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Title: Estimating welfare aspects of changes in energy prices from preference heterogeneity
Authors: Pashardes, Panos 
Pashourtidou, Nicoletta 
Zachariadis, Theodoros 
Keywords: Climate policy;Deadweight loss;Demand system;Distributional effect
Category: Environmental Biotechnology
Field: Engineering and Technology
Issue Date: 2014
Publisher: Elsevier
Source: Energy Economics, 2014, Volume 42, Pages 58–66.
Abstract: The European Union's energy and climate policy package is expected to cause an increase in end-user prices of electricity and fuels. This paper assesses the distributional effects of these price increases in Cyprus by specifying and estimating a consumer demand system with price heterogeneity between households. This novel method allows obtaining robust parameter estimates even when household expenditure surveys are limited, as is the case in many European countries. The empirical analysis is conducted both conditional on energy-related household characteristics and unconditionally. We then use the estimated demand system to conduct welfare analysis. We find that the rise in energy prices results in welfare losses of EUR 101 per household (in 2009 prices) in year 2020, or a nationwide welfare loss of more than EUR'2009 33 million. Price increases will be regressive and will affect small and urban households more strongly than the rest of the population. Furthermore, we find that the largest proportion of welfare loss is due to loss of household's income purchasing power caused by higher energy prices, while the changes in relative prices induce deadweight loss which is a small part of welfare loss because of the limited substitutability of energy with other goods.
ISSN: 0140-9883
Rights: © 2013 Elsevier B.V. All rights reserved.
Type: Article
Appears in Collections:Άρθρα/Articles

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