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The price elasticity of electricity demand in the United States: A three-dimensional analysis

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  • Paul J. Burke
  • Ashani Abayasekara

Abstract

In this paper we employ a dataset of three dimensions - state, sector, and year - to estimate the short- and long-run price elasticities of state-level electricity demand in the United States. Our sample covers the period 2003-2015. We contribute to the literature by employing instrumental variable estimation approaches, using the between estimator, and pursuing panel specifications that are able to control for multiple dimensions of fixed effects. We conclude that state-level electricity demand is very price inelastic in the short run, with a same-year elasticity of -0.1. The long-run elasticity is near -1, larger than often believed. Among the sectors, it is industry that has the largest long-run price elasticity of demand. This appears to in part be due to electricity-intensive industrial activities clustering in low-price states.

Suggested Citation

  • Paul J. Burke & Ashani Abayasekara, 2017. "The price elasticity of electricity demand in the United States: A three-dimensional analysis," CAMA Working Papers 2017-50, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2017-50
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    More about this item

    Keywords

    electricity demand; price elasticity; United States; panel;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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