Household energy elasticities and policy implications for Pakistan

This study estimates fuel expenditure and price elasticities of household fuels in Pakistan. The burning of biomass is harmful to health and the environment and may cause preventable morbidity and mortality. It is important to investigate how households' fuel choices are linked to prices, so that governments can consider appropriate steps to enhance the consumption of clean fuels. Using three pooled cross-sectional surveys from Pakistan and applying the Linear Approximate Almost Ideal Demand System (LA-AIDS) model, we found that all fuel types except natural gas were price inelastic at the national level and for urban households. In rural areas, natural gas and LPG were found to be more price elastic compared to urban areas. Simple policy simulations based on our results suggest that in order to reduce indoor air pollution by encouraging the adoption of clean fuels (LPG and piped natural gas), governments should subsidies clean fuels rather than imposing taxes on solid fuels. Moreover, in the case of Pakistan a subsidy for LPG should be preferred over a subsidy for piped natural gas, as it produces a more cost-effective reduction in solid fuel use.