Saturday, February 19, 2011

Residential Consumption of Gas and Electricity in the U.S.: The Role of Prices and Income

Residential Consumption of Gas and Electricity in the U.S.: The Role of Prices and Income: "

Abstract: We study residential demand for electricity and gas, working with nationwide household-level data that cover recent years, namely 1997–2007. Our dataset is a mixed panel/multi-year cross-sections of dwellings/households in the 50 largest metropolitan areas in the United States as of 2008. We estimate static and dynamic models of electricity and gas demand. We find strong household response to energy prices, both in the short and long term. From the static models, we get estimates of the own price elasticity of electricity demand in the − 0.860 to − 0.667 range, while the own price elasticity of gas demand is − 0.693 to − 0.566. These results are robust to a variety of checks. Contrary to earlier literature (Metcalf and Hassett, 1999; Reiss and White, 2005), we find no evidence of significantly different elasticities across households with electric and gas heat. The price elasticity of electricity demand declines with income, but the magnitude of this effect is small. These results are in sharp contrast to much of the literature on residential energy consumption in the United States, and with the figures used in current government agency practice. Our results suggest that there might be greater potential for policies which affect energy price than may have been previously appreciated.

by Anna Alberini 1 and 2, Will Gans 1 and Daniel Velez-Lopez 1

1. University of Maryland / AREC Department / Rm. 2200 Symons Hall / College Park, MD 20742–5535. Tel.: + 301 105 1267; fax: + 301 314 9091

2. CEPE, ETH Z├╝rich

Energy Economics via Elsevvier Science Direct

Article in Press, Accepted Manuscript; Available online February 8, 2011

A full free November, 2010 version of the paper is available at In that paper the authors note:

We computed the total variation of real electricity prices and of log real electricity prices, and found that in each case the variation within dwellings accounted for only 4% of the total variation. Our measure of variation is the sum of square deviations from the grand mean. Gas prices are more variable over time: the “within” dwelling variation accounts for about 14% of total variation in real gas prices, and 15% of the total variation for log real gas prices.

Consumption of electricity increases by 22% for every 10% increase in the square footage of the home, is 16% higher if the home has air conditioning, and about 15% higher if the home is heated using electricity. Dishwashers and electrical stoves increase usage by 8% and 7%, respectively.


The model with city-specific effects indicates that gas usage increases by 19% for every 10 percentage point increase in the square footage of the home, and is about 24% larger in homes with gas heating systems. The impact of these variables is small and statistically insignificant in the variants with dwelling- and dwelling- household effects. ...

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