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The causal effect of income on household energy transition: Evidence from a regression discontinuity analysis

22nd May 2019 @ 1:00 pm - 2:00 pm

Much of the existing literature contends that household income is a key determinant of the household energy transition towards clean modern fuels. Yet the causal connection between income and fuel choice is difficult to pin down, given the obvious endogeneity bias that may arise from reverse causality and omitted (unobserved) confounding variables that are correlated with both income and energy use.

We exploited exogenous variation in household income resulting from a unique natural experiment in South Africa- age discontinuity in eligibility for Old Age Pension (OAP) benefit- to identify the causal effect of income on fuel choices. Using a regression discontinuity design with categorical outcome, we find that household’s energy choices do respond to changes in income. In particular, we find strong evidence that additional pension income for an elderly person encourages his or her household to shift towards greater electricity use, and to decrease use of both biomass and other traditional fuels. This result remains generally consistent when we disaggregate the results into three major energy services – lighting, heating and cooking – for which these fuels act as substitutes. Moreover, our analysis of the effect of the income transfer on conditional energy demand indicates that consumption of electricity and other energy sources increases overall, suggesting that energy use is a normal good.

Overall, our study presents the first causal evidence of the role that income plays in the hypothesized climb up of the energy ladder, in the context of an important and populous middle-income country.

 

About the Presenter

Dambala Gelo Kutela is a senior lecturer in School of Economics and Finance, University of the Witwatersrand, Johannesburg. He is a former postdoc fellow in School of Economics, University of Cape Town. Dambala is also affiliated with Department of Economics, University of Mannheim and Environment for Development (EfD) network respectively as research fellow and associate researcher.

In 2017, he was visiting scholar of  Charles H. Dyson School of Applied Economics and Management at Cornell University. Dambala has a broad range of research interests in applied microeconomics and behavioural economics. He has widely written papers on property right change and welfare, collective action and elite capture, household energy transition, precautionary saving, child schooling and social-dilemma under ambiguity. Dambala is currently teaching graduate class of Microeconomics (game theory, decision theory and contract theory) in School of Economics and Finance at Wits.

Authors

Dambala Gelo, Marc A. Jeuland , Abebe Damte Beyene and Uma Kollamparabil

Details

Date:
22nd May 2019
Time:
1:00 pm - 2:00 pm
Event Category:

Organizer

Amy Jephthah
Email:
amy.jephthah@uct.ac.za

Venue

UCT School of Economics, 4th Floor Seminar Room
UCT Middle Campus
Cape Town, Western Cape 7700 South Africa
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