How Pro-Poor Growth Affects the Demand for Energy

Abstract

Most of the 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 among the low-income program beneficiaries, and the effect is substantially greater when the cash is transferred over a shorter time period. Examining energy use, we find that asset accumulation, not cash transfers drive household electricity usage. We then 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 propoor, the correlation between energy use and income is nearly double that of a country with GDP growth that has been less favorable to the poor. We explain how these results suggest that existing forecasts could grossly underestimate future energy use in the developing world.

Cash for Coolers

“…Gertler, Shelef, Wolfram, and Fuchs (2011) consider analytically and empirically how borrowing constraints can affect residential energy demand.…”

Envirodevonomics: A Research Agenda for a Young Field

“…Several recent papers provide evidence that as incomes in developing countries increase, there is a negative causal impact on environmental quality. Plausibly exogenous variation in income to estimate these impacts is generated through a randomized cash transfer program in Mexico in the studies by Alix-Garcia et al (2013) and Gertler et al (2011). Alix-Garcia et al (2013) find that the additional income associated with the Oportunidades program increased deforestation due to higher consumption of land-intensive goods, such as beef.…”

“…They combine this community level analysis with household survey measures of consumption from the randomized pilot phase of the program. Gertler et al (2011) use a different source of identification under the same program to find a similar impact on environmentally harmful consumption. In their case, the outcome of interest is the purchase of energy-intensive durable goods, specifically refrigerators, and they use a combination of the random variation of when communities were phased in to the program and household-level variation in the income flow due to household structure.…”

“…More broadly, the greatest damages are projected to occur in today's developing countries, especially those in the tropics. At the same time, today's developing countries are expected to be the largest emitters of greenhouse gases in the coming decades due to their projected growth in GDP and energy consumption (see Gertler et al (2011);Wolfram et al (2012)); China is currently the largest emitter of CO 2 in the world and their emissions exceeded US emissions by 50 percent in 2012 (PBL 2012).…”

Urban Green Growth in Dynamic Asia

“…In this regard, the increase in the ownership rates of appliances over the years has been partly responsible for the increase in electricity demand (IEA, 2004;IEA, 2009). More recently, Gertler et al (2013) have argued that appliance ownership rates vary not only with income and its rise but also with the distribution of growth: when income growth occurs in poorer households, appliance ownership rates rise faster than when it occurs in middle-and higher-income households. Given that urban green growth policies need to tackle poverty and social equity issues, the urban poor should benefit from such policies.…”