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Residential Consumption of Gas and Electricity in the U.S.: The Role of Prices and Income

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  • Anna Alberini

    (AREC, University of Maryland and CEPE, ETH Zürich)

  • Will Gans

    (AREC, University of Maryland)

  • Daniel Velez-Lopez

    (AREC, University of Maryland)

Abstract

We study 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. To our knowledge, this is the most comprehensive set of data for examining household residential energy usage at the national level, containing the broadest geographical coverage, and with the longest longitudinal component (up to 6 observations per dwelling). 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 -0.860 to -0.667 range, while the own price elasticity of gas demand is -0.693 to -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

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2011.01.

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Date of creation: Jan 2011
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Handle: RePEc:fem:femwpa:2011.01

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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, Sean & Nolan, Anne, 2012. "Estimating the impact of time-of-use pricing on Irish electricity demand," MPRA Paper 39971, University Library of Munich, Germany.
  2. 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).
  3. 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.
  4. 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.
  5. 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.
  6. Nina Boogen & Souvik Datta & Massimo Filippini, 2014. "Going beyond tradition: Estimating residential electricity demand using an appliance index and energy services," CER-ETH Economics working paper series 14/200, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  7. Desiderio Romero-Jordán & Pablo del Río & Cristina Peñasco, 2014. "Household electricity demand in Spanish regions. Public policy implications," Working Papers 2014/24, Institut d'Economia de Barcelona (IEB).
  8. 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.
  9. Harrison Fell & Shanjun Li & Anthony Paul, 2012. "A New Look at Residential Electricity Demand Using Household Expenditure Data," Working Papers 2012-04, Colorado School of Mines, Division of Economics and Business.

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