Estimating Energy Price Elasticities When Salience Is High: Residential Natural Gas Demand in Ukraine

46 Pages Posted: 18 Apr 2019

See all articles by Anna Alberini

Anna Alberini

University of Maryland - Department of Agricultural & Resource Economics

Olha Khymych

Charles University in Prague

Milan Ščasný

Charles University Prague

Date Written: March 20, 2019

Abstract

Despite its importance for policy purposes (including climate policy and the energy transition), the literature on the price elasticity of natural gas demand in the residential sector is very limited and based on inference from situations with modest variation in prices. We focus on a locale and time when price changes were extreme and presumably salient to consumers, namely Ukraine between 2013 and 2017. We exploit the tariff reforms and detailed micro-level household consumption records to estimate the price elasticity of the demand for natural gas. To isolate behavior, attention is restricted to those households that made no structural energy-efficiency upgrades to their homes, and thus kept the stock of gas-using capital fixed. We further examine the short-run elasticity by restricting the sample to a few months before and after the tariff changes. Our results suggest that in the face of extreme tariff changes, households were able to reduce their natural gas consumption, even without installing insulation or making any other energy efficiency investments. We find that the elasticity is about -0.16. Wealthier households, people living in multifamily buildings, and heavy users have more inelastic demands. Households reduced consumption even when they received “subsidies,” namely lump-sum government assistance, suggesting that when the price signal is sufficiently strong, lump-sum transfers have only a minimal effect on consumption. We also find some evidence that the stronger the salience, the stronger the responsiveness to price, although this effect is modest and may partly overlap with that of income or baseline consumption. Our data also suggest that the consumers with the lowest uptake of energy efficiency improvements might be those who — by necessity or through skills — are the most productive at reducing energy use through behaviors.

Suggested Citation

Alberini, Anna and Khymych, Olha and Ščasný, Milan, Estimating Energy Price Elasticities When Salience Is High: Residential Natural Gas Demand in Ukraine (March 20, 2019). USAEE Working Paper No. 19-392 (2019). Available at SSRN: https://ssrn.com/abstract=3357039 or http://dx.doi.org/10.2139/ssrn.3357039

Anna Alberini (Contact Author)

University of Maryland - Department of Agricultural & Resource Economics ( email )

Symmons Hall, Rm 2200
University of Maryland
College Park, MD 20742-5535
United States
301-405-1267 (Phone)
301-314-9091 (Fax)

Olha Khymych

Charles University in Prague ( email )

Praha 1
Czech Republic

Milan Ščasný

Charles University Prague ( email )

Praha 1, 116 36
Czech Republic

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