Why is Air Conditioning Adoption Accelerating in Mexico? – Energy Institute Blog

New Energy Institute working paper points to electricity prices and energy-efficiency as key drivers.

In climate change studies, it has become common to make predictions many years into the future. But researchers rarely return later to check the accuracy.

In a new Energy Institute working paper, Paul Gertler and I perform such an exercise. In previous research, we used 2010 data from Mexico to predict future air conditioning adoption. Revisiting these predictions with 12+ years of additional data, we find that air conditioning has accelerated, significantly exceeding our predictions.

We think this is a big deal. Air conditioning offers tremendous comfort and saves lives during heat waves. But it is also much more energy intensive than other climate adaptation technologies. Even a modest room air conditioner can use 1,000 watts, compared to only 50 to 80 watts for a ceiling fan. With good reason, recent forecasts from the International Energy Agency conclude that air conditioning is the single largest driver of future global electricity demand, even surpassing data centers.

Our new paper documents this acceleration, but also asks why this is happening.

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Prediction Gap

The figure below compares our predictions (x-axis) with the actual level of air conditioning in Mexico in 2022 (y-axis). The underlying data and modeling uses household-level data, but for the purposes of the figure we aggregate up to state-level. If our predictions were perfect, then all observations would be along the 45° line (in orange).

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We underpredicted air conditioning in most states. The prediction gap is widespread, but particularly pronounced in warm states like Tabasco, Quintana Roo, Tamaulipas, and Baja California Sur, all well above the 45° line.

Looking at growth in air conditioning makes the prediction gap even more clear. As the graphic below shows, air conditioning in Mexico increased 5.8 percentage points between 2010 and 2022. We predicted only 3.3 percentage points. In warm states, growth was 11 percentage points. Our prediction was about half that, only 6.2.

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Potential Mechanisms

What explains the prediction gap?

Did income grow more than expected? Our previous research emphasized household income as a primary determinant of air conditioning adoption. But digging into the data, we found that household incomes in Mexico have grown less than we assumed in our predictions, so incorporating updated information widens the prediction gap, rather than narrowing it.

Did temperatures increase more than expected? Like almost everywhere else, Mexico is growing hotter, and this leads more households to adopt air conditioning. But it turns out that our assumptions about temperature growth were quite accurate, so this also cannot explain the prediction gap.

Did households migrate to warmer locations? Another hypothesis we considered is migration within Mexico toward warmer locations. This is another plausible hypothesis, but when we look in the data we find that this effect is too small to matter.

Was our original model too inflexible? We also asked whether our original model was too inflexible. Returning to the data we had available when we wrote the previous paper, we instead estimated a more flexible machine learning (ML) model. It does a little better, but a large prediction gap remains even with ML.

Thus none of these four hypotheses can explain the prediction gap.

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Price of Energy Services

Striking out with several hypotheses, we went back to first principles. Economists have long pointed out that demand for energy is derived from demand for energy services, like cooling. At the end of the day, it isn’t the air conditioner itself that makes someone happy – it is the cooling.

Viewed through this lens, it makes sense to ask if there has been any change in the price of cooling. Collecting additional data, we show that residential electricity prices in Mexico fell 19% in real terms between 2010 and 2025.

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By the end of the period, Mexico had some of the lowest electricity prices in the world, equivalent to 5 cents per kilowatt hour, compared to the US national average of over 17 cents. These low prices have been a point of pride for the Mexican government, as the graphic below illustrates, but low prices, of course, also motivate households to use more electricity.

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In addition, air conditioner energy-efficiency has continued to improve. The figure below plots air conditioner energy-efficiency as profiled by Consumer Reports magazine. Between 2010 and 2025 there was an 11% increase in energy-efficiency.

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Putting both factors together implies that the cost of cooling has decreased 30% from 2010 to 2025. Relying on elasticity estimates from prior research and a simple model, we argue in the paper that this is large enough to explain most of the acceleration in air conditioning adoption.

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So What?

Just 12 years since we made our original predictions, there are already nearly 1 million more air conditioners in Mexico than we predicted. If this accelerated pace of adoption continues, it will mean near-ubiquitous air conditioning in Mexico more than a decade earlier than we forecast.

Meeting this increased demand for electricity will require large investments in generation and transmission. Mexico already faces blackouts during heat waves so this further stretches an already strained grid. In addition, most electricity in Mexico comes from fossil fuels, so more air conditioners means more emissions.

More broadly, our paper provides a cautionary tale for the growing number of climate change predictions based on temperature and income. These factors are undoubtedly important, and we still need much more research on both. But our paper provides a valuable reminder that prices and technological change matter too.

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The Energy Institute blog will be on vacation next week for the July 4 holiday. It will return on Monday, July 14.

Suggested citation: Davis, Lucas. “Why is Air Conditioning Adoption Accelerating in Mexico?” Energy Institute Blog, UC Berkeley, June 30, 2025, https://energyathaas.wordpress.com/2025/06/30/why-is-air-conditioning-adoption-accelerating-in-mexico/

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