Costs of Energy Efficiency Mandates Can Reverse the Sign of Rebound

59 Pages Posted: 21 Mar 2019

See all articles by Don Fullerton

Don Fullerton

University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Chi Ta

University of Illinois at Urbana-Champaign

Multiple version iconThere are 2 versions of this paper

Date Written: 2019

Abstract

Improvements in energy efficiency can reduce costs of consuming services from cars and appliances and result in positive rebound that offsets part of the direct energy reduction. Our analytical general equilibrium model decomposes rebound into direct and indirect effects. A costless technology shock has positive rebound as in prior literature, but a pre-existing energy efficiency standard can negate direct energy savings from that shock. For increased stringency of energy efficiency standards, however, we show how income effects reduce energy use for both services and other goods. We show exactly when those increased costs imply negative total rebound.

JEL Classification: Q480

Suggested Citation

Fullerton, Don and Ta, Chi, Costs of Energy Efficiency Mandates Can Reverse the Sign of Rebound (2019). CESifo Working Paper No. 7550. Available at SSRN: https://ssrn.com/abstract=3357127

Don Fullerton (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
(217) 244-3621 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Chi Ta

University of Illinois at Urbana-Champaign ( email )

1408 W. Gregory Dr.
Urbana, IL 61801
United States

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