Voluntary Carbon Offset Schemes in the Aviation Industry. What Are the Customers´ Purchase Drivers?

Table of Content

Abstract

List of Figures

List of Tables

Abbreviations

1. Introduction
1.1 Voluntary Carbon Offset and the Needfor it
1.2 Research Goal andResearch Question
1.3 Structure ofthe Thesis

2. From Theory to Hypotheses
2.1 Rising C02 Emissions and Mitigation Methods in theAirline Industry
2.1.1 Aviation Industry and Greenhouse Gas Emissions on the Upswing
2.1.2 Offset Markets
2.2 Behavioural Reasons For 'Voluntary Carbon Offset Payments ofAir 'Travellers
2.2.2 Pro-environmental Behaviour and Feelings of Guilt
2.2.3 The Influence of Trust on The Willingness to Offset
2.2.4 Frequent Flyers Miles as Method of Payment

3. Methodology
3.1 Research Method
3.2 Format ofData Collection
3.3 SurveyDesign
3.4 Testing the Experimental Design

4. Empirical Analysis
4.1 Sample Description
4.2 Individual Criteria Utilities
4.2.1. Relative Impact ofEach Attribute
4.2.2. Interaction
4.2.3. Hierarchical Bayesian Estimates
4.2.4. Importance Scores
4.2.5. Market Simulation Results
4.2.6. Short-haul and Long-haul Comparison
4.3 ExplorativeAnalysis

5. Discussion and Limitations of the Research
5.1 Discussion ofthe Findings
5.2 LimitationsandFutureResearch

Conclusion

Appendix

References

Abstract

As the issue of greenhouse gases and their origins becomes more and more central to the economy, actors in the aviation industry also need to increasingly reflect on their business models and adapt them where necessary. In addition to the so-called "compliance markets", through which the aviation industry is mainly influenced by regulations, there is also the possibility of voluntary offsetting the CO 2 emissions caused by flights. This option is transferred to the end consumer in the form of "voluntary carbon offsets". Previous research indicates above all the low level of awareness among air travellers on the subject of voluntary carbon offsets. Within the scope of this work, it was investigated which properties of such a voluntary carbon offset product contribute significantly to the air travellers’ willingness to purchase. For this purpose a Choice-Based Conjoint Analysis was used.

Key words: Voluntary Carbon Offset, Airlines, Aviation Industry, Conjoint Analysis

Abstrakt

Da die Thematik der Treibhausgase und ihrer Herkunft immer mehr in den Mittelpunkt der Wirtschaft rückt, müssen auch die Akteure in der Luftfahrtindustrie zunehmend über ihre Geschäftsmodelle nachdenken und diese gegebenenfalls anpassen. Neben den so genannten "Compliance-Märkten", durch die die Luftfahrtindustrie vor allem durch Regulationen beeinflusst wird, besteht auch die Möglichkeit die durch Flüge verursachten CO2-Emissionen freiwillig auszugleichen. Diese Möglichkeit wird in Form von „Voluntary Carbon Offsets" auf den Endverbraucher übertragen. Bisherige Forschung weist vor allem auf die hohe Unkenntnis von Flugreisenden bei der Thematik von Voluntary Carbon Offsets hin. Im Rahmen dieser Arbeit wurde untersucht, welche Eigenschaften eines solchen freiwilligen Klimaschutzproduktes wesentlich zur Kaufbereitschaft der Flugreisenden beitragen. Dazu wurde eine Choice-Based Conjoint Analyse durchgeführt.

Schlüsselwörter: Freiwilliger CO2-Ausgleich, Airlines, Luftfahrtindustrie, Conjoint Analyse

List of Figures

Figure 1, Screenshot of a Carbon Offset Option at Qantas Airways

Figure 2: Passenger CO 2 emissions, by source country income bracket, 2018 and Global population data 2019

Figure 3: CO 2 emissions since 1950 Mt per year

Figure 4: Illustration of the VCO Process

Figure 5: CBC process

Figure 6: Attributes and levels used in the experiment

Figure 7: Example of a Choice Set

Figure 8: Distribution of Gender

Figure 9: Distribution of Age

Figure 10: Distribution of Employment

Figure 11: Distribution of Frequency of Flights

Figure 12: Distribution of Length of Flights

Figure 13: VCO Past of Respondents

Figure 14: Interaction Findings of long-haul scenario

Figure 15: Importance Scores, using Hierarchical Bayesian estimation

Figure 16: Open Question Segmentation

List of Tables

Table 1: VCO Prices For a Specific Level

Table 2: CBC Option Investor of Financial Contribution

Table 3: CBC Option Project Type

Table 4: CBC Option Method of Payment

Table 5: Obtained Test Design Report

Table 6: Results from Sawtooth’s Counts Programme

Table 7: Interaction Findings of long-haul scenario

Table 8: Part-worth estimates, using Hierarchical Bayes estimation

Table 9: Choice Simulation, The Impact of the Length of the Flight

Table 10: Choice Simulation, The Impact of the Offset Provider

Table 11: Choice Simulation, The Impact of the Offset Project

Table 12: Choice Simulation, The Impact of the Method of Payment

Table 13: Offset/no offset * Length of the Flight Crosstabulation

Table 14: Gender Comparison Utility and Importance Scores

Table 15: Employment Comparison Utility and Importance Scores

Abbreviations

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1. Introduction

1.1 Voluntary Carbon Offset and the Need for it

“Climate change has evolved from an ‘inconvenient hypothesis’ to an ‘inconvenient truth’” (Brouwer et al., 2008, p.300)

Airlines are known to be an essential part of the transportation system and influence the development of modern society (Li et al., 2016). A 20-year passenger forecast predicts a doubling of passenger demand within the next two decades (IATA, 2019a). Air transportation connects people, countries as well as cultures around the entire world. Its economic importance is enormous, as it promotes employment and guarantees the rapid and reliable flow of services and goods. At the same time, it has an undesirable impact on climate and the environment.

The issue of sustainability has become an integral part of the public debate. New reports and studies are regularly published in an attempt to quantify the impact of human activity on the planet's ecosystems. These reports point out that sustainable and environmentally compatible forms of mobility are among the critical challenges of the 21st century (Mutschler, 2012).

The aviation industry understands the need to address the global challenge of climate change. In 2009, the International Air Transport Association (hereafter referred to as IATA) implemented a set of targets to mitigate carbon dioxide (hereafter referred to as CO2) emissions that stem from air transportation. Among others, it can be read that IATA aims at “a reduction in net aviation CO2 emissions of 50% by 2050 (...)” (IATA, 2018).

Reaching targets such as this is only feasible with the right mixture of technological, operational, and policy measures, in combination with the use of sustainable alternative jet fuels (Staples et al., 2018). Yet, only four airports are regularly deployed with Sustainable Aviation Fuel (ICAO, 2017). Today’s state of the global aviation market is characterized by intense competition as well as rapid changes through deregulation, rapid technology improvements, industry consolidation, and innovations (Babic et al. 2017). Due to the intense competition and the speed of market changes, airlines need to focus on their own business models, mainly by reducing nonfuel costs (Babic et al. 2017).

