Highlights • Grid electricity reduces firewood consumption by about 0.83–2.09 cubic meters per month in rural Bhutan.
• Electrified households are about 86%–90% more likely to use electricity as lighting fuel, suggesting potential for replacement of kerosene use.
Household dependence on firewood is ubiquitous in developing countries, undermining the carbon services that forests provide. In addition, kerosene is widely used for lighting that emits black carbon. This study examines the effect of grid electricity on firewood consumption and kerosene by using an instrumental variable (IV) estimation strategy, and it evaluates the underlying mechanisms. I use three waves of large sample household surveys from Bhutan and other administrative data to complement the main results. The results show that grid electricity reduces firewood consumption by approximately 0.83–2.09 cubic meters per month and electrified households are approximately 61%–71% less likely to use kerosene as lighting fuel. Households respond to electricity provision by adopting basic electrical appliances and electricity for lighting. The results also suggest that the effect of electricity on firewood consumption is driven by road accessibility and that the reduction in firewood consumption is larger for richer households. However, I do not find such evidence for kerosene. Furthermore, one electrified household saves emissions of approximately 5.9 tCO2 and 5.2 tCO2e of black carbon annually from displaced firewood consumption. Similarly, kerosene displaced due to electricity is associated with approximately 2.45 tCO2e black carbon annually.
• The underlying mechanism behind the reduction of firewood consumption is through change in household technology.
• Results also show evidence of adopting electrical appliances by rural households.
• One electrified household saves emissions of about 5.9 tCO2 and 5.2 tCO2e of black carbon annually from displaced firewood consumption.