Household Demand for Energy, Water and the Collection of Waste: a Microeconometric Analysis Publisher: Labyrint Publication P.O.Box 662 2900 AR Capelle a/d IJssel - Holland fax + 31 (0) 10 284 73 82 Print: O¤setdrukkerij Ridderprint B.V., Ridderkerk ISBN 90-72591-90-9 This research was …nancially supported by the Netherlands Organization for Scienti…c Research (NWO). c 2001, V.G.M. Linderhof ° All rights reserved. No part of this publication may be reproduced, stored in a retrieval system of any nature, or transmitted in any form or by any means, elec- tronic, mechanical, now known or hereafter invented, including photocopying or recording, without written permission of the publisher. Rijksuniversiteit Groningen Household Demand for Energy, Water and the Collection of Waste: a Microeconometric Analysis Proefschrift ter verkrijging van het doctoraat in de Economische Wetenschappen aan de Rijksuniversiteit Groningen op gezag van de Rector Magni…cus, dr. D.F.J. Bosscher, in het openbaar te verdedigen op donderdag 17 mei 2001 om 14.15 uur door Vincentius Gerardus Maria Linderhof geboren op 10 augustus 1968 te Raalte Promotor: Prof.dr P. Kooreman Acknowledgements In December 1994, I started working on the project ‘Economic aspects of house- hold metabolism in the context of sustainability and environmental quality’ and this thesis is the …nal result. At the end, I conclude that this research project has been very special in many respects. First of all, the topic, household de- mand for energy, water and the collection of waste, is a very day-to-day topic. The discussions about my research were not only held at the academic level, but also at a more informal level. Furthermore, I participated in the multidisci- plinary project called HOMES (HOusehold Metabolism E¤ectively Sustainable), in which researchers from di¤erent backgrounds collaborated. Finally, during my research project I worked at two universities, namely Wageningen Agricul- tural University and the University of Groningen. All these experiences have enriched me personally as well as professionally. When I started working as a Ph.D. student I believed that I could write a thesis all by myself. In retrospect, I realize that this thesis would not have been completed without the help from a lot of persons. I would like to take this opportunity to acknowledge them. First of all, I would like to express my gratitude to my promoter Peter Kooreman, who gave me the opportunity to work on this Ph.D. project. For more than six years he was willing to help me with all the problems I came across. He straightened my thoughts and improved my work in a constructive way. With his experience and knowledge, in particular household economics, he taught me how to carry out economic research. Furthermore, the members of the Ph.D. committee Ton Schoot Uiterkamp, Catrinus Jepma, and Willem Boeschoten are gratefully acknowledged for reading the manuscript and providing me with valuable suggestions for improvements. Next, I would like to thank my colleagues of the Department of Household and Consumer Studies at the Wageningen Agricultural University. Although I stayed there for only …ve months, I thank them for their support in these months. The Wageningen Agricultural University is gratefully acknowledged for their …nancial support. Also, I would like to thank my colleagues of the Department of General Eco- nomics at the University of Groningen. During more than four-and-a-half years they created an inspiring atmosphere to work in. In this respect special thanks go to Doede Wiersma, Thijs Zuidema, Bert Schoonbeek, Victoria Hoogenveen, Jan Kakes, Herman Nieuwenhuis, and Mairianne van den Berg. I am grateful to my two roommates Chris Bojke and Marco Haan. For one- and-a-half years I shared a room with Chris. We had interesting discussions on economics and, of course, soccer. During my last year in Groningen, I shared a room with Marco. I would like to thank him for our talks and discussions. I also would like to thank Marco for the technical support. Next, many thanks go to my HOMES colleagues with whom I had interest- ing, stimulating and inspiring discussions about multidisciplinary research. In particular, I would like to thank Josee Ligteringen, Birgitta Gatersleben, Jack van der Wal, Klaas Jan Noorman, Cor Kamminga, Albertine van Diepen, and Andre Bus. Since January 1999, I have been working at MuConsult in Amersfoort. The combination of a ‘regular’ job and writing my thesis has been tough. Fortu- nately, Henk Meurs gave me the opportunity to pursue working on my thesis. I would also like to thank my colleagues at MuConsult for their support. Furthermore, I would like to thank my family and friends for their support. Despite the