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

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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: http://www.seec.surrey.ac.uk/Research/SEEDS/SEEDS148.pdf
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    References listed on IDEAS

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    1. Massimo Filippini & Lester C. Hunt, 2011. "Energy Demand and Energy Efficiency in the OECD Countries: A Stochastic Demand Frontier Approach," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 59-80.
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    7. Haas, Reinhard & Nakicenovic, Nebojsa & Ajanovic, Amela & Faber, Thomas & Kranzl, Lukas & Müller, Andreas & Resch, Gustav, 2008. "Towards sustainability of energy systems: A primer on how to apply the concept of energy services to identify necessary trends and policies," Energy Policy, Elsevier, vol. 36(11), pages 4012-4021, November.
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    Cited by:

    1. Schmitz, Hendrik & Madlener, Reinhard, 2017. "Direct and Indirect Energy Rebound Effects in German Households: A Linearized Almost Ideal Demand System Approach," FCN Working Papers 10/2017, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
    2. 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.
    3. 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.
    4. 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.
    5. Sylvain Weber & Mehdi Farsi, 2014. "Travel Distance and Fuel Efficiency: An Estimation of the Rebound Effect using Micro-Data in Switzerland," IRENE Working Papers 14-03, IRENE Institute of Economic Research.

    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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