Empirical estimates of the direct rebound effect: A review

Improvements in energy efficiency make energy services cheaper, and therefore encourage increased consumption of those services. This so-called direct rebound effect offsets the energy savings that may otherwise be achieved. This paper provides an overview of the theoretical and methodological issues relevant to estimating the direct rebound effect and summarises the empirical estimates that are currently available. The paper focuses entirely on household energy services, since this is where most of the evidence lies and points to a number of potential sources of bias that may lead the effect to be overestimated. For household energy services in the OECD, the paper concludes that the direct rebound effect should generally be less than 30%.     

The rebound effect on road freight transport: Empirical evidence from Portugal

Because a large proportion of total operating costs for transportation companies goes towards energy, a reduction in energy operating costs, brought about by an increase in fleet fuel efficiency, or an increase in operational efficiency, results in a change in the relative cost of road freight transportation. This fact could result in an increase in the demand for such services. If this is true, the result would be an increase in total fuel consumption. Consequently, that part of the energy savings obtained through the increased energy efficiency would be lost. The existence of a “Rebound Effect” is especially important in the road freight transportation sector and is crucial for the definition of a national energy policy.     

Empirical evidence of direct rebound effect in Catalonia

This paper reviews the empirical literature concerning the direct rebound effect in households; it briefly analyzes the main theoretical and methodological aspects, and finally estimates the magnitude of direct rebound effect for all energy services using electricity in households of Catalonia (Spain) using econometric techniques. The main results show an estimated direct rebound effect of 35% in the short term and 49% in the long term. The existence of a rebound effect reduces the effectiveness of energy efficiency policies.     

Regional energy rebound effect: The impact of economy-wide and sector level energy efficiency improvement in Georgia,USA

Rebound effect is defined as the lost part of ceteris paribus energy savings from improvements on energy efficiency. In this paper, we investigate economy-wide energy rebound effects by developing a computable general equilibrium (CGE) model for Georgia, USA. The model adopts a highly disaggregated sector profile and highlights the substitution possibilities between different energy sources in the production structure. These two features allow us to better characterize the change in energy use in face of an efficiency shock, and to explore in detail how a sector-level shock propagates throughout the economic structure to generate aggregate impacts. We find that with economy-wide energy efficiency improvement on the production side, economy-wide rebound is moderate. Energy price levels fall very slightly, yet sectors respond to these changing prices quite differently in terms of local production and demand. Energy efficiency improvements in particular sectors (epicenters) induce quite different economy-wide impacts. In general, we expect large rebound if the epicenter sector is an energy production sector, a direct upstream/downstream sector of energy production sectors, a transportation sector or a sector with high production elasticity. Our analysis offers valuable insights for policy makers aiming to achieve energy conservation through increasing energy efficiency.     

Quantifying the rebound effects of energy efficiency improvements and energy conserving behaviour in Sweden

Doubts have recurrently been raised on the extent to which energy efficiency can reduce the demand for energy. Improvements in efficiency may cause so-called rebound effects by reducing the prices of energy services as well as by increasing the budget for consumption of other goods and services. The magnitude of such effects is crucial to whether energy efficiency should be a strategy for environmental policy or not. This paper aims to derive a general expression of the rebound effects of household consumption in a parameterised form where available data can be tested. The paper analyses how different parameter assumptions affect the quantification of rebound effects and what may be reasonable ranges. Income effects are quantified using data from the Swedish Household Budget Survey of different goods and services split on income classes. The changes in consumption patterns with increasing income are used to establish the composition of marginal consumption. Combined with energy intensities derived from input–output analysis, this gives a model of how money saved on energy use in one sector may lead to increased energy use in other sectors. The total rebound effects of energy efficiency improvements appear to be in the range 5–15% in most cases, but these results are fairly sensitive to assumptions of energy service price elasticities. Cases with low or negative capital costs for energy efficiency improvements may also result in much higher rebound effects as the income effects become more important. Energy-conserving behaviour (reduced energy service demand) affecting direct energy use such as heating and transport gives rise to rebound effects in the order of 10–20%, depending on the household expenditure per primary energy for different fuels and energy carriers.     