As IATA's emissions targets are ambitious but focused on long-term success, and the fact that the aviation industry is not yet ready to make full use of Sustainable Aviation Fuel, non-governmental organisations (hereafter referred to as NGO) have also started to target air travellers with CO2 emissions. Air travellers are a suitable target group for those organizations since a lot of them have experienced a feeling of guilt after having booked a flight. This was particularly evident in Sweden in 2018, when an environmental movement called flight shame, led by Greta Thunberg, a young Swedish climate activist, spread around the world (Hasberg, 2019). One possibility to overcome this feeling would be not to fly - which does not seem to be a valid alternative for many travellers. Another option is to make amends. This is called Voluntary Carbon Offset (hereafter referred to as VCO). A number of organizations and airlines exist that offer airline customers the option to offset the emissions that have been caused by their flights.

For the global climate, it is irrelevant where in the world greenhouse gases (hereafter referred to as GHG) are emitted into the atmosphere and where they are reduced. For this reason, GHGs can be emitted in one location but may be offset in another. If flying is unavoidable, VCOs offer the possibility of reducing the emissions caused by flying in alternative ways (Goodward & Kelly, 2010).

By engaging in those schemes, travellers invest in certified sustainable energy projects that aim at offsetting the amount of CO 2 emissions evoked by their flight. In addition to selling VCOs online to air travellers, many VCO providers cooperate with tour operators who either offset all their customers' flights or at least offer them the opportunity to do so (Boon et al., 2007).

But is such payment a sensible measure to mitigate the ecological consequences of a business trip to Zurich and a holiday in the Caribbean? Or is it only a superficial relief for the conscience, without really helping the climate? Either way, air travellers who offset their flight will remember that the price of flying exceeds the cost of the ticket. According to an article in the German national weekly newspaper ZEIT, EUR 9.5 million in compensation payments were received by the organization ‘Atmosfair’ in 2018. This is 40% more than in the year before. Atmosfair’s Business-Development manager Julia Zhu also forecasts that the trend continues and could even increase (ZEIT ONLINE, 2019). Many airlines from all over the world already offer the possibility to purchase VCO on their individual website at the end of a booking process (e.g., Qantas). However, the majority of these airlines have experienced low VCO purchase rates.

Figure 1 shows an example of a VCO offered by an airline. Besides the origin and the destination of the flight, the air traveller is also given the option to choose the cause that should be supported by the financial contribution.

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Figure 1, Screenshot of a Carbon Offset Option at Qantas Airways (n.d.)

1.2 Research Goal and Research Question

The study aims to deepen the understanding of how VCO schemes need to be offered to airline customers in order to maximize their willingness to offset (hereafter referred to as WTO). Previous studies have already shown that the WTO for VCO varies depending on certain attributes. This means that different attributes of a VCO are investigated.

More specifically, the aim of this study is to determine what air travellers value when deciding to offset their flight by ranking these attributes according to the weight each criterion has in the final decision. Consequently, this study aims at answering the following research question:

„How strong are the influences of various attributes of Voluntary Carbon Offset (VCO) schemes in the aviation industry relative to each other on the customers willingness to offset?“

In order to achieve this, a two-stage method is used. The first step is an excessive literature search to determine which criteria play a role during the decision-making process.

In the second step, it is empirically tested how each of the criteria identified in the first step influences the overall choice.

The quantitative method chosen for this study is a Choice-Based Conjoint Analysis (hereafter referred to as CBC), a method that elicits consumer preferences for single product attributes. The main reason for choosing this method was its ability to simulate the real choice situation fairly accurately. In CBC analysis, the identified criteria serve as attributes that describe the product offering as realistically as possible. The product offers are classified by attribute levels that are predetermined for each attribute.

The participants in the study had to consider several products with different VCO compositions and select the most attractive one for them. Each respondent answered choice tasks in two scenarios: a short-haul scenario and a long-haul scenario. Each scenario consisted of nine choice tasks. The respondents had to make trade-offs for each choice task, which is due to the fact that respondents evaluate products differently due to their different attributes. In the end, it was possible to compute how much each attribute affected the choice.

1.3 Structure of the Thesis

This work is divided into a theoretical and an empirical part. In the theoretical part, the basis for the further chapters is worked out. The theoretical part is developed through a literature search in libraries, statistical data material, the internet, peer- reviewed articles, working papers, and databases.

After an introduction to the theoretical framework of pro-environmental behaviour of people and the principle of VCO, the methodology part provides an overview of conjoint analysis. This overview enables the selection of a suitable analysis with regard to practical implementation. Based on the theoretical part, the hypotheses are derived. The empirical part of the work is intended to answer the research questions. For this purpose, the appropriate method is brought to practical implementation through a survey questionnaire and the subsequent statistical analysis.

In the discussion and final chapter of the thesis the results are interpreted to discuss possible explanations for why certain criteria are more important than others. In addition, the preferred levels within the attributes are analysed, which sheds more light on the needs of airline customers when making VCO purchases. The results of the study are valuable for business practitioners and can be used for a better understanding of how VCO schemes need to be offered to customers in order to maximize their WTO. They also make a scientific contribution to the voluntary carbon offset behaviour of air travellers and their evaluation of various product characteristics.

2. From Theory to Hypotheses

2.1 Rising CO2 Emissions and Mitigation Methods in the Airline Industry

This chapter provides an overview of the current status of carbon dioxide emissions caused by the airline industry. In addition, two mitigation options are presented that are currently relevant to the aviation industry to offset rising emissions.

2.1.1 Aviation Industry and Greenhouse Gas Emissions on the Upswing

“Someone flying from Paris to New York and back generates roughly the same level of emissions as the average person in the EU does by heating their home for a whole year.” (European Commission, 2016b)

Although tourism is constantly growing and is hence expected to continue to bring significant benefits both in terms of socio-economic development and job creation worldwide, it has a negative impact on the environment (World Tourism Organization & International Transport Forum, 2019).

The number of international tourist arrivals rose from 770 million in 2005 to 1.2 billion in 2016 and is expected to reach 1.8 billion in 2030 (World Tourism Organization & International Transport Forum, 2019). In fact, kerosene used for aircraft is mainly fossil fuel and therefore contributes to global CO2 emissions and related global warming (Lee, 2018).

Total CO 2 emissions from all commercial aviation activities, including passenger movements and cargo, amounted to 918 million metric tons (MMT) in 2018. This corresponds to 2.4% of global CO2 emissions from fossil fuel use and is an increase of 32% between 2013 and 2018 (Graver et al., 2019). If the aviation industry were to be considered as a country, it would rank 10th among polluters (European Commission, 2016b). On a European level, the European Commission (2016b) states that direct emissions from aviation account for about 3% of total EU GHG emissions. Data shows that in 2018, 747 MMTs of passenger traffic accounted for 81% of total commercial aviation emissions (Graver et al., 2019).

