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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.

Suggested Citation

  • 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. Vaninsky, Alexander, 2018. "Energy-environmental efficiency and optimal restructuring of the global economy," Energy, Elsevier, vol. 153(C), pages 338-348.
    2. 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).

    More about this item

    Keywords

    Rebound/backfire effects; Green consumption subsidy; Green technology promotion; The substitution; Wealth; Sectoral reallocation effects;

    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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