Estimation of elasticities for electricity demand in Brazilian households and policy implications

This paper aims to identify the demand elasticity in energy consumption by Brazilian families. By using an original household-level sample, we are the first to identify the average price and income elasticities for Brazil. We also investigate heterogeneous effects across different quantiles through a Quantile Regression (QR) analysis. Finally, we extend the results of the QR analysis and combine them with aggregated data to assess the effects of two price policies, a cross-subsidy and the recently adopted "tariff flags." The primary data comes from the Household Budget Survey (POF) for two periods, 1998–99 and 2008–13, conducted in the metropolitan area of São Paulo. The price and income elasticities range from −0.46 to −0.56, and from 0.20 to 0.32 respectively. The QR results indicate that households’ behavioral response to a price increase is non-uniform across groups, and that the reaction is stronger for the lower quantiles. Additionally, “tariff flags” lead to a more significant reduction in consumption for the low-income residences, therefore representing a regressive policy. On the other hand, a cross-subsidy that increases the energy price to ordinary residences by 1% could mean a decrease in electricity prices of between 7.5% and 12.4% to low-income families. •We apply micro-level data on electricity consumption and family characteristics.•Panel-estimated average price and income elasticities are −0.5 and 0.21.•QR results indicate that the effect of a price rise is stronger for lower quantiles.•A cross-subsidy could mean a drop in energy prices to low-income groups of 12.4%.•The Tariff Flags represent a regressive policy affecting more low-income households.