The Impact of Climate Change on Energy Demand: A Dynamic Panel Analysis

Abstract

This paper presents an empirical study of energy demand in which demand for a series of energy goods (Gas, Oil Products, Coal, Electricity) is expressed as a function of various factors, including temperature. Parameter values are estimated econometrically, using a dynamic panel data approach. Unlike previous studies in this field, the data sample has a global coverage, and special emphasis is given to sensitivity to temperature variations. These features make the model results especially valuable in the analysis of climate change impacts. Results are interpreted in terms of derived demand for heating and cooling. Nonlinearities and discontinuities emerge, making necessary to distinguish between different regions, seasons, and energy sources. Short and long run temperature elasticities of demand are estimated.

Climate change impacts on human life have well defined and different origins, nevertheless in the determination of their final effects, especially those involving social economic responses, interactions among impacts are likely to play an important role.

Keywords: Energy demand, cooling effect, heating effect, temperature, dynamic panel

JEL Classification: C3, Q41, Q54