The rebound effect: Microeconomic definitions, limitations and extensions

The rebound effect results in part from an increased consumption of energy services following an improvement in the technical efficiency of delivering those services. This increased consumption offsets the energy savings that may otherwise be achieved. If the rebound effect is sufficiently large it may undermine the rationale for policy measures to encourage energy efficiency.The nature and magnitude of the rebound effect is the focus of long-running dispute with energy economics. This paper brings together previous theoretical work to provide a rigorous definition of the rebound effect, to clarify key conceptual issues and to highlight the potential consequences of various assumptions for empirical estimates of the effect. The focus is on the direct rebound effect for a single energy service — indirect and economy-wide rebound effects are not discussed.Beginning with Khazzoom's original definition of the rebound effect, we expose the limitations of three simplifying assumptions on which this definition is based. First, we argue that capital costs form an important part of the total cost of providing energy services and that empirical studies that estimate rebound effects from variations in energy prices are prone to bias. Second, we argue that energy efficiency should be treated as an endogenous variable and that empirical estimates of the rebound effect may need to apply a simultaneous equation model to capture the joint determination of key variables. Third, we explore the implications of the opportunity costs of time in the production of energy services and highlight the consequences for energy use of improved ‘time efficiency’, the influence of time costs on the rebound effect and the existence of a parallel rebound effect with respect to time. Each of these considerations serves to highlight the difficulties in obtaining reliable estimates of the rebound effect and the different factors that need to be controlled for. We discuss the implications of these findings for econometric studies and argue that several existing studies may overestimate the magnitude of the effect.     

The rebound effect: An evolutionary perspective

The rebound effect presents a major flaw in to energy conservation policies that aim to reduce energy consumption through energy efficiency development. Economics and energy related disciplines have thus far developed tools to measure such a phenomenon. This paper attempts to explain this seeming paradox using a thermodynamic-evolutionary theoretical framework in addition to the traditional economic approach. We here propose that evolutionary systems, such as biological or even economic systems, may rearrange themselves in a more complex fashion under the pressure of an increasing flux of energy, driven by the higher conversion rate of greater efficiency. Higher complexity, due to a greater energy density rate, counteracts the positive effects of energy efficiency. We investigated this hypothesis in the context of the road freight transport system and the productive structure. The qualitative analysis in this paper, further substantiated by figures, provides a link between the dynamics of production patterns and the effect of efficiency in the light of the macro-economic effects of increased energy demand. The analysis departs from a rigorous investigation of the actual energy efficiency evolution in the road freight transport system to develop through a survey of the subsequent worldwide economic revolution in the production system. It is then shown how outsourcing, the key feature of globalization, can be identified as the main source of traffic density growth. Finally, four paradigms are used to stress how the shift in the production system must be considered a leap in structural complexity that consequently serves to increase the frequency of components’ interactions.     

Energy‐Related Environmental Policy and Its Impacts on Energy Use in Asia

Economic growth in Asia has increased in the past three decades and has heightened energy demand, resulting in rising greenhouse gas emissions and severe air pollution. To tackle these issues, fuel switching and the deployment of renewables are essential. In the present paper, we discuss the environmental regulations, mainly carbon pricing, implemented in Asia and discuss their achievements. Empirical studies using microdata have shown that carbon pricing in Asia can reduce carbon emissions by promoting energy efficiency. At the macro level, we observe some evidence of fuel switching from coal to natural gas among major emitters. However, more carbon pricing is necessary in Asia if we aim for the decarbonization of the economy.     

Modeling the rebound effect in two manufacturing industries

The rebound effect refers to the phenomenon that energy savings from improvements in energy efficiency are lower than expected due to unintended second-order effects. Grasping specific mechanisms related to the rebound effect requires a good understanding of interactions between heterogonous agents on multiple markets. Otherwise, policies aimed at reducing energy use may render counter-expected and unforeseen consequences. In this paper, we propose a formal model, where technological change results from interactions on two markets: between consumers and producers in the market for final goods, and heterogeneous power plants in the electricity market. The analysis provides insights to the role of technological change, supply–demand coevolution, and status-driven consumption in explaining the rebound effect. The model is employed to compare effectiveness of economic policies aimed at reducing carbon emissions associated with production of consumer goods, namely: a tax on electricity and ‘nuclear obligations’ to produce ten percent of electricity from nuclear energy.     

