When green technology adoption backfires: A theoretical analysis with heterogeneous internalization of environmental harm

Policies that promote green technology adoption are a central tool for reducing emissions, but efficiency improvements can induce rebound through higher post adoption usage. When this response is strong enough, total emissions increase, an outcome known as the backfire effect. We develop a theoretical model in which individuals differ in how strongly they internalize environmental harm, and we characterize adoption and usage as functions of this internalization, demand elasticities, and material incentives. The model delivers three policy relevant insights. First, we derive conditions under which the backfire effect arises and show that it occurs only for sufficiently low internalization individuals, who increase usage strongly when per unit costs fall. Second, increasing incentives to adopt greener technologies can generate aggregate backfire through selection if they induce relatively many low internalization types to adopt. Third, such adoption incentives need not be monotone in internalization, because low types value cost savings while high types value emission reductions, so intermediate types may have the weakest private incentive to adopt. This creates a targeting dilemma for policymakers: inducing adoption among emission reducing non-adopters without drawing in marginal adopters most prone to backfire.