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A Discrete-Continuous Choice Model of Climate Change Impacts on Energy

48 Pages Posted: 8 Jun 2005  

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

Wendy Morrison

Texas A&M University

Date Written: March 14, 2005

Abstract

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.

Keywords: climate change, energy demand

JEL Classification: Q25, Q41

Suggested Citation

Mansur, Erin T. and Mendelsohn, Robert O. and Morrison, Wendy, A Discrete-Continuous Choice Model of Climate Change Impacts on Energy (March 14, 2005). Yale SOM Working Paper No. ES-43. Available at SSRN: https://ssrn.com/abstract=738544

Erin T. Mansur (Contact Author)

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States
603 646 2398 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Robert O. Mendelsohn

Yale University - School of Forestry & Environmental Studies ( email )

195 Prospect Street
New Haven, CT 06511
United States

Yale University ( email )

New Haven, CT 06520
United States
2034325128 (Phone)

Wendy Morrison

Texas A&M University ( email )

Langford Building A
798 Ross St.
College Station, TX 77843-3137
United States

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