The impact of climate change on residential energy demand: a case study of Australia

Residential energy consumption varies across regions or state within a country. The differences are mainly due to climatic and socioeconomic conditions which exhibit seasonal patterns. The aim of this study is to explore the short- and long-run influence of the climatic and socioeconomic factors on residential energy demand, using the two Australian states as a case study: New South Wales and Queensland. Due to the stationarity of the datasets, a split-sample Autoregressive Distributed Lag (ARDL) model was applied in order to capture the seasonal influences of climate and socioeconomic factors. The long run coefficients of the climate variables and predictions from a global climate model (CESM1-CAM5) were used to calculate the future impact of climate change on energy demand. The results of the ARDL model indicate that the short and the long run sensitivity of residents in the two states in Australia were not uniformed. During the summer months on the short run, a one unit increase in CDD lead to a change in residential per capita energy demand by 0.14% in NSW and 0.41% in QLD. Welfare losses represented as expenditures were positive on the short and long run with increasing elasticities across the seasons in the states of NSW and QLD. The disposable income parameters show that residents of NSW treat energy as an inferior good in the most part of the year, while energy is a normal good in QLD during autumn and winter seasons on the long-run. The results of CESM1-CAM5 projections show a uniform decline in HDD across the periods in the two Australian states from the 2030s to 2090s, while CDD increases across the states. Energy demand is projected to increase in QLD and NSW by 355 kgoe and 1,583 kgoe respectively, under the RCP 8.5 as compared to the base case in 2014. The increase in climate change conditions and seasonal variability needs to be considered when planning for future energy demand in the Australian residential sector.