General Equilibrium Rebound from Energy Efficiency Innovation
University of Arizona Department of Economics Working Paper 14-02
40 Pages Posted: 1 Jun 2014 Last revised: 18 Oct 2018
Date Written: October 10, 2018
Energy efficiency improvements "rebound" when economic responses undercut their direct energy savings. I show that general equilibrium channels typically amplify rebound by making consumption goods cheaper but typically dampen rebound by increasing the cost of non-energy inputs to production. Improvements in energy efficiency are especially likely to increase total energy use when they arise in the energy supply sector because they make energy inputs cheaper in all other sectors. When energy and non-energy inputs are substitutes (complements), innovators often direct research efforts towards those consumption good sectors where improvements in efficiency are especially likely to increase (decrease) total energy use.
Keywords: factor productivity, factor intensity, factor bias, efficiency, rebound, backfire, substitution
JEL Classification: D58, O31, O33, Q41
Suggested Citation: Suggested Citation