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A general equilibrium model of macroeconomic rebound effect: A broader view

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  • Rocha, Felipe Freitas da
  • Almeida, Edmar Luiz Fagundes de

Abstract

Economists recognize that energy efficiency improvements generate behavioral responses that reduce potential energy savings (rebound effect) and may even increase energy consumption (backfire). Much work has been done to explain rebound economics. Nevertheless, many of the important issues still do not have a clear answer, that is, under which circumstances the rebound is more powerful or weaker and whether the long-run effect is greater or less than the short-run effect. Furthermore, it is still unclear in which situations backfire is definitely a problem. In order to answer these questions, the article expands the Wei (2010) general equilibrium model, including any number of energy services and non-energy inputs and endogenizing the output price. Furthermore, in order to analyze the effects of a neutral technical change on energy consumption, a parameter of non-energy inputs productivity is also included. The analysis corrects some results presented in Wei (2010) and provides several new findings. Regarding the energy-augmenting technical change, the main findings are the importance of the energy supply and the use of more than one energy service in the model for the rebound size. Moreover, in the simplest models, the long-run rebound effect is greater than the short-run effect. Regarding the neutral technical change, it is highlighted that the use of homogeneous production functions generates backfire. Moreover, we find that backfire is definitely a problem in terms of welfare only in situations where energy consumption is based on highly polluting energies and where output is highly energy-intensive.

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  • Rocha, Felipe Freitas da & Almeida, Edmar Luiz Fagundes de, 2021. "A general equilibrium model of macroeconomic rebound effect: A broader view," Energy Economics, Elsevier, vol. 98(C).
    • Handle: RePEc:eee:eneeco:v:98:y:2021:i:c:s0140988321001377
    DOI: 10.1016/j.eneco.2021.105232
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