The effect of energy end-use efficiency improvement on China’s energy use and CO2 emissions: a CGE model-based analysis

With its rapid economic growth, China is now confronted with soaring pressure from both its energy supply and the environment. To deal with this conflict, energy end-use efficiency improvement is now promoted by the government as an emphasis for future energy saving. This study explores the general equilibrium effect of energy end-use efficiency improvement on China’s economy, energy use, and CO₂ emissions. This paper develops a static, multisector computable general equilibrium model (CGE) for China, with specific detail in energy use and with the embodiment of energy efficiency. In order to explore the ability of subsidizing non-fossil-generated electricity on moderating potential rebound effects, in this model, the electricity sector was deconstructed into five specific generation activities using bottom–up data from the Chinese electricity industry. The model is calibrated into a 16-sector Chinese Social Accounting Matrix for the year 2002. In the analysis, seven scenarios were established: business as usual, solely efficiency improvement, and five policy scenarios (taxing carbon, subsidized hydropower, subsidized nuclear power, combination of taxing carbon and subsidized hydropower, combination of taxing carbon and subsidized nuclear power). Results show that a sectoral-uniform improvement of energy end-use efficiency will increase rather than decrease the total energy consumption and CO₂ emissions. The sensitivity analysis of sectoral efficiency improvement shows that efficiency improvements happened in different sectors may have obvious different extents of rebound. The three sectors, whose efficient improvements do not drive-up total national energy use and CO₂ emissions, include Iron and Steel, Building Materials, and Construction. Thus, the improvement of energy end-use efficiency should be sectoral specific. When differentiating the sectoral energy-saving goal, not only the saving potential of each sector but also its potential to ease the total rebound should be taken into account. Moreover, since the potential efficiency improvement for a sector over a certain period will be limited, technology measures should work along with a specific policy to neutralize the rebound effect. Results of policy analysis show that one relatively enhanced way is to combine carbon taxing with subsidized hydropower.     

Rebound and disinvestment effects in refined oil consumption and supply resulting from an increase in energy efficiency in the Scottish commercial transport sector

In this paper, we use an energy–economy–environment computable general equilibrium (CGE) model of the Scottish economy to examine the impacts of an exogenous increase in energy augmenting technological progress in the domestic commercial Transport sector on the supply and use of energy. We focus our analysis on Scottish refined oil, as the main type of energy input used in commercial transport activity. We find that a 5% increase in energy efficiency in the commercial Transport sector leads to rebound effects in the use of oil-based energy commodities in all time periods, in the target sector and at the economy-wide level. However, our results also suggest that such an efficiency improvement may cause a contraction in capacity in the Scottish refined oil supply sector. This ‘disinvestment effect’ acts as a constraint on the size of rebound effects. However, the magnitude of rebound effects and presence of the disinvestment effect in the simulations conducted here are sensitive to the specification of key elasticities of substitution in the nested production function for the target sector, particularly the substitutability of energy for non-energy intermediate inputs to production.     

Energy productivity improvements and the rebound effect: An overview of the state of knowledge

The ‘rebound effect’ from more efficient use of energy has been well investigated, with plenty of evidence suggesting that the ‘direct’ rebound effect is relatively small for most energy services—typically less than 30%. However, the same conclusion may not apply to ‘indirect’ and ‘economy-wide’ rebound effects. Here, several authors suggest that improved energy efficiency may increase energy consumption in the medium to long term, a view that undermines the rationale for energy efficiency as an instrument of climate-related energy policy and has been ardently debated. One of the main reasons behind the debate is the lack of a rigorous theoretical framework that can describe the mechanisms and consequences of the rebound effect at the macro-economic level. Proponents of the rebound effect point to ‘suggestive’ evidence from a variety of areas including economic history, econometric measurements of productivity and macro-economic modelling. This evidence base is relatively small, highly technical, lacks transparency, rests upon contested theoretical assumptions and is inconclusive. This paper provides an accessible summary of the state of knowledge on this issue and shows how separate areas of research can provide relevant insights: namely neoclassical models of economic growth, computable general equilibrium (CGE) modelling and alternative models for policy evaluation. The paper provides a synopsis of how each approach may be used to explain, model and estimate the macro-economic rebound effect, criticisms that have been suggested against each, and explanations for diversity in quantitative estimates. Conclusions suggest that the importance of the macro-economic rebound effect should not be underestimated.     

