Exploring the Climate Impacts of Residential Electricity Consumption: Evidence from Bangladesh

Abstract

This article investigates the impact of climate change on electricity consumption in both rural and urban areas of Bangladesh, a country facing significant challenges from climate change. The study uses cross-sectional household-level data and meteorological data from 2016. Seasonal variation in temperature attributed to climate change is frequently regarded as a key driver of electricity consumption. The ordinary least squares (OLS) method is applied, followed by robustness checks and an analysis of transmission mechanisms. Our findings provide important insights into the dynamics of electricity consumption in response to severe temperatures. First, the study finds substantial evidence that residential electricity consumption is sensitive to higher temperatures, with families using more electricity on hotter days. Compared with a day in the reference category (29-33°C), adding a day to the 33-39°C bin increases annual electricity consumption by 2.8 percent. Furthermore, each additional day with a mean temperature above 39°C results in a 5 percent increase in yearly power demand. This study also takes other socioeconomic factors and variables into account to examine thoroughly the impact of climate change on household electricity consumption. The research shows that electricity consumption and temperature exhibit an asymmetric relationship. Households exhibit a significant rise in electricity consumption during extremely hot days but do not show any notable response to cold days. The study highlights potential contributions to CO2 emissions and socioeconomic consequences, especially for low-income households. Heterogeneity analysis underscores urban-rural disparities and unequal impacts across income groups. Urban households consume two or three times more electricity when temperatures rise than rural households. Robustness checks support the reliability of the results, and the exploration of adaptive mechanisms such as air conditioning and fans provides insights into coping strategies. This research contributes to the existing body of literature by providing insights relevant to policymakers seeking to address the implications of climate-induced changes in electricity consumption and strengthen societal resilience.