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Three Essays on Consumer Behavior in Energy and Environmental Economics

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Title:Three Essays on Consumer Behavior in Energy and Environmental Economics
Authors:KIM, HYUNGYU
Contributors:Roberts, Michael (advisor)
Economics (department)
Keywords:Economics
Environmental economics
Climate change
Climate change
Consumer behavior
show 3 moreElectricity price
Energy efficiency
Nonlinear pricing
show less
Date Issued:2019
Publisher:University of Hawai'i at Manoa
Abstract:The title of the first chapter is “Revisiting the Energy Efficiency Paradox: Do energy prices and interest rates affect the cost of energy efficiency?” The notion of an energy efficiency gap posits that people under-invest in energy efficiency, since the present value of savings from more energy-efficient appliances, cars and other energy-consuming durable goods tends to far exceed their additional up-front cost. A considerable literature demonstrates this gap, and it has been a key factor underpinning energy-efficiency regulations. Critics contend that evidence backing an energy efficiency gap is mainly cross-sectional, and may be confounded by unobserved attributes of durable goods that are associated with energy efficiency. Taking an approach somewhat similar to recent work by Allcott (2014), we use data on prices and sales of individual models of refrigerator, clothes washers, dishwashers and room air conditioners to revisit the question of whether an energy efficiency gap exists and how large it may be. Specifically, we consider whether changes in interest rates and electricity prices, which can significantly influence present value of more efficient versus less efficient appliances, affect changes in sales and relative prices of more versus less efficient appliances. Model fixed effects control for unobserved attributes. We find that lower interest rates and higher electricity prices have driven sharp increases in sales of more energy efficient appliances, but that these changes tend to drive prices for more energy efficient appliances down, not up. The results suggest persistence of a very large energy efficiency gap. The results also suggest that economies of scale and imperfect competition likely complicate cost-benefit analysis of energy standards and other efficiency-related policies.
The title of the second chapter is “Estimating Demand Response in an Extreme Block Pricing Environment: Evidence from Korea's Electricity Pricing System, 2005-2014.” Standard consumer theory predicts that under block pricing, quantities consumed should bunch below block thresholds where marginal prices rise. However, researchers have previously found little or no evidence of bunching. In this study, I examine whether consumers respond to the marginal prices by using a different form of block pricing, one that includes both marginal price and fixed-charge increases at the threshold, called increasing fixed charge block pricing. Under this pricing schedule, the price increase at the threshold is more salient compared to the standard block pricing due to the increase in fixed charge. As a result, consumers are predicted to bunch below the thresholds and generate a zero density hole above the thresholds. I empirically test this by using the case in South Korea and find evidence that consumers tended to respond to price increase at the thresholds in 2005 and 2006. The considerable consumer bunching is observed around the thresholds. However, this evidence suddenly disappears after 2007 and never returned. While the reasons for this disappearance are not fully understood, the absence of consumer bunching suggests that consumers tend to respond to alternative pricing schedules rather than marginal price even with salient marginal price increases at the threshold.
The title of third chapter is “Effects of Climate Change on Electricity Consumption: A decomposition of industrial, residential, agricultural and commercial sectors.” Several studies show that increasing temperatures are expected to raise overall electricity consumption, but few consider the industrial and commercial sectors. In this study, I estimate the impacts of temperature on electricity consumption of all three sectors, plus agriculture, for South Korea. I find that electricity consumption is nonlinearly associated with temperature, but the shape varies across sectors. Residential, commercial, and agricultural demand responds strongly temperature changes, while the response of industrial sector is relatively moderate. The consumption of the commercial sector significantly increases during both hot and cold days, but the consumption of the residential sector significantly increases only during hot days and the agricultural sector during cold days. To calculate potential impacts of warmer temperatures on electricity consumption, I consider uniform temperature increases of 2 C and 5 C. Total electricity consumption in August, the peak month, is predicted to increase by 4.1% (1.5 TWh) and 11.3% (4.1 TWh) under the respective scenarios, holding all else the same which creates additional costs of $0.17 billion and $0.45 billion as the marginal cost of electricity is 11 cents per kWh in South Korea, 2016. Actual cost impact might exceed these estimates because peak loads are more expensive to serve.
Description:Ph.D. Thesis. Ph.D. Thesis. University of Hawaiʻi at Mānoa 2019
Pages/Duration:115 pages
URI:http://hdl.handle.net/10125/63175
Rights:All UHM dissertations and theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission from the copyright owner.
Appears in Collections: Ph.D. - Economics


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