Determining Demand for Energy Services

The research develops a two-step econometric model to determine the demand for energy services (space heating, water heating, and appliances/lighting) for 440 Canadian households. By using deterministic frontier analysis to estimate the efficiency of furnaces and water heaters, the authors find that low-income households are significantly more responsive to price and income changes than higher-income households. The study confirms a 'rebound effect' where increased efficiency leads to higher energy service demand. These findings are used to argue for targeted subsidies, such as funding for efficient furnaces, to help low-income groups cope with energy price increases driven by climate change policies. The authors also discuss the potential application of this methodology to the Indian energy sector.

• Low-income households exhibit a higher responsiveness to both price and income changes compared to higher-income households across all energy services.
• Space heating load shows the most significant distributional difference in price elasticity, with a factor of two difference between low- and high-income groups.
• The study confirms the existence of a rebound effect, where improvements in the efficiency of furnaces and water heaters lead to an increase in the demand for the energy services they provide.
• Low-income households allocate a disproportionately larger share of their budget to energy expenses; in 2000, the ratio of total energy expenditures to total expenditures for the low-income group (< $30,180) was 8%, compared to 2% for the high-income group (> $61,849).
• The demand for water heating is the least sensitive to changes in household income, with an income elasticity two orders of magnitude smaller than that of space heating and appliances/lighting.
• Deterministic frontier analysis revealed that electricity-fired water heaters generally possess higher energy efficiency than gas-fired water heaters.
• The authors suggest that targeted subsidies for more efficient gas furnaces are more progressive and effective for lower-income groups than lump-sum payments or universal price subsidies.

APA

Guertin, C., Kumbhakar, S. C., & Duraiappah, A. K. (2003). Determining Demand for Energy Services. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/energy_determing_demand.pdf

Chicago

Guertin, Chantal, Subal C. Kumbhakar, and Anantha K. Duraiappah. Determining Demand for Energy Services. International Institute for Sustainable Development, 2003. https://www.iisd.org/system/files/publications/energy_determing_demand.pdf.

Wikipedia

{{cite report |last1=Guertin |first1=Chantal |last2=Kumbhakar |first2=Subal C. |last3=Duraiappah |first3=Anantha K. |title=Determining Demand for Energy Services |publisher=International Institute for Sustainable Development |date=24 January 2003 |url=https://www.iisd.org/system/files/publications/energy_determing_demand.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{guertin2003determining, author = {Guertin, Chantal and Kumbhakar, Subal C. and Duraiappah, Anantha K.}, title = {{Determining Demand for Energy Services}}, institution = {International Institute for Sustainable Development}, year = {2003}, month = jan, url = {https://www.iisd.org/system/files/publications/energy_determing_demand.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }