The Effect of Temperature on Energy Demand and the Role of Adaptation

We examine the effect of daily temperature on monthly energy demand for all major fuels (electricity, natural gas, and petroleum products) and end-use sectors in the United States using over three decades of state-level data. We estimate fixed effects panel models that assume homogeneous temperature coefficients and panel models that account for adaptation by allowing for both spatial and temporal variation in the temperature sensitivity of fuel demand. For each fuel and sector, we find that there is substantial heterogeneity across states in the estimated relationships. Using our estimates to predict the effects that climate change has already had during 2010–19, we find that adaptation has led to aggregate annual savings in energy consumption and expenditure for each sector, with the residential sector saving nearly $1 billion annually with adaptation versus without. However, we also find notable heterogeneity across regions in how the predicted impacts are modified by adaptation.