The role of the power/efficiency misconception in the rebound effect's size debate: Does efficiency actually lead to a power enhancement?

This paper addresses the question of whether the rebound effect's size is bigger or smaller than one. After a brief review of the related economic literature, a thermodynamic perspective tackles this topic by demonstrating that the dispute over the size of the rebound effect relies on a misconception of the thermodynamic nature of energy efficiency. The dichotomy, in fact, concerns the relationship between efficiency and power output rather than the scale of the economic side effects generated by energy efficiency mutations. Early intuitions of the dichotomy efficiency/power belong to the pioneering works of Stanley Jevons, in the field of economics, and Alfred Lotka in that of biology. Their findings are here approached using the basis of finite-time thermodynamics with a simple amendment, the addition of the time variable to the Carnot machinery. The model shows how a process of power maximization always leads to a sub-optimal efficiency level and additionally, that any efficiency improvement, in the context of low energy costs, will shift the power output of the machine instead of reducing energy consumption. A case study taken from the transport system is presented to elucidate this argument.     

Assessment of the energy utilization efficiency in the Turkish transportation sector between 2000 and 2020 using energy and exergy analysis method

Energy and exergy utilization efficiencies in the Turkish transportation sector over the period from 2000 to 2020 are evaluated in this study. A comparison of the overall energy and exergy efficiencies of the Turkish transportation sector with the other countries is also presented. Energy and exergy analyses are performed for four transport modes, namely roadway, railway, airway and seaway, while they are based on the actual data for 2000 and projected data for 2020. Roadway appears to be the most efficient mode when compared with railway, air and seaway. It is projected that about 15% of total energy resources will be used in this sector during 2020. The energy utilization efficiencies for the Turkish transportation sector range from 23.71% in 2000 to 28.75% in 2020, while the exergy utilization efficiencies vary from 23.65% to 28.85% in the same years, respectively. Exergetic improvement potential for this sector is estimated to be 700 PJ in 2020, with an average increase rate of 4.5% annually between 2000 and 2020. Road transport and oil-fuelled combustion engines offer the principal scope for exergetic improvement in the coming decades. It may be concluded that the methodology used in this study is practical and useful for analyzing sectoral energy and exergy utilization to determine how efficiently energy and exergy are used in the sector studied. It is also expected that this study will be helpful in developing highly applicable and productive planning for energy policies.     

Direct energy rebound effect for road passenger transport in China: A dynamic panel quantile regression approach

The transport sector appears a main energy consumer in China and plays a significant role in energy conservation. Improving energy efficiency proves an effective way to reduce energy consumption in transport sector, whereas its effectiveness may be affected by the rebound effect. This paper proposes a dynamic panel quantile regression model to estimate the direct energy rebound effect for road passenger transport in the whole country, eastern, central and western China, respectively, based on the data of 30 provinces from 2003 to 2012. The empirical results reveal that, first of all, the direct rebound effect does exist for road passenger transport and on the whole country, the short-term and long-term direct rebound effects are 25.53% and 26.56% on average, respectively. Second, the direct rebound effect for road passenger transport in central and eastern China tends to decrease, increase and then decrease again, whereas that in western China decreases and then increases, with the increasing passenger kilometers. Finally, when implementing energy efficiency policy in road passenger transport sector, the effectiveness of energy conservation in western China proves much better than that in central China overall, while the effectiveness in central China is relatively better than that in eastern China.     

