GEORG Geothermal Workshop 2016 Presentation Title: Willingness to pay for the preservation of geothermal areas in Iceland – the contingent valuation studies of Eldvörp and Hverahl

1. Willingness to pay for the preservation of
geothermal areas – the contingent valuation
studies of Eldvörp and Hverahlíð
David Cook, GEORG Geothermal Workshop – 25th November 2016

2. 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

3. 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)

4. 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)

5. 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

6. Study sites – Hverahlíð and Eldvörp
Hverahlíð Eldvörp

7. 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

8. 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

9. 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

10. 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)

11. Willingness to pay for the preservation of
Eldvörp and Hverahlíð – interval regression
model
Variables 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

12. 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

13. 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

14. Any questions?