Abstract
We estimate China urban household energy demand as part of a complete system of consumption demand so that it can be used in economy-wide models. This allows us to derive cross-price elasticities unlike studies which focus on one type of energy. We implement a two-stage approach and explicitly account for electricity, domestic fuels and transportation demand in the first stage and gasoline, coal, LPG and gas demand in the second stage. We find income inelastic demand for electricity and home energy, but the elasticity is higher than estimates in the rich countries. Demand for total transportation is income elastic. The price elasticity for electricity is estimated to be −0.5 and in the range of other estimates for China, and similar to long-run elasticities estimated for the U.S.
Highlights
The rapid growth of energy consumption in China has generated a huge literature discussing its characteristics and environmental impacts
In the second stage we assume that total other home energy (OHE) expenditures be allocated to coal, LPG, natural gas, and heat & all other household energy, and total transportation (T) expenditures be allocated to vehicle fuels and transportation services
Most estimates of household energy demand in China have focused on individual types of energy, most electricity
Summary
The rapid growth of energy consumption in China has generated a huge literature discussing its characteristics and environmental impacts. The second is to estimate a flexible demand system that will provide income and price elasticities, including cross-price elasticities, for electricity, other household energy (coal, LPG, gas, heat), and transportation for urban China. There are restrictions on elasticities of demand in the first stage in this approach This is the method used in Cao, Ho and Liang (2016) estimation of China urban household energy demand where there is a Linear Expenditure System in the first stage for an energy bundle and a non-energy bundle, and an AIDS function in the second stage for the energy bundle as a function of electricity, coal, gas and gasoline.
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