Government regulation as an impetus for innovation: Evidence from energy performance regulation in the Dutch residential building sector

The recent implementation of energy performance policy as a way to tackle energy consumption in the building sector in Europe draws attention to the effect it has on the development and diffusion of energy-saving innovations. According to innovation system literature, government regulation through norms and standards is one of the factors stimulating innovation. This paper concentrates on the role of stricter government regulation as an incentive to innovation in the Dutch residential building sector. Innovation in this sector is predominantly a process of applying incremental modifications to comply with new and stricter government regulations and standards. Energy performance policy in its current shape will therefore not contribute to the diffusion of really new innovation in energy techniques for residential buildings in the Netherlands. If diffusion of really new innovation is an explicit aim of energy performance policy then the European wide introduction of this scheme needs reconsideration.     

The role of hydrogen in the road transportation sector for a sustainable energy system: A case study of Korea

This study analyzes the impact of the introduction of hydrogen as fuel in the road transportation sector of Korea. Since this sector is completely dependent on petroleum and alternative technologies such as fuel cell vehicles, hydrogen is one alternative fuel that could meet the challenges that Korea is facing due to rising oil prices. This study uses a scenarios-based energy economic model including the hydrogen path way as a sub-energy system to explore the energy system of Korea through 2044. This study also constructs six scenarios consisting of three government policies concerning carbon dioxide reduction and two oil price scenarios in order to assess the impact on hydrogen as fuel in the road transportation sector. The results of this study show that in a particular case (high Btu tax and oil prices) the share of hydrogen would reach 76% of the road transportation sector, and hydrogen would be produced mainly from renewable and nuclear resources via electrolysis facilities. It is also revealed that hydrogen is effective at reducing carbon dioxide, improving energy efficiency and contributing to the energy security of Korea.     

Incorporating macroeconomic feedback into an energy systems model using an IO approach: Evaluating the rebound effect in the Korean electricity system

This paper approximates the emissions rebound effects¹ associated with substituting expensive and GHG emitting natural gas (LNG) power plants, with apparently cheaper and lower emitting nuclear plant. It then evaluates the effect this has on economy wide electricity use as well as net GHG emissions changes.     

Energy policy and European utilities’ strategy: Lessons from the liberalisation and privatisation of the energy sector in Romania

In the context of energy sector reforms pursued by Romanian government since 1990s, we compare and contrast the market outcomes of European utilities’ investment with the host government policy objectives. We begin with energy market reform in Romania and review governments’ efforts to attract foreign direct investment (FDI) and to gradually withdraw from the distribution and supply segments of electricity market. Subsequently, we illustrate the scope European utilities have had, market policy and design notwithstanding, for consolidating market power through regional dominance. We examine the extent to which these utilities have sought to enhance their positions through horizontal and vertical integration, counter to the EU plans for a competitive market structure. We find that the investments of European incumbents have not been resoundingly successful: although market entrance may have been justified on long-term strategic grounds, in the immediate term, segments acquired through competitive auctions have yielded modest regulated returns. Finally, we discuss the extent to which policy makers have achieved their goals. Although the short-term benefits of a competitive market structure have reached some consumers, a renewed interest in promoting ‘national champions’ reflect frustration with market mechanisms as a means of ensuring long-term strategic investments in the sector.     

An ex-ante evaluation of a White Certificates scheme in The Netherlands: A case study for the household sector

