Absolution through Innovation? - The Willingness to pay for climate change-related R&D

(joint with Susana Mourato and George MacKerron)
Abstract: With increasing concern about climate change there have been many calls recently to increase direct government subsidies for R&D spending on climate change-related research. While governments in many industrialised countries have put a number of different schemes in place, spending still falls short of the doubling in spending levels many experts are calling for. Concern for climate change has equally made so-called voluntary offsetting schemes popular, ranging from tree-planting projects to subsidies for the purchase of energy-saving light bulbs for schools in developing countries. In this paper we use a choice modelling approach to investigate the feasibility of channelling some of these ‘charitable’ contributions for climate change projects into R&D spending.
Looking at aggregate figures, it seems plausible that this could have significant effects. For example, in the UK, aggregate government spending on energy-related R&D and private spending on voluntary offsetting are roughly commensurate. However, a key difference between typical offsetting schemes and spending on R&D is the certainty of the impact on CO pollution. At least on paper, a tree-planting project offers a clear account of how much CO is avoided: simply use the amount of CO a tree ‘breathes in’ over its lifetime. With spending on R&D any CO reductions are uncertain and occur, if at all, at an unspecified future date---although they might potentially be much larger. The feasibility of an ‘innovation offsetting’ scheme consequently depends on the perception of its future carbon-reduction potential, and of the risks involved, among typical participants in the carbon offset market.
In this exploratory study we have used a web-based choice experiment survey to investigate preferences for innovation offsetting. We presented respondents with hypothetical scenarios for offsetting the carbon emissions from their leisure and business flights. In each scenario, respondents could: i) buy a standard, verified offset, which promised to save a fixed amount of carbon; ii) buy an 'innovation offset', which contributed to a fund providing grants for carbon-reducing R&D; or iii) not buy any offset. From scenario to scenario we varied the proportion of carbon emissions saved by the conventional offset option, the area of research funded by the innovation offset (out of eight possible research areas), and the prices of the offsetting options.
Our results suggest that there is potential demand for innovation offsetting. Our respondents show a marked preference for investing in a portfolio comprising all possible research areas, rather than choosing individual research areas. In fact, some individual research areas have a negative impact on utility under certain model specifications (these areas include hydrogen, nuclear power, bio-fuels, and planetary engineering). Apart from the expected lower sensitivity to the price of offsets for business flight emissions---which are hypothetically to be paid for by the respondent's organisation---we find no significant discrepancy between offsetting behaviour in relation to leisure and business flight emissions. Our ‘carbon innovation exchange rate’ ranges from £0.30 to £0.40 per tonne of CO. To our knowledge, this is the first study to investigate demand for offsetting schemes that invest in carbon-reducing research and innovation.