The macroeconomic rebound effect and the world economy

This paper examines the macroeconomic rebound effect for the global economy arising from energy-efficiency policies. Such policies are expected to be a leading component of climate policy portfolios being proposed and adopted in order to achieve climate stabilisation targets for 2020, 2030 and 2050, such as the G8 50% reduction target by 2050. We apply the global “New Economics” or Post Keynesian model E3MG, developing the version reported in IPCC AR4 WG3. The rebound effect refers to the idea that some or all of the expected reductions in energy consumption as a result of energy-efficiency improvements are offset by an increasing demand for energy services, arising from reductions in the effective price of energy services resulting from those improvements. As policies to stimulate energy-efficiency improvements are a key part of climate-change policies, the likely magnitude of any rebound effect is of great importance to assessing the effectiveness of those policies. The literature distinguishes three types of rebound effect from energy-efficiency improvements: direct, indirect and economy-wide. The macroeconomic rebound effect, which is the focus of this paper, is the combination of the indirect and economy-wide effects. Estimates of the effects of no-regrets efficiency policies are reported by the International Energy Agency in World Energy Outlook, 2006, and synthesised in the IPCC AR4 WG3 report. We analyse policies for the transport, residential and services buildings and industrial sectors of the economy for the post-2012 period, 2013–2030. The estimated direct rebound effect, implicit in the IEA WEO/IPCC AR4 estimates, is treated as exogenous, based on estimates from the literature, globally about 10%. The total rebound effect, however, is 31% by 2020 rising to 52% by 2030. The total effect includes the direct effect and the effects of (1) the lower cost of energy on energy demand in the three broad sectors as well as of (2) the extra consumers’ expenditure from higher (implicit) real income and (3) the extra energy-efficiency investments. The rebound effects build up over time as the economic system adapts to the higher real incomes from the energy savings and the investments.     

The rebound effect in the aviation sector

The rebound effect, i.e., the (partial) offset of the energy efficiency improvement potential due to a reduction in marginal usage costs and the associated increase in consumer demand, has been extensively studied for residential energy demand and automobile travel. This study presents a quantitative estimate of the rebound effect for an air traffic network including the 22 busiest airports, which serve 14 of the highest O–D cities within the domestic U.S. aviation sector. To satisfy this objective, passenger flows, aircraft operations, flight delays and the resulting energy use are simulated. Our model results indicate that the average rebound effect in this network is about 19%, for the range of aircraft fuel burn reductions considered. This is the net impact of an increase in air transportation supply to satisfy the rising passenger demand, airline operational effects that further increase supply, and the mitigating effects of an increase in flight delays. Although the magnitude of the rebound effect is small, it can be significant for a sector that has comparatively few options for reducing greenhouse gas emissions.     

The macro-economic rebound effect and the UK economy

This paper examines the macroeconomic rebound effect for the UK economy arising from energy efficiency policies 2000–2010 using the macroeconomic model, MDM-E3. The literature distinguishes between three types of rebound effect: direct, indirect and economy-wide. The macroeconomic rebound effect considered here is the combination of the indirect and economy-wide effects. Policies for the domestic, business, commercial and public, and transport sectors of the economy are analysed for 2000–2010. Overall, the policies lead to a saving of about 8% of the energy, which would otherwise have been used and a reduction in CO₂ emissions of 10% (or 14 mtC) by 2010. There are also favourable macroeconomic effects: lower inflation and higher growth. We find that the macroeconomic rebound effect arising from UK energy efficiency policies for the period 2000–2010 is around 11% by 2010, averaged across sectors of the economy. When this is added to the (assumed) direct rebound effect of around 15%, this gives a total rebound effect of around 26% arising from these policies. Thus, the findings of the study support the argument that energy efficiency improvements for both consumers and producers, stimulated by policy incentives, will lead to significant reductions in energy demand and hence in greenhouse gas emissions.     

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.     

Achieving low-carbon urban passenger transport in China: Insights from the heterogeneous rebound effect

The rapid increase in energy consumption and carbon emissions in China's passenger transportation sector threatens both the environment and the nation's energy security. Energy efficiency improvements, leading to lower fuel consumption, are therefore of considerable interest to policymakers trying to achieve low-carbon travel. However, it is well established that higher miles per gallon efficiencies can, by reducing the costs of travel, lead to some level of increased personal travel: the so-called ‘rebound effect’. This paper describes an empirical study to measure the size and also the variability in this effect at the provincial level and what this variability implies for a carbon tax policy. This rebound effect is quantified using a two-stage Almost Ideal Demand System (AIDS) model. A backfire effect (i.e. the rebound is ≫100%) is observed in urban passenger transport, with disparities in the size of the rebound effect ranging from 114% to 153% among China's provinces. The differences in economic development as well as related differences in consumers' behavior, especially in the behavior of “marginal consumers”, have contributed to this heterogeneity, with a larger carbon tax (more than 110Yuan/tonne) needed in richer provinces such as Jiangsu, Zhejiang, Guangdong and Fujian in order to bring about similar levels of carbon reductions nationwide.     

