The elasticity of residential electricity demand and the rebound effect in 18 European Union countries

Abstract

ABSTRACT This study investigates income and price elasticities of residential electricity demand and electricity rebound effect using the annual panel data of 18 European Union countries. Quantile regression results show that income elasticities are higher in lower quantiles, whereas price elasticities are uniform in all quantiles. Three fixed-effect estimators provide consistent results, with the scale of long-run income and price elasticities increasing compared to short-run elasticities. In the short run, the derived elasticities of electricity demand are 0.08 for income and −0.03 for price, whereas in the long run, they are at 1.17 for income and −0.43 for price. In addition, asymmetric price response is observed, estimating the rebound effect in the decomposed price model. Our empirical results suggest that European governments implement policies that accelerate improvements to electricity efficiency and invigorate the retail electricity market, making residential electricity prices more transparent to consumers.