Price Responsiveness and Carbon Emissions Reductions in the Residential Sector: Evidence from a Natural Experiment in Russia
Abstract
Residential electricity consumption is generally regarded as relatively inelastic with respect to price, which implies that a carbon tax may have limited effectiveness in reducing CO2 emissions from the residential sector and encouraging transition to renewable sources of energy. Do these considerations apply in a country like Russia, where most power is generated from natural gas and coal? In this paper we estimate the price elasticity of residential demand using household-level data from several waves of the Russian Household Budget Survey.
We have a panel dataset. We take advantage of the variation in tariffs across regions and over time, and of the introduction of increasing block tariff schemes in a number of regions.
We show that in those regions consumers appear to be aware of the block cutoffs, even though the latter are household- and dwelling-specific, to the point that there are a total of 35 different tier cutoffs. Based on these results, we estimate the price elasticity of electricity demand to be around -0.10.
We also predict the associated changes in electricity consumption, CO2 emissions, and revenues if the similar IBR polices are implemented countrywide.