Many studies have investigated the effects of global climate change (GCC) on energy consumption in developed countries but few climate-energy studies have yet been done in developing or emerging economies. This project investigated the temperature sensitivity of household electricity demand across income classes in Brazil. The study compared electricity use amongst two samples of 12,000 and 13,000 households in capital cities completed by the National Institute of Geography and Statistics, the official statistics agency in Brazil (IBGE 2003; and IBGE 2009).
There is substantial variation in average temperature across the 27 sampled cities with a high of 30°C in the northeastern city of Fortaleza and a low of 17°C in the southern city of Curitiba. There is also substantial variation in income across the sampled households, from the relatively poor who earn less than twice the minimum wage to the wealthy who earn over 20 times the minimum wage. Taking advantage of this variation, we measure the temperature sensitivity of electricity use by four income classes. Household electricity expenditures are regressed on climate and other control variables to estimate the economic impact of GCC on the residential energy sector.
We find that the temperature elasticity of electricity demand is income sensitive. Energy sector damages from warming in Brazil and other emerging economies will increase rapidly as these countries develop and more people shift from low to relatively high incomes. The temperature elasticity of low income households is not significantly different from zero, but middle and high income families have a long run temperature elasticity of 0.8 and 1.6 respectively. As emerging low latitude countries develop and incomes rise, the welfare damages of warming in the energy sector will become substantial. Energy efficiency policies targeting middle class families could have significant potential for climate change mitigation in emerging economies.