When it comes to the origin of the emissions Graver et al. (2019) have published an overview which shows that high-income countries are responsible for 62% of CO 2 emitted from passenger aircraft in 2018 while only accounting to 16% of the global population. In contrast, a contribution of only 10% can be attributed to lower-middle and low-income countries that amount to 49% of the global population. The emissions caused nevertheless have a global impact on the environment. Rising CO2 figures have been documented for several decades.

Abbildung in dieser Leseprobe nicht enthalten

Figure 3: CO2 emissions since 1950 Mt per year (Lee, 2018, p. 3)

Figure 3 shows the growth in available passenger kilometres (indicated in the figure by ASK - defined as one available seat per kilometre flown (Belobaba et al., 2016)) and revenue passenger kilometres (indicated in the figure by RPK - defined as one paying passenger flown one kilometre (Belobaba et al., 2016)) on the left y-axis and CO2 emissions (right y-axis) between 1950 and 2015 in millions of tons per year on the x-axis. It implies that global air traffic has increased significantly and that its CO2 emissions continue to rise despite a number of technological improvements and operational efficiency.

The UN specialized agency International Civil Aviation Organization (hereafter referred to as ICAO) predicted that emissions of carbon dioxide, which is one of the primary GHG in the earth’s atmosphere, from aircraft will triple from 918 million tons in 2018 by 2050. However, new research by the International Clean Transport Council has shown that emissions from global aviation could grow more than 1.5 times faster than the UN estimates (Graver et al., 2019).

In the meantime, also airlines are trying to mitigate the rising emissions caused by the increased demand with modern technology. The most current energy innovation in aviation is Sustainable Aviation Fuel. It is produced from sustainable and renewable raw materials, and its chemistry is very similar to that of fossil aircraft fuel. Sustainable Aviation Fuel achieves an 80% reduction in CO2 emissions over the lifecycle of the fuel compared to fossil aircraft fuel, depending on the sustainable raw material used, the airport’s supply chain, and the production method (Air BP Limited, 2019). However, high and ambitious scenarios by the UNWTO and the International Transport Forum concluded that the corresponding costs were still three times higher than the conventional fuel price in 2015 (World Tourism Organization & International Transport Forum, 2019). According to the ICAO, even the self-issued goal of zerocarbon growth after 2020 is unlikely to be achieved. Renewable alternative fuels have the potential to close the gap to carbon-neutral growth, but not in the short-term, and data are still lacking to predict their availability with confidence in the long term (Giorgino, 2019).

Technological efficiency improvements are currently still characterised by excessively high costs and therefore do not yet represent a realistic approach to a solution for the aviation industry. The growing demand and the resulting increase in emissions, therefore, require further solutions. One approach is the compensation of flight emissions described in the following subchapter.

2.1.2 Offset Markets

In order to eliminate GHG emissions completely, governments, companies, and citizens need to do more than they have done so far. Nowadays, many emitters are moving towards carbon offsetting - a quantifiable measure to reduce GHG.

Carbon offsets are generated by projects that perform emission reduction activities and are measured in a unit of carbon dioxide equivalent (CO2e) or metric tons of carbon dioxide equivalent (tCO2e) that are reduced. They can be traded on a compliance market where issuers are required by government regulations to reduce emissions or - if a reduction is hard to implement - purchase offsets or on voluntary markets where buyers and sellers negotiate on their own initiative. Currently, legal regulations in the voluntary market do not exist. However, there are strict regulations in the compliance market (Hamrick & Gallant, 2018).

The Compliance Market

Regulatory regimes exist under the Kyoto Protocol, which was adopted in December 1997 and put into force in February 2005. The Kyoto Protocol implemented the United Nations Framework Convention on Climate Change (hereafter referred to as UNFCCC) and is imposing national caps on the GHG emissions for industrialized countries. The UNFCCC is the legal umbrella under which countries develop policies in order to regulate their emissions of GHG (Olsthoorn, 2001; United Nations, n.d.). Although airline emissions are a major contributor to global GHG emissions, they are not covered under the Kyoto Protocol (Green, 2016).

With the adoption of the Paris Agreement in 2015, countries have committed themselves to keep the global average temperature increase well below two degrees Celsius above pre-industrial levels and to continue efforts to further limit the temperature increase to 1.5°C (United Nations, 2015). However, according to Green (2016), following the Kyoto Protocol, the Paris Agreement remains similarly silent on the aviation industry.

Currently, two important CO 2 emission reduction schemes are in force that refer to aviation: The EU Emissions Trading Scheme (hereafter referred to as EU ETS), which includes the aviation industry since 2012, and the Carbon Offsetting and Reduction Scheme for International Aviation (hereafter referred to as CORSIA), which was introduced by the ICAO (Scheelhaase et al., 2018).

The EU ETS is based on the 'cap and trade' principle, within which member states have a quota of emission allowances. Companies receive or purchase emission allowances that they can sell when not needed. The cap set on the total number of allowances available guarantees that they have a value. Ultimately, the cap is reduced over time so that overall emissions fall (European Commission, 2016a; International Energy Agency, 2008). In order to also cap CO2 emission resulting from flight traffic, the aviation sector has been included in EU ETS since 2012. Initially, all flights to and from European airports have been covered. However, the scope was reduced to intraEuropean flights only (Transport & Environment, 2020). According to Transport & Environment (n.d.), this was done due to international and industry pressure, and Scheelhaase et al. (2018) claim that with the limitation to intra-European flights EU ETS only accounts for 8.5% of global emission from passenger traffic.

In September 2016, the ICAO adopted CORSIA on the principles of a market-based mechanism. CORSIA aims at stabilizing net CO2 emissions from international civil aviation to assist the achievement of the “CNG 2020 goal” - a carbon-neutral growth from 2020 onwards (Becken & Mackey, 2017; ICAO, 2016). CORSIA is an offset scheme at a carrier level. In order to offset, carriers must purchase carbon credits or invest in projects that help to reduce CO2 emissions (Scheelhaase et al., 2018). It is estimated that international aviation will offset around 2.5 billion tons of CO2 emissions between 2021 and 2035 to achieve carbon-neutral growth (Giorgino, 2019). CORSIA starts in 2020 and consists of three phases: A Pilot Phase (from 2021 through 2023), Phase 1 (from 2024 through 2026), which applies to states that voluntarily participate in the scheme and will be subject to offsetting requirements and Phase 2 (from 2027 through 2035), in which all international flights will have to meet the offsetting requirements (IATA, 2019b; ICAO, n.d.). As this regulation will not be mandatory for airlines until 2027, a rhetoric has emerged among climate researchers and government agencies that attributes great potential to voluntary carbon mitigation strategies. It is argued that voluntary action could at least reduce the need for enforcement measures to reduce emissions (Giorgino, 2019).

Alberto Carrillo, Head of Climate Business Engagement at WWF International, is of the opinion that measures agreed upon in the Paris Agreement are not enough to keep global warming at a reasonable level. Based on several scenarios, he claims that there is a gap between the reduction of emissions countries have committed to and those that are still outstanding in keeping global warming within the 1.5°C or 2°C range (Carillo, n.d.).

