Adapting to climate change: substitution effect of water on residential electricity consumption

• Date: 06 November 2023
• Pages: 91-111
• DOI: https://doi.org/10.1108/IJCCSM-03-2023-0032
• Published date: 06 November 2023
• Subject Matter: Public policy & environmental management,Environmental issues,Climate change
• Author: Fan Zhang,Ming Cao

Adapting to climate change:

substitution ef‌fect of water on

residential electricity

consumption

Fan Zhang and Ming Cao

School of Economics and Finance, Xi’an Jiaotong University, Xi’an, China

Abstract

Purpose –As climate change impacts residential life, people typically use heating or cooling appliances

to deal with varying outside temperatures, bringing extra electricity demand and living costs. Water is

more cost-effective than electricity and could provide the same body utility, which may be an alternative

choice to smooth electric ity consumption f‌luctuation and provide living cost incentives. Therefore, this

study aims to identify the substitute effect of water on the relationship between climate change and

residential electricity consumption.

Design/methodology/approach –This study identif‌ies the substitute effect of water and potential

heterogeneity using panel data from 295cities in China over the period 2004–2019. The quantile regression

and the partially linear functional coeff‌icient model in this study could reduce the risks of model

misspecif‌icationand enable detailed identif‌ication of the substitution mechanism, which is in line with reality

and preciselydetermines the heterogeneity at different consumptionlevels.

Findings –The results indicate that residential water consumption can weaken the impact of

cooling demand on residential electricity consumption, especially in low-income regions. Moreover,

residents exhibited adaptive asymmetric behaviors. As the electricity consumptionlevel increased,

the substitute effects gradually get strong. The substitute effects gradually strengthened when

residential water consumption per capita exceeds 16.44 tons as the meeting of the basic life

guarantee.

Originality/value –This study identif‌iesthe substitution role of water and heterogeneous behaviorsin the

residential sector in China. These f‌indings augment the existing literature and could aid policymakers,

investorsand residents regarding climate issues,risk management and budget management.

Keywords Climate change, Residential sector, Electricity consumption, Water use, Substitution

Paper type Research paper

1. Introduction

Temperature shock impacts residential energy consumption and causes energy-dependent

behaviors; however, water may reduce energy consumption f‌luctuations and facilitate adaptive

© Fan Zhang and Ming Cao. Published by Emerald Publishing Limited. This article is published

under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute,

translate and create derivative works of this article (for both commercial and non-commercial

purposes), subject to full attribution to the original publication and authors. The full terms of this

licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode

The authors acknowledge supports from the National Natural Science Foundation of China

(72173095, 71703120), Key Projects of the National Social Science Fund of China (22AZD096), the

Supporting Plan for Innovation in Shaanxi Province of China (2022KRM157, 2022KRM026) and

Chengdu Soft Science Research Project (2021-RK00-00163-ZF).

Adapting to

climate change

91

Received2 March 2023

Revised15 May 2023

23May 2023

18June 2023

7July2023

16July 2023

31August 2023

Accepted13 October 2023

InternationalJournal of Climate

ChangeStrategies and

Management

Vol.16 No. 1, 2024

pp. 91-111

EmeraldPublishing Limited

1756-8692

DOI 10.1108/IJCCSM-03-2023-0032

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1756-8692.htm

behaviors. Air conditioners are a major adaptation solution for extreme temperatures (He et al.,

2021). Residents typically use heating or cooling appliances to deal with varying outside

temperatures when pursuing body comfort (He et al.,2023), which directly increa ses residential

electricity demand (Auffhammer, 2022;Du et al., 2020a). Alternatively, showers are regarded as

a choice that can yield the same temperature utility (Hami et al., 2019;Salvo, 2018). The lower

unit price of water compared with electricity may help people stabilize their budgets. This

provides electricity conservation andl ivingcost incentives to residents (Tiefenbeck et al., 2019),

which may act as a substitution effect and change the impact of climate change on residential

electricity consumption. Moreover, as illustrated in Figure 1, this substitution effect may be

heterogeneous. On the one hand, residents face different degrees of water scarcity (Huang et al.,

2017). China has disparate water resourceendowments in the north and south (Fan et al.,2020).

The discrepancy in water resources leads to different living habits in the residential sector

(Russell and Knoeri, 2020). People living in water-rich regions can easily use water to improve

their body comfort, which may lead to a larger substitution effect on electricity consumption.

However, energy poverty has become increasingly prominent due to climate change (Jessel

et al.,2019). Although air conditioning meets residents’temperature needs, this adaptation

measure depends on households being able to afford the associated adaptation costs (Doremus

et al.,2022), for example, tiered electricity pricing improves electricity use cost levels for

residents (Zhang and Lin, 2018). When climate shocks push residents to pursue body comfort

with air conditioners, different usage frequencies correspond to different electricity

consumption levels and charging standards (Zhang and Qin, 2015;Prabakaran et al., 2020).

This brings about a disparate cost of electricity consumption and adaptive behaviors (Du and

Ma, 2021), which may stimulate residents to consume heterogeneous water and avoid

expensive electricity use constrained by their living budget. To this end, the key issues are

identifying climate change adaptive behaviors that include the substitution mechanism and

heterogeneous effects of water on the relationship between climate change and residential

electricity use, supporting policy formulation and constituting the focus of this study.

China is the largest developing country with rapid urbanization, economic growth and

enormous residential electricity demand (Du et al., 2020a;Li et al.,2022;Duan et al.,2022).

Figure 1.

Possible substitution

effect of water on the

impact of climate

change on residential

electricity

consumption

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