Energy Demand and Income Elasticity: A Cross-Country Analysis

30 Pages Posted: 16 Aug 2013

See all articles by Chandra Kiran Krishnamurthy

Chandra Kiran Krishnamurthy

CERE, Umeå; Department of Forest Economics

Bengt Kriström

SLU- Centre for Environmental and Resource Economics (CERE)

Date Written: August 14, 2013

Abstract

We provide consistent, cross-country estimates of price and income elasticity for 11 OECD countries, using data from a survey conducted by the OECD in 2011. Using data for annual consumption of electricity and sample-derived average electricity price, we provide country specific price elasticity estimates and average income elasticity estimates, using the double-log form of the demand function. For most countries in our sample, we find strong price responsiveness, with elasticities varying between −0.27 for Korea and −1.4 for Australia, with most countries’ elasticity being above −0.5. Using the unique nature of the dataset (in having many attitudinal indicators), we find evidence for non-price related factors to significantly affect energy demand. In particular, we find households’ self-reported energy saving behavior to reduce energy demand between 2 and 4%. In contrast, we find very weak income response, with income elasticities varying from 0.07 to 0.14 and no evidence for heterogeneity in income response across the countries in our sample. Our results regarding price elasticity are in contrast with many existing studies which find low-to-moderate price responsiveness, and adds to a few recent studies indicating more policy space for demand reduction than previously thought.

Keywords: Residential Electricity Demand, Price Elasticity

JEL Classification: Q4, Q41, C5, D12

Suggested Citation

Krishnamurthy, Chandra Kiran B and Kriström, Bengt, Energy Demand and Income Elasticity: A Cross-Country Analysis (August 14, 2013). Available at SSRN: https://ssrn.com/abstract=2310005 or http://dx.doi.org/10.2139/ssrn.2310005

Chandra Kiran B Krishnamurthy (Contact Author)

CERE, Umeå ( email )

Almas Allé 10
Umeå, 750 07
Sweden

HOME PAGE: http://cere.se/en.html

Department of Forest Economics ( email )

S-901 83 Umea
Sweden

Bengt Kriström

SLU- Centre for Environmental and Resource Economics (CERE) ( email )

Umea, 901 83
Sweden
+46-(0)90-7865219 (Phone)

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