On the Rebound: Estimating Direct Rebound Effects for Australian Households

Reducing dependence on fossil fuels by decreasing energy consumption is a common environmental policy. One mechanism used to achieve this is to encourage increased energy efficiency. However, improving efficiency may have an opposing effect and cause an increase in energy consumption if the intensity of use changes. This phenomenon is known as the rebound effect. We estimate direct rebound effects for energy use in Australia based on household expenditure data. Our approach implements a new methodology developed by Hunt and Ryan (2014, 2015) that explicitly relates energy service use with energy source demand and directly incorporates efficiency. The results indicate that the rebound effect is high for electricity and gas use by Australian households. Due to the unique nature of our dataset, we can examine the influence of income and household composition on the rebound effect. We find that low-income households and households with young children have the largest rebound effects for electricity. The largest rebound effects for gas are estimated for households with young children and older persons. The relatively large rebound effects found here suggest that consumers gain from efficiency by improved energy services, thus policy targeting energy efficiency is not likely to be successful at reducing energy consumption.