Modeling the Income Dependence of Household Energy Consumption and its Implications for Climate Policy in China
Name
MITJPSPGC_Rpt314.pdf
Size
5.36 MB
Format
Adobe PDF
Checksum (MD5)
83c16e5a4ed0a7f9acb58b19e8c3136e
Author(s)
Caron, J.
Karplus, V.J.
Schwarz, G.A.
Date Issued
July 2017
Publisher
MIT Joint Program on the Science and Policy of Global Change
Citation
Report 314
Series/Report no.
MIT Joint Program Report Series;314
Abstract
We estimate Engel Curves based on Chinese household microdata and show in general equilibrium simulations that they imply substantially lower energy demand and CO2 emissions, relative to projections based on standard assumptions of unitary income elasticity. Income-driven shifts in consumption reduce the average welfare cost of emissions pricing by more than half. Climate policy is also less regressive, as rising income leads to rapid convergence in the energy intensity of consumption baskets and more evenly distributed welfare loss across households. Our findings underscore the importance of correctly accounting for the relationship between income and energy demand in high-growth economies.
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