Quantifying Intensive and extensive margin adaptation responses to climate change: A study of California’s Residential Electricity Consumption

Increased demand for cooling and decreased demand for heating in the built environment is one of the main anticipated modes of adaptation to higher temperatures due to climate change. California’s residential sector uses relatively little electricity for heating. It is therefore expected that the demand for electricity will increase at the intensive margin as households operate existing air conditioners more frequently. Further, in many regions there will be an additional extensive margin adjustment as households will install air conditioners where there currently are few. Using the majority of California’s residential electricity bills this paper provides reduced form estimates of the projected consumption impacts from the intensive and extensive margins separately using a two-stage method. It shows that accounting for capital investment leads to significantly higher projections of electricity consumption.