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Climate Adaptive Response Estimation: Short And Long Run Impacts Of Climate Change On Residential Electricity and Natural Gas Consumption Using Big Data

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  • Maximilian Auffhammer
Abstract
This paper proposes a simple two-step estimation method (Climate Adaptive Response Estimation - CARE) to estimate sectoral climate damage functions, which account for long- run adaptation. The paper applies this method in the context of residential electricity and natural gas demand for the world's sixth largest economy - California. The advantage of the proposed method is that it only requires detailed information on intensive margin behavior, yet does not require explicit knowledge of the extensive margin response (e.g., technology adoption). Using almost two billion energy bills, we estimate spatially highly disaggregated intensive margin temperature response functions using daily variation in weather. In a second step, we explain variation in the slopes of the dose response functions across space as a function of summer climate. Using 18 state-of-the-art climate models, we simulate future demand by letting households vary consumption along the intensive and extensive margins. We show that failing to account for extensive margin adjustment in electricity demand leads to a significant underestimate of the future impacts on electricity consumption. We further show that reductions in natural gas demand more than offset any climate-driven increases in electricity consumption in this context.

Suggested Citation

  • Maximilian Auffhammer, 2018. "Climate Adaptive Response Estimation: Short And Long Run Impacts Of Climate Change On Residential Electricity and Natural Gas Consumption Using Big Data," NBER Working Papers 24397, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:24397
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    Cited by:

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    3. Nicholas Rivers and Blake Shaffer, 2020. "Stretching the Duck: How Rising Temperatures will Change the Level and Shape of Future Electricity Consumption," The Energy Journal, International Association for Energy Economics, vol. 0(Number 5), pages 55-88.
    4. Zhang, Mingyang & Zhang, Kaiwen & Hu, Wuyang & Zhu, Bangzhu & Wang, Ping & Wei, Yi-Ming, 2020. "Exploring the climatic impacts on residential electricity consumption in Jiangsu, China," Energy Policy, Elsevier, vol. 140(C).
    5. Cuihui Xia & Tandong Yao & Weicai Wang & Wentao Hu, 2022. "Effect of Climate on Residential Electricity Consumption: A Data-Driven Approach," Energies, MDPI, vol. 15(9), pages 1-20, May.
    6. Charles D. Kolstad & Frances C. Moore, 2020. "Estimating the Economic Impacts of Climate Change Using Weather Observations," Review of Environmental Economics and Policy, University of Chicago Press, vol. 14(1), pages 1-24.
    7. Bento, Antonio M. & Miller, Noah & Mookerjee, Mehreen & Severnini, Edson R., 2020. "A Unifying Approach to Measuring Climate Change Impacts and Adaptation," IZA Discussion Papers 13290, Institute of Labor Economics (IZA).
    8. Susanna B. Berkouwer, 2020. "Electric Heating and the Effects of Temperature on Household Electricity Consumption in South Africa," The Energy Journal, , vol. 41(4), pages 209-230, July.
    9. Arellano Gonzalez, Jesus, 2018. "Estimating climate change damages in data scarce and non-competitive settings: a novel version of the Ricardian approach with an application to Mexico," 2018 Annual Meeting, August 5-7, Washington, D.C. 274010, Agricultural and Applied Economics Association.
    10. Lee, Wang-Sheng & Li, Ben G., 2021. "Extreme weather and mortality: Evidence from two millennia of Chinese elites," Journal of Health Economics, Elsevier, vol. 76(C).
    11. Du, Kerui & Yu, Ying & Wei, Chu, 2020. "Climatic impact on China's residential electricity consumption: Does the income level matter?," China Economic Review, Elsevier, vol. 63(C).
    12. Rivers, Nicholas & Shaffer, Blake, 2018. "Stretching the Duck's Neck: The effect of climate change on future electricity demand," MPRA Paper 87309, University Library of Munich, Germany.
    13. Olivier Deschenes, 2022. "The impact of climate change on mortality in the United States: Benefits and costs of adaptation," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(3), pages 1227-1249, August.
    14. Arellano Gonzalez Jesus, 2023. "Irrigation, Adaptation and Climate Change: Panel Data Evidence for Maize in Mexico," Working Papers 2023-05, Banco de México.
    15. Edward Manderson & Timothy Considine, 2021. "The Effect of Temperature on Energy Demand and the Role of Adaptation," Economics Discussion Paper Series 2112, Economics, The University of Manchester.
    16. Tamma Carleton & Amir Jina & Michael Delgado & Michael Greenstone & Trevor Houser & Solomon Hsiang & Andrew Hultgren & Robert E Kopp & Kelly E McCusker & Ishan Nath & James Rising & Ashwin Rode & Hee , 2023. "Valuing the Global Mortality Consequences of Climate Change Accounting for Adaptation Costs and Benefits," Journal of Economic Geography, Oxford University Press, vol. 137(4), pages 2037-2105.
    17. Hongliang Zhang & Jianhong E. Mu & Bruce A. McCarl & Jialing Yu, 2022. "The impact of climate change on global energy use," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 27(1), pages 1-19, January.
    18. Themann, Michael, 2021. "At boiling point: Temperature shocks in global business groups," Ruhr Economic Papers 905, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    19. Antonio M. Bento & Noah Miller & Mehreen Mookerjee & Edson Severnini, 2023. "Incidental Adaptation: The Role of Non-climate Regulations," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 86(3), pages 305-343, November.

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    More about this item

    JEL classification:

    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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