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Environmental rebounds/backfires: Macroeconomic implications for the promotion of environmentally-friendly products

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  • Chang, Juin-Jen
  • Wang, Wei-Neng
  • Shieh, Jhy-Yuan

Abstract

This paper develops a dynamic two-good (clean and dirty goods), two-sector model to explore the implications of the macroeconomic environmental rebound/backfire effect for environmentally-friendly product promotions on not only the demand side (a subsidy on the clean-good consumption), but also the supply side (a technology promotion in the clean-good production). The macroeconomic environmental rebound/backfire is decomposed into three effects – the substitution, wealth, and sectoral reallocation effects. We show that the steady-state pollution stock exhibits a U-shaped relationship with either demand-side or supply-side green promotions. Our calibrated result indicates that in terms of pollution, the macroeconomic rebound effectfor the economy as a whole appears to be substantial. More pronounced rebound effects are present when the elasticity of substitution between the clean- and dirty-good consumption is lower, the labor supply is more elastic, the environmental efficiency of clean goods is lower, and the technology level in the clean-good production is higher. We also show that a pollution rebound can result in a social welfare improvement, implying that the rebound effect somewhat improves economic efficiency, and so policies aimed at mitigating the rebound effect may be counterproductive from a welfare perspective.

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  • Chang, Juin-Jen & Wang, Wei-Neng & Shieh, Jhy-Yuan, 2018. "Environmental rebounds/backfires: Macroeconomic implications for the promotion of environmentally-friendly products," Journal of Environmental Economics and Management, Elsevier, vol. 88(C), pages 35-68.
  • Handle: RePEc:eee:jeeman:v:88:y:2018:i:c:p:35-68
    DOI: 10.1016/j.jeem.2017.09.004
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    Cited by:

    1. Fullerton, Don & Ta, Chi L., 2020. "Costs of energy efficiency mandates can reverse the sign of rebound," Journal of Public Economics, Elsevier, vol. 188(C).
    2. Zack Dorner, 2017. "A Behavioural Rebound Effect: Results from a laboratory experiment," Monash Economics Working Papers 17-17, Monash University, Department of Economics.
    3. Böhringer, Christoph & Rivers, Nicholas, 2021. "The energy efficiency rebound effect in general equilibrium," Journal of Environmental Economics and Management, Elsevier, vol. 109(C).
    4. Vaninsky, Alexander, 2018. "Energy-environmental efficiency and optimal restructuring of the global economy," Energy, Elsevier, vol. 153(C), pages 338-348.
    5. Wei Zhen & Quande Qin & Lei Jiang, 2022. "Heterogeneous Domestic Intermediate Input-Related Carbon Emissions in China’s Exports," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 81(3), pages 453-479, March.
    6. Duan, Yuwan & Ji, Ting & Lu, Yi & Wang, Siying, 2021. "Environmental regulations and international trade: A quantitative economic analysis of world pollution emissions," Journal of Public Economics, Elsevier, vol. 203(C).
    7. Rupayan Pal & Prasenjit Banerjee & Pratik Thakkar & A. M. Tanvir Hussain, 2022. "Green firm, brown environment," Manchester School, University of Manchester, vol. 90(2), pages 107-121, March.
    8. Colmenares, Gloria & Löschel, Andreas & Madlener, Reinhard, 2019. "The rebound effect and its representation in energy and climate models," MEP Discussion Papers 106, University of Münster, Münster Center for Economic Policy (MEP).

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    More about this item

    Keywords

    Rebound/backfire effects; Green consumption subsidy; Green technology promotion; The substitution; Wealth; Sectoral reallocation effects;
    All these keywords.

    JEL classification:

    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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