Energy Efficiency and Local Macro Rebound Effects: Theory and Experimental Evidence from Rwanda

Abstract

Energy efficiency is a key component of climate policy. The rebound effect, which refers to increases in demand in response to the efficiency induced price reduction, potentially nullifies some of the energy savings from energy efficiency improvements. We study macro rebound effects after the introduction of energy efficient biomass cookstoves (EEBCs) in rural Sub- Sahara Africa. We develop a theoretical model of biomass supply and demand and empirically evaluate a governmental pilot project in Rwanda that randomly subsidized EEBCs at the village-level, leading to exogenous variation in adoption levels. We explore spillovers in consumption to non-adopters via price reactions on local village markets, which we call the local macro rebound effect. Our theoretical model and our empirical results demonstrate that equilibrium response effects can take different forms – depending on local context. We identify conditions that determine the shape and size of such effects.

Keywords: Energy efficiency, macro rebound effect, technology adoption, improved cooking

JEL Classification: R13, D12, O13, Q28