Changes in the Households’ Fuelwood Consumption in the Context of the “Energy Ladder” Hypothesis

Csuvár, Ádám

Keywords: microeconomics, consumer behaviour, residential heating, energy transition, biomass, Q40, Q42, R2

The paper uses the “energy ladder” hypothesis to describe households’ fuel consumption, transition. The economic interpretation of the process is particularly important for Hungary. As environmental and public health reasons justify, we must encourage households to use cleaner resources and technologies. The model explains households’ fuelwood consumption on the basis of income change, assuming a linear and negative relationship between the variables. Following a more thorough processing of the literature, we found that the direction and strength of the relationship were rather unstable, so we were looking for answers to the reasons behind the neutral or positive income elasticity of the wood. Our results are summarized in three points: (i) in some cases, the neutral/positive income elasticity of wood is just an apparent contradiction due to poverty or luxurious circumstances; (ii) price changes sometimes have a greater impact on consumer behaviour than income has. Therefore, despite rising incomes, the use of wood may stagnate or increase; (iii) it is not always the price of the fuel, but rather its relationship to the price of the substitute product („relative price”) that determines the choice of households, thus overwriting the hypothesis related to price elasticity. It has become clear that market forces play no bearing on the achievement of environmental objectives, so certain regulatory incentives and constraints may be justified to create sustainable energy consumption. In addition to rising incomes or falling prices, the use of fuelwood can also stagnate/expand, so we must encourage households to move towards a cleaner energy mix.

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