Does market-oriented reform increase energy rebound effect? Evidence from China's regional development

The actual energy savings from efficiency improvement may be less than expectations because of behavior response of micro-units, which is named as rebound effect. For producers, the magnitude of such response depends on the operating flexibility. However, the precise; role of operating flexibility in rebound effect is still unknown because of difficulties in measuring operating flexibility. Over the past four decades, the Chinese government has implemented a wide range of reforms aiming at market-oriented transition, which increase operating flexibility of micro-units. It is natural to be questioned whether China's market-oriented reform increases energy rebound effect. In this study, we aim to explore the impacts of marketization on rebound effect. Using partially linear functional-coefficient panel data model to avoid prior criteria in model specification and smooth the change of rebound effect across regions, we found that about 20% of originally expected energy conservation from energy efficiency improvement would be rebounded in 2013. Furthermore, the results demonstrate that in line with China's uneven reform across regions, coastal provinces such as Jiangsu, Zhejiang, Tianjin, Shanghai, Beijing, and Guangdong, have larger rebound effects, which may be connected with their larger operating flexibility. The findings can enhance our understanding on the mechanisms of rebound effect as behavior responses. We also anticipate our paper to provide knowledge and broader implications toward optimal policy designs alongside China's ongoing market-oriented reforms.