Elsevier

Energy Policy

Volume 150, March 2021, 112107
Energy Policy

Examining the willingness-to-pay for exclusive use of LPG for cooking among rural households in India

https://doi.org/10.1016/j.enpol.2020.112107Get rights and content

Highlights

  • Indoor air pollution remains an issue in rural India despite subsidies for LPG.

  • We examine determinants of willingness-to-pay for exclusive use of LPG for cooking.

  • Households exhibit significant price elasticity for exclusive use of LPG.

  • Awareness and diffusion of LPG within the community are key determinants of WTP.

  • Mean WTP is higher than monthly cost of subsidized LPG but it masks variation.

Abstract

Using unique household-level data from rural areas of six energy-access-deprived states in India, we examine the willingness-to-pay (WTP) for exclusive use of liquefied petroleum gas (LPG) for cooking. We find that awareness about LPG's health benefits and diffusion of LPG within the community are the strongest determinants of WTP for exclusive use of LPG. Among demographic characteristics, only household size is correlated with WTP. Importantly, households exhibit significant price elasticity with regards to exclusive use of LPG. Households with irregular cash flows are less likely to pay for exclusive use of LPG. We find limited evidence supporting a negative association between availability of free biomass and the WTP for exclusive use of LPG. In contrast, higher household expenditure on purchased biomass is positively associated with WTP. Our estimates of mean WTP suggest that they are higher than the current effective monthly cost of subsidized LPG across households. However, they mask variation, and disaggregated estimates suggest that about 40–45 per cent of the households not using LPG as their primary fuel have a lower WTP than the current effective monthly cost of subsidized LPG and hence would need additional support to enable their cooking energy transition.

Introduction

Every year, indoor air pollution (IAP), caused mainly by burning traditional biomass for cooking, leads to an estimated four million premature deaths globally (World Health Organization, 2018). In India too, it is responsible for around 500,000 deaths every year (India State-Level Disease Burden Initiative Air Pollution Collaborators, 2019). Despite this, majority of rural Indian households continue to rely on traditional fuels for cooking in some form or the other (International Energy Agency, 2019; Jain et al., 2018; Mani et al., 2020).

In recent years there has been a policy push towards increasing access and affordability of liquefied petroleum gas (LPG) to address the issue of IAP. As per Government of India's latest estimates released in March 2020, 97.4 per cent of Indian households use LPG as either primary or complementary cooking fuel (Ministry of Petroleum and Natural Gas, 2020). Much of this increase has been observed in the last four years and is being attributed to the Government of India's flagship scheme – Pradhan Mantri Ujjwala Yojana (PMUY), which has significantly expanded the LPG coverage in the country, particularly among the economically poor and marginalised. PMUY was launched in May 2016 with the objective of alleviating the public health burden of IAP from the burning of traditional cooking fuels. The scheme provides a subsidy and loan to reduce the upfront cost of an LPG connection,1 which was identified as one of the biggest barriers to LPG adoption before the launch of the scheme (Jain et al., 2015). In order to further improve affordability and incentivise regular consumption, the government provides a direct subsidy that is deposited in the LPG consumers' bank accounts against every refill of LPG cylinder that they buy at market price.2 The subsidy aims to not only make the fuel affordable for use, but also insulates the population from the price fluctuations due to changes in global oil prices, as more than 80% of LPG consumed in India is imported (direct or as crude oil). Despite this, a large proportion of rural Indian households continue to rely on traditional biomass as their primary cooking fuel. For instance, in six major energy-access-deprived states of India, 81 per cent rural households rely on traditional cooking fuels (Jain et al., 2018).

Most studies on India and other developing regions have focused on factors affecting adoption of LPG as a clean cooking fuel (Bhojvaid et al., 2014; Gould and Urpelainen, 2018; Lewis and Pattanayak, 2012; Mukhopadhyay et al., 2012). A huge gap exists in the literature on promoting exclusive and sustained use of LPG. Limited evidence on LPG usage in India and other developing countries such as Nigeria and South Africa suggests that a key factor underlying low usage of LPG among economically poor households is the high recurring cost of the fuel, that is, LPG cylinder refills (Jain et al., 2018; Kimemia and Annegarn, 2016; Kumar et al., 2016; Ozoh et al., 2018). The policy puzzle in the Indian context is that low LPG usage persists despite significant amount of subsidy for LPG refills. The first step towards disentangling this puzzle is to examine the factors affecting households’ willingness-to-pay (WTP) and determine the average WTP for exclusive use of LPG. Such an analysis could then help inform the policy approach on the design of subsidies and also targeting.

