Examining behavioral patterns in household fuel consumption using two-stage-budgeting framework for energy and environmental policies: Evidence based on micro data from Pakistan

Abstract

Prime objective of this study is to analyze fuel consumption patterns at national as well as at provincial level for Pakistan. Dynamic patterns in household fuel choices have been examined under Two-Stage Budgeting Framework through Quadratic Approximation of Almost Ideal Demand System (QUAIDS) using HIES data for year 2015–16 to obtain reliable estimates of Price and Budget Elasticities. Quadratic Engel estimates reflect households’ energy expenditures allocation decisions while the Probit estimates explore how alternate fuels are chosen by households for consumption? The Engel estimates highlight that the share of fuel expenditures in total household expenditures is higher in rural areas than in urban areas. The computed compensated price elasticities suggest that Firewood and Kerosene are relatively more price inelastic in rural areas as compared to the urban areas. Furthermore, our estimates also indicate that cleaner fuels are more price inelastic in urban areas than in rural areas with inter-provincial variations in computed elasticities. These estimates can be used as an effective policy making tool for transition towards cleaner fuels, energy policy simulations, to evaluate taxation and subsidy frameworks and energy system forecasting to prevent environmental degradation.