IDEAS home Printed from https://ideas.repec.org/p/zbw/zewdip/16052.html
   My bibliography  Save this paper

Price and income elasticities of residential energy demand in Germany

Author

Listed:
  • Schulte, Isabella
  • Heindl, Peter

Abstract

We apply a quadratic expenditure system to estimate price and expenditure elasticities of residential energy demand (electricity and heating) in Germany. Using official expenditure data from 1993 to 2008, we estimate an expenditure elasticity for electricity of 0.3988 and of 0.4055 for space heating. The own price elasticity for electricity is -0.4310 and -0.5008 in the case of space heating. Disaggregation of households by expenditure and demographic composition reveals that the behavioural response to energy price changes is weaker (stronger) for low-income (top-income) households. There are considerable economies of scale in residential energy use but scale effects are not well approximated by the new OEDC equivalence scale. Real increases in energy prices show a regressive pattern of incidence, implying that the welfare consequences of direct energy taxation are larger for low income households. The application of zero-elasticities in assessments of welfare consequences of energy taxation strongly underestimates potential welfare effects. The increase in inequality is 22% smaller when compared to the application of rich and disaggregated behavioural response patterns as estimated in this paper.

Suggested Citation

  • Schulte, Isabella & Heindl, Peter, 2016. "Price and income elasticities of residential energy demand in Germany," ZEW Discussion Papers 16-052, ZEW - Leibniz Centre for European Economic Research.
  • Handle: RePEc:zbw:zewdip:16052
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/144157/1/863154018.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Heindl Peter & Aigeltinger Gerd & Liessem Verena & Römer Daniel & Schwengers Clarita & Vogt Claire, 2017. "Zum Stromkonsum von Haushalten in Grundsicherung: Eine empirische Analyse für Deutschland," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 18(4), pages 348-367, November.
    2. Karsten Neuhoff & Stefan Bach & Jochen Diekmann & Martin Beznoska & Tarik El-Laboudy, 2013. "Distributional Effects of Energy Transition: Impacts of Renewable Electricity Support in Germany," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 1).
    3. Ajmi, Ahdi Noomen & El Montasser, Ghassen & Nguyen, Duc Khuong, 2013. "Testing the relationships between energy consumption and income in G7 countries with nonlinear causality tests," Economic Modelling, Elsevier, vol. 35(C), pages 126-133.
    4. Lutz Kilian, 2008. "The Economic Effects of Energy Price Shocks," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 871-909, December.
    5. Peter Grösche & Carsten Schröder, 2014. "On the redistributive effects of Germany’s feed-in tariff," Empirical Economics, Springer, vol. 46(4), pages 1339-1383, June.
    6. Howe, Howard & Pollak, Robert A & Wales, Terence J, 1979. "Theory and Time Series Estimation of the Quadratic Expenditure System," Econometrica, Econometric Society, vol. 47(5), pages 1231-1247, September.
    7. Narayan, Paresh Kumar & Prasad, Arti, 2008. "Electricity consumption-real GDP causality nexus: Evidence from a bootstrapped causality test for 30 OECD countries," Energy Policy, Elsevier, vol. 36(2), pages 910-918, February.
    8. Grace Anyaegbu, 2010. "Using the OECD equivalence scale in taxes and benefits analysis," Economic & Labour Market Review, Palgrave Macmillan;Office for National Statistics, vol. 4(1), pages 49-54, January.
    9. Heindl, Peter & Löschel, Andreas, 2015. "Social implications of green growth policies from the perspective of energy sector reform and its impact on households," CAWM Discussion Papers 81, University of Münster, Münster Center for Economic Policy (MEP).
    10. Pashardes, Panos & Pashourtidou, Nicoletta & Zachariadis, Theodoros, 2014. "Estimating welfare aspects of changes in energy prices from preference heterogeneity," Energy Economics, Elsevier, vol. 42(C), pages 58-66.
    11. Pollak, Robert A & Wales, Terence J, 1978. "Estimation of Complete Demand Systems from Household Budget Data: The Linear and Quadratic Expenditure Systems," American Economic Review, American Economic Association, vol. 68(3), pages 348-359, June.
    12. John Hills, 2012. "Final report of the Hills Independent Fuel Poverty Review: Getting the Measure of Fuel Poverty," CASE Reports casereport72, Centre for Analysis of Social Exclusion, LSE.
    13. Moore, Richard, 2012. "Definitions of fuel poverty: Implications for policy," Energy Policy, Elsevier, vol. 49(C), pages 19-26.
    14. Espey, James A. & Espey, Molly, 2004. "Turning on the Lights: A Meta-Analysis of Residential Electricity Demand Elasticities," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 36(1), pages 65-81, April.
    15. Narayan, Paresh Kumar & Smyth, Russell, 2009. "Multivariate granger causality between electricity consumption, exports and GDP: Evidence from a panel of Middle Eastern countries," Energy Policy, Elsevier, vol. 37(1), pages 229-236, January.
