GAS OR ELECTRICITY, WHICH IS CHEAPER - AN ECONOMETRIC-APPROACH WITH APPLICATION TO AUSTRALIAN EXPENDITURE DATA

The question of whether it is cheaper for households to use electricit y or gas for space heating, water heating and cooking, generates much debate in Australia. Generally, gas appliances are technically less ef ficient than electrical appliances, but on a per MJ basis, gas is chea per than electricity. The trade-off between these two factors has typi cally been assessed using an engineering approach which ignores the fa ct that gas and electric appliances might be used in different ways in the home and that there may be price effects. This paper utilises an alternative perspective based on econometric methods. We analyse the a ctual energy expenditures of a large sample of Australian households a nd estimate the expenditure on the main end-uses for households using different fuel types. We find that households using electricity for ma in heating spend considerably less than households using gas. For cook ing, households using gas generally spend less, while for water heatin g the results are mixed. We discuss several possible interpretations o f these results in terms of consumer preferences and running costs.