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Price elasticities of retail energy demands in the United States: New evidence from a panel of monthly data for 2001–2016

C.K. Woo, Y. Liu, Jay Zarnikau (), A. Shiu, X. Luo and F. Kahrl

Applied Energy, 2018, vol. 222, issue C, 460-474

Abstract: Price elasticities play an important role in energy demand forecasting, which in turn shapes energy policy and investment decisions. However, there is still considerable debate around how responsive customers are to energy prices, and whether investments in metering and consumer education have made them more responsive in recent decades. Using a Generalized Leontief (GL) demand system and a rich panel of monthly data covering 2001–2016 for the lower 48 United States, we estimate own- and cross-price elasticities of retail demand for electricity, natural gas and fuel oil for the three major customer classes: residential, commercial and industrial. These estimates indicate that retail energy demand in the United States was highly price-inelastic over 2001–2016, consistent with historical and current estimates used by many utility planners. Our findings suggest that, with current technologies and behavior, higher energy prices will not induce significant reductions in demand. Hence, energy efficiency standards and utility demand-side programs are still an important strategy for managing energy demand growth, mitigating energy price risk, and reducing the environmental impacts associated with energy use. Finally, while our analysis uses data from the United States, our approach is general and can be readily extended to other countries that have similar data available.

Keywords: Price elasticity; Retail energy demands; United States; Panel data (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:appene:v:222:y:2018:i:c:p:460-474