Energy demand elasticities and weather worldwide

The purpose of this paper is to empirically estimate a model of aggregate residential and commercial energy demand elasticities, taking into account capital stock and climatic effects. We model a theoretically founded non-linear energy demand system, the generalized almost ideal, for the most important 117 countries in the world, which represent around 95% of the world population and 97% of the primary residential energy consumption, for the period 1978–2012. To this end, we assume a multi-stage utility maximization process, which models energy demand within a comprehensive theoretical framework. This paper offers three new contributions to research. First, we model energy aggregate demand response with a flexible and theoretically plausible simultaneous system. Second, we empirically measure the complete structure of price and expenditure elasticities of energy demand worldwide. Third, we explicitly estimate the impact of climate conditions on energy demand, with a newly constructed measure of weather impact based on geo-located heating and cooling degree-days. Econometric estimation reveals quantitative evidence of different income and price elasticities across countries and highlights the weather and capital stock impact on energy demand, inducing energy efficiency. Electricity tends to be a luxury good in advanced economies. Our results have welfare-improving policy implications, because appropriate policy strategies can help public decision-makers promote production efficiency and consumer welfare.