Slow burn: Weak energy transition in a growing economy

Abstract

Despite impressive recent gains in income (now classified by the World Bank as a “high income country”), and access to alternative heating systems, Chileans continue to have amongst the highest levels of per-capita wood consumption in the world, with serious attendant health and environmental implications. In this paper, we estimate the income elasticity of the use of firewood as a primary residential heating system in Chilean households. Our estimate accounts for the country’s climatic, geographic, and socio-demographic variation; controls for multiple levels of fixed-effects and covariates; and accounts for selection—as some households choose no heating systems whatsoever. We find that an increase of income of 10% decreases the probability of firewood use by about one-tenth of a percentage point, a statistically significant but economically trivial effect. This result, consistent across various robustness checks, provides evidence for an extremely weak income-based energy transition in Chile. It implies that passive environmental policy, expecting a reduction of firewood use exclusively from income growth will fail. If the Chilean government’s aim is to lower the detrimental health and environmental outcomes associated with firewood use, they will have to adopt more aggressive approaches.