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A Microeconomic Framework for Evaluating Energy Efficiency Rebound and Some Implications

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  • Severin Borenstein

Abstract

Improving energy efficiency can lower the cost of using energy-intensive goods and may create wealth from the energy savings, both of which lead to increased energy use, a "rebound" effect. I present a theoretical framework that parses rebound into economic income and substitution effects. The framework leads to new insights about the magnitude of rebound when goods are not priced at marginal cost and when consumers are imperfect optimizers, as well as the role of technological progress in rebound. I then explore the implications of this framework with illustrative calculations for improved auto fuel economy and lighting efficiency. These suggest that rebound is unlikely to more than offset the savings from energy efficiency investments (known as "backfire"), but rebound likely reduces the net savings by roughly 10% to 40% from these energy efficiency improvements.

Suggested Citation

  • Severin Borenstein, 2014. "A Microeconomic Framework for Evaluating Energy Efficiency Rebound and Some Implications," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
  • Handle: RePEc:aen:journl:ej36-1-01
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    References listed on IDEAS

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    Cited by:

    1. Grimm, Michael & Peters, Jörg, 2014. "Beer, Wood, and Welfare," IZA Discussion Papers 8719, Institute of Labor Economics (IZA).
      • Grimm, Michael & Peters, Jörg, 2015. "Beer, Wood, and Welfare," Ruhr Economic Papers 538, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    2. Mills, Bradford & Schleich, Joachim, 2014. "Household transitions to energy efficient lighting," Energy Economics, Elsevier, vol. 46(C), pages 151-160.
    3. Marius Claudy and Claus Michelsen, 2016. "Housing Market Fundamentals, Housing Quality and Energy Consumption: Evidence from Germany," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    4. Jacobson, Sarah, 2014. "Temporal spillovers in land conservation," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PA), pages 366-379.
    5. repec:zbw:rwirep:0538 is not listed on IDEAS
    6. Morteza Taiebat & Austin L. Brown & Hannah R. Safford & Shen Qu & Ming Xu, 2019. "A Review on Energy, Environmental, and Sustainability Implications of Connected and Automated Vehicles," Papers 1901.10581, arXiv.org, revised Feb 2019.
    7. Rivers, Nicholas & Schaufele, Brandon, 2017. "Gasoline price and new vehicle fuel efficiency: Evidence from Canada," Energy Economics, Elsevier, vol. 68(C), pages 454-465.
    8. Hymel, Kent M. & Small, Kenneth A., 2015. "The rebound effect for automobile travel: Asymmetric response to price changes and novel features of the 2000s," Energy Economics, Elsevier, vol. 49(C), pages 93-103.
    9. Sylvain Weber & Mehdi Farsi, 2014. "Travel distance, fuel efficiency, and vehicle weight: An estimation of the rebound effect using individual data in Switzerland," IRENE Working Papers 14-03, IRENE Institute of Economic Research.
    10. Volland, Benjamin, 2017. "The role of risk and trust attitudes in explaining residential energy demand: Evidence from the United Kingdom," Ecological Economics, Elsevier, vol. 132(C), pages 14-30.
    11. Pfaff, Matthias & Sartorius, Christian, 2015. "Economy-wide rebound effects for non-energetic raw materials," Ecological Economics, Elsevier, vol. 118(C), pages 132-139.
    12. Michael Grimm & Jörg Peters, 2015. "Beer, Wood, and Welfare," Ruhr Economic Papers 0538, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    13. Benjamin Volland, 2016. "Efficiency in Domestic Space Heating: An Estimation of the Direct Rebound Effect for Domestic Heating in the U.S," IRENE Working Papers 16-01, IRENE Institute of Economic Research.
    14. Choi, Bongseok & Park, Wooyoung & Yu, Bok-Keun, 2017. "Energy intensity and firm growth," Energy Economics, Elsevier, vol. 65(C), pages 399-410.
    15. Colmenares, Gloria & Löschel, Andreas & Madlener, Reinhard, 2019. "The rebound effect and its representation in energy and climate models," CAWM Discussion Papers 106, University of Münster, Center of Applied Economic Research Münster (CAWM).
    16. Santarius, Tilman & Soland, Martin, 2018. "How Technological Efficiency Improvements Change Consumer Preferences: Towards a Psychological Theory of Rebound Effects," Ecological Economics, Elsevier, vol. 146(C), pages 414-424.
    17. Kent M. Hymel & Kenneth Small, 2014. "The Rebound Effect for Automobile Travel:Asymmetric Response to Price Changes and Novel Features of the 2000s," Working Papers 141503, University of California-Irvine, Department of Economics.
    18. De Borger, Bruno & Mulalic, Ismir & Rouwendal, Jan, 2016. "Measuring the rebound effect with micro data: A first difference approach," Journal of Environmental Economics and Management, Elsevier, vol. 79(C), pages 1-17.
    19. Taiebat, Morteza & Stolper, Samuel & Xu, Ming, 2019. "Forecasting the Impact of Connected and Automated Vehicles on Energy Use: A Microeconomic Study of Induced Travel and Energy Rebound," Applied Energy, Elsevier, vol. 247(C), pages 297-308.

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