    16. Narayan, Paresh Kumar & Smyth, Russell & Prasad, Arti, 2007. "Electricity consumption in G7 countries: A panel cointegration analysis of residential demand elasticities," Energy Policy, Elsevier, vol. 35(9), pages 4485-4494, September.
    17. Helena Meier, Tooraj Jamasb, and Luis Orea, 2013. "Necessity or Luxury Good? Household Energy Spending and Income in Britain 1991-2007," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    18. El-Shazly, Alaa, 2013. "Electricity demand analysis and forecasting: A panel cointegration approach," Energy Economics, Elsevier, vol. 40(C), pages 251-258.
    19. Hoderlein, Stefan & Mihaleva, Sonya, 2008. "Increasing the price variation in a repeated cross section," Journal of Econometrics, Elsevier, vol. 147(2), pages 316-325, December.
    20. Fouquet, Roger, 2014. "Long run demand for energy services: income and price elasticities over two hundred years," LSE Research Online Documents on Economics 59070, London School of Economics and Political Science, LSE Library.
    21. Nikodinoska, Dragana & Schröder, Carsten, 2016. "On the emissions–inequality and emissions–welfare trade-offs in energy taxation: Evidence on the German car fuels tax," Resource and Energy Economics, Elsevier, vol. 44(C), pages 206-233.
    22. Florens Flues & Alastair Thomas, 2015. "The distributional effects of energy taxes," OECD Taxation Working Papers 23, OECD Publishing.
    23. Labandeira, Xavier & Labeaga, José M. & Rodríguez, Miguel, 2009. "An integrated economic and distributional analysis of energy policies," Energy Policy, Elsevier, vol. 37(12), pages 5776-5786, December.
    24. Meier, Helena & Rehdanz, Katrin, 2010. "Determinants of residential space heating expenditures in Great Britain," Energy Economics, Elsevier, vol. 32(5), pages 949-959, September.
    25. Peter Heindl, 2015. "Measuring Fuel Poverty: General Considerations and Application to German Household Data," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 71(2), pages 178-215, June.
    26. Krishnamurthy, Chandra Kiran B. & Kriström, Bengt, 2015. "A cross-country analysis of residential electricity demand in 11 OECD-countries," Resource and Energy Economics, Elsevier, vol. 39(C), pages 68-88.
    27. John L. Park & Rodney B. Holcomb & Kellie Curry Raper & Oral Capps, 1996. "A Demand Systems Analysis of Food Commodities by U.S. Households Segmented by Income," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(2), pages 290-300.
    28. Angus Deaton, 2016. "Measuring and Understanding Behavior, Welfare, and Poverty," American Economic Review, American Economic Association, vol. 106(6), pages 1221-1243, June.
    29. Jan Goebel & Markus M. Grabka & Carsten Schröder, 2015. "Einkommensungleichheit in Deutschland bleibt weiterhin hoch: junge Alleinlebende und Berufseinsteiger sind zunehmend von Armut bedroht," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 82(25), pages 571-586.
    30. Rehdanz, Katrin, 2007. "Determinants of residential space heating expenditures in Germany," Energy Economics, Elsevier, vol. 29(2), pages 167-182, March.
    31. Pollak, Robert A & Wales, Terence J, 1981. "Demographic Variables in Demand Analysis," Econometrica, Econometric Society, vol. 49(6), pages 1533-1551, November.
    32. Christoph Böhringer & Florian Landis & Miguel Angel Tovar Reaños, 2016. "Cost-effectiveness and Incidence of Renewable Energy Promotion in Germany," Working Papers V-390-16, University of Oldenburg, Department of Economics, revised Jul 2016.
    33. Heindl, Peter & Schuessler, Rudolf, 2015. "Dynamic properties of energy affordability measures," Energy Policy, Elsevier, vol. 86(C), pages 123-132.
    34. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    35. Arthur Lewbel & Krishna Pendakur, 2009. "Tricks with Hicks: The EASI Demand System," American Economic Review, American Economic Association, vol. 99(3), pages 827-863, June.
    36. Baker, Paul & Blundell, Richard & Micklewright, John, 1989. "Modelling Household Energy Expenditures Using Micro-data," Economic Journal, Royal Economic Society, vol. 99(397), pages 720-738, September.
    37. Barnett, William A. & Serletis, Apostolos, 2008. "Measuring Consumer Preferences and Estimating Demand Systems," MPRA Paper 12318, University Library of Munich, Germany.
    38. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249, December.
    39. Pourazarm, Elham & Cooray, Arusha, 2013. "Estimating and forecasting residential electricity demand in Iran," Economic Modelling, Elsevier, vol. 35(C), pages 546-558.
    40. James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 527-539, November.
    41. Brounen, Dirk & Kok, Nils & Quigley, John M., 2012. "Residential energy use and conservation: Economics and demographics," European Economic Review, Elsevier, vol. 56(5), pages 931-945.
    42. Roger Fouquet, 2014. "Editor's Choice Long-Run Demand for Energy Services: Income and Price Elasticities over Two Hundred Years," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 8(2), pages 186-207.
    43. Beznoska, Martin, 2014. "Estimating a consumer demand system of energy, mobility and leisure: A microdata approach for Germany," Discussion Papers 2014/8, Free University Berlin, School of Business & Economics.