Increased efficiency of energy demand is generally recognized as a very cost-effective strategy to reduce energy requirements and the related environmental impacts (e.g. the greenhouse effect). In order to improve energy efficiency the use of innovative market mechanisms, such as the White Certificates (WhC), has been proposed. The basic idea underlying this policy instrument is that specific energy saving targets are set for energy suppliers or energy distributors. These requirements must be fulfilled in a predefined time frame. The focus of this paper is on the effect on energy efficiency improvement, on the behavior of the end consumers and the market of energy efficiency measures. Furthermore, we study the possible effects of WhC in The Netherlands by means of a theoretical analysis and an empirical bottom-up model. We compare concrete energy efficient technologies in terms of cost-effectiveness and energy efficiency improvement. In combination with existing Dutch policies for energy efficiency improvement in the built environment, the contribution of this innovative scheme could enhance the accomplishment of energy efficiency targets. In this paper, two packages of energy saving measures of a WhC scheme are studied for Dutch households. The costs of these technologies are estimated through the use of different discount rates, which imply overcoming of the market barriers through the use of the WhC. A scheme that includes all available technologies as flexible options appears as a realistic solution and can generate cost effectively up to 180 PJ primary energy savings and 4550 M€ cumulative net savings in the year 2020, at a discount rate of 5%, under the precondition that the policy and administrative costs can be kept low.     

Smart meter devices and the effect of feedback on residential electricity consumption: Evidence from a natural experiment in Northern Ireland

Using a unique set of data and exploiting a large-scale natural experiment, we estimate the effect of real-time usage information on residential electricity consumption in Northern Ireland. Starting in April 2002, the utility replaced prepayment meters with advanced meters that allow the consumer to track usage in real-time. We rely on this event, account for the endogeneity of price and payment plan with consumption through a plan selection correction term, and find that the provision of information is associated with a decline in electricity consumption of 11–17%. We find that the reduction is robust to different specifications, selection-bias correction methods and subsamples of the original data. The advanced metering program delivers reasonably cost-effective reductions in carbon dioxide emissions, even under the most conservative usage reduction scenarios.     

Threshold effect of the economic growth rate on the renewable energy development from a change in energy price: Evidence from OECD countries

This paper uses a panel threshold regression (PTR) model to investigate the influence that energy prices have on renewable energy development under different economic growth rate regimes. The empirical data are obtained from each of the OECD member-countries over the period from 1997 to 2006. We show that there is one threshold in the regression relationship, which is 4.13% of a one-period lag in the annual gross domestic product (GDP) growth rate. The consumer price index (CPI), in so far as it relates to variations in energy, is significantly positively correlated with the contribution of renewables to energy supply in the regime with higher-economic growth, but there is no relationship in the regime with lower economic growth. Therefore, countries characterized by high-economic growth are able to respond to high energy prices with increases in renewable energy use, while countries characterized by low-economic growth countries tend to be unresponsive to energy price changes when they come to their level of renewable energy.     

Energy efficiency as a preferred resource: evidence from utility resource plans in the Western US and Canada

This article examines the future role of energy efficiency as a resource in the Western US and Canada, as envisioned in the most recent resource plans issued by 16 utilities, representing about 60% of the region’s load. Utility and third-party-administered energy-efficiency programs proposed by 15 utilities over a 10-year horizon would save almost 19,000 GWh annually, about 5.2% of forecast load. There are clear regional trends in the aggressiveness of proposed energy savings. California’s investor-owned utilities (IOUs) had the most aggressive savings targets, followed by IOUs in the Pacific Northwest, and the lowest savings were proposed by utilities in Inland West states and by two public utilities on the West Coast. The adoption of multiple, aggressive policies targeting energy efficiency and climate change appears to produce sizeable energy-efficiency commitments. Certain specific policies, such as mandated energy savings goals for California’s IOUs and energy-efficiency provisions in Nevada’s Renewable Portfolio Standard, had a direct impact on the level of energy savings included in the resource plans. Other policies, such as revenue decoupling and shareholder incentives and voluntary or legislatively mandated greenhouse gas emission reduction policies, may have also impacted utilities’ energy-efficiency commitments, though the effects of these policies are not easily measured. Despite progress among the utilities in our sample, more aggressive energy-efficiency strategies that include high-efficiency standards for additional appliances and equipment, tighter building codes for new construction and renovation, as well as more comprehensive ratepayer-funded energy-efficiency programs are likely to be necessary to achieve a region-wide goal of meeting 20% of electricity demand with efficiency in 2020.