Climate Adaptation in Distorted Electricity Markets

We study climate adaptation in a distorted electricity market in one of the world’s most heat-exposed cities, Karachi, Pakistan. Poor households respond to extreme heat by increasing unbilled consumption or theft, exploiting limited enforceability and nonlinear tariffs. This adaptation amplifies pre-existing distortions: as temperatures rise, cost recovery deteriorates, further straining a sector characterized by load shedding and unreliable supply. Theft-resistant cables, a corrective measure installed by the electricity utility, mitigate heat-driven unbilled consumption, improving reliability and increasing electricity use among non-residential consumers. Billed consumption does not increase proportionally, implying reduced cooling and higher health expenditures among poor households.