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Catching on the Rebound: Why Price Elasticities are Generally Inappropriate Measures of Rebound Effects

Author

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  • Lester C Hunt

    (Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.)

  • David L Ryan

    (Department of Economics, University of Alberta, Edmonton, Canada.)

Abstract

Rebound effects occur when, due to behavioural responses by consumers to the resulting fall in the implicit price of energy services, energy efficiency improvements result in energy savings that are often less than those suggested by engineering calculations. In the absence of data on energy efficiency or on the energy services (such as heating or lighting) provided by the energy that is used to produce them, rebound effects are often estimated as the negative of own-price elasticities obtained from standard energy demand equations. Using a recently developed model of demand for energy services, which facilitates estimation of a much wider range of rebound effects than has been previously considered, this approach is shown to be inappropriate unless the energy demand equations are specified in a certain way, and even in that case, often only under somewhat heroic assumptions. Illustrative empirical analysis using UK time-series data indicates the extent to which rebound effects can differ from price elasticities.

Suggested Citation

  • Lester C Hunt & David L Ryan, 2014. "Catching on the Rebound: Why Price Elasticities are Generally Inappropriate Measures of Rebound Effects," Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) 148, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
  • Handle: RePEc:sur:seedps:148
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    File URL: https://repec.som.surrey.ac.uk/seeds/SEEDS148.pdf
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    References listed on IDEAS

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    Cited by:

    1. Hendrik Schmitz and Reinhard Madlener, 2020. "Direct and Indirect Energy Rebound Effects in German Households: A Linearized Almost Ideal Demand System Approach," The Energy Journal, International Association for Energy Economics, vol. 0(Number 5), pages 89-118.
    2. Martín Bordón Lesme & Jaume Freire-González & Emilio Padilla Rosa, 2021. "The direct rebound effect for two income groups: The case of Paraguay," Working Papers wpdea2103, Department of Applied Economics at Universitat Autonoma of Barcelona.
    3. Hunt, Lester C. & Ryan, David L., 2015. "Economic modelling of energy services: Rectifying misspecified energy demand functions," Energy Economics, Elsevier, vol. 50(C), pages 273-285.
    4. Zack Dorner, 2017. "A Behavioural Rebound Effect: Results from a laboratory experiment," Monash Economics Working Papers 17-17, Monash University, Department of Economics.
    5. Chitnis, Mona & Sorrell, Steve, 2015. "Living up to expectations: Estimating direct and indirect rebound effects for UK households," Energy Economics, Elsevier, vol. 52(S1), pages 100-116.
    6. 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.
    7. 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.
    8. Nathan W. Chan & Kenneth Gillingham, 2015. "The Microeconomic Theory of the Rebound Effect and Its Welfare Implications," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 2(1), pages 133-159.
    9. Colmenares, Gloria & Löschel, Andreas & Madlener, Reinhard, 2019. "The rebound effect and its representation in energy and climate models," MEP Discussion Papers 106, University of Münster, Münster Center for Economic Policy (MEP).

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    More about this item

    Keywords

    Energy Services Demand; Modelling Rebound Effects.;

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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