Summertime, and Pass-Through is Easier: Chasing Down Price Elasticities for Residential Natural Gas Demand in 275 Million Bills

• Environmental and Energy Economics Workshop

Date and Location

Wednesday, October 10, 2018, 3:30 PM - 5:00 PM
ARE Library Conference Room, 4101 Social Sciences and Humanities

Abstract

In 2016 natural gas became the United States’ primary source of energy for electricity generation. It is also the main heating fuel for more than 50% of American homes. Hence understanding residential natural gas consumption behavior has become a first-order problem. In this paper, we provide the first ever causally identified, microdata-based estimates of residential natural gas demand elasticities using a decade-long panel of more than 275 million bills in California. To overcome multiple sources of endogeneity, we utilize the border between two major natural-gas utilities, in conjunction with an instrumental variables strategy. We estimate the elasticity of demand for residential natural gas is between -0.31 and -0.17. We also provide evidence of seasonal and income-based heterogeneity in this elasticity. This heterogeneity provides unexplored policy avenues that may be simultaneously efficiency-enhancing and pro-poor.