This statement has also been confirmed by the Climate Action Tracker, an independent scientific study that monitors government action on climate change. Climate Action Tracker (2018) claims that existing commitments under the Paris Agreement are not sufficient to achieve the 1.5°C objective. Even if states meet their national targets, temperatures will rise between 2.4°C and 3.8°C. According to Carillo not only more ambitious commitments from governments are needed to close the gap, but also the support of non-state actors, including the business sector (Carillo, n.d.).

The Voluntary Carbon Market

As the compliance market is limited in its ability to reduce CO 2 emissions in short to medium term, emissions that cannot be avoided can be offset on a voluntary basis. On the one hand, airlines, e.g. easyJet, have started to offset their flights themselves (easyJet Airline Company Limited, 2019). On the other hand, some airlines are passing the option to offset the flight onto the air traveller (Gössling et al., 2007; IATA, 2008). Hamrick & Gallant (2018) analysed the world’s largest airlines to investigate whether they voluntarily offset their flights themselves or offer air travellers to do so. Among the 129 airlines, 29 offer offsetting to their customers, and 15 airlines voluntarily offset their own emissions to some extent. Overall, airlines based in Oceania (38%) were the most frequently equipped with VCOs for their customers, followed by airlines headquartered in North America (29%) and Asia (29%).

The voluntary market is different from the compliance systems under the Kyoto Protocol and the EU ETS. Offsetting avoids the same amount of pollution, usually elsewhere, or captures the same amount of CO 2 that is emitted (Climate Corporation, n.d.; International Energy Agency, 2008). Since the beginning of VCO trading at the end of 2000, VCO projects have contributed to the reduction, separation, or avoidance of more than 437 MtCO2e in all sectors. However, this is only a drop in the ocean. Even with the new commitments made by the countries under the Paris Agreement, estimates indicate that at least 11,000 MtCO2e of the emissions reduction gap prevents global warming from staying below the two degrees Celsius target.

Nowadays, there are VCO projects in 83 countries around the world, and most of them can be freely exchanged between buyers and sellers in the same or different countries (Hamrick & Gallant, 2018; International Energy Agency, 2008).

When it comes to the actual sale of VCOs, different strategies are applied to the market. While some VCO developers create their own marketing and advertising and approach the individual end buyer (e.g. the air traveller) directly, other VCO developers prefer to have their product advertised by a reseller or broker, who takes the responsibility to confront the air traveller (Hamrick & Brotto, 2017).

When a flight is booked, air travellers are often asked whether they are willing to pay for a VCO which helps preventing or reducing a similar amount of emissions elsewhere. Those VCOs can be acquired through specialized compensation service providers or carbon brokers and obtained from various suppliers with project activities (e.g., afforestation or renewable energy projects). In return, the buyer receives a record from the seller containing detailed information about the project and the amount of reduced CO2 (IATA, 2008). Figure 4 illustrates this process.

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Figure 4: Illustration of the VCO Process (IATA, 2008)

Kollmuss & Bowell (2007, p. 25) determined three requirements for VCOs, providers have to consider: “they have to educate the consumer, be user-friendly and accurate”.

In order to be able to tell air travellers the amount needed to offset the CO2 emissions associated with their flight, correct calculators are needed. Those calculators can provide electronic feedback of the CO2 footprint flown by the airline on a specific flight (IATA, 2008). Kollmuss & Bowell (2007), however, claim, above everything else, calculators need to be kept as transparent as possible.

In order to follow a more consistent approach of calculating the CO2 footprint of flights and consequently the cost to offset the CO2 emissions emitted, IATA proposes VCO providers the following methodology and steps (Hooper et al., 2008; IATA, 2008):

1. User input

(Airline's booking system specifies the itinerary and indicates the departure and arrival airports and any stopovers.)

2. Trip distance

(The great circle distance between two airports is computed based on latitude and longitude coordinates.)

3. Aircraft type

(To calculate the amount of CO2, the type of aircraft that will be used for the flight on the specified flight route must be defined. If no actual data is used, using information from flight plans is suggested.)

4. Total fuel burn

(In order to determine the total fuel consumption for the flight, the most reliable results would be obtained by using actual travel fuel data. In the absence of such data, there is an alternative data source, the Emission Inventory Guide.)

5. Passenger to freight ratio

(To estimate the passenger-related fuel consumption for the flight, the total fuel consumption is divided between the number of air travellers and tonnage

of mail and freight using load factor data. If actual flight data is not used, average load factors for air travellers and cargo can be used to calculate the ratio.)

6. Seat capacity and passenger load factor

(The passenger-related fuel consumption of the flight is divided by the number of air travellers on the flight. If the actual figures are not used, some assumptions must be made for the seat capacity and passenger load factor on the flight, taking averages either by airline or industry.)

After having obtained information about the CO2 footprint caused by a flight, air travellers often have the desire to fund certain projects. Offset providers offer a wide range of projects. According to IATA (2008), these may include the following:

- LULUCF (Land Use, Land Use Change, and Forestry)
- Industrial greenhouse gas offsets
- Methane (CH4) capture and use in energy generation
- Energy efficiency
- Renewable energy

VCO projects are not undergoing a national approval process from the project participants or the process of registration and verification from the UNFCCC. Instead, calculations and certification of projects are carried out according to a number of standards developed by the industry (Climate Corporation, n.d.). A carbon offset equivalent will only be issued when the respective project meets the requirements of the standard. Projects need to be validated and verified by third parties, ensuring that projects achieved the relevant emission reduction (Goodward & Kelly, 2010; Hamrick & Gallant, 2018; International Energy Agency, 2008).

Nowadays, most projects follow the methods defined by one of the many voluntary standards. The standards may vary depending on the permitted activities and the regulations that the projects must comply with. Nevertheless, all standards agree on the following requirements (Hamrick & Gallant, 2018, p. 1):

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Criticism of Voluntary Offsetting Schemes

“It should also be clear that offsets are environmentally risky options that do nothing to directly reduce aviation emissions” (Gössling et al., 2007, p. 241)

VCOs have been criticised in a number of ways, among others, the lack of transparency (Broderick, 2008; Mair & Wong, 2010), complexity and confusion for the air travellers (Broderick, 2008; Polonsky & Garma, 2008); the variability of the different schemes (Broderick, 2008; Gössling et al., 2007); and because they transfer the responsibility for offsetting to the air traveller and not to the polluter - the airline (Mair & Wong, 2010).

The main criticism relates to the opacity of the market, which makes it difficult to determine the quality of VCO. The caused lack of transparency is mainly due to uncertainties in the measurement and implementation of reduction processes (Brouwer et al., 2008), as well as low transparency of projects (Gössling et al., 2009). According to Gössling et al. (2007), one reason for the lack of transparency is the great difference in the several project standards. All these uncertainties may deter air travellers from buying VCOs.

