Income and price elasticities of electricity demand in Australia: Evidence of state-specific heterogeneity

This paper estimates country-wide and state-level income and price elasticities of electricity demand in Australia for the period 1999Q1-2013Q2 using the National Electricity Market data and the autoregressive-distributed lag model. The results suggest that the long-run income and price elasticities are inelastic and are statistically significant with theoretically consistent signs. The country-wide income and price elasticities are estimated to be 0.41 and -0.38, respectively. It is also found that there exists state-specific heterogeneity in both speed and magnitude of the electricity consumption adjustment in response to changes in income and electricity price. These results have important policy implications, including the need to use state-specific elasticities in the scenario analysis of the energy pricing policy.