Household Coal Demand in Rural Kazakhstan: Subsidies, Efficiency, and Alternatives

Abstract

ABSTRACT In 2012, 32% of Kazakhstan’s population nationwide, including 70% of rural households, used coal as a primary source of space heating energy. Equally dramatic is the statistic that the average household annual consumption of coal increased by 44% between 2002 and 2012, from 3.9–5.8 tons to 5.6–8.4 tons depending on the region. This paradoxical increase and the high use of coal in a country with plentiful oil and gas reserves along with coal’s negative effects stimulated our interest in investigating the determinants of household coal demand, how subsidies may have shaped its use, and how the government might put its money to better use in providing a cleaner and more sustainable landscape. By estimating two demand models (based on household-level cross-section and household-cohort pseudo-panel data), we demonstrate that energy subsidy reform will reduce coal demand by 30% in the short run and 50% in the long run. In addition, increasing efficiency of all rural houses to that of the houses built after 1990 will decrease coal demand by at least 12%. Finally, we discuss the importance of natural gas and renewable energy sources in enabling the transition of rural households away from coal.