Here, the sensitivity of energy demand to climate is measured two ways. The first method uses elasticities that provide simple summary measures of how departures from normal temperatures affect energy consumption. The second approach, reported in the following section, uses econometric simulation to estimate how climate changes affect energy demand.
The heating and cooling degree day elasticities of energy demand by sector are shown. The elasticities are interpreted as the percentage change in fuel consumption for a percentage change in heating or cooling degree days. For instance, total U.S. residential natural gas consumption increases 0.33% for every 1% increase in heating degree days. With the exception of natural gas in the electric utility sector, all heating degree day elasticities are larger than the cooling degree day elasticities. In other words, heating degree days have a proportionately greater impact on energy consumption than cooling degree days. Overall, this finding suggests that global warming would reduce energy consumption because higher fuel use associated with hotter summers is offset by lower fuel use due to warmer winters.
This trade-off is clearly illustrated by the heating and cooling degree day elasticities for the residential sector reported. In addition to the previously natural gas elasticity, the heating degree day elasticities for distillate fuel oil and electricity are 0.262 and 0.148, respectively. In contrast, the cooling degree day elasticities for natural gas, distillate oil, and electricity are -0.022, -0.065, and 0.141, respectively. Higher cooling degree days reduce residential natural gas and heating oil consumption due to the reduced heating requirements during the spring and fall. Note that the heating and cooling degree day elasticities for electricity in the residential sector are approximately the same, suggesting that winter peaks from demands for electrical resistance heating are as sensitive to summer peak air-conditioning requirements. The commercial sector provides a similar set of elasticities, except that the cooling degree day elasticities are positive but extremely small for natural gas and distillate fuel oil.
Industrial demand for distillate and residual fuel oil is quite sensitive to temperature. For instance, for every percent change in heating degree days, industrial distillate use increases 0.9%. Residual fuel oil and coal demand increases with temperature, increasing 0.39 and 0.29%, respectively, for each percent change in heating degree days. Natural gas consumption is the next most temperature-sensitive fuel in the industrial sector, with a heating degree day eleasticity of 0.11. Electricity consumption is the least sensitive among the industrial fuels.
The demand for primary fuels in electric power generation is also quite sensitive to temperature. Like the other sectors, heating degree day elasticities are greater than the cooling degree day elasticities. Residual fuel oil consumption increases 0.66 and 0.36% for every 1% change in heating and cooling degree days, respectively. The natural gas cooling degree day elasticity is larger than the heating oil counterpart, which reflects the relatively greater use of natural gas to meet summer cooling demands. Note that the degree day elasticities assume that the demand for electricity is fixed. To capture the induced impact of degree days on primary fuel demand by electric utilities, a full model simulation is required that links the demand for electricity in the residential, commercial, and industrial sectors with electric power generation and fuel use.
