Download this Paper Open PDF in Browser

General Equilibrium Rebound from Energy Efficiency Policies

University of Arizona Department of Economics Working Paper 14-02

39 Pages Posted: 1 Jun 2014 Last revised: 17 Nov 2016

Derek Lemoine

University of Arizona - Department of Economics

Date Written: October 27, 2016

Abstract

I study the general equilibrium implications of large-scale policies to improve energy efficiency, which are being implemented around the world to mitigate climate change. Energy efficiency policies "rebound" when economic responses undercut their direct energy savings. I develop an analytic general equilibrium framework that allows improvements in energy efficiency to affect output prices and factor prices. I show that general equilibrium channels typically amplify rebound and make it more likely that improvements in efficiency end up increasing total energy use. General equilibrium channels are likely to be especially problematic when sectors targeted for efficiency improvements have a large value share of energy. In these cases, ignoring general equilibrium channels can severely bias benefit-cost analyses in favor of energy efficiency policies.

Keywords: factor productivity, factor intensity, input share, value share, rebound, backfire, substitution

JEL Classification: D58, H23, O33, Q43, Q58

Suggested Citation

Lemoine, Derek, General Equilibrium Rebound from Energy Efficiency Policies (October 27, 2016). University of Arizona Department of Economics Working Paper 14-02. Available at SSRN: https://ssrn.com/abstract=2443593 or http://dx.doi.org/10.2139/ssrn.2443593

Derek Lemoine (Contact Author)

University of Arizona - Department of Economics ( email )

McClelland Hall
Tucson, AZ 85721-0108
United States

HOME PAGE: http://www.dereklemoine.com/

Paper statistics

Downloads
153
Rank
162,866
Abstract Views
812