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A computable general equilibrium analysis of the relative price sensitivity required to induce rebound effects in response to an improvement in energy efficiency in the UK economy

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  • Turner, Karen
Abstract
In recent years there has been extensive debate in the energy economics and policy literature on the likely impacts of improvements in energy efficiency. This debate has focussed on the notion of rebound effects. Rebound effects occur when improvements in energy efficiency actually stimulate the direct and indirect demand for energy in production and/or consumption. This phenomenon occurs through the impact of the increased efficiency on the effective, or implicit, price of energy. If demand is stimulated in this way, the anticipated reduction in energy use, and the consequent environmental benefits, will be partially or possibly even more than wholly (in the case of ‘backfire’ effects) offset. A recent report published by the UK House of Lords identifies rebound effects as a plausible explanation as to why recent improvements in energy efficiency in the UK have not translated to reductions in energy demand at the macroeconomic level, but calls for empirical investigation of the factors that govern the extent of such effects. Undoubtedly the single most important conclusion of recent analysis in the UK, led by the UK Energy Research Centre (UKERC) is that the extent of rebound and backfire effects is always and everywhere an empirical issue. It is simply not possible to determine the degree of rebound and backfire from theoretical considerations alone, notwithstanding the claims of some contributors to the debate. In particular, theoretical analysis cannot rule out backfire. Nor, strictly, can theoretical considerations alone rule out the other limiting case, of zero rebound, that a narrow engineering approach would imply. In this paper we use a computable general equilibrium (CGE) framework to investigate the conditions under which rebound effects may occur in the Scottish regional and UK national economies. Previous work has suggested that rebound effects will occur even where key elasticities of substitution in production are set close to zero. Here, we carry out a systematic sensitivity analysis, where we gradually introduce relative price sensitivity into the system, focusing in particular on elasticities of substitution in production and trade parameters, in order to determine conditions under which rebound effects become a likely outcome. We find that, while there is positive pressure for rebound effects even where (direct and indirect) demand for energy is very price inelastic, this may be partially or wholly offset by negative income and disinvestment effects, which also occur in response to falling energy prices.

Suggested Citation

  • Turner, Karen, 2008. "A computable general equilibrium analysis of the relative price sensitivity required to induce rebound effects in response to an improvement in energy efficiency in the UK economy," SIRE Discussion Papers 2008-20, Scottish Institute for Research in Economics (SIRE).
    • Handle: RePEc:edn:sirdps:33
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    Cited by:

    1. Turner, Karen, 2009. "Negative rebound and disinvestment effects in response to an improvement in energy efficiency in the UK economy," Energy Economics, Elsevier, vol. 31(5), pages 648-666, September.
    2. Janine De Fence & Nick Hanley & Karen Turner, 2009. "Do Productivity Improvements Move Us Along the Environmental Kuznets Curve?," Working Papers 0908, University of Strathclyde Business School, Department of Economics.
    3. Guerra, Ana-Isabel & Sancho, Ferran, 2010. "Rethinking economy-wide rebound measures: An unbiased proposal," Energy Policy, Elsevier, vol. 38(11), pages 6684-6694, November.
    4. Zimmermann, Michel & Vöhringer, Frank & Thalmann, Philippe & Moreau, Vincent, 2021. "Do rebound effects matter for Switzerland? Assessing the effectiveness of industrial energy efficiency improvements," Energy Economics, Elsevier, vol. 104(C).
    5. Anson, Sam & Turner, Karen, 2009. "Rebound and disinvestment effects in refined oil consumption and supply resulting from an increase in energy efficiency in the Scottish commercial transport sector," Energy Policy, Elsevier, vol. 37(9), pages 3608-3620, September.
    6. Sam Anson, 2009. "Rebound and disinvestment effects in oil consumption and supply resulting from an increase in energy efficiency in the Scottish commercial transport sector," Working Papers 0901, University of Strathclyde Business School, Department of Economics.
    7. Soo Jung Ha & Geoffrey Hewings & Karen Turner, 2008. "Econometric estimation of Armington import elasticities for regional CGE models of the Chicago and Illinois economies," Working Papers 0810, University of Strathclyde Business School, Department of Economics.
    8. Lecca, Patrizio & Swales, Kim & Turner, Karen, 2011. "An investigation of issues relating to where energy should enter the production function," Economic Modelling, Elsevier, vol. 28(6), pages 2832-2841.
    9. Turner, Karen & Hanley, Nick, 2011. "Energy efficiency, rebound effects and the environmental Kuznets Curve," Energy Economics, Elsevier, vol. 33(5), pages 709-720, September.
    10. Jaume Freire-González, 2019. "Does Water Efficiency Reduce Water Consumption? The Economy-Wide Water Rebound Effect," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 33(6), pages 2191-2202, April.
    11. Freire-González, Jaume & Ho, Mun S., 2022. "Policy strategies to tackle rebound effects: A comparative analysis," Ecological Economics, Elsevier, vol. 193(C).
    12. Dell’Anna, Federico, 2021. "Green jobs and energy efficiency as strategies for economic growth and the reduction of environmental impacts," Energy Policy, Elsevier, vol. 149(C).
    13. Johannes Ziesmer & Ding Jin & Sneha D Thube & Christian Henning, 2023. "A Dynamic Baseline Calibration Procedure for CGE models," Computational Economics, Springer;Society for Computational Economics, vol. 61(4), pages 1331-1368, April.
    14. G. Mandras & G. Garau, 2015. "Economy-wide rebound effects from an increase in efficiency in the use of energy: the Italian case," Working Paper CRENoS 201520, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.

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    More about this item

    Keywords

    CGE modelling; energy efficiency; rebound effects;
    All these keywords.

    JEL classification:

    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • R15 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Econometric and Input-Output Models; Other Methods
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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