Temperature rise in Mexican states: Risks for electricity consumption and economic development

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Vicente Germán-Soto (Universidad Autónoma de Coahuila)

Temperature, electricity consumption, and economic development are becoming increasingly connected and yet these three variables have not yet been jointly investigated. Temperatures and electricity consumption are related to one another because electricity demand increases in extreme climates (winter and summer), accentuating cyclical fluctuations and having considerable implications for economic development. The X-13 ARIMA technique is used to obtain the cycle and trend components and analyze the co-movement, volatility, and persistence properties of temperatures, electricity demand, and economic development. The empirical data are on Mexican states from 2003Q1 to 2019Q4. The findings support the procyclicality of the relationship between electricity consumption and temperature, which is an expected result, but co-movement with economic development is unclear: it is procyclical in regions with extreme temperatures and countercyclical in temperate regions. Additionally, minimum temperatures are more volatile than maximum temperatures are; thus, in Mexico, cold climates are a factor of higher risk and uncertainty for electricity demand (and thus, for economic development) than warm climates are. Hence, regional energy policies should be aimed at monitoring the climate, especially rising temperatures in states with more extreme climates, to assertively plan electricity supply and drive economic development.