What Drives Energy Use? Prices, Efficiency Policies, and the Demand Frontier
David Benatia, Rémy Molinié, Pierre-Olivier Pineau
TLDR
Pricing and regulation are the primary drivers of cross-state energy use differences in the U.S., with intensity improvements causing a 12.8% decline.
Key contributions
- U.S. per capita energy use declined 12.8% (2006-2022), primarily due to intensity improvements.
- 63% of cross-state energy use variation is due to the demand frontier, 34% to inefficiency.
- Energy prices explain 26% of frontier variation; efficiency policies explain 13%.
- Efficiency policies also reduce inefficiency, adding 6 percentage points to their total impact.
Why it matters
This paper identifies key drivers of U.S. cross-state energy consumption differences, offering crucial insights for policymakers. Understanding the roles of pricing and efficiency policies can inform effective strategies for energy conservation and sustainability initiatives.
Original Abstract
What drives cross-state differences in U.S. energy consumption? We combine LMDI decomposition, stochastic frontier analysis, and variable-importance methods on a panel of 50 states plus DC over the 2006--2022 period. The observed 12.8% decline in per capita energy use is driven almost entirely by intensity improvements. A variance decomposition attributes 63% of cross-state variation in log energy use to the demand frontier, 34\% to inefficiency above it, and 3% to noise. Within the frontier, energy prices account for roughly 26% of cross-state variation and state efficiency policies for about 13%, while GDP and climate together explain only around 10\%. Efficiency policies also operate through a second channel by reducing inefficiency, adding a further 6 percentage points to their total contribution. The results suggest that pricing and regulation are the primary drivers of cross-state energy use differences.
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