Climate policy in Western Europe and avoided costs of air pollution control

Abatement of CO₂ emissions will be accompanied by reduced air pollutant emissions such as particulate matter (PM), SO₂, and NO_x. This, in turn, will reduce the need for end of pipe (EOP) pollution control technologies to meet future air quality targets. This dynamic could put more stringent air quality goals within reach, and increase the political feasibility of climate policy. This paper presents a CGE model that has been modified to include the emissions and EOP abatement of PM, SO₂, and NO_x from stationary sources in the EU-17. Emissions of pollutants are modeled as fixed-factor complementary inputs to their associated source. Abatement in each sector is modeled as a substitution between the pollutants and discrete abatement technologies, each of which is sector-specific and characterized by a marginal abatement cost and technical capacity constraint. Scenarios are run to 2020, to assess the costs and co-benefits of simultaneous air quality and climate policies. We find that under the Kyoto Protocol in 2010, the welfare cost of pollution control is reduced by 16% compared to the baseline, effectively offsetting the cost of CO₂ abatement by 15%. The co-benefit results depend heavily on policy choices, and their magnitude relative to total costs is likely to decline as greenhouse targets become more ambitious. In our scenarios, pollution control cost savings range from 1.3 to 20% in 2020, yielding a climate cost offset range of 0.2 to 3.9%. The CO₂ credit imports allowed by the EU via the Clean Development Mechanism (CDM) offer a total savings of $9.7bn in 2020, but only need to be compensated by an additional $0.3–0.4bn in domestic pollution control from stationary sources.     

Do increases in energy efficiency improve environmental quality and sustainability?

Governments world-wide increasingly see energy efficiency as an important aspect of sustainability. However, there is a debate in the literature as to whether the impact of improved energy efficiency on reducing energy use might be partially, or more than wholly, offset through “rebound” and “backfire” effects. This paper clarifies the theoretical conditions under which such effects would occur and explores their likely significance using a computable general equilibrium (CGE) model of the Scottish economy. We find that for Scotland a general improvement in energy efficiency in the production sectors of the economy initially produces rebound effects that eventually grow into backfire. Energy use ultimately increases in response to an efficiency gain and the ratio of GDP to CO₂ emissions falls. The economic factors underpinning rebound effects are straightforward: energy efficiency improvements result in an effective cut in energy prices, which produces output, substitution, competitiveness and income effects that stimulate energy demands. However, the presence of strong rebound or even backfire does not mean that efficiency-enhancing policies are irrelevant: rather it suggests that such policies operating alone are insufficient to generate environmental improvements. The implication is that a co-ordinated portfolio of energy policies is required.     

Optimal containment and policy differentiation under unilateral climate policy

Abstract Without a broad international agreement, climate policy is less effective, owing to carbon leakage. We investigate whether this negative effect can be addressed by partially containing the policy’s effects to intermediate goods sectors, such as electricity or transportation services. We use a three‐sector model to study a policy that taxes emissions caused by intermediate goods production while subsidizing the intermediate good. We characterize the optimal containment policy for combating carbon leakage and show that it complements the concept of policy differentiation.     

Transition of the Chinese Economy in the Face of Deep Greenhouse Gas Emissions Cuts in the Future

China joined the Paris Agreement, and the global 2°C and 1.5°C warming targets will be supported by China. In order to achieve these targets, China's CO₂ emissions need to be cut deeply by 2050. The present paper presents studies from the integrated policy assessment model for China (IPAC) team about the impact on China's economic development of deep cuts in greenhouse gas (GHG) emissions, in order to realize the Paris climate change targets. With the requirement of deep cuts in GHG emissions in China, China's economic development will also be impacted in moving toward a low‐carbon or zero‐carbon emission‐based economy by 2050. This means the Chinese economy needs a strong transition over the next three decades, a relatively short time. All sectors in the economy need to seek ways to reduce GHG emissions, and this could change activities, industry processes and technologies in order to make the deep cuts in GHG emissions happen. This is the meaning of the economic transition toward to a low‐carbon economy. The findings of the present paper include: a significant transition in the energy supply sector; a high rate of electrification in all end‐use sectors; and a technology transition in the transport sector. Transitions will also occur in the traditional industrial sectors, including steel making, cement manufacture, and the chemical sector. The availability of low‐cost renewable energy could change the allocation of industries, which could potentially have a strong impact on regional economic development. Deep cuts in CO₂ emissions in China need not be a burden for economic development, as the IPAC results show there will be a more than 1.5% increase of gross domestic product by 2050 in the deep cut scenario compared with the baseline scenario.     

