How does air pollution affect household energy expenditure: A micro-empirical study based on avoidance behavior

Abstract

China is one of the world's most highly-pollutant countries, and over the last few years has experienced severe and persistent haze pollution. Exploring the effects of air pollution on household energy expenditure will provide a more comprehensive and accurate understanding of the economic effects of environmental pollution. It is an important question but remains unanswered because of an estimation endogeneity. Household non-clean energy consumption would increase air pollution. A major challenge in estimates is how to accurately and cleanly identify the unwatched effect of air pollution given the endogeneity. Using the global satellite monitoring data and unique micro-household survey data, we try to construct an instrumental variable to identify the net effect of air pollution on Chinese household energy expenditure. We find that the increase in air pollution has a significantly positive effect on household energy expenditure. The results remain robust after a series of pivotal checks. Our findings highlight that stay-home-avoidance behaviors as a potential mechanism behind the energy-associated effects of air pollution on household energy expenditure. The well-educated, high-income, and urban households in southern China are more likely to engage in stay-home-avoidance behaviors. These findings can provide some useful policy enlightenments for the government in terms of environmental regulation and promotion of household clean energy.