A Regional Assessment of Climate Change Impacts
New Horizons in Environmental Economics series
Edited by Robert Mendelsohn
Chapter 7: Energy: Cross-sectional analysis
Robert Mendelsohn INTRODUCTION This study uses a cross-sectional analysis to estimate the climate sensitivity of regional energy demand (Morrison and Mendelsohn 1999, 2000). Energy expenditures of individual households and ﬁrms are regressed on a number of control variables and climate to estimate climate sensitivity. Because an approximately constant interior temperature is maintained in homes and buildings across all climates in the United States, the change in energy expenditures required to cope with a climate change provides an approximate measure of the welfare effects. Larger energy expenditures imply damages, or additional costs to maintain the same level of comfort, whereas lower energy expenditures would imply beneﬁts, or savings in costs for energy. Using energy expenditures to measure welfare is only an approximation because it may not take into account changes in building expenditures and comfort levels. Building expenditures can be important as ﬁrms and households change building characteristics such as insulation and cooling capacity in response to warming. To measure the importance of building characteristics, both a short-run measure that freezes building characteristics and a long-run measure that allows building characteristics to change are estimated. The difference between the two measures provides an indication of the importance of changing buildings to adjust to climate changes. The energy expenditure measure is also approximate because households may respond to warming by changing their comfort levels. This may be especially important with respect to cooling, where many households currently do not purchase adequate cooling capacity to remain cool during hot summer days. This...
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