Kollmuss & Bowell (2007) take their criticism in a different direction. The two authors argue that VCOs should not be considered a way to purchase “environmental pardons”, as they are of limited value in the whole framework of fighting climate change. Instead of entirely changing lifestyles and optimizing travel behaviour, travellers might rather use VCOs in order to assuage their guilt (Kollmuss & Bowell, 2007). Some of the concerns claim that this can eventually lead to exactly the opposite of what was intended: an increase in emissions. Other criticism also questions the principle that everyone can benefit from VCO projects. They see these projects as yet another example of how the industry in rich countries can find quick and cost-effective solutions abroad instead of focusing on domestic solutions (International Energy Agency, 2008).

Voluntary Carbon Offset’s Potential to Close the Gap

Macintosh & Wallace (2009) expect it very unlikely that emissions from aviation can be stabilized and set in order to meet international emission reduction targets without reducing air traffic. An entire change in transport and tourism behaviour is needed. Hence, air travellers need clear, reliable, and especially consistent information about tourism’s impact on the climate and positive signals about the mitigation measures they can take (Eijgelaar, 2011). Due to the strong growth of the aviation sector, both technological and behavioural changes are necessary to make the air transport industry sustainable, with behavioural changes being of the utmost importance. Combining both mandatory mitigation measures and voluntary schemes could be the optimal approach (Gössling et al., 2007). Yet, the adoption rate of VCO products in the aviation industry is low, ranging from 1% to 10% (Choi et al., 2016; Choi & Ritchie, 2014; McLennan et al., 2014). In order to increase VCO sales, it is important to study the influence of VCO’s attributes on the willingness to offset of the air traveller.

2.2 Behavioural Reasons For Voluntary Carbon Offset Payments of Air Travellers

This chapter aims to provide an overview of previous research that has been focusing on behavioural reasons for people to purchase pro-environmental products such as VCOs. Further, it identifies the attributes of VCO products that play a role in the decision-making process of air travellers.

2.2.2 Pro-environmental Behaviour and Feelings of Guilt

This chapter is dedicated to revealing why people engage in pro-environmental behaviour. First, it looks at the current public attitude towards the environment and the pro-environmental behaviour theory by Stern (2000). It focuses on determinants influencing the VCO purchase behaviour of air travellers. The impact of the length of the flight and the price of the VCO will be discussed.

Public Attitude Towards the Environment

According to Schleicher (1989) ‘environmental education’ combines both natural and human dimensions and will make citizens aware of the fact that conflicts of goals between human and natural environmental demands become visible. According to a Eurobarometer survey conducted by the European Commission in 2017, 94% of all respondents are of the opinion that the protection of the environment is personally important to them. It was found that in all socio-demographic groups for at least nine out of ten respondents, the protection of the environment is ‘very’ or ‘fairly important’.

In addition, 81% claim that environmental issues are directly affecting their daily life as well as their health.

Most people feel that they have a responsibility in protecting the environment, however, also think that they personally, governments, institutions, and businesses all must improve their sustainable behaviour (European Commission, 2017). As part of the Eurobarometer surveys, respondents were asked which environmental issues they consider to be the most important. The majority of Europeans claims that the most important environmental issue is climate change, directly followed by the pollution of the air and the increasing amount of waste. In total, 94% of the respondents are in agreement with the fact that ‘big polluters’ should mostly be responsible for compensating the environmental damage they have caused themselves. Nevertheless, still, 79% of Europeans think that big companies and industries are not doing enough in order to protect the environment. In comparison, 66% are also of the opinion that they could do more for the preservation of the environment (European Commission, 2017).

Pro-Environmental Behaviour Theory

There is increasing scientific evidence that we are experiencing an unsustainable way of life, with the natural capital of the earth being wasted, depleted and degraded at an ever-faster rate. As glaciers melt, sea levels rise and floods, droughts and severe weather become more frequent (Miller, 2012). In the search for innovative solutions to the problem of ecological degradation, the field of environmental psychology began to develop in the 1960s. The focus of this field was the interaction between humans and the environment. Ecological degradation and its psychological roots became a major issue, along with barriers to environmentally sound behaviour (Kollmuss & Agyeman, 2002).

Many researchers have been dealing with the question of why people take actions with an environmental intent such as carbon offsetting in the first place. Stern (2000) developed a value-belief-norm (VBN) theory of environmentalism in order to explain pro-environmental behaviour (hereafter referred to as PEB). PEB can be described as a behaviour that consciously tries to reduce the negative impact of its actions on the environment (Kollmuss & Agyeman, 2002; Sawitri et al., 2015). Homburg & Stolberg (2006, pp. 1-2) give examples for PEB: “environmental activism (e.g., active involvement in environmental organizations), non-activist behaviour in the public sphere (e.g., petitioning on environmental issues), private sphere environmentalism (e.g., saving energy, purchasing recycled goods), and behaviour in organizations (e.g., design of products)”. According to Ramus & Killmer (2007), PEB can be considered a special type of pro-social behaviour. The authors define pro-social behaviour as behaviour that is aimed at the well-being of an individual, a group or an organisation and is conducted with the intention of promoting it.

PEB is based on a causal chain of certain values, beliefs about the environment and one's own influence on the environment, and finally, personal norms, through which a commitment to environmentally conscious action arises (Stern, 2000). Regarding the values, Stern (2000) refers to findings from researchers that have found that postmaterialistic values of quality of life have caused PEB in developed countries which enjoy a certain level of prosperity (Inglehart, 1990 as cited in Stern, 2000) and that PEB is anchored in some religions, which value the environment as sacred (Dietz et al. 1998; Greeley, 1993; Kempton et al. 1995 as cited in Stern, 2000). Other researchers have found that altruistic values have motivated people to act pro-environmentally and hereby care for public goods (Heberlein, 1972 as cited by Stern, 2000). Stern (2000) claims that people with these values believe that objects in the environment are threatened through human life and that they themselves have the power to reduce this threat. Based on those beliefs people develop a personal norm through which they show PEB.

Guilt and Pro-Environmental Behaviour

When it comes to PEB, researchers identified determinants of such behaviour (e.g. Bamberg, 2003; Hines et al., 1987). One identified determinant is the feeling of guilt. Generally, guilt is defined as a negative and unpleasant state that arises when a person's behaviour or intentions contradict his or her moral standards or social norms (Baumeister et al., 1994). Once a person has learned morals, feelings of guilt arise that lead to self-assessment (Baumeister et al., 1994; Kugler & Jones, 1992). The role of emotions in the form of guilt has been studied by Elgaaied-Gambier (2012), who examined the influence of anticipatory feelings of guilt on one type of proenvironmental behaviour, namely recycling. Huhmann & Brotherton (1997) synthesized previous studies on the concept of guilt and identified “anticipatory guilt” as one type of guilt. Anticipatory guilt refers to the expectation of a feeling one might feel when considering violating one’s personal norms. Ulitmately, Elgaaied-Gambier (2012) found a positive mediating effect of anticipatory guilt on the relationship between the awareness of negative consequences linked to non-recycling and the intention to recycle.

