Consumer Preferences for Small-lot Greenhouse Gas Emission Credits Attached to Automobile Insurance

Abstract

Achievement of CO2 emission reductions in the automobile sector is a complex problem because of the difficulties in regulating consumer behavior. The approach of the present study is not government regulation of consumer CO2 emissions but the encouragement of responsible environmental behavior using the bounded rationality of consumers based on behavioral economics. Currently, greenhouse gas (GHG) emission credits are mainly traded among corporations. However, the use of small-lot emission credits is expected to begin spreading to consumers. We propose a system through which small-lot emission credits can be purchased by the consumers during the purchase or renewal of automobile insurance. Drivers can offset vehicle CO2 emissions by purchasing emission credits. In the present study, we analyzed the market potential for small-lot GHG emission credits attached to automobile insurance. A consumer survey of 351 drivers was conducted in Japan. Consumer preferences are evaluated using conjoint analysis and the contingent valuation method (CVM). The average value of the marginal willingness to pay (WTP) for GHG emission credits is estimated to be approximately 2171 yen per ton-CO2. The median WTP for GHG emission credits is estimated to be approximately 2260 yen per year. Assuming that the average driver in Japan travels a distance of 10,000 kilometers per year and the vehicle fuel efficiency is 10 kilometers per liter, the WTP for GHG emission credits corresponds to approximately 30 percent of each driver's CO2 emissions.

Keywords: preference, emission credit, automobile insurance, conjoint analysis, CVM, WTP, carbon offsetting