“Long-Run Price Elasticities and Mechanisms: Empirical Evidence from Residential Electricity Consumers”
Energy Institute Webinar
Wednesday, October 19, 2022
Energy & Environment Lab
University of Chicago
Jesse Buchsbaum discusses his new paper on how consumers respond to prices in the long run, how investment decisions and behavioral responses impact electricity usage over time, and the implications for clean energy transitions.
Energy policy depends on how consumers respond to electricity prices in the long run. Not only do widely-used long run demand forecasts and infrastructure investments rely on long-run demand elasticities, but the speed and scale of clean energy transitions depend on how responsive consumers are to prices in the long run. However, few estimates of long-run elasticities of demand exist, largely because of difficult empirical conditions. In this paper, I leverage a novel source of persistent price variation to estimate how residential electricity customers respond to prices in the long run. I find that on average, consumers are over six times more responsive to prices in the long run than the short run. Low-income consumers are particularly responsive to prices in the long run. Furthermore, I explore some of the mechanisms driving this price response, and find that households facing higher prices are significantly less responsive to temperature than those facing low prices. My findings highlight the importance of getting electricity prices right, and suggest that retail electricity prices might play a more significant role than previously thought in determining the pace of energy transitions to cleaner technologies.
- The author’s presentation will be followed by Q&A.
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