Electricity demand in a changing climate

Our interest is in electricity demand and the temperature aspects of climate change. Electricity consumption is of interest both from the perspectives of adaptation to climate change and emission reductions. We study the relationship between European electricity consumption and outdoor temperature and other variables, using a panel data set of 31 countries. Apart from providing a rare quantitative window into adaptation, the study contributes demand system parameters with respect to price and income. The results suggest that weather has a statistically significant effect on electricity demand, with effects that are of plausible magnitude. In a simulation of climate change for the next 100 years—other factors held constant—we find that the demand for heating will decrease in Northern Europe while the demand for cooling will increase in Southern Europe. In countries like Cyprus, Greece, Italy, Malta, Spain, and Turkey the net effect of increased cooling outweighs decreased heating consumption whereas in most of Europe the opposite holds. The largest estimated partial impact is 20%, which predicted increase in adaptive consumption for Turkey and decrease in adaptive consumption for Latvia. Estimated elasticities with respect to income and price are 0.8 and minus 0.2 respectively: plausible in the light of the literature. As a discussion item, we add that electricity consumption changes due to temperature change likely will be small compared to those due to other factors, such as changes in income, demography and technology. The study does not include effects of climate change other than through electricity consumption.