The income elasticity of household energy demand: a quantile regression analysis

ABSTRACT

This article examines variation in the income elasticity of household energy demand across the energy expenditure distribution using expenditure data from the five most recent Household Budget Surveys (HBSs) in Ireland: the 1987, 1994/1995, 1999/2000, 2004/2005 and 2009/2010 HBS. The analysis uses a two-stage instrumental variable quantile regression approach and is based on each HBS cross section, as well as the overall pooled observations. The estimated elasticities are compared across low- and high-energy-consumption scenarios and to a benchmark elasticity estimated using two-stage least squares. The results provide evidence that there is significant variation in the income elasticities across the energy expenditure distribution and that care must be taken when using the constant mean elasticity for policy purposes. More specifically, any examination of the future impact of a change in income support policy measures on energy consumption should recognize the substantial context-dependent variation in the income elasticity.

KEYWORDS:

• Household energy demand
• income elasticity
• energy expenditure distribution
• quantile regression

JEL CLASSIFICATION:

• D12
• D30
• H31
• Q41

Acknowledgements

This research was funded by the Irish Research Council (IRC). The IRC had no involvement in the study design; in the collection, analysis and interpretation of data; in the writing of the report and in the decision to submit the article for publication.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Overall CPI: 1987 = 55.88, 1994 = 68.33, 1999 = 76.18, 2004 = 93, 2009 = 100. Housing and Fuel CPI: 1987 = 51.37, 1994 = 61.56, 1999 = 61.83, 2004 = 83.78, 2009 = 100. These represent the average monthly CPI across the months the relevant HBS was distributed.

² The analysis was also conducted using a linear and double-log specification and the semi-log specification was found to be a better fit.

Additional information

Funding

This research was funded by the Irish Research Council (IRC).