Do Households Diversify Energy Sources or Switch to New Sources in Ethiopia? A Case Study in Wolkite Town

Abstract

This study analyses weather households diversify their energy sources or switch to new sources. The study utilized cross-sectional data gathered from a randomly selected sample of 260 households in Wolkite town. The study employed linear approximation almost ideal demand system (LAAIDS).The model was constrained to comply with neoclassical theoretical restrictions on demand, and was estimated using Iterative Seemingly Unrelated Regression (ISUR).We found that households did not completely switch to new energy sources as suggested by the energy ladder hypothesis. Instead, they diversified their energy consumption through a process of fuel stacking (energy mix). We also found that the demand for energy was expenditure elastic, with the estimates of cross-price elasticity of the demand for energy sources attesting to the existence of energy substitution and complementarity in the study area. Furthermore, we document that  prices of all energy sources (except kerosene), household total energy expenditure, sex (if male), age, years of education, family size, and residence type as main determinants of  expenditure share of energy sources. Given the negative health and environmental consequences associated with massive consumption of fuel-wood and charcoal, the study suggests that making modern energy source easily accessible, incorporating environmental costs attributable to consumption of fuel-wood and charcoal in the energy planning process, and imposing environmental tax equivalent to the costs to help enhance transition (switch) to modern energy sources as solution to improve the situation.

Keywords: Almost Ideal Demand System, Household energy demand, Energy complementarity, Energy mix, Energy switch, Ethiopia

DOI: 10.7176/JETP/9-1-03