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Costs of Energy Efficiency Mandates Can Reverse the Sign of Rebound

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  • Fullerton, Don
  • Ta, Chi L.
Abstract
Improvements in energy efficiency reduce the cost of consuming services from household cars and appliances and can result in a positive rebound effect that offsets part of the direct energy savings. We use a general equilibrium model to derive analytical expressions that allow us to compare rebound effects from a costless technology shock (CTS) to those from a costly energy efficiency standard (EES). We decompose each total effect on the use of energy into a direct efficiency effect, direct rebound effect, and indirect rebound effect. We show which factors determine the sign and magnitude of each. Rebound from a CTS is generally positive, as in prior literature, but we also show how a pre-existing EES can negate the direct energy savings from the CTS – leaving only the positive rebound effect on energy use. Then we analyze increased stringency of an EES, and we show exactly when the increased costs reverse the sign of rebound. Using plausible parameter values in this model, we find that indirect effects can outweigh the direct effects captured in partial equilibrium models, and that the total rebound from a costly EES can be negative.
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Suggested Citation

  • Fullerton, Don & Ta, Chi L., 2019. "Costs of Energy Efficiency Mandates Can Reverse the Sign of Rebound," 2019 Annual Meeting, July 21-23, Atlanta, Georgia 291235, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea19:291235
    DOI: 10.22004/ag.econ.291235
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      by noreply@blogger.com (David Stern) in Stochastic Trend on 2021-04-04 21:39:00

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    Cited by:

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    7. Lemoine, Derek, 2020. "General equilibrium rebound from energy efficiency innovation," European Economic Review, Elsevier, vol. 125(C).
    8. Böhringer, Christoph & Rivers, Nicholas, 2021. "The energy efficiency rebound effect in general equilibrium," Journal of Environmental Economics and Management, Elsevier, vol. 109(C).
    9. Jared C. Carbone & Linda T.M. Bui & Don Fullerton & Sergey Paltsev & Ian Sue Wing, 2022. "When and How to Use Economy-Wide Models for Environmental Policy Analysis," Annual Review of Resource Economics, Annual Reviews, vol. 14(1), pages 447-465, October.
    10. Brockway, Paul E. & Sorrell, Steve & Semieniuk, Gregor & Heun, Matthew Kuperus & Court, Victor, 2021. "Energy efficiency and economy-wide rebound effects: A review of the evidence and its implications," Renewable and Sustainable Energy Reviews, Elsevier, vol. 141(C).
    11. J. Brusselaers & K. Breemersch & T. Geerken & M. Christis & B. Lahcen & Y. Dams, 2022. "Macroeconomic and environmental consequences of circular economy measures in a small open economy," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 68(2), pages 283-306, April.
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    Keywords

    Resource/ Energy Economics and Policy;

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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