerators based on the Energy Star label (public and private benefits), Green Power Partners (public benefits only), and Climate Leaders Program (public benefits only). Using a Knowledge Networks survey panel, participants answered questions about choosing a refrigerator when presented with one of the four following scenarios: Energy Star label; Energy Star label plus a mail-in rebate for $50; Green Power Partnership label; or Climate Leaders Program label. The study concluded that consumers are willing to pay a premium for refrigerators that have been awarded a label by Energy Star, the Green Power Partnership, or the Climate Leadership Program. Consumer WTP is highest for Energy Star because the program: (1) is familiar to consumers; (2) is focused on consumer labeling; (3) has more explicit benefits; and (4) identifies public and private benefits. There was little or no evidence of “crowding out,” but offering a rebate appeared to lower a buyer’s perception of the product’s quality, and thus their WTP.

Evaluating Alternative Approaches to Energy Efficiency Labeling: Designing and Implementing a Choice Experiment
by Juha Siikamaki, Resources for the Future
In the United States, household valuation of energy efficiency is usually low. Possible explanations for this  observation include: information problems, principal/agent problems, unobserved costs, costs of obtaining information, discount rates, and heterogeneity. Labeling programs are one option to address information barriers (and costs). Labels vary in the amount of information provided; for example, Energy Star is an endorsement and is triggered when a threshold of energy efficiency is reached, whereas Energy Guide presents the performance of the appliance relative to similar models (e.g., estimates of kWh used per year, how the appliance compares to other appliances). This study: (1) evaluates alternative labeling approaches in the context of household preferences for energy efficiency; and (2) disentangles the effects of different drivers of valuation of energy efficiency (e.g., discount rates, credit constraints, likelihood of moving). Using a Knowledge Networks computerized survey panel, participants were asked a number of questions about their preferences in water heaters. Then they chose a water heater to purchase after viewing one of the following five labeling treatments: (1) Energy Guide information; (2) Simplified Energy Guide (no range); (3) Energy Guide information plus CO2; (4) EU-style grade; or (5) Energy Guide information plus Energy Star (multiple labels).

Follow-up questions addressed their WTP for energy efficiency, payback time, individual discount rates, and current credit status. Preliminary results indicate:
• Consumers expect a 4-5 year period for payback;
• Households are willing to pay $45-$54 dollars up front for an expected $10 annual reduction in energy cost;
• Individual discount rates had a mean of 19 percent and a median of 11 percent; and
• Consumer WTP is highest for the EU label and lowest for the Simplified Energy Guide.
The next steps are to:
• Complete the survey and analyze the results;
• Thoroughly examine heterogeneity;
• Estimate a panel model;
• Examine WTP for energy efficiency in terms of discounting, credit constraints, likelihood of moving, and unobserved preference heterogeneity; and
• Evaluate policy implications of labeling practices.

Discussant: Chris Moore, EPA, National Center for Environmental Economics
Overall, the Clark paper was well organized and presented a neat and clean analysis of estimating WTP for the Energy Star label and inferring WTP for public benefits (beyond private cost savings). The discussion of the results and interpretation of interaction terms was coherent. The experimental design and econometric specification were good. The paper could be improved by: (1) discussing the implications of the results regarding alternative approaches to capturing preference heterogeneity; (2) providing a practical rather than theoretical justification for holding coefficients fixed in the RP model; (3) considering alternative specifications  for attitudinal variables; (4) including an image of the design question; and (5) comparing results
with other studies.

The Siikamaki paper is a more ambitious study of labeling that attempts to determine how people respond to different presentations of information and tease out factors contributing to the “efficiency gap”. The energy labels used in the study are familiar to many people, thus it is very valuable to compare WTP across those treatments. The study takes a good approach by emphasizing relative values rather than dollar amounts when comparing WTP across treatments.

The label with the footprint (Energy Guide information plus CO2) had a high WTP. Could an emotional response to the footprint image be the driver? Or are people actually looking at the numbers and thinking about them?

Discussant: Maureen McNamara, EPA, Climate Protection Partnerships Division
Energy Star has about 1,500 retailers and 3,000 manufacturing partners and 60 different product categories (e.g., laptops, large appliances). An Energy Star label does not imply a price premium for efficiency; most products receiving the label have little or no difference in price compared with non-Energy Star products. Manufacturers have coupled Energy Star with other premium features. There is a perceived value of quality that comes into play with large appliances and this may contribute to consumer WTP.

Maureen McNamara is managing a national analysis of Energy Star awareness and use in the marketplace that draws upon the same Knowledge Network Panel as both of the studies within this session. The Knowledge Network Panel is widely used and provides consistent results; however, there is a concern that the panel’s recruitment and refreshment rate may not be frequent enough to keep up with its use. People may “learn” because they have taken part in multiple surveys. Ms. McNamara encouraged both speakers to look at 10-12 year datasets. The energy industry is engaged in providing financial incentives to consumers and there is a lot of interest in the effects and optimal balance of incentives. The most recent data show that 80% of consumers are aware of Energy Star. Each year, a survey is conducted to document how many consumers have bought an Energy Star product. Last year, there was a huge jump in the number of consumers saying a financial incentive was important in their decision. It is also important to look at geographical effects. Some parts of the country have been promoting Energy Star for longer or placing more emphasis on the program.

What Causes Reductions in Toxic Release Inventory (TRI) Emissions?
Session Moderator: Charles Griffiths, EPA, National Center for Environmental EconomicsThe Impact of Quasi-Regulatory Mechanisms on Polluting Behavior: Evidence From Pollution Prevention Programs and Toxic Releases
by Linda Bui, Brandeis University
Quasi-regulatory mechanisms, such as voluntary programs, are often believed to be more efficient than traditional regulatory mechanisms. Polluters may respond well to these mechanisms because quasi-regulatory mechanisms can lead to lower abatement costs by providing or lowering the cost of information and/or more formal regulations may be applied in the future if polluters do not respond by voluntarily abating. There is little empirical evidence to support either of these hypotheses. This study addresses the question, “Do quasi- regulatory mechanisms lead to lower levels of pollution?” by examining pollution prevention (P2) programs aimed at toxic releases, analyzing their effectiveness at eliciting a polluter response, and looking for evidence to explain why polluters respond to quasi-regulatory mechanisms. Drawing from the TRI, event study methodology was used to estimate the average effect of federal- and state level P2 programs on toxic releases using facility data from 1988 to 2003. The following factors also were considered in the analyses: facilities located in “early” or “late” P2 adopting states, facilities in “low” or “high” stringency states, the distribution of facilities in “low” or “high” stringency states, and confounding effects of the 1990 Clean Air Act Amendment.

The results indicated that: (1) the adoption of P2 programs can affect facility-level toxic releases (decrease of 3 to 9 percent over time); (2) spill-over effects may play an important role in the effectiveness of P2 programs with later adopters benefiting from the information and experience gained by earlier adopters; and (3) P2 programs become less effective over time.

U.S. Environmental Protection Agency (EPA) National Center for Environmental Economics (NCEE)
Date: January 18, 2011

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