Sharing the Carbon Revenues: Mainstreaming Carbon and Credit Markets for Renewable Energy Technologies in Nepal A thesis submitted for the degree of Doctor of Philosophy at Charles Sturt University Samir Bahadur Thapa Master of Science, Energy Systems and Management School of Management and Marketing Faculty of Business, Justice and Behavioural Sciences CHARLES STURT UNIVERSITY March 2019 Table of Contents Chapter 1 Introduction ................................................................................................. 1 1.1 Background ........................................................................................................ 1 1.2 Research Context ................................................................................................ 4 1.3 Research Questions ............................................................................................ 6 1.4 Methodological Approach .................................................................................. 7 1.5 Thesis Structure .................................................................................................. 8 Chapter 2 Development of Energy Access Finance in Nepal.................................... 13 2.1 Introduction ...................................................................................................... 13 2.1.1 Renewable energy use ............................................................................... 14 2.1.2 Present status and potential ....................................................................... 15 2.1.3 GHG emission, mitigation and adaptation ................................................ 17 2.2 Renewable Energy Finance – Historical Development .................................... 19 2.2.1 Financing facility and mechanisms ........................................................... 23 2.2.2 Subsidies and credit finance ...................................................................... 25 Chapter 3 Emissions Trading, Carbon Markets and Carbon Credits ........................ 29 3.1 Emissions Trading ............................................................................................ 29 3.2 Carbon Markets ................................................................................................ 34 3.3 Emissions Trading and Distributional Impacts ................................................ 41 3.3.1 General distributional impacts .................................................................. 41 3.3.2 Health impacts .......................................................................................... 42 3.3.3 Revenue recycling and use ........................................................................ 43 3.4 Emissions Trading, Carbon Credits, and Payment for Environmental Services ....................................................................................................................... 45 3.4.1 Introduction ............................................................................................... 45 3.4.2 Institutional context of PES distribution ................................................... 46 3.4.3 Use of carbon revenues and distributional impacts .................................. 49 3.5 Discussion and Conclusion .............................................................................. 51 Chapter 4 Renewable Energy and Energy Access Financing .................................... 52 4.1 Climate and Renewable Energy Policies.......................................................... 52 4.2 Innovation, Research and Development in RE ................................................ 54 4.3 Renewable Energy Financing and Investment ................................................. 56 4.3.1 Introduction ............................................................................................... 56 4.3.2 Market subsidy mechanisms ..................................................................... 57 4.3.3 Behavioural and structural context ........................................................... 60 4.4 Financing Energy Access in Developing Countries ......................................... 61 4.4.1 Introduction ............................................................................................... 61 4.4.2 Subsidy financing ...................................................................................... 62 4.4.3 Debt and equity financing ......................................................................... 64 4.5 Discussion and Conclusion .............................................................................. 73 Chapter 5 Non-Market Valuation, Stated Preference and Renewable Energy .......... 75 5.1 Introduction ...................................................................................................... 75 5.2 Stated Preference and Revealed Preference Methods ...................................... 77 5.2.1 Contingent valuation – preference elicitation ........................................... 78 5.2.2 Choice experiment and conjoint analysis - new approaches..................... 81 5.3 Stated Preference in Developing Countries ..................................................... 84 5.3.1 Empirical applications .............................................................................. 85 5.3.2 Theoretical considerations ........................................................................ 93 5.3.3 Applications to benefit transfer ................................................................. 96 5.4 Renewable Energy, Energy Access and Stated Preference Methods ............... 98 5.4.1 Developed countries .................................................................................. 99 5.4.2 Developing countries .............................................................................. 104 5.5 Discussion and Conclusion ............................................................................ 119 Chapter 6 Theoretical Framework and Methodological Issues ............................... 124 6.1 Theoretical Framework for the Methods ........................................................ 124 ii 6.1.1 Contingent valuation ............................................................................... 124 6.1.2 Choice experiment .................................................................................. 125 6.2 Methodological Issues - Contingent Valuation .............................................. 127 6.2.1 Hypothetical valuation ............................................................................ 127 6.2.2 Assuring true values – Reducing hypothetical bias ................................ 129 6.2.3 Rationality and theoretical consistency .................................................. 131 6.2.4 Assuring rationality - theoretical constructs and convergent validity..... 133 6.2.5 Calibration ............................................................................................... 137 6.3 Methodological Issues - Choice Experiment ................................................. 138 6.3.1 Design issues and considerations ............................................................ 140 6.4 Discussion and Conclusion ............................................................................ 141 Chapter 7 Survey and Questionnaire Design ........................................................... 144 7.1 Sampling Frame and Sample Size .................................................................. 144 7.2 Questionnaire Design ..................................................................................... 148 7.3 Pre-test ............................................................................................................ 158 7.4 Discussion and Conclusion ............................................................................ 159 Chapter 8 Econometric Framework and Model Specification ................................ 161 8.1 Non-Parametric Specification – Turnbull Estimator ...................................... 161 8.2 Parametric Specification ................................................................................ 165 8.2.1 Contingent valuation ............................................................................... 166 8.2.2 Choice experiment .................................................................................. 169 8.3 Discussion and Conclusion ............................................................................ 174 Chapter 9 Descriptive Statistics ............................................................................... 177 9.1 Introduction .................................................................................................... 177 9.2 Household Characteristics .............................................................................. 178 9.3 Energy Consumption Status ........................................................................... 181 9.4 Access to Finance ........................................................................................... 183 9.5 Discussion and Conclusion ............................................................................ 184 iii Chapter 10 Contingent Valuation Results ................................................................. 186 10.1 Non-parametric Estimation ............................................................................ 186 10.2 Parametric Estimation .................................................................................... 188 10.2.1 Binary logit models ................................................................................