Climate Change Taxes and Energy Efficiency in Japan

In 2003 Japan proposed a Climate Change Tax to reduce its CO₂ emissions to the level required by the Kyoto Protocol. If implemented, the tax would be levied on fossil fuel use and the revenue distributed to encourage the purchase of energy efficient equipment. Analysis using the MIT Emissions Prediction and Policy Analysis (EPPA) model shows that this policy is unlikely to bring Japan into compliance with its Kyoto target unless the subsidy encourages improvement in energy intensity well beyond Japan’s recent historical experience. Similar demand-management programs in the US, where there has been extensive experience, have not been nearly as effective as they would need to be to achieve energy efficiency goals of the proposal. The Tax proposal also calls for limits on international emission trading. We find that this limit substantially affects costs of compliance. The welfare loss with full emissions trading is 1/6 that when Japan meets its target though domestic actions only, the carbon price is lower, and there is a smaller loss of energy-intensive exports. Japan can achieve substantial savings from emissions trading even under cases where, for example, the full amount of the Russian allowance is not available in international markets.     

能源回弹效应下高碳产业低碳转型过程中的技术突变性

考虑能源回弹效应下，分析高碳产业低碳技术突变技术门槛，发现技术碳减排存在由量变到质变的门槛效应，另外还发现能源回弹对门槛效应具有显著影响。运用Hansen门限面板模型、结合CD生产函数的能源回弹模型发现：①不考虑能源回弹效应，高碳产业低碳化过程中的技术突变存在两个门槛；②考虑能源回弹作用，将减少为一个门槛，并且将延长高碳产业完成低碳技术突变所需时间。因此，为加快高碳产业低碳技术突变，有效减少碳排放，一方面应缓解能源回弹效应的影响，对能源回弹效应较大的高碳产业采取实时监控，对能源回弹较小的高碳产业采取定期检查和不定期抽检方式监控；货币政策、财政政策和产业政策相互配合，在高碳产业拉动经济增长的同时，最大限度控制能源回弹效应。另一方面，市场手段和政府职能双管齐下，协助企业低碳技术升级和设备改造，优化税收结构，弥补低碳技术升级导致的负外部性，完善高碳产业转移或市场退出机制。     

Estimating direct and indirect rebound effects for U.S. households with input–output analysis. Part 2: Simulation

This is the second part of a two-part paper that integrates economic and industrial ecology methods to estimate the indirect rebound effect from residential energy efficiency investments. We apply the model developed in part one to simulate the indirect rebound, given an estimate of the direct rebound, using a 2002 environmentally-extended input–output model and the 2004 Consumer Expenditure Survey (in 2002$) for the U.S. We find an indirect rebound of 5–15% in primary energy and CO₂e emissions, assuming a 10% direct rebound, depending on the fuel saved with efficiency and household income. The indirect rebound can be as high as 30–40% in NO_x or SO₂ emissions for efficiency in natural gas services. The substitution effect modeled in part one is small in most cases, and we discuss appropriate applications for proportional or income elasticity spending assumptions. Large indirect rebound effects occur as the U.S. electric grid becomes less-carbon intensive, in households with large transportation demands, or as energy prices increase. Even in extreme cases, there is limited evidence for backfire, or a rebound effect greater than 100%. Enacting pollution taxes or auctioned permits that internalize the externalities of energy use would ensure that rebound effects unambiguously increase consumers' welfare.     

A multivariate time series analysis of energy consumption,real output and pollutant emissions in a developing economy: New evidence from Nepal

Mountain economies will have to play a central role in attaining the global pursuit of green economic growth as crucial bearers of ecosystems goods and services. However, these economies are not adequately represented in the development policy debates in spite of their fundamental importance towards global sustainable development. This study examines the inter relationships between energy consumption, output and carbon emissions in a developing mountainous economy using an augmented Vector Autoregression model. Time-series data over the period 1975–2013 is studied applying a multivariate framework using population and gross fixed capital formation as additional variables for Nepal. Testing for Granger causality between integrated variables based on asymptotic theory reveals a long-run unidirectional Granger causality running from GDP to energy consumption, and a unidirectional Granger causality running from carbon emissions to GDP. We suggest that the government of Nepal can address energy poverty by accelerating the adoption energy conservation policies such as rationing energy consumption and energy efficiency improvements to narrow the energy supply-demand gap. The opportunity to promote the uptake of decentralised off-grid renewable technologies in remote areas and the large scale development of hydropower at the national level also needs to be prioritized. Our results remain robust across different estimators and contributes to an emerging literature on the nexus relationships between energy consumption, income and carbon emissions in mountainous developing economies.     

