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Center for Housing Research Virginia Polytechnic Institute and State University. Residential Energy Consumption in the United States: Does the Environmental Kuznets Curve Apply?. Mary C. Gillett Fisher Casey J. Dawkins Urban Affairs and Planning. Abstract

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Center for Housing ResearchVirginia Polytechnic Instituteand State University

Residential Energy Consumption in the United States:

Does the Environmental Kuznets Curve Apply?

Mary C. Gillett FisherCasey J. DawkinsUrban Affairs and Planning

Abstract

The environmental Kuznets curve (EKC) hypothesis posits that environmental degradation and per capita income growth exhibit an inverted U-shaped relationship. In this research, we seek to determine whether this aggregate trend accurately characterizes household-level trends in residential energy consumption. Using Residential Energy Consumption Survey data provided by the U.S. Department of Energy, we employ a multivariate linear regression model to examine the relationship between household income and annual household energy consumption, controlling for housing unit characteristics and other determinants of household energy demand. We find that energy consumption increases monotonically with income, in contrast to the predictions of the EKC. These initial findings suggest that in the U.S., the income elasticity of demand for increased residential space likely outweighs the income elasticity of demand for higher quality energy conservation measures. We discuss the policy implications of these initial findings and explore ways to improve our understanding of the relationship between household income and residential energy consumption.

Discussion

The environmental Kuznets

curve (EKC) is most often

used as the basis for exploring

macro-level trends in the

relationship between

environmental degradation and

per capita income growth.

The vast majority of studies that have been successful in identifying the EKC have relied upon aggregate measures of environmental quality and per capita income. Based upon a review of the relevant literature (Arrow et al., 1995; Cole et al., 1997; Selden and Song, 1994), Barbier (1997) points out that EKC relationships may hold only for certain types of environmental damage, e.g., pollutants with more short-term and local impacts rather than those with more global and long-term impacts. This study looks to further expand the EKC literature by investigating the potential relationship between environmental degradation and income growth using a smaller unit of analysis. Given the known environmental impact of certain micro-level behavioral [U.S. residential energy consumption] patterns the rationale for this approach is clear.

While our results do not clearly confirm the presence of the EKC at the U.S. household level they do not provide clear evidence to reject it either. We expected that residential energy consumption would increase with household income up until a threshold point followed by a subsequent decrease in consumption coupled with rising incomes. Regression analysis of our data revealed no such trend. Instead, in all but one instance, our results indicate a monotonically increasing relationship between energy consumption and household income. This observed trend is not only evident in both samples (1997 and 2001) it actually shifts upward from 1997 to 2001.

Implications

There exist a number of constraints to complete exploration of this issue. For instance, the EKC may indeed exist between residential energy consumption and household income but the threshold point may extend beyond the highest category of income [$100,000 or more] coded within the dataset. Secondly, the EKC relationship is evolutionary and use of time series, longitudinal data may be more appropriate. Finally, if the EKC relationship is indeed tied to internalization of the negative externalities of pollution then the use of energy consumption as the dependent variable may be imprecise.

Regardless of the current challenges, theupward trend highlighted by our results and our knowledge of the considerable environmental impacts of residential energy consumption in the U.S., warrant further study of this issue.

  • Data
  • Nationally representative samples for 1997 and 2001 were drawn from Residential Energy Consumption Survey data provided by the U.S. Department of Energy’s Energy Information Administration Public Use Microdata files. The following variables were included in the analysis:
  • Dependent Variable:
  • Total Annual Household Energy Consumption (in BTUs)
  • Independent Variables:
  • Total Household Income for the previous 12 month period
  • Type of Housing Structure (Single v. Multi-Family)
  • Location (Urban, Town, Suburban, or Rural)
  • Total Square Footage of Dwelling
  • Age of Dwelling
  • Analytical MethodSeveral multivariate linear regression models with incorporated robust standard errors were used in the analysis with the following specifications:
  • Findings/Results

Source: David Abler, AGEC 450 Lecture Notes, Penn State University

Background

Used to generate the energy supplied to meet the demands of the residential sector, fossil fuels are an integral part of life in the United States. Kerosene, natural gas, fuel oil, liquid petroleum gas (LPG), and electricity (generated primarily using fossil fuels) are used daily by American households for cooling, heating, and the operation of a wide array of appliances. Combustion of these types of hydrocarbons for energy production has been associated with the emission of greenhouse gases including CO2 which many scientists believe is a major contributor to global warming. From 1990 to 2004, total U.S. greenhouse gas emissions increased 15.8 percent at an annual average rate of 1.3 percent/year. In 2004, CO2 constituted 85 percent of U.S. greenhouse gas emissions. The primary source of both CO2 and overall greenhouse gas emissions was attributable to fossil fuel combustion (fossil fuel combustion accounted for 94 percent of the CO2 emitted). The residential end-use sector accounted for 21 percent of the CO2 with 68 percent of the emissions attributable to electricity consumption. The remaining third originated from the use of natural gas and petroleum for heating and cooking.

(Sources: United States. Department of Energy, Energy Information Administration. Emissions of Greenhouse Gases in the United States 2003. December 2004. and United States. Environmental Protection Agency. Inventory of Greenhouse Gas Emissions and Sinks: 1990-2004. April 15, 2006. )