Energy Efficiency Promotion Backfires Under Cap-and-Trade

23 Pages Posted: 16 Apr 2019 Last revised: 31 Aug 2020

See all articles by Johannes Jarke-Neuert

Johannes Jarke-Neuert

University of Hamburg - Center for Earth System Research and Sustainability (CEN)

Grischa Perino

University of Hamburg

Date Written: March 20, 2019

Abstract

Major climate-cum-energy policies and respective impact projections rest on the widespread belief that increased energy efficiency can be equated with savings in energy use and emissions. This belief is flawed. Due to the rebound effect emissions savings from energy efficiency improvements will be generally less than what is technically feasible, or even be reversed. By means of an analytical general equilibrium model we demonstrate the latter to be true in a case that is both stark and relevant: if electricity generation is subject to a cap-and-trade scheme with partial coverage, increased efficiency of electric devices leads unambiguously to increased carbon emissions. The result implies that a proper distinction between the energy rebound and the carbon rebound is warranted, and that public policy must carefully consider the interactions between energy efficiency promotion and carbon pricing.

Keywords: Energy policyClimate policyGreenhouse gas emissionsCap-and-trade, Energy efficiency, Carbon leakage, Rebound effect, Backfire effect, General equilibrium

JEL Classification: D58, H23, K32, Q48, Q54, Q58

Suggested Citation

Jarke-Neuert, Johannes and Perino, Grischa, Energy Efficiency Promotion Backfires Under Cap-and-Trade (March 20, 2019). Resource and Energy Economics, Vol. 62, 2020, Available at SSRN: https://ssrn.com/abstract=3356483 or http://dx.doi.org/10.2139/ssrn.3356483

Johannes Jarke-Neuert (Contact Author)

University of Hamburg - Center for Earth System Research and Sustainability (CEN) ( email )

Bundesstrasse 53
Hamburg, Hamburg 20146
Germany

Grischa Perino

University of Hamburg ( email )

Allende-Platz 1
Hamburg, 20146
Germany

HOME PAGE: http://sites.google.com/site/gperinosite/

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