Allpress et al. (2010) compare the traditional views of guilt and shame. According to the authors, guilt is caused by bad behaviour. Shame, on the other hand, “arises because one is a bad person" (p. 77). Guilt was thus associated with prosocial behaviour and shame with antisocial behaviour. That means that if one has behaved badly, one can apologize or make amends for the damage done. Negative self-related emotions such as feelings of guilt cause reparative behaviour to compensate for the damage done to others and for which one feels at least some responsibility (Rees et al., 2015). Guilt helps people to draw from past mistakes and avoid similar behaviour in the future (Monteith, 1993). This encourages people to adopt moral paths in life (Tangney et al., 2007) and results in moral and pro-social behaviour (Baumeister et al., 1994). Guilt as such promotes pro-social behaviour: actions that do not benefit the individual directly, but the collective. Mallett (2012) applies the theory to the environment. For him, environmental guilt “arises when people think about times when they have not met personal or social standards of environmental behaviour" (p. 223).

Responsibility and Pro-Environmental Behaviour

Besides the feeling of guilt, there are also other factors, such as the sense of responsibility, which can lead to pro-social and therefore also pro-environmental behaviour. Basil et al. (2006) focused on assessing how guilt appeals work in fundraising. The results of their study demonstrate that a sense of responsibility is mediating the effect of guilt appeals on charitable giving. This indicates that promoting a sense of responsibility can be beneficial in the process of generating charitable donations.

The question of who bears ultimate responsibility is not always clear in the aviation industry. Brouwer et al. (2008) take up this line of thought and refer to the “Polluter Pays Principle” (hereafter referred to as PPP). The OECD (1992, p. 5) describes the PPP as a measure where “(...) the polluter should bear the expenses of carrying out the pollution prevention and control measures (...)”. However, it is difficult to apply this principle to the example of aviation, where it is not clear who can be regarded as the polluter. Is it the airline itself that ultimately operates the flight, or is it the air traveller who is demanding the flight in the first place? One option to address the responsibility of both parties (the airline and the air traveller) could be to offer VCOs where the air traveller only compensates for a fraction of the caused emissions.

Hooper et al. (2008) asked the respondents to their survey about who should take responsibility for the climate impacts of flights. Although the majority of respondents felt that the individual air traveller could mitigate the climate effects of their flights, only 14.8% were of the opinion that the air traveller is primarily responsible to pay for the VCO. Much larger proportions of the respondents believed that the government (40.7%) or the airlines (35.5%) are mainly responsible for offsetting the flights. Gössling et al. (2009) add that airlines and the industry should also encourage public participation in VCO schemes by making it clear that, under international carbon conventions, it is not only the airlines themselves but also individual air travellers who are responsible for carbon emissions.

Given people’s tendency to regard airlines and governments to be mainly responsible for the offset, one can conclude that air travellers are not willing to be solely paying for the offset.

Air Travellers’ Willingness to Offset

In order to get over the feeling of guilt when flying, air travellers can buy VCOs, which requires a monetary contribution. In the course of this thesis, the following two terms will be of central importance: willingness to offset and willingness to pay (hereafter referred to as WTP). The WTO can be described as the general willingness of air travellers to voluntarily offset the emissions caused by a flight. Beyond the general WTO, there is WTP. The WTP describes how much money people are willing to pay for a certain purpose (e.g. WTP for specified VCO projects) and is a characteristic of buyers and consumers (Orme, 2019). Thus, WTP requires a general WTO. On the one hand, the WTP for VCOs, which has already been identified by other researchers, will be considered. On the other hand, the WTP for single attributes of the VCO product will be calculated.

A whole series of studies, particularly in the last decade, have examined the travellers’ WTP for VCOs in a variety of ways. Diederich & Goeschl (2011, p. 3) identified a mean WTP of EUR 6.30 per ton CO2 among German travellers. According to the authors, “this mean WTP could be expected to be sufficient to reduce CO 2 emissions in Germany by four percent”. Löschel et al. (2013), whose study was conducted in Germany as well, determined a WTP of EUR 11.89 per ton CO2. Brouwer et al. (2008) interviewed more than 400 air travellers at Amsterdam’s international airport about their WTP for a mandatory carbon travel tax, used to offset the emissions caused by their flights. Applying the contingent valuation method, they derived a WTP of 60 Cents per 100 km from the whole sample. This corresponds to EUR 25 per ton CO 2. Moreover, the authors found out that WTP is strongly influenced by the ticket price and the distance travelled. Brouwer et al’s (2008) data set was taken by Akter et al. (2009), who showed that with rising tax, the WTP shrinks.

Lu & Shon (2012) used the contingent valuation method and determined the WTP of Taiwanese air travellers. A mean of USD 5 to USD 29 per trip was identified. Blasch & Farsi (2014) conducted a choice experiment, in which the authors offered different types of offsetting opportunities. The options were presented in four different consumption contexts, such as air travel, space heating, hotel overnight stays, and rental car use. Eventually, the authors concluded that for 60% of their sample, air travel had been associated with the lowest cost sensitivity.

Overall, previous research results regarding the WTP are very heterogeneous. This is mainly due to the different samples used. Choi & Ritchie (2014) could demonstrate that WTP estimates can vary significantly among the respondents based on air travellers’ different background characteristics.

Similarly to the thesis at hand, MacKerron et al. (2009) conducted a choice experiment, in order to explore the WTP of young and educated people in the UK. The authors point out that there is only little knowledge as to the fact what factors influence the participation in and WTP for VCOs, in this fragmented and non-standardized market. In addition to the price attribute, they are taking the availability of certificates for purchasers to enhance the credibility of projects, such as human development, conservation and biodiversity, technology and market development into consideration. They also include a none option, if none of the attributes applies to the respondent’s opinion. Ultimately, MacKerron et al. (2009) identified an average WTP of 24 GBP per flight. A concern that arises is the exclusion of the length of flights. MacKerron et al. (2009) are of the opinion that respondents may pay proportionally more to offset longer flights.

The Impact of the Length of the Flight

Depending on the length of the flight, the prices for offsetting payments vary. Logically, a VCO of a long-haul flight is more expensive than that of a short-haul flight. Brouwer et al. (2008) have found out that the WTP for a carbon travel tax differs between domestic (short-haul) and international (long-haul) flights. Respondents of their study felt that a carbon travel tax on short-haul flights was a legitimate measure. The authors explain this by the fact that alternative modes of travel are unavailable for long-haul flights. Similarly, Higham & Cohen (2011) documented different views on the responsibility for CO 2 emissions, depending on the length of the flight. Short-haul flights have been associated with a “carbon guilt”, while long-haul flights were more likely to have a reason for existence. This identified moral concern and even fear for the consequences of their flights make many travellers decide to stop flying (at least temporarily) (Higham & Cohen, 2011).

Consequently, the observed higher WTP for a carbon travel tax on continental flights (Brouwer et al., 2008) which is supported by the perceived "carbon guilt" on short-haul flights (Higham & Cohen, 2011) raises the question whether the purchase behaviour of air travellers differs between short-haul and long-haul flights. Thus, stronger feelings of guilt can be translated into lower cost sensitivity (Blasch & Farsi, 2014). Individuals seem to link personal responsibility for carbon emissions to frequent domestic flights, but not to intercontinental flights.

