The Amenity Value of the British Climate

Presenter
Helena Meier, Institute of Energy Economics, University of Cologne, Germany

Authors
Helena Meier

Co Authors
Katrin Rehdanz

Keywords
Amenity value of climate, hedonic pricing, Great Britain

This study attempts to monetize the amenity value of climate to British households. By using the hedonic price approach, the marginal willingness to pay for small changes in climate variables is derived. The hedonic technique suggests that if households are freely able to select from differentiated localities then climate becomes a choice variable. The tendency will be for the costs and benefits associated with particular climates to become capitalised into property prices. The underlying assumption is that migration-induced changes in house prices and wage rates households have eliminated the net benefits of different locations. The few existing studies characterise climate in different ways e.g. annually averaged temperatures; January and July average temperatures; the temperature of the hottest and the coldest month. Representing the climate by the temperature of the hottest and coldest month means the impact of climate change will be independent of baseline climate; using only annual average temperatures to represent the climate implicitly suggests that individuals are indifferent between climates which might differ substantially in terms of seasonal variation. We overcome the limitations of previous studies by describing climate in terms of heating degree-days (HDDs) and cooling degree-days (CDDs). These measure daily deviations from a base mean temperature of 65 °F . The base temperature is intended to approximate the outside temperature where householders need neither heating nor cooling to feel comfortable indoors In our analysis we combine climate variables on the local authority district with data of the BHPS for the years 1998, 2003 and 2008 and add information on the area of living (e.g. distance to regional amenities, unemployment rates). Our preliminary findings suggest that household are willing to pay a significant amount of money to live in areas with less CDDs and more HDDs but not without limits.