Working Paper: NBER ID: w25696
Authors: Don Fullerton; Chi L. Ta
Abstract: Improvements in energy efficiency reduce the cost of consuming services from household cars and appliances and can result in a positive rebound effect that offsets part of the direct energy savings. We use a general equilibrium model to derive analytical expressions that allow us to compare rebound effects from a costless technology shock to those from a costly energy efficiency mandate. We decompose each total effect on the use of energy into components that include a direct efficiency effect, direct rebound effect, and indirect rebound effect. We investigate which factors determine the sign and magnitude of each. We show that rebound from a costless technology shock is generally positive, as in prior literature, but we also show how a pre-existing energy efficiency standard can negate the direct energy savings from the costless technology shock – leaving only the positive rebound effect on energy use. Then we analyze increased stringency of energy efficiency standards, and we show exactly when the increased costs reverse the sign of rebound. Using plausible parameter values in this model, we find that indirect effects can easily outweigh the direct effects captured in partial equilibrium models, and that the total rebound from a costly efficiency mandate is negative.
Keywords: energy efficiency; rebound effect; general equilibrium model; energy policy
JEL Codes: D58; H23; Q48
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| costless technology shock (CTS) (O33) | positive rebound effect on energy use (Q43) |
| direct efficiency effect (DEE) (D61) | reduced energy use (Q41) |
| direct rebound effect (DRE) (C22) | increased total energy use (Q41) |
| indirect rebound effect (IRE) (H23) | increased total energy use (Q41) |
| real income rises from improved efficiency (O49) | demand for more energy services (Q41) |
| increasing stringency of energy efficiency standards (Q48) | negative rebound effects (D62) |
| costs associated with compliance (Q52) | reduce real income (E25) |
| negative income effects from stringent mandates (H31) | negative rebound effect (D62) |
| curvature of the cost function for energy efficiency improvements (D61) | conditions for negative rebound (C62) |