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.     

Reform of refined oil product pricing mechanism and energy rebound effect for passenger transportation in China

Improving energy efficiency is the primary method adopted by the Chinese government in an effort to achieve energy conservation target in the transport sector. However, the offsetting effect of energy rebound would greatly reduce its real energy-saving potentials. We set up a Linear Approximation of the Almost Ideal Demand System Model (LA-AIDS model) to estimate the rebound effect for passenger transportation in China. Real energy conservation effect of improving energy efficiency can also be obtained in the process. The result shows that the rebound effect is approximately 107.2%. This figure signifies the existence of ‘backfire effect’, indicating that efficiency improvement in practice does not always lead to energy-saving. We conclude that one important factor leading to the rebound effect, is the refined oil pricing mechanism. China's refined oil pricing mechanism has been subjected to criticism in recent years. The results of simulation analysis show that the rebound could be reduced to approximately 90.7% if the refined oil pricing mechanism is reformed. In this regard, we suggest further reforms in the current refined oil pricing mechanism.     

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.     

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.     

The rebound effect,gender and social justice: A case study in Germany

Energy efficiency increases are essential in reducing energy consumption and CO₂ emissions. Policy is therefore rightly concerned about rebound effects, which cause energy and CO₂ emission reductions to be less than anticipated. A policy dilemma is emerging in that less economically privileged groups tend to show the highest rebound effects. Some studies suggest policymakers may therefore be reluctant to support energy efficiency upgrades among such groups. This paper argues this is based on a misunderstanding of the conceptual structure of the rebound effect. Firstly, a mathematical analysis confirms that the rebound effect is merely a comparison of proportions, not a measure of absolute levels of energy consumption, which are the real cause of increased CO₂ emissions. Secondly, an empirical study of commute distances in North-Rhine-Westphalia, Germany’s largest state, reveals that female commuters show considerably higher rebound effects than male commuters, both in time and cross-sectional analyses. However, male commuters consume the most energy and produce the most CO₂ emissions, by every measure. This resonates with recent studies showing the same disjunction between rebound effects and absolute consumption, in home heating among poorer and wealthier households. Policy needs to focus on absolute consumption levels and be cautious in interpreting rebound effects.     

Empirical evidence of direct rebound effect in Indian two-wheeler sector

The transport sector is the main contributor to the greenhouse gas emissions in India. The rise in atmospheric pollution due to greenhouse gases has triggered the energy efficiency improvement policy in the Indian automotive sector. The extent of success of the energy efficiency improvement policy in any sector is substantially influenced by the phenomenon of “rebound effect”. The present study is aimed at seeking for the existence of direct rebound effect and its stability over time in two-wheeler transport sector in India using aggregate time series data. The study found out the presence of this effect in the two-wheeler sector, and it experiences a partial rebound of 25.5%. The direct rebound effect was found to be declining over time which is in line with the Greene (Energy Policy, 41, 14–28, 2012) and Small and Van Dender ( Energy Journal, 28(1), 25–51, 2007) models. The rebound effect existence in the two-wheeler sector should be considered during the development and implementation of energy efficiency related policies in the Indian transport sector in order to reap the maximum benefits out of these policies in the future.     

The impacts of removing energy subsidies on economy-wide rebound effects in China: An input-output analysis

Facing with the increasing contradiction of economic growth, energy scarcity and environmental deterioration, energy conservation and emissions abatement have been ambitious targets for the Chinese government. Improving energy efficiency through technological advancement is a primary measure to achieve these targets. However, the existence of energy rebound effects may completely or partially offset energy savings associated with technological advancement. This paper adopted a modified input-output model to estimate the economy-wide energy rebound effects across China's economic sectors with the consideration of energy subsidies. The empirical results show that the aggregate rebound effect of China is about 1.9% in 2007–2010, thus technological advancement significantly restrains energy consumption increasing. Removing energy subsidies will cause the aggregate rebound effect declines to 1.53%. Specifically, removing subsidies for coal and nature gas can reduce the rebound effects signifcantly, while removing the subsidies for oil products has a small impact on rebound effect. The existence of rebound effects implies that technological advancement should be cooperated with energy price reform so as to achieve the energy saving target. In addition, the government should consider the diversity of economic sectors and energy types when design the reform schedule.     

Energy rebound effect in China's Industry: An aggregate and disaggregate analysis

Considering the crucial role of industrial sectors in energy conservation, this paper investigates the impact of output growth on energy consumption in China's industrial sectors with an index decomposition model and the energy rebound effect in the industrial sectors with a panel data model using the annual data during 1994–2012. The empirical results indicate that: first, industrial output growth is proved to be the major factor in promoting industrial energy consumption, while energy intensity reduction and structure shifts across industrial sub-sectors play the dominant roles in slowing down industrial energy consumption. Second, there does exist energy rebound effect in China's aggregate Industry, which ranges from 20% to 76% during 1995–2012 (or 39% on average). In particular, the energy rebound effect in Manufacturing is relatively smaller during the sample period (i.e., 28% on average). Finally, the energy rebound effect in both China's aggregate Industry and Manufacturing exhibit an overall decreasing trend over time.     