The stronger feelings of guilt associated with short-haul flights, lead to the first hypothesis:

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In order to identify whether air traveller’s attitude towards a partial compensation of the caused emissions, this thesis will give the participants of the survey the option to only offset 25%, 50% or 100% of the emissions caused by a flight. The lower cost sensitivity based on stronger feelings of guilt associated with short-haul flights, lead to the second hypothesis:

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The associated lower sense of guilt towards long-haul flights suggests a greater cost sensitivity. This leads to the third hypothesis:

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2.2.3 The Influence of Trust on The Willingness to Offset

This chapter considers trust as a moderator in the relationship between the awareness of the negative consequences of someone’s actions and pro-environmental behaviour and reveals a correlation between knowledge about VCO programs and VCO purchase. Furthermore, the matter of trust towards and credibility of NGOs and the role of VCO projects will be addressed.

Trust and Pro-Environmental Behaviour

Trust is defined as “the expectation that arises within a community of regular, honest, and cooperative behaviour, based on commonly shared norms, on the part of other members of the community” (Fukuyama, 1995, p. 26). It is believed that trust, as a part of social capital, is an important means of promoting collective action to protect the environment. Pretty (2003) and Rydin & Pennington (2000) argue that individuals who have higher levels of trust also have a stronger tendency to act in a collective way for the protection of the environment. The goal of Moon’s (2017) study is to examine the influence of trust on pro-environmental behaviour. Moon (2017) found a statistically significant relationship between social and institutional trust and the decision to be environmentally proactive, indicating that people with higher stocks of trust towards people and governmental institutions are more likely to be purchasing energy-efficient products. Based on this finding, some studies investigated why citizens refuse to pay for the environment and found that the refusal was based on the distrust of government management (e.g. Damigos & Kaliampakos, 2003; Jones et al., 2008). Thus, distrust negatively influences pro-environmental behaviour while trust has a positive influence on it. Some studies not related to the environment have found a positive relationship between knowledge and trust (e.g. Doney et al., (1998); Jiang et al., (2008)). Jiang et al. (2008) observed a positive correlation between knowledge and trust in purchasing behaviour, arguing that the whole issue of "information economy" is based on the paradigm of information, knowledge and uncertainty. This was also tested with regard to pro-environmental products. People who trust others to buy green products and believe that others trust themselves to buy those as well (high levels of trust) are more likely to purchase green products compared to people with low levels of trust (Gupta & Ogden, 2009). They are also more likely to recycle (Sonderskov, 2011), and to use public transportation (Van Lange et al., 1998). Consequently, a direct and positive relationship was observed between trust and the willingness to take action to protect the environment.

If money is invested for pro-environmental purposes, it is clear that the money provider wants to know who is investing the money and how. According to Keating & Thrandardottir (2017) trust is of exceptional importance when analyzing the relationship between NGOs and donors, as most NGOs are highly dependent on them on financial support. While the term "NGO" is widespread, there is also a lot of other overlapping terms such as "non-profit" and "civil society" organisations. In many cases, the use of different terms is due to the consequence of the different cultures and histories in which the concept of NGOs has emerged (Hamilton et al., 2010). For example, in the USA, where civil society organisations are rewarded with taxation benefits if they demonstrate that they are not commercial, profit-oriented organisations and work for the public good, the term "non-profit organisation" is often used. In the United Kingdom, the term "voluntary organisation" or "charity" is often referred to, drawing on a long tradition of voluntary work and volunteering, characterised by Christian values and the evolvement of charitable law. However, the status of charity in the United Kingdom depends on an NGO being "non-political" (Hamilton et al., 2010).

According to Keating & Thrandardottir (2017), the trustworthiness of NGOs was especially questioned in the 1990s. A loss of perceived trustworthiness towards NGOs can lead to major problems, as donors tend to use their resources elsewhere, with potentially serious consequences for NGOs. Especially in an environment in which the donor has multiple options, it is important to maintain trustworthiness from the perspective of an NGO. This is mainly due to the fact that donors have a certain expectation that their money will be used wisely (Keating & Thrandardottir, 2017). Keating & Thrandardottir (2017) argue that NGOs are not perceived in the same way as other types of institutions. People are more inclined to regard them as trustworthy, even if sometimes things go wrong.

Populus (2018), a research and strategy consultancy in collaboration with the Charity Commission for England and Wales, published a report in 2018 that looks at public expectations towards charities. The research shows that the majority (58%) of respondents to their survey believe that charities now play a "significant" or "very important" role in society. Although trust in charities is below that of recent years, charities are still more reliable than many other sectors and institutions, such as private companies. Especially, those aged 18-24 show a significantly higher likelihood to trust charities compared to those aged 55 and older. The research shows that when charities are able to demonstrate that the majority of their donations go directly to the ultimate purpose, and achieve measurable positive results, confidence, and propensity to donate increases. This indicates that trust towards the receiving end of the donation is important in the behaviour of those who donate.

The Role of the VCO Provider

Based on the finding, that trust positively influences PEB, this paragraph focuses on the impact of trust and credibility on the purchase of VCOs.

Hagmann et al. (2015) surveyed travellers in Germany and came to the result that 31.9% of travellers have heard of offsetting, while only 7.6% had also purchased VCOs in the past. Higham et al. (2016) found uncertainty and general scepticism about VCO schemes among travellers in four Western countries (Norway, the United Kingdom, Germany and Australia).

The main reason for uncertainty can be caused by complexity and confusion for the consumer (Broderick, 2008; Polonsky & Garma, 2008). On the one hand, travellers are often unsure about their own role in the offsetting environment, due to the fact that VCO schemes perhaps do not provide travellers with enough information on projects (Polonsky et al., 2011). On the other hand, there is a wide range of tools and possibilities to offset, which may lead to an information overload for the traveller. This overload can lead to a lack of transparency and eventually to ignorance of VCOs (Brouwer et al., 2008). This is primarily because travellers may not be willing to purchase a high-quality VCO if they cannot distinguish it from a low-quality VCO (Blasch & Farsi, 2014). Kotchen et al. (2009) suggest offering VCOs with a certification by an independent third party. This might help to increase trust on the traveller’s side and solve the problem of asymmetric information in the offset markets. Ultimately, Blasch & Farsi (2014) found that certificates can lead to a higher propensity to offset. They emphasize this recommendation, indicating that 52% of their survey respondents claimed to feel some kind of suspicion and distrust towards VCOs. MacKerron et al.

(2009) came to a similar conclusion. Respondents to their study claimed that they would have a significantly higher WTP for VCOs if they were aware of certification schemes.

If there was a world with perfect information, and people knew everything, decision-making would have been different. Many people follow others and put trust in their actions because of a proven heuristic. Consequently, trust is an aspect of herding behaviour used by people to save time, money, and aggravation of social interaction (Altman, 2012). This herding behaviour was also identified by Brouwer et al. (2008), who found that travellers tend to only purchase VCOs when other travellers do so. Consequently, besides the need to put enough effort into informing unaware travellers, it is important to increase the trust in VCO schemes (Gössling et al., 2009). Increased trust can be achieved through an effective VCO message which contains the cost-effectiveness of VCOs, in particular in comparison with other similar methods of ecological consumption (Kim et al., 2016).

