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A Microeconomic Framework for Evaluating Energy Efficiency Rebound And Some Implications

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  • Severin Borenstein

Abstract

Improving the efficiency with which we use energy is often said to be the most cost-effective way to reduce energy use and greenhouse gas emissions. Yet, such improvements usually lower the cost of using energy-intensive goods and may create wealth from the energy savings, both of which lead to increased energy use, a "rebound'' effect. Disagreements about the magnitude of energy efficiency rebound are immense and play a central role in debates over the role energy efficiency can play in combating climate change. But these differing views seem to stem as much from the lack of a common framework for the analysis as from different estimates of key parameters. I present a theoretical framework that parses rebound into economic income and substitution effects. The framework captures the wide range of rebound effects that have been termed direct, indirect, re-spending, and transformational rebound, among others. It does not capture economy-wide impacts, such as the potential for a macroeconomic multiplier or the impact on energy prices, which I discuss separately. I then explore the implications of this framework for measurement of rebound, examining rebound from improved auto fuel economy and lighting efficiency. The illustrative calculations I carry out suggest that rebound that more than offsets the savings from energy efficiency investments (known as "backfire") is unlikely, but rebound is likely to significantly reduce the net savings from at least these energy efficiency improvements.

Suggested Citation

  • Severin Borenstein, 2013. "A Microeconomic Framework for Evaluating Energy Efficiency Rebound And Some Implications," NBER Working Papers 19044, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:19044
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    References listed on IDEAS

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    Cited by:

    1. Jacobson, Sarah, 2014. "Temporal spillovers in land conservation," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PA), pages 366-379.
    2. Rivers, Nicholas & Schaufele, Brandon, 2017. "Gasoline price and new vehicle fuel efficiency: Evidence from Canada," Energy Economics, Elsevier, vol. 68(C), pages 454-465.
    3. De Borger, Bruno & Mulalic, Ismir & Rouwendal, Jan, 2016. "Measuring the rebound effect with micro data: A first difference approach," Journal of Environmental Economics and Management, Elsevier, vol. 79(C), pages 1-17.
    4. Marius Claudy and Claus Michelsen, 2016. "Housing Market Fundamentals, Housing Quality and Energy Consumption: Evidence from Germany," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    5. Mills, Bradford & Schleich, Joachim, 2014. "Household transitions to energy efficient lighting," Energy Economics, Elsevier, vol. 46(C), pages 151-160.
    6. Morteza Taiebat & Austin L. Brown & Hannah R. Safford & Shen Qu & Ming Xu, 2019. "A Review on Energy, Environmental, and Sustainability Implications of Connected and Automated Vehicles," Papers 1901.10581, arXiv.org, revised Feb 2019.
    7. Pfaff, Matthias & Sartorius, Christian, 2015. "Economy-wide rebound effects for non-energetic raw materials," Ecological Economics, Elsevier, vol. 118(C), pages 132-139.
    8. Grimm, Michael & Peters, Jörg, 2014. "Beer, Wood, and Welfare," IZA Discussion Papers 8719, Institute of Labor Economics (IZA).
      • Grimm, Michael & Peters, Jörg, 2015. "Beer, Wood, and Welfare," Ruhr Economic Papers 538, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    9. Volland, Benjamin, 2017. "The role of risk and trust attitudes in explaining residential energy demand: Evidence from the United Kingdom," Ecological Economics, Elsevier, vol. 132(C), pages 14-30.
    10. Hymel, Kent M. & Small, Kenneth A., 2015. "The rebound effect for automobile travel: Asymmetric response to price changes and novel features of the 2000s," Energy Economics, Elsevier, vol. 49(C), pages 93-103.
    11. Michael Grimm & Jörg Peters, 2015. "Beer, Wood, and Welfare," Ruhr Economic Papers 0538, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    12. Benjamin Volland, 2016. "Efficiency in Domestic Space Heating: An Estimation of the Direct Rebound Effect for Domestic Heating in the U.S," IRENE Working Papers 16-01, IRENE Institute of Economic Research.
    13. Taiebat, Morteza & Stolper, Samuel & Xu, Ming, 2019. "Forecasting the Impact of Connected and Automated Vehicles on Energy Use: A Microeconomic Study of Induced Travel and Energy Rebound," Applied Energy, Elsevier, vol. 247(C), pages 297-308.
    14. Santarius, Tilman & Soland, Martin, 2018. "How Technological Efficiency Improvements Change Consumer Preferences: Towards a Psychological Theory of Rebound Effects," Ecological Economics, Elsevier, vol. 146(C), pages 414-424.
    15. Sylvain Weber & Mehdi Farsi, 2014. "Travel distance, fuel efficiency, and vehicle weight: An estimation of the rebound effect using individual data in Switzerland," IRENE Working Papers 14-03, IRENE Institute of Economic Research.
    16. Choi, Bongseok & Park, Wooyoung & Yu, Bok-Keun, 2017. "Energy intensity and firm growth," Energy Economics, Elsevier, vol. 65(C), pages 399-410.
    17. Kent M. Hymel & Kenneth Small, 2014. "The Rebound Effect for Automobile Travel:Asymmetric Response to Price Changes and Novel Features of the 2000s," Working Papers 141503, University of California-Irvine, Department of Economics.
    18. repec:zbw:rwirep:0538 is not listed on IDEAS
    19. 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).

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    JEL classification:

    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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