fact that most of them were not familiar with scienti…c research, we had interesting discussions about my research. I learned how to explain complex issues in a simple way. Many thanks go to Wolter Hassink who is also one of the ‘paranimfen’. He played a crucial role in my decision to become a Ph.D. student. I would like to thank my parents for their concern and support during all these years. Finally and most important of all, I would like to thank my wife Els and our children Merel and So…e. Merel and So…e gave me pleasant distraction. Els took care of Merel and So…e when I had to work on my thesis again, and she did most of the work in our household. Without her love, her support, and most of all her patience, I would never have been able to complete this book. Vincent Linderhof Contents 1 Introduction 1 1.1 Introduction 1 1.2 HOMES 2 1.3 Household production theory 4 1.4 The structure of this book 6 2 Economic aspects of houshold metabolism: historical analysis 9 2.1 Introduction 9 2.2 Household consumption, prices and tari¤ structures of energy and water 10 2.2.1 Natural gas 10 2.2.2 Electricity 13 2.2.3 Water 16 2.3 Possession rates and the. energy and water use 18 of appliances 2.3.1 Refrigerators 21 2.3.2 Freezers 23 2.3.3 Washing machines 23 2.3.4 Dishwashers 26 2.4 Household waste 26 2.5 Car ownership and use 28 2.6 Conclusions 31 3 Consumer durables and energy and water use 33 3.1 Introduction 33 3.2 Consumer durables prices, energy and water use, and the hedonic regression technique 34 3.2.1 Introduction 34 3.2.2 Data 35 3.2.3 Econometric speci…cation and estimation results 40 3.2.4 Discussion and conclusions 46 3.3 The consumer choice between a high- and low-e¢ciency consumer durable 48 3.3.1 Introduction 48 3.3.2 General framework 49 3.3.3 Two subsidy schemes 53 3.3.4 Energy tax 59 3.3.5 Take-back e¤ect 61 3.4 Conclusions 62 4 Household energy and water use: an econometric analysis 65 4.1 Introduction 65 4.2 Literature 67 4.3 Reduced form demand equations 76 4.3.1 The model 76 4.3.2 Econometric speci…cation 78 4.4 Data 82 4.5 Estimation results 83 4.5.1 Natural gas 84 4.5.2 Electricity 89 4.5.3 Water 93 4.5.4 Di¤erent household types 94 4.6 Conclusions 98 5 Weight-based pricing in the collection of household waste: the Oostzaan case 101 5.1 Introduction 101 5.2 Literature 103 5.2.1 Household production framework 103 5.2.2 Consumer behavior and household waste 106 5.2.3 Household waste management 108 5.3 The Oostzaan case 109 5.4 Econometric analysis 115 5.4.1 Speci…cations 115 5.4.2 Estimation results 117 5.5 Discussion 124 5.6 Conclusions 126 6 How helpful are economic incentives to steer consumer behavior towards sustainability? 127 6.1 Introduction 127 6.2 Some social science views on sustainable consumer 128 behavior 6.3 Instruments for a¤ecting consumer behavior 133 6.4 Allocative equivalence of energy taxation and tradeable rations; an example 136 6.5 Financial incentives 139 6.6 Concluding remarks 142 Bibliography 145 Samenvatting (summary in Dutch) 155 Chapter 1 Introduction 1.1 Introduction In 1987, the World Commission on Environment and Development (WCED), also known as the Brundtland commission, wrote a report warning the world about the implications of the speed of energy consumption (cf. WCED, 1987). The current high level of energy consumption damages the environment and humanity in three ways. Firstly, the current energy consumption level is largely responsible for the high pollution level (with related problems such as the depletion of the ozone layer and climate changes). The environment is incapable of absorbing these high pollution levels. This incapability is also caused by the growing amount of waste. Secondly, due to the winning of exhaustible resources, such as fossil fuels and wood, the quality of the environment diminishes, and it consequently looses regeneration capacity. Finally, future generations are not ensured of exhaustible resources which may result in welfare losses if su¢cient or new energy substitutes are not available. The Brundtland commission emphasized the sustainability concept, which is the durable relationship between human needs and aspiration, and the environment. This relationship contains two major perspectives, an ecological and a social perspective. Energy consumption and waste generation must be restrained in such a way that the environment is enabled to regenerate itself (ecological), and future generations are ensured of exhaustible resources (social). Since then, researchers – ecologists, economists, and other social scientists – have proposed almost as many de…nitions for the sustainability concept as there were researchers writing about it, and still the animated debate is going on 2 Chapter 1 (cf.