Residential energy efficiency and energy consumption: Why health matters?

This article shows that accounting for the growing interdisciplinary literature supporting the causality between energy efficiency and health and the empirical evidence re-assessing the importance of health on workforce productivity, could explain a part of the paradoxal relationship found between energy efficiency and energy consumption.We build a 2-period overlapping generations model where (i) residential energy inefficiency induces chronic disease for adults and bad health for elderly, (ii) workers' health has an effect of their labor productivity and (iii) energy efficiency is endogenously defined by individual's choices. This framework helps explain the rebound effect by identifying new channels through which energy efficiency affects energy use: notably, a general equilibrium effect driven by changes in savings and income, and a health expenditure channel related to the costs of illness. In particular, our findings suggest that the rebound effect may be amplified when the health impact on labor productivity is sufficiently strong, implying that, under certain conditions, improvements in energy efficiency can paradoxically lead to higher overall energy consumption.In policy terms, by showing that the link between energy efficiency and energy consumption is far from being just associated with technical conditions about preferences and/or production technology, our research emphasizes how crucial and complex are for governments the discussion and policy action dealing with the connection between energy conservation policies, health insurance system and growth.