    44. Arthur Lewbel, 1989. "Identification and Estimation of Equivalence Scales under Weak Separability," Review of Economic Studies, Oxford University Press, vol. 56(2), pages 311-316.
    45. Narayan, Paresh Kumar & Narayan, Seema & Prasad, Arti, 2008. "A structural VAR analysis of electricity consumption and real GDP: Evidence from the G7 countries," Energy Policy, Elsevier, vol. 36(7), pages 2765-2769, July.
    46. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Heindl, Peter & Löschel, Andreas, 2015. "Social implications of green growth policies from the perspective of energy sector reform and its impact on households," CAWM Discussion Papers 81, University of Münster, Münster Center for Economic Policy (MEP).
    2. Dorothee Charlier and Sondes Kahouli, 2019. "From Residential Energy Demand to Fuel Poverty: Income-induced Non-linearities in the Reactions of Households to Energy Price Fluctuations," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    3. Tovar Reaños, Miguel A. & Wölfing, Nikolas M., 2018. "Household energy prices and inequality: Evidence from German microdata based on the EASI demand system," Energy Economics, Elsevier, vol. 70(C), pages 84-97.
    4. Heindl, Peter & Schüßler, Rudolf, 2019. "A deprivation-based assessment of energy poverty: Conceptual problems and application to Germany," ZEW Discussion Papers 19-036, ZEW - Leibniz Centre for European Economic Research.
    5. Pothen, Frank & Tovar Reaños, Miguel Angel, 2018. "The Distribution of Material Footprints in Germany," Ecological Economics, Elsevier, vol. 153(C), pages 237-251.
    6. Tovar Reanos, Miguel, 2020. "Car ownership and the distributional and environmental policies to reduce driving behavior," Papers WP673, Economic and Social Research Institute (ESRI).
    7. Nils Ohlendorf & Michael Jakob & Jan Christoph Minx & Carsten Schröder & Jan Christoph Steckel, 2021. "Distributional Impacts of Carbon Pricing: A Meta-Analysis," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 78(1), pages 1-42, January.
    8. Tovar Reaños, Miguel A., 2021. "Floods, flood policies and changes in welfare and inequality: Evidence from Germany," Ecological Economics, Elsevier, vol. 180(C).
    9. Nils Ohlendorf & Michael Jakob & Jan Christoph Minx & Carsten Schröder & Jan Christoph Steckel, 2018. "Distributional Impacts of Climate Mitigation Policies - a Meta-Analysis," Discussion Papers of DIW Berlin 1776, DIW Berlin, German Institute for Economic Research.
    10. van der Ploeg, Frederick & Rezai, Armon & Tovar Reanos, Miguel, 2022. "Gathering support for green tax reform: Evidence from German household surveys," European Economic Review, Elsevier, vol. 141(C).
    11. Dorothée Charlier & Sondès Kahouli, 2018. "Fuel poverty and residential energy demand: how fuel-poor households react to energy price fluctuations," Post-Print halshs-01957771, HAL.
    12. Heindl Peter & Aigeltinger Gerd & Liessem Verena & Römer Daniel & Schwengers Clarita & Vogt Claire, 2017. "Zum Stromkonsum von Haushalten in Grundsicherung: Eine empirische Analyse für Deutschland," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 18(4), pages 348-367, November.
    13. Tovar Reaños, Miguel & Lynch, Muireann Á., 2019. "Distributional impacts of carbon taxation and revenue recycling: a behavioural microsimulation," Papers WP626, Economic and Social Research Institute (ESRI).
    14. Salomé Bakaloglou and Dorothée Charlier, 2019. "Energy Consumption in the French Residential Sector: How Much do Individual Preferences Matter?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    15. Peter Heindl, 2015. "Measuring Fuel Poverty: General Considerations and Application to German Household Data," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 71(2), pages 178-215, June.
    16. Eisner, Anna & Kulmer, Veronika & Kortschak, Dominik, 2021. "Distributional effects of carbon pricing when considering household heterogeneity: An EASI application for Austria," Energy Policy, Elsevier, vol. 156(C).
    17. Simona Bigerna & Carlo Andrea Bollino & Maria Chiara D’Errico, 2020. "A general expenditure system for estimation of consumer demand functions," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 37(3), pages 1071-1088, October.
    18. Nikodinoska, Dragana & Schröder, Carsten, 2016. "On the emissions–inequality and emissions–welfare trade-offs in energy taxation: Evidence on the German car fuels tax," Resource and Energy Economics, Elsevier, vol. 44(C), pages 206-233.
    19. Tovar Reaños, Miguel A. & Lynch, Muireann Á., 2022. "Measuring carbon tax incidence using a fully flexible demand system. Vertical and horizontal effects using Irish data," Energy Policy, Elsevier, vol. 160(C).
    20. Gautam, Tej K. & Paudel, Krishna P., 2018. "The demand for natural gas in the Northeastern United States," Energy, Elsevier, vol. 158(C), pages 890-898.

    More about this item

    Keywords

    energy consumption; price elasticities; expenditure elasticities;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:zewdip:16052. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/zemande.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/zemande.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.