How well do tree plantations comply with the twin targets of the Clean Development Mechanism? — The case of tree plantations in Tanzania

The Clean Development Mechanism (CDM) of the Kyoto Protocol is supposed to provide both carbon mitigation and poverty reduction. This article reports from a model based study of market related carbon leakage and poverty reduction in the wake of a CDM tree-planting project in Tanzania. A tree plantation was incorporated in a computable general equilibrium (CGE) model with income differentiated household segments. The study focused on sensitivity of carbon leakage and income distribution to different project ownerships and carbon premium allocations. It turned out that the project value in terms of carbon premium has clear shortcomings as indicator of induced GDP growth and poverty alleviation. The non-poor rural and urban households benefit considerably more than the poor households. However, rising household income in all domestic project ownership arrangements increases demand for food, raises use of fertilizer and crop yields. A carbon cycle module for agricultural land use was incorporated in the CGE model, showing an increased carbon sequestration in agricultural soil, representing a negative leakage through markets in the range of 60-120% of the certified emissions reductions as registered in the CDM tree plantation project.     

人工智能技术对碳排放的影响

随着新一轮科技革命和产业变革的深入推进，人工智能技术在应对气候变化方面扮演重要角色，并赋能“碳达峰、碳中和”目标的实现。利用2006—2019年中国内地省级面板数据，考察人工智能技术对碳排放的影响。研究发现：人工智能技术与碳排放之间呈倒U型关系，即当人工智能技术达到一定阈值后，其碳减排效应逐渐凸显；人工智能技术主要通过提高能源利用效率实现碳减排；在东部和西部地区，人工智能技术与碳排放之间存在显著倒U型关系，而在中部地区，人工智能技术对碳排放发挥持续促进作用。因此，在推进“双碳”目标过程中，需要以绿色低碳发展为目标开发人工智能技术，正确引导人工智能在碳减排领域的研发应用，针对不同区域实际制定差异化发展政策。     

Identifying the sources of energy use change: Multiple calibration decomposition analysis and structural decomposition analysis

Decomposition methodologies are requisite to identify the sources of changes in energy use or carbon dioxide emissions. This paper is an inquiry into the theoretical properties of such decomposition methodologies. The study first presents our new decomposition methodology – the Multiple Calibration Decomposition Analysis (MCDA) – as a tool for the investigation. Then, it theoretically reexamines an established decomposition methodology – the Structural Decomposition Analysis proposed by Casler and Rose (1998). Subsequently, the study empirically investigates the properties of both methodologies, applying them to an actual case: the changes in energy use and carbon dioxide emissions in Japan during the oil crises period, when the oil price had a significant influence on the economy. The result shows that understanding the theoretical properties of decomposition methodologies is essential for a precise interpretation of empirical results.     

Do environmental benefits matter? Evidence from a choice experiment among house owners in Germany

Residential buildings strongly contribute to global CO₂ emissions due to the high energy demand for electricity and heating, particularly in industrialised countries. Within the EU, decentralised heat generation is of particular relevance for future climate policy, as its emissions are not covered by the EU ETS. We conducted a choice experiment concerning energy retrofits for existing houses in Germany. In the experiment, the approximately 400 sampled house owners could either choose a modern heating system or an improved thermal insulation for their home. We used standard and mixed logit specifications to analyse the choice data. We found environmental benefits to have a significant impact on choices of heating systems. However, they played no role in terms of insulation choices. Based on the estimated mixed logit model, we further obtained willingness-to-pay (WTP) measures for CO₂ savings.     

