1. Public Acceptance of the German Energy Transition – An Experimental Study on Distributional Preferences 33rd USAEE/IAEE North American Conference The Dynamic Energy Landscape October 25-28, 2015 in Pittsburgh Ole Kutzschbauch Helmut Schmidt University Department of Economics and Social Sciences Institute for Behavioral Economics

2. Public Acceptance of the German Energy Transition – An Experimental Study on Distributional Preferences Helmut Schmidt University Department of Economics and Social Sciences Institute for Behavioral Economics Ole Kutzschbauch 33rd USAEE/IAEE North American Conference Agenda (1)Motivation (2)Experimental Design (3)Results (4)Summary Pittsburgh, October 27th, 2015 2

3. Public Acceptance of the German Energy Transition – An Experimental Study on Distributional Preferences Helmut Schmidt University Department of Economics and Social Sciences Institute for Behavioral Economics Ole Kutzschbauch 33rd USAEE/IAEE North American Conference (1)Motivation Germany‘s energy transition: Germany‘s energy transition, the so called Energiewende, is by that one of the most ambitious projects in Germany’s recent history. massive state interventions lead to far-reaching consequences to society. →Without the support of a majority of the population, the energy transition will most likely not reach its intended goals. Pittsburgh, October 27th, 2015 3 Main Targets: Reducing GHG-Emissions -40 % by 2020 compared to 1990. nuclear phase-out by 2022 Boosting proportion of total energy consumption by renewable energy sources Reducing primary energy consumption

4. Public Acceptance of the German Energy Transition – An Experimental Study on Distributional Preferences Helmut Schmidt University Department of Economics and Social Sciences Institute for Behavioral Economics Ole Kutzschbauch 33rd USAEE/IAEE North American Conference (1) Motivation The current efforts will not be sufficient to achieve the objectives of the energy transition. Without a significant increase of today’s capacities of renewable energy sources the goals of the energy transition will not be reached. Financial support for renewables is crucial to increase the share of green electricity to total energy supply Research Question: How should the additional costs be distributed among the households to ensure public acceptance? Pittsburgh, October 27th, 2015 4

5. Public Acceptance of the German Energy Transition – An Experimental Study on Distributional Preferences Helmut Schmidt University Department of Economics and Social Sciences Institute for Behavioral Economics Ole Kutzschbauch 33rd USAEE/IAEE North American Conference (2) Experimental Design The experimental approach allows us to analyze subjects‘ behavior in a controlled environment. The experiment was conducted in a shopping mall in Germany with regular visitors as subjects. Choices of the participants had real monetary consequences. Every amount that was contributed by the decision maker to the energy transition reduced her payoff. We excluded efficiency concerns and possible reciprocity to solely focus on distributional preferences. We constructed a stylized society that want to follow suit the German energy transition. Subjects chose anonymously how they want to divide the costs of the energy transition between three heterogeneous income groups (low, medium, high). Different institutional scenarios allowed us to test for changes in respondents choices. Today, we focus on two treatments: I.Baseline scenario II.Cost Uncertainty In addition: We asked for Subjects‘ attitudes, opinions and sociodemograhic data. Pittsburgh, October 27th, 2015 5

6. Public Acceptance of the German Energy Transition – An Experimental Study on Distributional Preferences Helmut Schmidt University Department of Economics and Social Sciences Institute for Behavioral Economics Ole Kutzschbauch 33rd USAEE/IAEE North American Conference (2) Experimental Design I.Baseline scenarioII.Cost Uncertainty Pittsburgh, October 27th, 2015 6

7. Public Acceptance of the German Energy Transition – An Experimental Study on Distributional Preferences Helmut Schmidt University Department of Economics and Social Sciences Institute for Behavioral Economics Ole Kutzschbauch 33rd USAEE/IAEE North American Conference (3) Results In total 374 subjects participated in the experiment. 17 % of the participants were 51 or older. 27.2% had an household income less than 1000 Euro. 4.8% did not have a job. 7.2 % were retired.  Target to include low income households and older participants was reached. The average payout was 10,50 Euro. Pittsburgh, October 27th, 2015 7

