Understanding the development of energy consumption in the residential sector linking econometric and bottom up approaches

Along with industry, transport, and services, residences are one of the major energy consuming sectors in all OECD countries. In no other sector did such dramatic changes in the energy consumption patterns and the fuel mix take place, which was mainly influenced by two important and opposing trends. A huge growth if household income led to a huge increase of energy service. This expansion of energy services per se would have multiplied energy consumption in all countries, but instead actual final household consumption rose by 25% to 75% (except Japan) and even fell in Denmark from 1970 to 1995. Some of this development occurs, because more efficient heating systems, appliances, better thermal quality and saturation effects. In the case of CO2 emissions the fuel switching effect in addition helped to stabilize emissions. This paper studies these developments of total residential energy- and electricity demand in five selected OECD countries (Austria, Denmark, Japan, Western Germany and the US)(2) After an introducing chapter an extensive econometric analysis with special focus on non-linear income aspects is done, since the augmentation of the standard dynamic demand equations with non-linear (quadratic terms as a proxy) terms of income leads to better model characteristics. The major conclusion of this investigation is that the theory of constant income elasticities has to be rejected. Income, one of the major driver of residential energy- and electricity demand has become less important with regard to energy (but NOT to service) demand in comparison with the 1970s and 1980s because of efficiency improvements and some saturation effects.