Thread by @LionHirth

European nat gas prices have increased 15-fold since early 2021. You would expect gas consumers to respond by cutting their consumption, wouldn’t you?

We haven’t seen any rigorous study on that question, so we did one. hdl.handle.net/10419/261082

Here is what we found: (1/6)👇

We find a significant reduction. Industry cut more than households, and timing is different: households saved gas after Russia’s invasion, while industry started as early as Aug ‘21, when wholesale prices started surging. In April, residential demand was down 6%, industry 11%.(2)

Here is the average response since August. Look at the confidence intervals: if you don’t control for covariates such as temperature, you don’t find any statistically significant effect for small consumers. If you do, you do. (3/6)

These findings matter for public policy, because they show that prices are an effective means of incentivizing demand cuts. In turn, this implies that energy subsidies, many of which have been introduced during the crisis, drive up gas consumption, which makes things worse. (4/6)

How did we get there? We first split gas consumers into two parts, small and large. Then we fed daily data on temperature, economic activity, power demand, seasonality and time trend into a multiple regression model to identify the change in behavior. Here is the math: (5/6)

For the detailed methodology, have a look at the paper: hdl.handle.net/10419/261082 (6/6)