Environmental and Resource Economics Household Energy Demand in Urban China: Accounting for regional prices and rapid income change

Efforts to reduce energy use and environmental damage in China require an understanding of the rapidly rising demand for energy. Household use of fuels, electricity and gasoline has changed dramatically in response to rising incomes, changing prices and changing demographics. We estimate income and price elasticities for these energy types using a two-stage budgeting method, applying the AIDS model using Chinese urban household micro data. Taking age and regional effects into account, we find that total energy is price-inelastic for all income groups. For individual energy types, price elasticities range from -0.321 to -1.031. Gasoline is the most income elastic and electricity is the least. Low income households have higher price elasticities than richest ones. The richest households have higher price elasticities than medium income households.