8. Public Acceptance of the German Energy Transition – An Experimental Study on Distributional Preferences Helmut Schmidt University Department of Economics and Social Sciences Institute for Behavioral Economics Ole Kutzschbauch 33rd USAEE/IAEE North American Conference (3) Results 71 % support measures to prevent the consequences of the climate change. 70 % stated that they would accept higher costs for these target. Still 33% thought that the costs are currently too high. Climate change is considered as a task for the whole society. Pittsburgh, October 27th, 2015 8

9. Public Acceptance of the German Energy Transition – An Experimental Study on Distributional Preferences Helmut Schmidt University Department of Economics and Social Sciences Institute for Behavioral Economics Ole Kutzschbauch 33rd USAEE/IAEE North American Conference (3) Results Baseline scenario: Respondents chose a proportional distribution.  The energy transition seems to be seen as a task for the whole society, but with the limitation that no specific group in the population is overburdened. Pittsburgh, October 27th, 2015 9

10. Public Acceptance of the German Energy Transition – An Experimental Study on Distributional Preferences Helmut Schmidt University Department of Economics and Social Sciences Institute for Behavioral Economics Ole Kutzschbauch 33rd USAEE/IAEE North American Conference (3) Results Cost Uncertainty scenario: Uncertainty leads to a more regressive distribution. This effect is strongest in high income groups but visible for every income. Pittsburgh, October 27th, 2015 10

11. Public Acceptance of the German Energy Transition – An Experimental Study on Distributional Preferences Helmut Schmidt University Department of Economics and Social Sciences Institute for Behavioral Economics Ole Kutzschbauch 33rd USAEE/IAEE North American Conference (3) Results Effect of Uncertainty is significant (***). The results follows more a consumption tax, where each individual take his share of the costs according to her energy use. Pittsburgh, October 27th, 2015 11

12. Public Acceptance of the German Energy Transition – An Experimental Study on Distributional Preferences Helmut Schmidt University Department of Economics and Social Sciences Institute for Behavioral Economics Ole Kutzschbauch 33rd USAEE/IAEE North American Conference (4) Summary & Conclusion We find that subjects generally follow the ability-to-pay-principle (supported also by the other treatments we had) as participants choose in the median position a proportional distribution. If the society is certain that the goals of the energy transition will be achieved as planned and the costs are thereby relatively certain a proportional distribution on the basis of the ability-to-pay principle is preferred. This contradicts the current financing mechanism with his regressive characteristics When we introduce cost uncertainty, the society moves from a clear proportional distribution towards a more regressive cost distribution. If the costs for the ambitious objectives of the government are perceived unstable, we see a movement towards a capitation of the costs. the regressive character of the current system could support the public acceptance of the energy transition. Pittsburgh, October 27th, 2015 12

13. Thank You very much Pittsburgh, October 27th, 2015 13

14. Public Acceptance of the German Energy Transition – An Experimental Study on Distributional Preferences Helmut Schmidt University Department of Economics and Social Sciences Institute for Behavioral Economics Ole Kutzschbauch 33rd USAEE/IAEE North American Conference Appendix Pittsburgh, October 27th, 2015 14

15. Public Acceptance of the German Energy Transition – An Experimental Study on Distributional Preferences Helmut Schmidt University Department of Economics and Social Sciences Institute for Behavioral Economics Ole Kutzschbauch 33rd USAEE/IAEE North American Conference Appendix Pittsburgh, October 27th, 2015 15

16. Public Acceptance of the German Energy Transition – An Experimental Study on Distributional Preferences Helmut Schmidt University Department of Economics and Social Sciences Institute for Behavioral Economics Ole Kutzschbauch 33rd USAEE/IAEE North American Conference Appendix Pittsburgh, October 27th, 2015 16

17. Public Acceptance of the German Energy Transition – An Experimental Study on Distributional Preferences Helmut Schmidt University Department of Economics and Social Sciences Institute for Behavioral Economics Ole Kutzschbauch 33rd USAEE/IAEE North American Conference Appendix Pittsburgh, October 27th, 2015 17

18. Public Acceptance of the German Energy Transition – An Experimental Study on Distributional Preferences Helmut Schmidt University Department of Economics and Social Sciences Institute for Behavioral Economics Ole Kutzschbauch 33rd USAEE/IAEE North American Conference Appendix Pittsburgh, October 27th, 2015 18