Energy Econ. 59, 149–158 (2016)

Residential energy demand per capita in the six countries belonging to the Gulf Cooperation Council (GCC) — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates — is significantly greater than in the OECD (Organisation for Economic Co-operation and Development) economies and China, and greater than the world average. Several factors might contribute to this remarkable situation, including the specific weather in the region, the fact that the administered nominal price for electricity is set at a level far below market price, and the domestic energy policies. Tarek Atalla from KAPSARC, Saudi Arabia and Lester Hunt from the University of Surrey, UK studied residential electricity consumption in the GCC and found that the estimated long-run price elasticity (a measure of the relationship between change in demand and change in price) for electricity is particularly low in the countries considered, ranging from −0.16 to 0.

Using an underlying energy demand trend approach that allows for the estimation of exogenous stochastic trends, the researchers find that each country shows specific consumption patterns, although some commonalities can be identified. In particular, the study underlines that simply increasing the electricity price is unlikely to reduce electricity consumption, given the existing low elasticity. These results suggest that effective energy policy to decrease energy consumption should aim to increase the price elasticity of electricity demand, for instance by prioritizing behavioural changes, and improve the energy efficiency of home appliances.