The impact of climate change on the U.S. power sector: price and quantity effects
MetadataShow full item record
In U.S. homes, 22 percent and 6 percent of the consumption of electricity is devoted to satisfy cooling and heating demands, respectively. A warming climate alters these consumption patterns by increasing the demand for cooling and reducing the demand for heating. This dissertation uses econometric techniques to examine the effect of climate change on the U.S. power industry through the study of the responsiveness of electricity demand to changes in temperature, and the impact of a climate-induced demand on electricity price and expenditures. In the second chapter a fixed-effects model and a cointegration model at the state level are used to investigate the determinants of residential, commercial and industrial electricity consumption for the 48 contiguous states. The results indicate substantial geographical heterogeneity in the response of demand to cooling and heating degree days, with the Midwest showing the greatest sensitivity. Residential consumers are impacted the most; on average, they experience a 13-18 percent increase in expenditures. In the third chapter the standard method of modeling electricity consumption is extended by the analysis of a wide range of set points above and below 65 F, and by including wet bulb temperatures. The statistical results for Massachusetts validate the use of 65 F for the residential sector, but demonstrate that a set point of 55 F and wet bulb temperature best characterizes the commercial sector. Using the models generated with these set points, climate change is projected to raise residential and commercial demand by 2.6 percent and 4 percent, respectively. In the fourth chapter, previous analyses on climate-induced expenditures are improved by accounting for the dual impact that climate change has on the electric power sector: an increase in both demand and price. A projected 2.6 C rise in temperature by 2070 in Massachusetts increases electricity prices by 11 to 18 percent. This increase in price, together with the increase in demand estimated in chapter three, translates into a 5.8 percent rise in expenditures for an average household. The results clearly demonstrate that climate-driven change in electricity price is the main determinant of the expected change in expenditures for electricity by households in the state.