Climate adaptation investments: Short-term shocks and long-term effects of temperature variation on air conditioning adoption

Abstract

Air conditioning (AC) has gradually become the main way for households to adapt to climate change. Using a climate econometric model with two-way fixed effects, we systematically examine the short-term shocks and long-term effects of temperature variation on AC ownership in urban and rural households in the Yangtze River Delta region of China. When considering short-term shocks of temperature variation, our results indicate that cooling demand is the main driver of growth in AC ownership while heating demand and intra-seasonal temperature variance are not. In terms of the long-term effect, we find mean summer temperature has a positive lagged effect, with the cumulative effect being larger for rural households. The analysis of heterogeneity shows that while the greater elasticity of air conditioning ownership to temperature variation for rural residents indicates a faster diffusion of air conditioning during 2001–2020, the larger income elasticity (greater than 1) suggests that air conditioning is still a luxury item for them. Our findings not only provide empirical evidence for studying the pattern of climate adaptation investments in response to temperature variation, but also offer policy guidelines for households to better adapt to climate change.