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EMF OP 73: Prices, Income and Energy Demand

This chapter covers what we have learned from economic studies that model the derived demand of energy-using services like space conditioning, lighting, mobility and industrial production. We report the range of estimated income and price elasticities—i.e., the percent change in energy demand that corresponds to a one percent change in that corresponding variables’ level—for several aggregations of energy use: total energy consumption, road transport (gasoline and diesel), residential consumption (particularly electricity) and industry consumption (particularly electricity). While summarizing the literature, we focus on answering two important energy demand questions: (i) is the income elasticity of energy demand less than unity? and (ii) are income and price elasticities different across income levels? Additionally, we consider whether demand responses could have been larger due to the oil price shocks in the 1970s than in later years. The chapter concludes with some discussion of policy implications and avenues for future work.