Understanding the rapidly rising demand for energy in China is essential to efforts to reduce the
country’s energy use and environmental damage. In response to rising incomes and changing prices and
demographics, household use of various fuels, electricity and gasoline has changed dramatically in China.
We estimate income and price elasticities for different energy types using two-stage budgeting and applying
an AIDS model to Chinese urban household microdata. We find that total energy is price and income
inelastic for all income groups after accounting for demographic and regional effects. For specific energy
types, price elasticities range from -0.55 to -0.96. Demand for coal is most price and income elastic among
the poor, whereas gasoline demand is elastic for the rich. Gas and electricity demand are inelastic.