Electricity Demand and Basic Needs: Empirical Evidence from China’s Households

The Chinese government began to implement an increasing block tariff (IBT) nationwide in the residential sector in July 2012. Although there have been a number of studies on the impacts of an IBT, knowledge about IBT design is still limited, particularly how to determine the electricity volume for the first block of an IBT scheme, which is intended to protect those households with low levels of consumption that are least able to pay higher prices. In developing countries, the first block of an IBT has usually been set at a subsidized price, ensuring the poor can afford to pay for some minimum volume of energy service to perform such basic tasks as cooking, lighting and heating at an affordable price. Hence, one empirical question concerning IBT is to model household electricity demand such that the size of the minimum-need block can be established. We investigate the basic electricity needs in China’s households based on survey data from three provinces, assuming that the minimum volume of electricity needed provides a measure of “basic needs”. We employ a demand-based approach in contrast to the physical-quantity or expenditure-based approaches, which are commonly used in energy poverty research. The energy demand approach does not specify any predefined figures as a threshold of energy poverty, thereby overcoming the drawbacks of arbitrariness and inflexibility of the other approaches. We examine the pattern that the electricity demand varies with the changes in income, after controlling a number of exogenous variables at levels of household and district. The underlying hypothesis is that if there is indeed some basic level of electricity demand, then the relationship between electricity demand and income should be weak for a household that is merely meeting its basic electricity needs. The empirical results reveal that household electricity consumption becomes income-sensitive at higher income levels, controlling for other factors. There exists a basic minimum amount of electricity consumption that a household requires, and