Demand for gas: Evidence from the 2022 energy crisis

• Thesis title in Czech: Poptávka po plynu: Důkazy z energetické krize z roku 2022
• Thesis title in English: Demand for gas: Evidence from the 2022 energy crisis
• Key words: energetická krize, domácnosti, Česko, QUAIDS, elasticita poptávky
• English key words: energy crisis, households, Czechia, QUAIDS, elasticity of demand
• Academic year of topic announcement: 2022/2023
• Thesis type: diploma thesis
• Thesis language: angličtina
• Department: Institute of Economic Studies (23-IES)
• Supervisor: Mgr. Barbara Pertold-Gebicka, M.A., Ph.D.
• Author: hidden - assigned by the advisor
• Date of registration: 31.01.2023
• Date of assignment: 31.01.2023
• Date and time of defence: 31.01.2024 09:00
• Venue of defence: O105, místnost č. 105
• Date of electronic submission: 03.01.2024
• Date of proceeded defence: 31.01.2024
• Opponents: Mgr. Matěj Opatrný, Ph.D.

References

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Dybczak, K., Tóth, P., & Vonka, D. (2014). Effects of price shocks on consumer demand: Estimating the QUAIDS demand system on Czech household budget survey data. Czech Journal of Economics and Finance, 64(6), 476-500.

Goldthau, A., & Tagliapietra, S. (2022). Energy crisis: five questions that must be answered in 2023. Nature, 612(7941), 627-630.

Hoderlein, S., & Mihaleva, S. (2008). Increasing the price variation in a repeated cross section. Journal of Econometrics, 147(2), 316-325.

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Lewbel, A., & Pendakur, K. (2017). Unobserved preference heterogeneity in demand using generalized random coefficients. Journal of Political Economy, 125(4), 1100-1148.

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Preliminary scope of work

Tato práce analyzuje dopady energetické krize z roku 2022 na změny ve spotřebním chování českých domácností s hlavním zaměřením na zemní plyn a další zdroje energie. Dopady jsme zachytili pomocí příjmových a křížových cenových elasticit výdajových podílů různého zboží. Tyto elasticity jsme získali z odhadovaných parametrů kvadratického téměř ideálního poptávkového systému. Parametry systému jsme odhadli pomocí iterované proveditelné zobecněné nelineární metody nejmenších čtverců na datech na úrovni domácností sbíraných společností PAQ Research. Poptávka po plynu je během energetické krize příjmově elastická na rozdíl od jiných zdrojů energie. Domácnosti významně upravily svou spotřebu v reakci na vysoké ceny energií. Odhady křížové cenové elasticity ukazují pokles podílu výdajů na luxusní zboží a dálkové teplo v souvislosti s vyššími cenami plynu. Snížený podíl výdajů na zdravotní péči a dopravu a zvýšený podíl výdajů na tuhá paliva souvisí s vyššími cenami elektřiny. V reakci na rostoucí ceny potřebného zboží domácnosti obecně snižují podíly výdajů na luxusní zboží. Reakce domácností na energetickou krizi jsou různorodé mezi socioekonomickými skupinami.

Preliminary scope of work in English

The 2022 energy crisis in Europe was a major economic event, which severely affected both households and firms. According to data provided by the Czech Statistical Office, energy consumption constitutes between 8 and 14 percent of households’ budgets in Czechia. When a large price shock happens, such as the one in 2022, it severely affects households. It is useful to know how households respond to increasing energy prices and to the threat of unavailability of energy sources, so that the government can properly react when such a situation occurs. Therefore, we decided to estimate price elasticity and cross-price elasticity of demand for energy. It is important to have these estimates because then we know how people change their consumption of various goods, how much money people are willing to save and where they can save. Furthermore, we now have a good opportunity to estimate it because of the unexpected and large shock that triggered significant households’ reactions. Specifically, we plan to concentrate on demand for gas as gas prices were affected the most and some of the government’s interventions were directed at households that used gas heating. We will also estimate if any socio-economic factors had a significant effect on the changes in households’ economic behavior. We would like to build on available academic literature about previous energy crises and about elasticity of demand for energy.

Hypotheses:
1. Demand for gas was income- and price-elastic during the energy crisis.
2. Consumers reacted to the crisis by reducing their consumption of other goods.
3. The extent of consumption adjustments differed among socio-economic groups.

The stated hypotheses will be tested using the following empirical estimation. We are going to estimate the effects of the recent energy crisis on demand for gas of Czech households. We plan to use the analysis from Dybczak et al. (2014) as a starting point, where they build a Quadratic Almost Ideal Demand System (QUAIDS) to model consumer demand for multiple commodities. We concentrate on one commodity – gas. The QUAIDS model is useful for our estimation because it can be used for analyzing demand for individual commodities and it can also reflect characteristics of households. Households’ preferences are represented by an indirect utility function, which takes households’ expenditures and commodity prices as inputs. The model assumes prices to be exogenous, which seems to be a reasonable assumption for the energy crisis. We will obtain panel data covering Czech households in periods from the outbreak of the COVID-19 pandemic to the present. The dataset is provided by PAQ Research, and includes many variables, such as energy prices, energy consumption, income, education, type of a contract for electricity and gas supplies, and other demographic indicators. The parameters of the demand system will be estimated using maximum likelihood, two-stage generalized method of moments and/or non-linear seemingly unrelated regressions, based on performance.

We are going to come up with a new empirical analysis of the recent energy crisis to better understand its economic consequences. We plan to estimate own- and cross-price elasticities of demand for gas among Czech households. The results from this estimation could be useful for policy decisions, budget planning, taxation or for further economic research. The conclusions from the analysis could be further used to mitigate the effects of any upcoming energy crisis. The difference from what has already been done in this area of economic research is that we will concentrate on a recent crisis, which has not yet been properly analyzed, while most similar papers examine other crises where the economic behavior of households could be potentially different. In addition, we will use very detailed data, which is not publicly available and which, to our knowledge, has not been used for estimating cross-price elasticities of demand for energy.