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%.     

Estimation of global rebound effect caused by energy efficiency improvement

Rebound effect refers to the phenomenon that the actual reduction in energy use and emissions is less than the expected reduction caused by an energy efficiency improvement due to induced behavior adjustment of relevant economic agents. This article studies the global rebound effects on energy use and related emissions caused by an energy efficiency improvement. We adopt a global computable general equilibrium (CGE) model to design a scenario of energy efficiency improvement, which is compared to a business-as-usual (BAU) scenario to identify the global rebound effect. Our results show very large rebound effect on energy use (70%) and related emissions (90%) in 2040 at the global level with regional and sectoral differences. Important determinants, among others, are induced labor movement among economic activities and labor supply, and substitution elasticity between energy and other goods. Labor mobility has a marked impact on both rebound effects and on fuel mix. The global rebound effect is still considerable even with a low substitution elasticity between energy and other goods. The effect of capital accumulation over time contributes marginally to the global rebound effect as it is utilized to promote economic growth by using energy input more efficiently.     

Measuring energy rebound effect in the Chinese economy: An economic accounting approach

Estimating the magnitude of China's economy-wide rebound effect has attracted much attention in recent years. Most existing studies measure the rebound effect through the additional energy consumption from technological progress. However, in general technological progress is not equivalent to energy efficiency improvement. Consequently, their estimation may be misleading. To overcome the limitation, this paper develops an alternative approach for estimating energy rebound effect. Based on the proposed approach, China's economy-wide energy rebound effect is revisited. The empirical result shows that during the period 1981–2011 the rebound effects in China are between 30% and 40%, with an average value of 34.3%.     

Economic analysis of the energy-efficient household appliances and the rebound effect

Many strategies, such as improving energy efficiency, were identified as solutions to reduce energy consumption and carbon emissions. Nonetheless, the presence of a rebound effect could lead to a decrease in potential energy savings and carbon reductions resulting from technological advances in energy consumption. This study focuses on direct and indirect rebound effects on households’ behavior. We examine the situation where consumers demand two types of energy services and explore how their choices are affected by changes in the efficiency of providing these services—and, importantly, the consequent implications for energy use. We employ a (narrowly construed) general equilibrium methodology in an attempt to provide a complete picture of the interactions in play in a theoretically confined setting. We limit the general equilibrium problem to two categories of energy appliances but include consideration of the production side of the equation and consequent budget implications, thus “closing” the system in a general equilibrium sense. We find that rebound magnitudes (both indirect and direct) are large.     

Economy-wide estimates of energy rebound effect: Evidence from China's provinces

The ongoing debate on the magnitude of China's economy-wide energy rebound effect (RE) entails further investigations not only with more details, but also with more credible methods. In this study, a modified two-stage approach, which could avoid methodological issues regarding RE estimation, is applied to estimate macroeconomic RE with a data panel of 30 provinces in China during the period 1997–2015. In particular, in order to comprehensively measure energy efficiency, we construct a dynamic energy efficiency indicator which considers not only the static efficiency of energy use but also the technical change regarding energy usage. Using dynamic panel data models, we estimate the elasticity of energy consumption with respect to energy efficiency which directly links to the measurement of RE. The short-run and long-run estimates of RE are reported, and the 95% confidence interval was computed for each sample based on the nonparametric bootstrap method to further analyze the macroeconomic RE of different regions. Results indicate that the average RE of all provinces is 88.55% in the short run, and the average long-run RE is 77.50%; the RE in the developed eastern region continuously decreased, while RE in the western region increased to be the largest during the research period.     

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.     

Supply elasticity matters for the rebound effect and its impact on policy comparisons

We develop a model of the rebound effect which explicitly accounts for both the demand and supply sides of the energy sources. We consider a transportation sector originally using a “dirty” (fossil) fuel and examine the relative effectiveness of alternative policies: efficiency improvements in the dirty fuel technology sector (e.g., CAFE standards) and technology shifts by partial adoption of a new clean technology (e.g., low-carbon fuel standards). The model generates endogenous equilibrium quantities and prices for the dirty and clean fuels. We characterize the magnitude of the rebound effect as a function of demand and supply elasticities and use the equilibrium values to compare policy options. When the supply of the dirty fuel is inelastic, we find that introducing a new technology with non-zero emissions may actually increase the total level of emissions, similar to the leakage effect. A technology shift policy can perform better than an efficiency improvement policy in the dirty fuel sector only when the dirty fuel supply is sufficiently elastic, the emission intensity of the new technology very low, and the technology shift is greater than a threshold value. Using data for gasoline (as a proxy for the dirty technology) and several other cleaner technologies, we show that these conditions are satisfied by a hypothetical zero-emission technology, but not by electric vehicles using the average US generation mix or the current US corn based E85. Our results demonstrate the importance of accounting for the supply side in estimating the magnitude of the rebound effect and its impact on fuel consumption in a large-scale policy implementation.