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Micro Econometric Modelling of Household Energy Use: Testing for Dependence between Demand for Electricity and Natural Gas

Abstract:
This paper contains a micro econometric analysis of household electricity and natural gas demand for a cross section of 2,885 Danish households observed in 1996. The sample includes fulltime employed couples in single family houses. The specification of the model is guided by an explorative nonparametric data analysis. The analysis reveals, among other things, the fairly surprising result that demand for heating is unaffected by the number of children in the household. The dependence between demand for gas and demand for electricity is examined in the paper. This is done by testing for separability of demand for gas from demand for electricity, and vice versa. Separability of electricity (gas) from gas (electricity) is tested by estimating demand for electricity (gas) conditional on demand for gas (electricity). The model allows for endogeneity of the conditional variable. Building regulations and individual time variation, that is panel data, identify the test. The test indicates that demand for electricity is separable from demand for natural gas, and that demand for natural gas is separable from demand for electricity. The result of the test is evidence in favour of single equation modelling of household energy demand in this context.

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Energy Specializations: Energy Modeling – Energy Data, Modeling, and Policy Analysis; Energy Modeling – Sectoral Energy Demand & Technology; Natural Gas – Markets and Prices; Electricity – Markets and Prices

JEL Codes:
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
Q55 - Environmental Economics: Technological Innovation
L13 - Oligopoly and Other Imperfect Markets
D42 - Market Structure, Pricing, and Design: Monopoly

Keywords: electricity demand, natural gas demand, micro econometrics, Denmark, Household energy use

DOI: 10.5547/ISSN0195-6574-EJ-Vol23-No4-3


Published in Volume23, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.