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Composition and sensitivity of residential energy consumption

Published online by Cambridge University Press:  28 June 2022

Raul Jimenez Mori Open the ORCID record for Raul Jimenez Mori [Opens in a new window] ,
Ariel Yepez-Garcia  and
Demian Macedo
Raul Jimenez Mori*
Affiliation:
IDB Invest, Bogota, Colombia
Ariel Yepez-Garcia
Affiliation:
Inter-American Development Bank (IDB), Washington, DC, USA
Demian Macedo
Affiliation:
Department of Business Economics, Universitat de les Illes Balears (UIB), Palma de Mallorca, Spain
*
*Corresponding author. E-mail: rjimenez@iadb.org
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Abstract

We examine how the composition of residential energy consumption and its sensitivity with respect to income changes. The paper characterizes the energy transition, analyzing the behavior of income elasticity of energy demand along the economic development stages by fuel types. The results indicate a nonlinear relationship between income and domestic energy consumption that can be explained by two factors. First, along the income distribution, consumption of modern fuels increases, replacing traditional and transitional fuels until modern fuels drive all of the growth in domestic energy demand. Second, at the highest income levels, income elasticity starts to decrease, leading to concavity in energy consumption. That is, the income elasticity of residential energy demand follows an inverse U-shape along the world income distribution. This finding suggests that at high income levels, residential energy consumption shows satiation and net energy-saving effects.

Keywords

economic developmentincome elasticity of energy demandresidential energy use

JEL classification

O13: Agriculture • Natural Resources • Energy • Environment • Other Primary Products Q43: Energy and the Macroeconomy
Type
Research Article
Information
Environment and Development Economics , Volume 27 , Issue 6 , December 2022 , pp. 533 - 555
Copyright
Copyright © The Author(s), 2022. Published by Cambridge University Press

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