Over the next 25 to 30 years, nearly all of the growth in energy demand, fossil fuel use, associated local pollution, and greenhouse gas emissions is forecast to come from the developing world. The U.S. Energy Information Administration (2010a, table 1) reports that energy consumption in OECD and non-OECD countries was roughly equal in 2007, but from 2007 to 2035, it forecasts that energy consumption in OECD countries will grow by 14 percent, while energy consumption in non-OECD countries will grow by 84 percent. This paper argues that the world's poor and near-poor will play a major role in driving medium-run growth in energy consumption. As the world economy expands and poor households' incomes rise, they are likely to get connected to the electricity grid, gain access to good roads, and purchase energy-using assets like appliances and vehicles for the first time. The energy needed to manufacture and use these new assets is likely to constitute a large portion of the growth in the demand for energy in the medium term. Also, refrigerators and cars are long-lived durable goods, so increases along the extensive margin driven by first-time purchases of these assets will have substantial consequences for energy consumption and greenhouse gas emissions for some time.

for useful comments and suggestions and to Anjini Kochar, Alex Rodriguez, Jean Roth and Terry Sicular for assistance accessing data. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

We study household decisions to acquire energy-using assets in the presence of rising incomes. We develop a theoretical framework to characterize the effect of income growth on asset purchases when consumers face credit constraints. We use large and plausibly exogenous shocks to household income generated by the conditionalcash-transfer program in Mexico, Oportunidades, to show that asset acquisition is nonlinear, depends, as predicted in the presence of credit constraints, on the pace of income growth, and both effects are economically large among beneficiaries. Our results may help explain important worldwide trends in the relationship between energy use and income growth. (JEL D12, I32, I38, O12, O13, Q47)Energy is a fundamental input to modern life. Without access to commercial energy sources, such as gasoline, natural gas, and electricity, people could not drive vehicles, refrigerate food and medicine, air condition buildings, watch television, easily operate farming equipment, or participate in many other aspects of modern life. Despite this, an estimated 1.3 billion people live without electricity in their homes, and even among those who have access, many do not own basic assets such as refrigerators, motorized transport, or washing machines. In fact, Table 1 demonstrates the low penetration of several key energy-using assets for over 4 billion people living in the developing world, especially when compared to high-income countries such as the United States. However, this situation is rapidly changing as incomes rise from economic growth and as massive poverty alleviation programs continue to expand.

Most of the future growth in energy use is forecast to come from the developing world. Understanding the likely pace and specific location of this growth is essential to inform decisions about energy infrastructure investments and to improve greenhouse gas emissions forecasts. We argue that countries with pro-poor economic growth will experience much larger increases in energy demand than countries where growth is more regressive. When poor households' incomes go up, their energy demand increases along the extensive margin as they buy energy-using assets for the first time. We also argue that the speed at which households come out of poverty affects their asset purchase decisions.We provide empirical support for these hypotheses by examining the causal impact of large increases in household income on asset accumulation and energy use in the context of Mexico's conditional cash transfer program. We find that transfers had a large effect on asset accumulation among the low-income program beneficiaries, and the effect is substantially greater when the cash is transferred over a shorter time period. Examining energy use, we find that asset accumulation, not cash transfers drive household electricity usage. We then apply the lessons from the household analysis to aggregate energy forecast models using country-level panel data. We show that if a country's growth has been propoor, the correlation between energy use and income is nearly double that of a country with GDP growth that has been less favorable to the poor. We explain how these results suggest that existing forecasts could grossly underestimate future energy use in the developing world.

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