Returns to Grid Electricity on Firewood Consumption and Mechanism

The unprecedented stock of greenhouse gases in the atmosphere is changing the traditional role of the forest into that of a carbon sink. However, dependence on firewood for household energy is ubiquitous in developing countries, undermining the carbon services that forests provide. One of the options to address this problem is to provide access to alternatives such as electricity. This study examines the effect of grid electricity on firewood consumption by using an instrumental variable (IV) estimation strategy, and it evaluates the mechanisms underlying the causal effect. I use three waves of large sample household surveys from Bhutan and other administrative data to complement the main results. The results show that grid electricity reduces firewood consumption by approximately 0.37 - 2.65 cubic meters per month and that electrified households are approximately 83 - 90% more likely to use electricity instead of kerosene as lighting fuel. Households respond to electricity provisions by adjusting household technology, particularly in terms of shifting to the newly available source of household fuel and adopting basic electrical appliances.