How prices, income, and weather shape household electricity demand in high-income and middle-income countries

Abstract

Abstract This analysis provides an international perspective geared towards understanding the future demands being placed on the world's electricity system. It focuses upon the household or residential demand for electricity in a number of high-income and middle-income countries that may raise power demands for cooling in a warming world. Panel estimates on 26 high-income and 29 middle-income countries over the 1978–2013 period provide critical information on how household electricity demand responds to income, weather, and prices. Our dynamic panel estimates address nonstationarity, heterogeneity, and cross-sectional dependence. We believe these are the first panel estimates for middle-income/non-OECD countries and the first panel estimates for high-income/OECD countries to address all three of the previously identified statistical issues. Relative to high-income country responses, long-run elasticities for middle-income nations are larger for income (0.8 compared to 0.6), larger for cooling (0.3 versus insignificant), and smaller for prices (−0.08 relative to −0.2). As middle-income economies are likely to grow more rapidly than high-income/OECD economies, the trends related to income and cooling responses are likely to place greater pressure on a warming world unless the power sector can be decarbonized globally.