How responsive is energy demand to the price of fuels?
That varies with the type of fuel, the expected persistence of the price change, and the availability of substitutes. The two forms of energy that economists have studied most intensively are gasoline (which accounts for 22.9% of U.S. emissions of carbon dioxide) and electricity (39.5% of CO2). From our literature review, CTC believes a “price-elasticity” of 40% (or negative 0.4, in the jargon) is an appropriate assumption for gasoline demand, and 70% for electricity. These assumptions mean that drops in demand are less steep than rises in fuel price but are still substantial. For all other fuel uses — a huge catch-all category (37.6% of CO2) that ranges from diesel fuel for trucks and jet fuel for planes to home heating and industrial fuels — the overall price-responsiveness is probably greater than for gasoline but less than for electricity. (See more detailed discussion here.) These estimates are “long-run” elasticities, meaning that price rises may take years to fully affect demand
