A comprehensive study to estimate income and price elasticities of household electricity consumption using Auto-metrics

Abstract

This study focuses on understanding family electricity consumption behaviors in response to income and price changes from 1994 to 2022 across 12 prominent European countries. We employ a unique econometric approach, Auto-selection Models, to analyze the nuances of energy demand elasticity. Our methodology includes the use of saturation techniques, which are highly effective in identifying anomalies and discontinuities in the data, ensuring the reliability of our results. The Auto-metrics method streamlines the model selection process and enhances the accuracy of elasticity predictions. We use Error Correction Models (ECMs) for each country to examine the long-term equilibrium relationships among key variables such as energy consumption, household income, electricity prices, and weather patterns, taking into account any observed anomalies and significant structural changes. The findings reveal varying levels of income and price elasticity across the countries, reflecting their unique economic and climatic conditions. The study's results hold significant implications for policymaking. By recognizing and adapting to the varied characteristics of electricity demand elasticity, energy policies can be more accurately tailored at both the national and European Union levels.