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The effect of climate change on electricity expenditures in Massachusetts

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  • Véliz, Karina D.
  • Kaufmann, Robert K.
  • Cleveland, Cutler J.
  • Stoner, Anne M.K.

Abstract

Climate change affects consumer expenditures by altering the consumption of and price for electricity. Previous analyses focus solely on the former, which implicitly assumes that climate-induced changes in consumption do not affect price. But this assumption is untenable because a shift in demand alters quantity and price at equilibrium. Here we present the first empirical estimates for the effect of climate change on electricity prices. Translated through the merit order dispatch of existing capacity for generating electricity, climate-induced changes in daily and monthly patterns of electricity consumption cause non-linear changes in electricity prices. A 2°C increase in global mean temperature increases the prices for and consumption of electricity in Massachusetts USA, such that the average household’s annual expenditures on electricity increase by about 12%. Commercial customers incur a 9% increase. These increases are caused largely by higher prices for electricity, whose impacts on expenditures are 1.3 and 3.6 fold larger than changes in residential and commercial consumption, respectively. This suggests that previous empirical studies understate the effects of climate change on electricity expenditures and that policy may be needed to ensure that the market generates investments in peaking capacity to satisfy climate-driven changes in summer-time consumption.

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  • Véliz, Karina D. & Kaufmann, Robert K. & Cleveland, Cutler J. & Stoner, Anne M.K., 2017. "The effect of climate change on electricity expenditures in Massachusetts," Energy Policy, Elsevier, vol. 106(C), pages 1-11.
    • Handle: RePEc:eee:enepol:v:106:y:2017:i:c:p:1-11
    DOI: 10.1016/j.enpol.2017.03.016
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    3. Kamia Handayani & Tatiana Filatova & Yoram Krozer, 2019. "The Vulnerability of the Power Sector to Climate Variability and Change: Evidence from Indonesia," Energies, MDPI, vol. 12(19), pages 1-25, September.
    4. Mosquera-López, Stephanía & Uribe, Jorge M. & Manotas-Duque, Diego F., 2018. "Effect of stopping hydroelectric power generation on the dynamics of electricity prices: An event study approach," Renewable and Sustainable Energy Reviews, Elsevier, vol. 94(C), pages 456-467.
    5. Tanya Suhoy & Maayan Tropper-Wachtel, 2021. "Global Warming Effects on Electricity Demand in Israel," Bank of Israel Working Papers 2021.17, Bank of Israel.
    6. Harish, Santosh & Singh, Nishmeet & Tongia, Rahul, 2020. "Impact of temperature on electricity demand: Evidence from Delhi and Indian states," Energy Policy, Elsevier, vol. 140(C).
    7. Yuanzheng Li & Wenjing Wang & Yating Wang & Yashu Xin & Tian He & Guosong Zhao, 2020. "A Review of Studies Involving the Effects of Climate Change on the Energy Consumption for Building Heating and Cooling," IJERPH, MDPI, vol. 18(1), pages 1-18, December.
    8. Xue-Ting Jiang & Rongrong Li, 2017. "Decoupling and Decomposition Analysis of Carbon Emissions from Electric Output in the United States," Sustainability, MDPI, vol. 9(6), pages 1-13, May.
    9. Nnaemeka Vincent Emodi & Taha Chaiechi & ABM Rabiul Alam Beg, 2018. "The impact of climate change on electricity demand in Australia," Energy & Environment, , vol. 29(7), pages 1263-1297, November.
    10. Guefano, Serge & Tamba, Jean Gaston & Azong, Tchitile Emmanuel Wilfried & Monkam, Louis, 2021. "Forecast of electricity consumption in the Cameroonian residential sector by Grey and vector autoregressive models," Energy, Elsevier, vol. 214(C).
    11. Anver C. Sadath & Rajesh H. Acharya, 2019. "Economic growth and environmental degradation: How to balance the interests of developed and developing countries," ECONOMICS AND POLICY OF ENERGY AND THE ENVIRONMENT, FrancoAngeli Editore, vol. 0(2), pages 25-47.

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