Energy Demand Elasticities and Weather Worldwide

45 Pages Posted: 2 Dec 2015 Last revised: 15 Feb 2017

See all articles by Tarek Atalla

Tarek Atalla

King Abdullah Petroleum Studies and Research Center (KAPSARC); Independent

Simona Bigerna

Department of Economics, University of Perugia

C. Andrea Bollino

University of Perugia - Department of Economics, Finance and Statistics

Date Written: November 30, 2016

Abstract

The purpose of this paper is to empirically estimate a model of aggregate residential and commercial energy demand elasticities, taking into account capital stock and climate effects. We model a theoretically founded non-linear energy demand system for the most important 117 countries in the world, which represent around 95% of the world population and 97% of the primary residential energy consumption, for the period 1978-2012. This approach accurately measures demand response to prices, taking fully into account the utility maximizing theoretical restrictions for this comprehensive list of countries. To this end, we assume a multi-stage utility maximization process, which models energy demand within a comprehensive theoretical framework.

This paper offers three new contributions. First, we model energy aggregate demand response with a flexible and theoretically plausible simultaneous system. Second, we empirically measure the complete structure of price and expenditure elasticities of energy demand worldwide. Third, we explicitly estimate the impact of climate conditions on energy demand, with a newly constructed measure of weather impact based on geolocated heating and cooling degree-days.

Econometric estimation reveals quantitative evidence of different effects of both weather and capital stock and provides new insights about the energy demand response to prices and income. Our results have welfare-improving policy implications, because appropriate policy strategies can help public decision-makers promote production efficiency and consumer welfare. welfare.

Keywords: Complete demand system; Energy Demand elasticity; price and income elasticity; heating degree-day; cooling degree-day

JEL Classification: D1, C10, Q4

Suggested Citation

Atalla, Tarek and Atalla, Tarek and Bigerna, Simona and Bollino, Carlo Andrea, Energy Demand Elasticities and Weather Worldwide (November 30, 2016). Available at SSRN: https://ssrn.com/abstract=2697214 or http://dx.doi.org/10.2139/ssrn.2697214

Tarek Atalla

King Abdullah Petroleum Studies and Research Center (KAPSARC) ( email )

Riyadh, Central Province
Saudi Arabia

Independent ( email )

Simona Bigerna

Department of Economics, University of Perugia ( email )

Via A. Pascoli
Perugia, 06123
Italy

Carlo Andrea Bollino (Contact Author)

University of Perugia - Department of Economics, Finance and Statistics ( email )

Perugia, 06123
Italy

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