Does financial stress hinder energy consumption in the United States of America?

Abstract

Abstract Given its synchronization with economic activities, energy aspects are expectedly affected by spillover effects from shocks to economic and related financial aspects. This is because energy is an inevitable input to achieve economic growth and development. Although various economic, financial, and socioeconomic drivers of energy consumption have been investigated, the impact of financial stress on energy use has rarely been explored. The world's energy transformation rate continues to be heavily influenced by energy financing; given this observation, we scrutinize the impact of financial stress on energy consumption over the period 1949–2016 in the United States of America (USA) while controlling for macroeconomic variables such as gross domestic product (GDP) and oil that could influence energy consumption. The novel unit root test is employed to test the stationarity of the dataset alongside the newly developed Fourier augmented autoregressive distributed lag (ARDL) approach to estimate the short- and long-run estimates. Importantly, the findings document a negative association between financial stress and energy consumption in both the long and short run and a more profound effect in the long run. Moreover, GDP, trade and foreign direct investment promote energy consumption, whereas oil price has the opposite effect. On the basis of these findings, we propose that temporary social tariffs should be made available in the short run to help low-income households pay their energy expenses or expand their energy consumption portfolio.