This study uses unique data on WTP for exclusive use of LPG for cooking from rural areas of six major energy-access-deprived states in India, collected in 2018. Our assessment of household-level determinants of WTP for exclusive use of LPG reveals a number of important findings. First, among demographic characteristics, only household size is positively and statistically significantly associated with WTP for exclusive use of LPG, and the correlation is limited to households that do not currently use LPG. Apart from this, we do not find any significant impact of other demographic characteristics such as involvement of women in household decision-making, education of the household head, and caste and religion of respondent on their WTP. Second, households' economic status positively determines the WTP for exclusive use of LPG. Third, households with irregular cash flows (captured by type of primary occupation) are less likely to pay for exclusive use of LPG compared to households with regular cash flows. Fourth, we find a negative association between availability of free biomass in the form of dung cakes and WTP but only for households who are PMUY beneficiaries. In addition, higher outlay on purchased biomass is positively associated with the WTP. Finally, and most importantly, we find that awareness about LPG's health benefits as well as its diffusion within the community as a cooking fuel, are the strongest positive determinants of WTP for exclusive use of LPG. Further, we utilise estimates from determinants of WTP for exclusive use of LPG to compute the average monthly WTP for these rural households. We find that mean WTP is higher than the current effective monthly cost of subsidized LPG for households in our sample. However, disaggregated analysis suggests that there is variation in WTP across households and therefore additional measures may be required to enable their cooking energy transition to cleaner fuels.

The remainder of the paper is organised as follows. Section 2 describes the analytical framework that motivates our empirical analysis. Section 3 introduces the contingent valuation methodology implemented as part of the ACCESS 2018 dataset, describes the data, and presents the descriptive statistics of all the independent variables. Section 4 describes our empirical strategy. Section 5 presents results on determinants of WTP and estimations of average monthly WTP values. Section 6 discusses the results and policy insights emerging from the analysis, and concludes the paper.

Section snippets

Analytical framework

There is limited evidence on LPG use for fulfilling household cooking needs in the rural context. Therefore, in this section, we draw upon the broader literature on adoption and sustained use of clean cooking fuels and improved cookstoves to develop an analytical framework for determinants of WTP for exclusive use of LPG for cooking. This analytical framework forms the basis of our empirical analysis.

The first set of determinants identified in the literature are demographic characteristics.

Data and methodology

Economic theory states that if people value a good or service, that is, they gain some positive utility from its consumption, they will be willing to pay for it. Often however, and especially for goods and services that are publicly provided, consumers do not have a say over the type and quality of goods and services provided. In the context of LPG for instance, consumers may be willing to pay for LPG but may not have access as distributors may not be servicing that area; or consumers may have

Determinants of WTP for exclusive use of LPG for cooking

Our outcome variable of interest (Y) for each household i is the dichotomous answer ‘yes’, where Yi=1, or ‘no’, where Yi=0, when asked the question whether the household is willing to pay the predetermined and randomly assigned bid value for exclusive use of LPG for cooking. We model this as a probit regression controlling for relevant household characteristicsPr(Yi=1)=Φ(β0+ϕRandomBidi+γXi+δs+εi)where, Pr(Yi=1) is the probability that the household answers ‘yes’ to the randomized amount and Ran

Determinants of WTP for exclusive use of LPG for cooking

We summarize the main results in Table 2, which presents the marginal effects from the probit model. Columns (1) and (2) show the estimates for non-LPG households and LPG non-primary households respectively.

We estimate that an INR 100 increase in the randomly assigned bid value results in a 10 percentage point decline in the probability of a household (non-LPG or non-primary) answering ‘yes’ to the bid value, suggesting a considerable price elasticity with regards to exclusive use of LPG.

Conclusion and policy implications

While significant subsidies are provided by the Indian government for both LPG connections and LPG refills, exclusive use of LPG for cooking needs continues to remain low. Our work attempts to address this policy conundrum and fills a critical gap in the existing literature on WTP for exclusive use of LPG for cooking. Using data from rural areas of six major energy access-deprived states in India collected in 2018, we examine determinants of WTP for exclusive use of LPG for cooking and also

CRediT authorship contribution statement

Namrata Chindarkar: Conceptualization, Methodology, Formal analysis, Writing - original draft, Writing - review & editing, Funding acquisition. Abhishek Jain: Conceptualization, Methodology, Writing - original draft, Writing - review & editing, Funding acquisition. Sunil Mani: Conceptualization, Methodology, Formal analysis, Data curation, Writing - original draft, Writing - review & editing.

Declaration of competing interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

Acknowledgments

We thank seminar participants at the Lee Kuan Yew School of Public Policy, National University of Singapore (April 2019), and CEEW Energy Access Dialogues (January 2020) for their valuable comments. We are grateful for the financial support provided by the Lee Kuan Yew School of Public Policy and Shakti Sustainable Energy Foundation for the data collection. The findings, interpretations, conclusions, and any errors are entirely those of the authors.

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