Climate Sensitivity of Electricity Demand in a Tropical Emerging Economy: Long-Run Evidence from Brazil

Vollständiger Abstract

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Brazil, a large tropical emerging economy, faces the dual challenge of expanding electricity access and planning capacity under a warming climate. We estimate long-run temperature elasticities of residential and commercial electricity demand in Brazil using monthly data from June 2006 to February 2025 within a vector error-correction (VECM) framework. Replacing the income proxy originally employed in earlier work (the PNADC real income mass) with the Brazilian Central Bank’s monthly economic activity index (IBC-Br) resolves a multicollinearity problem between income and temperature that had previously biased the estimated temperature effect toward zero. Our preferred estimates yield a residential temperature elasticity of 1.21 (s.e. 0.24) and a commercial temperature elasticity of 2.76 (s.e. 0.60), both statistically significant at the 1% level. Applied to the sample mean temperature of 25.3C, these elasticities imply that a permanent 1C increase in mean temperature raises residential and commercial electricity consumption by approximately 4.8% and 10.9%, respectively, in the long run. Under a 1.5C warming reference scenario (a conservative anchor relative to IPCC AR6 projections for South America by mid-century), the implied demand increases are 7.2% and 16.4%. These results carry direct implications for long-horizon capacity planning, tariff design, energy efficiency standards, and climate adaptation policy in a developing-country context. Our findings contribute to the broader literature on climate-sensitive energy demand in tropical emerging economies and support the design of sustainable electricity pathways aligned with SDG 7 (Affordable and clean energy) and SDG 13 (Climate action).