Fuel Efficiency Improvements: Feedback Mechanisms and Distributional Effects in the Oil Market

We study the interactions between fuel efficiency improvements in the transport sector and the oil market, where the efficiency improvements are policy-induced in certain regions of the world. We are especially interested in feedback mechanisms of fuel efficiency such as the rebound effect, carbon leakage and the “green paradox”, but also the distributional effects for oil producers. An intertemporal numerical model of the international oil market is introduced, where OPEC-Core producers have market power. We find that the rebound effect has a noticeable effect on the transport sector, with the magnitude depending on the oil demand elasticity. In the benchmark simulations, we calculate that almost half of the energy savings may be lost to a direct rebound effect and an additional 10% to oil price adjustments. In addition, there is substantial intersectoral leakage to other sectors through lower oil prices in the regions that introduce the policy. There is a small green paradox effect in the sense that oil consumption increases initially when the fuel efficiency measures are gradually implemented. Finally, international carbon leakage will be significant if policies are not implemented in all regions; we estimate leakage rates of 35% or higher when only major consuming regions implement fuel economy policies. Non-OPEC producers will to a larger degree than OPEC producers cut back on its oil supply as a response to fuel efficiency policies due to high production costs.     

AGE analysis of the impact of a carbon energy tax on the Irish economy

A computable general equilibrium model with specific detail in taxation and energy use is developed in this paper to quantify the impact of the implementation of energy taxation to reduce carbon dioxide emissions in Ireland. Benchmark data combining physical energy and emissions data and economic data in the form of a Social Accounting Matrix (SAM) had to be compiled from various data sources, because energy and pollution accounts from the SEEA are not available for Ireland. We find that the reduction target for energy related CO₂ emissions in Ireland of 25.8% compared to 1998 levels can be achieved with a carbon energy tax of 10-15 euros per tonne of CO₂. Though fuel switching is important in meeting the target, this result is more sensitive to the possibilities for producers to substitute away from energy use. Welfare would fall but only by small percentages. Production and consumption patterns would change more significantly, with a shift in demand from fuels with a high emission factor to energy sources with a lower carbon-intensity and from energy to other commodities. This paper confirms that a carbon energy tax leads to greater emission reductions than an equivalent uniform energy tax. The latter has a stronger negative impact on the less polluting energy sectors whereas the carbon tax greatly stimulates the use of renewable energy and reduces the use of peat and coal. The new SAM, the model and the application to energy taxes contribute to a better informed debate on environmental policy in Ireland.     

A multi-factor efficiency perspective to the relationships among world GDP, energy consumption and carbon dioxide emissions

Most of the research articles on climate change study the relationships between economic growth, and, carbon dioxide (CO₂) emission or energy consumption separately for analyzing the impacts of economic growth and energy consumption on global carbon dioxide emissions. In this paper, the linkages among CO₂ emissions, Gross Domestic Product (GDP) growth and energy consumption are studied simultaneously using Data Envelopment Analysis (DEA). The time period considered for the study is 1980-2001. The results show that world in the year 1980 was the most efficient in achieving the highest economic growth, emitting least carbon dioxide for a given level of energy consumption for that year. The efficiency index reduced in the next 8 years, fluctuated with a declining trend for the next 7 years, and began to rise from 1996 till 2001. The model is further extended in this paper for technology forecasting to identify the links between energy consumption and carbon dioxide emissions for achieving projected levels of GDP under two different assumptions on efficiency index. It has been identified using the forecasting model that, when the carbon dioxide emissions are restricted to the levels emitted in the year 1990 and when the efficiency index for the year 2025 is assumed to be at the level registered for the year 1980 (highest value), the non-fossil energy consumption needed to meet the GDP level projected for 2025 will be much smaller (35.46 quadrillion Btu for the reference GDP) than the values actually recorded in the year 1990 (44.59). However, the non-fossil energy consumption in 2025 (118.8) increases much more than the actual recorded in the year 1990 when the efficiency index in 2025 is assumed to be at the level registered for the year 1990.     

Implications of incorporating domestic margins into analyses of energy taxation and climate change policies

In most applied general equilibrium (AGE) analyses, the domestic transportation, wholesaling, and retailing services that facilitate the flow of goods and services from producers to consumers are not identified by commodity or use. Because the margins on energy commodities can be substantial, ignoring these domestic margins has important consequences when analyzing the impacts of policies designed to limit greenhouse gas emissions. This paper incorporates domestic trade and transport margins into the GTAP-E model, which has previously been used to analyze climate change policies. Models that do not explicitly incorporate domestic margins over-estimate the reduction in CO₂ emissions from a given carbon tax or under-estimate the level of a carbon tax needed to achieve a specific abatement target when domestic margins are fixed or when the carbon tax is treated as a consumption tax with variable domestic margins. However, this result can be reversed when the carbon tax is treated as an output tax with variable domestic margins.