Air pollution and energy poverty: evidence from Chinese households

We estimate the causal effect of air pollution on energy poverty using Chinese panel data. Exploiting exogeneous variations in PM_2.5 concentrations due to atmospheric thermal inversions to proxy air pollution, we find that poor air quality increases energy poverty at both the intensive and extensive margins. Specifically, we find that a one-standard-deviation increase in PM_2.5 concentrations (22.06 μg/m³) increases the share of income spent on energy by 1.01 percentage points, accounting for 15.71 percent of the income share that a representative Chinese household spends on energy. The probability of being into energy poverty, in response to the same change, increases by 4.19 to 8.38 percentage points, which corresponds to a 22.57 to 34.01 percent increase in the proportion of households in energy poverty evaluated at the mean. Our results are robust to numerous checks. We find that the channels through which air pollution causes energy poverty are via people spending more time indoors, air pollution impairing health, and air pollution having an adverse effect on household income. Back-of-the-envelope calculations suggest that reducing PM_2.5 emissions to the annual standard of 35 μg/m³, which is mandated by the central government, would lift 9.30 to 18.59 million households out of energy poverty.