The Rebound Effect and Energy Efficiency Policy

Abstract:

What do we know about the size of the rebound effect? Should we believe claims that energy efficiency improvements lead to an increase in energy use? This paper clarifies what the rebound effect is, and provides a guide for economists and policymakers interested in its magnitude. We describe how some papers in the literature consider the rebound effect from a costless exogenous increase in energy efficiency, while others examine the effects of a particular energy efficiency policy—a distinction that leads to very different welfare and policy implications. We present the most reliable evidence available quantifying the energy efficiency rebound, and discuss areas where estimation is extraordinarily difficult. Along these lines, we offer a new way of thinking about the macroeconomic rebound effect. Overall, the existing research provides little support for the so-called “backfire” hypothesis. Still, much remains to be understood, particularly relating to induced innovation and productivity growth.

Full text of working paper: “The Rebound Effect and Energy Efficiency Policy” (updated November 19, 2014)

Joint with: Kenneth Gillingham and David S. Rapson, revise & resubmit at Review of Environmental Economics and Policy.

Citation:

Gillingham, Kenneth, David S. Rapson, and Gernot Wagner. “The Rebound Effect and Energy Efficiency Policy.” E2e Working Paper WP-013, October 2014. RFF Discussion Paper 14-39, November 2014.