A predominant uncertainty towards VCO schemes is influencing the VCO purchase behaviour of air travellers. Based on the fact that people are more inclined to regard NGOs as trustworthy, plus the fact that NGOs are still perceived to be more reliable than many other sectors and institutions, it can be hypothesized that air travellers prefer an NGO to be the VCO provider, not the airline.

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This raises the following hypothesis:

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The Role of VCO Project

With respect to the awareness of air travellers towards VCOs, Lu & Shon (2012) found that the fewer people know about a scheme, the lower their WTP. The same logic holds true for schemes that are assumed to be ineffective in their way of reducing GHG, which signifies that if air travellers believe that a project is ineffective, their WTP to this project is low. However, critics argue that the project owner will always be better informed than the investor, which makes it difficult to assess the quality of the offset (Segerstedt & Grote, 2016). Nevertheless, it seems to be important for air travellers not only who the provider of the VCO is, but also how the money is invested (Segerstedt & Grote, 2016). When it comes to PEB each individual has its own preference regarding pro-environmental projects. Some people might e.g. perceive social development projects as more important than biodiversity projects. The possibility to choose a project based on one’s own preference is likely to be perceived as beneficial (MacKerron et al., 2009). Moreover, the feeling of transparency can be increased by providing people with the option to select a project of their own choice. This, ultimately, might be seen as additional information which leads to an increase of trust (Segerstedt & Grote, 2016).

Depending on the project, air travellers can be encouraged respectively discouraged to engage in the VCO, and the WTP varies (MacKerron et al., 2009). Properties of a specific project such as “human development” and “environmental protection and biodiversity” have been taken by MacKerron et al. (2009) as an independent variable for determining WTP. Ultimately, they could both show a significantly positive influence on the WTP. MacKerron et al. (2009) consequently suggest policymakers and VCO providers to stronger emphasize the projects that are offered. Blasch & Farsi (2014) also documented a tendency of people to donate for afforestation projects and renewable energy projects compared to energy efficiency and methane reduction projects.

It can, therefore, be stated that air travellers would like to receive details about the projects of VCO providers. If there is less information about the projects, it can be assumed that the willingness to offset is likewise lower. This enables the following hypotheses to be made:

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2.2.4 Frequent Flyers Miles as Method of Payment

This chapter describes why loyalty rewards programmes are increasingly incorporating social responsibility. Frequent flyer programmes often offer their air travellers to use their frequent flyer miles (hereafter referred to as FFM) as a payment method for their VCO purchases.

Increased competition in tourism led to the development of loyalty reward programmes (Rudez, 2010). Generally, loyalty reward programmes are widely used in consumer marketing. Most of them are operationalised by a reward system. Members of loyalty programmes collect points, which are usually based on the criteria of volume, value and frequency of spending. The member redeems the collected points and thereby receives a variety of rewards, e.g. free flights or cash back (Smith & Sparks, 2009).

While loyalty reward programmes encourage the air traveller to fly more frequently, more and more importance is attached to ethical consumption in today’s business world. Corporate social responsibility (hereafter referred to as CSR) means that organizations not only assume responsibility towards their shareholders and customers but also towards others in society. The purpose of CSR can vary widely, for an example from the improvement of the quality of life of people to the solution of environmental or socio-cultural problems at a local or global level. It can, therefore, be considered as a commitment to ethical behaviour. CSR is usually seen as an act of the company in the interest of society and the environment (Holloway, 2004). Consumers are aware of various problems and (economic) crises. Tourism organisations can also play a positive role in these issues, for example by linking CSR and loyalty programmes (Rudez, 2010). However, yet little is known about how they can be brought together for the benefit of the business and social welfare (Gao & Mattila, 2019). Nevertheless, Rudez (2010) believe that a well-designed customer loyalty program that incorporates social responsibility can build trust and create stronger and longer-lasting relationships between customer and supplier.

Nowadays, it is not a differentiating feature of an airline offering a frequent flyer programme to its customers. Loyalty programmes in the aviation industry are no longer limited to airlines. It is now also possible to earn miles by renting cars or staying in hotels. Similarly, when redeeming miles, the traveller is no longer limited to the airline, but can also use them for a variety of purposes, such as eating in a restaurant or subscribing to a magazine (Basumallick et al., 2013).

Although it is more complex in its design, some airlines also offer to pay VCO with earned FFM (e.g. Delta, United Airlines, Cathay Pacific). According to IATA (2008), experience suggests that the usage of FFM as a payment method is popular among air travellers.

Liston-Heyes (2002) assessed the perceived value of frequent flyer miles. The perceived value of FFM is defined as the value that the consumer subjectively associates with FFM. The author found that air travellers overestimated the true monetary value of air miles, which makes them a particularly cost-effective marketing tool. Ultimately, the author claimed that FFM have begun to assume the status of a "pseudo-currency". According to Mimouni-Chaabane & Volle (2010), frequent flyer miles are one of the most popular currencies in the world.

It can be concluded that, due to the overestimation of the value of FFM, selection of FFM as payment method increases with rising VCO prices. As the price for the VCO of a long-haul flight is generally higher than the price for the VCO of a short-haul flight, the following hypotheses can be derived:

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While this chapter summarized recent findings regarding the influence of VCO specific determinants on the air traveller’s decision to purchase a VCO, the next chapter takes a look at the socio-economic and socio-demographic characteristics of people showing pro-environmental behaviour such as VCO purchases.

3. Methodology

This chapter focuses on the quantitative method used for the survey questionnaire and discusses why, among the many options, a choice-based conjoint analysis was chosen as the most appropriate research method. It also describes the sample of the survey questionnaire used.

“Information on consumer preferences and choice behaviour is needed to forecast market demand for new or modified products, estimate the effects of product changes on market equilibrium and consumer welfare, develop and test models of consumer behaviour, and reveal determinants and correlates of tastes” (Ben-Akiva et al., 2019, p. 3)

With this quote, Ben-Akiva et al. show that it is fundamentally important for the analysis of products with different attributes to elicit consumer preferences in order to expose determinants and to uncover correlating tastes.

One option to elicit consumer preferences for single product attributes is called Conjoint analysis. Conjoint analysis has become the most frequently used method of analysis for determining consumer preferences. Conjoint analysis plays a particularly important role in the introduction of new or modified products (Ben-Akiva et al., 2019). It is, therefore, suitable as a market research method as well as for the object of investigation at hand. In the following, the conjoint analysis as a preference elicitation method is presented, and its individual steps are explained in more detail. In particular, the CBC is deepened and presented as a suitable method for this research question.

Against the background of consumer preference elicitation, this thesis is devoted to identifying which characteristics of VCO schemes are regarded as particularly important by air travellers and thus have a special influence on their willingness to offset. The software was obtained through a student license from Sawtooth. Sawtooth is a computer software company based in Utah, USA. Their platform handles survey questions but is best known for conjoint analysis, an integrated solution for predictive analysis (Sawtooth Software, 2020).

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