A Discrete-Continuous Choice Model of Climate Change Impacts on Energy
Erin T. Mansur
Tuck School of Business at Dartmouth; National Bureau of Economic Research (NBER)
Robert O. Mendelsohn
Yale University - School of Forestry & Environmental Studies ; Yale University
Texas A&M University
March 14, 2005
Yale SOM Working Paper No. ES-43
This paper estimates a multinomial discrete-continuous fuel choice model of both households and firms in order to determine the sensitivity of national energy demand to climate change. We find that consumers switch from natural gas, oil, and other fuels to electricity as climate warms and that overall energy demand - especially electricity demand - increases. The model implies that warming will increase American energy expenditures, resulting in welfare damages that increase as temperatures rise. Increases in electricity expenditures for cooling are partially offset by reductions in expenditures on other fuels for heating. Given a five degree Celsius increase in temperature by 2100, we predict an annual welfare loss of $40 billion, borne primarily by residential customers.
Number of Pages in PDF File: 48
Keywords: climate change, energy demand
JEL Classification: Q25, Q41
Date posted: June 8, 2005
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