The Impact of Temperature Changes on Residential Energy Consumption

To investigate the link between rising global temperature and global energy use, we estimate an energy demand model that is driven by temperature changes, prices and income. The estimation is based on an unbalanced panel of more than 70 countries all over the world over three decades from the mid 1970s. We concentrate on the residential sector only and distinguish four different fuel types (oil, natural gas, coal and electricity). Compared to previous papers, we have a better geographical coverage and consider non-linearities in the impact of temperature on energy demand. We find that energy use is driven by a non-linear heating effect: Energy use not only decreases with a temperature rise due to a reduced demand for energy for heating purposes, but the speed of that decrease declines with a rising temperature level. Furthermore we find evidence that the temperature elasticity of energy is not only affected by the temperature level, but also by the level of income, fuel price and prices of selected substitutes.