When Power Saving Harms the Climate

Abstract

Governments around the globe embrace "energy efficiency" to address climate change. For example, the European Union’s "2030 Climate and Energy Framework" explicitly links the pledge to cut greenhouse gas emissions by 40% until 2030 (from 1990 levels) to the goal of a 32.5% improvement of energy efficiency by the same year (from 2007 levels). A 32.5% boost of energy efficiency is assumed to result in a 32.5% drop in energy consumption and carbon emissions. This reasoning is flawed.

Keywords: energy policy, climate policy, greenhouse gas emissions, cap-and-trade, energy efficiency, carbon leakage, rebound effect, backfire effect, general equilibrium

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