Poverty, Growth and the Demand for Energy

Poverty, Growth and the Demand for Energy / Paul Gertler, Orie Shelef, Catherine Wolfram and Alan Fuchs. Berkeley : Haas School of Business, October 2011, 49 p. (EI @ Haas WP-224)

http://ei.haas.berkeley.edu/pdf/working_papers/WP224.pdf

Most future growth in energy use is forecast to come from the developing world. Understanding the likely pace and specific location of this growth is essential to inform decisions about energy infrastructure investments and to improve greenhouse gas emissions forecasts. We argue that countries with pro-poor economic growth will experience much larger increases in energy demand than countries where growth is more regressive. When poor households’ incomes go up, their energy demand increases along the extensive margin as they buy energy-using assets for the first time. We also argue that the speed at which households come out of poverty affects their asset purchase decisions. We provide empirical support for these hypotheses by examining the causal impact of large increases in household income on asset accumulation and energy use in the context of Mexico’s conditional cash transfer program. We find that transfers had a large effect on asset accumulation, and the effect is substantially greater when the cash is transferred over a shorter time period. Finally, we apply the lessons from the household analysis to aggregate energy forecast models using country-level panel data. We show that if a country’s growth has been pro-poor, the responsiveness of energy use to income is nearly double that of a country with GDP growth that has been less favorable to the poor. These results suggest that not accounting for pro-poor growth could grossly underestimate future energy use. (© Haas)

 


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