Energy Demand and Income Elasticity : A Cross-Country Analysis

We provide consistent, cross-country estimates of price and income elasticity for 11 OECD countries, using data from a survey conducted by the OECD in 2011. Using data for annual consumption of electricity and sample-derived average electricity price, we provide country specific price elasticity estimates and average income elasticity estimates, using the double-log form of the demand function. For most countries in our sample, we find strong price responsiveness, with elasticities varying between −0.27 for Korea and −1.4 for Australia, with most countries' elasticity being above −0.5. Using the unique nature of the dataset (in having many attitudinal indicators), we find evidence for non-price related factors to significantly affect energy demand. In particular, we find households' self-reported energy saving behavior to reduce energy demand between 2 and 4%. In contrast, we find very weak income response, with income elasticities varying from 0.07 to 0.14 and no evidence for heterogeneity in income response across the countries in our sample. Our results regarding price elasticity are in contrast with many existing studies which find low-to-moderate price responsiveness, and adds to a few recent studies indicating more policy space for demand reduction than previously thought