Evaluating the Non-Linear Behaviour of Energy Consumption for Selected European Countries

Abstract

Purpose: The study examines the effects of price changes of energy products and expenditures on energy consumption of electricity and natural gas for two sectors (household and non-household) over the period 2014-2024 in 19 European countries.

Design/Methodology/Approach. By employing the Quadratic Almost Ideal Demand System (QUAIDS) model, elasticities of cross-price, own-price and expenditure are estimated to explore the responsiveness of price and income change. The QUAIDS framework captures non-linear Engel curve relationships, allowing for flexible substitution patterns and accurate welfare impact assessment.

Findings. The estimated results show that household energy demand of both energy products is more elastic than the non-household sector. The household sector exhibits weak substitutability between electricity and natural gas, and complementarities for non-households. Expenditure elasticities close to unity in both sectors indicate that both energy products are normal goods. The findings indicate that without appropriate steps to compensate economically vulnerable groups, imposing energy taxes raises inequalities. The empirically estimated results provide insights to design equitable efficient energy and climatic policies in Europe.

 Research Limitations. The study focuses on 19 European countries and two energy products (electricity and natural gas). Future research could expand to include additional energy products, broader geographical coverage, and more granular sectoral disaggregation.

Practical Implications. The findings provide policymakers with empirical evidence to design equitable energy taxation policies that minimize welfare losses for vulnerable households while achieving environmental objectives.

Originality/Value. The study contributes to the literature by employing QUAIDS model with disaggregated sectoral analysis (household and non-household) for European countries, incorporating climatic, demographic, and environmental control variables.

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