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Residential consumption of gas and electricity in the U.S.: The role of prices and income

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  • Alberini, Anna
  • Gans, Will
  • Velez-Lopez, Daniel

Abstract

We study the residential demand for electricity and gas, working with nationwide household-level data that cover recent years, namely 1997-2007. Our dataset is a mixed panel/multi-year cross-sections of dwellings/households in the 50 largest metropolitan areas in the United States as of 2008. We estimate static and dynamic models of electricity and gas demand. We find strong household response to energy prices, both in the short and long term. From the static models, we get estimates of the own price elasticity of electricity demand in the -Â 0.860 to -Â 0.667 range, while the own price elasticity of gas demand is -Â 0.693 to -Â 0.566. These results are robust to a variety of checks. Contrary to earlier literature (Metcalf and Hassett, 1999; Reiss and White, 2005), we find no evidence of significantly different elasticities across households with electric and gas heat. The price elasticity of electricity demand declines with income, but the magnitude of this effect is small. These results are in sharp contrast to much of the literature on residential energy consumption in the United States, and with the figures used in current government agency practice. Our results suggest that there might be greater potential for policies which affect energy price than may have been previously appreciated.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 33 (2011)
Issue (Month): 5 (September)
Pages: 870-881

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Handle: RePEc:eee:eneeco:v:33:y:2011:i:5:p:870-881

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Web page: http://www.elsevier.com/locate/eneco

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Keywords: Residential electricity and gas demand Price elasticity of energy demand Static model Dynamic panel data model Partial adjustment model;

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Cited by:
  1. di Cosmo, Valeria & Lyons, Seán & Nolan, Anne, 2014. "Estimating the Impact of Time-of-Use Pricing on Irish Electricity Demand," Papers RB2014/2/2, Economic and Social Research Institute (ESRI).
  2. Fell, Harrison & Linn, Joshua, 2013. "Renewable electricity policies, heterogeneity, and cost effectiveness," Journal of Environmental Economics and Management, Elsevier, vol. 66(3), pages 688-707.
  3. Fell, Harrison & Li, Shanjun & Paul, Anthony, 2010. "A New Look at Residential Electricity Demand Using Household Expenditure Data," Discussion Papers dp-10-57, Resources For the Future.
  4. Heshmati, Almas, 2012. "Survey of Models on Demand, Customer Base-Line and Demand Response and Their Relationships in the Power Market," IZA Discussion Papers 6637, Institute for the Study of Labor (IZA).
  5. Massimo Filippini & Anna Alberini, 2010. "Response of Residential Electricity Demand to Price: The Effect of Measurement Error," CEPE Working paper series 10-75, CEPE Center for Energy Policy and Economics, ETH Zurich.
  6. Yu, Yihua & Zheng, Xinye & Han, Yi, 2014. "On the demand for natural gas in urban China," Energy Policy, Elsevier, vol. 70(C), pages 57-63.
  7. Walls, Margaret & Palmer, Karen & Gerarden, Todd, 2013. "Is Energy Efficiency Capitalized into Home Prices? Evidence from Three US Cities," Discussion Papers dp-13-18, Resources For the Future.

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