The macroeconomic rebound effect and the world economy
- 997 Downloads
This paper examines the macroeconomic rebound effect for the global economy arising from energy-efficiency policies. Such policies are expected to be a leading component of climate policy portfolios being proposed and adopted in order to achieve climate stabilisation targets for 2020, 2030 and 2050, such as the G8 50% reduction target by 2050. We apply the global “New Economics” or Post Keynesian model E3MG, developing the version reported in IPCC AR4 WG3. The rebound effect refers to the idea that some or all of the expected reductions in energy consumption as a result of energy-efficiency improvements are offset by an increasing demand for energy services, arising from reductions in the effective price of energy services resulting from those improvements. As policies to stimulate energy-efficiency improvements are a key part of climate-change policies, the likely magnitude of any rebound effect is of great importance to assessing the effectiveness of those policies. The literature distinguishes three types of rebound effect from energy-efficiency improvements: direct, indirect and economy-wide. The macroeconomic rebound effect, which is the focus of this paper, is the combination of the indirect and economy-wide effects. Estimates of the effects of no-regrets efficiency policies are reported by the International Energy Agency in World Energy Outlook, 2006, and synthesised in the IPCC AR4 WG3 report. We analyse policies for the transport, residential and services buildings and industrial sectors of the economy for the post-2012 period, 2013–2030. The estimated direct rebound effect, implicit in the IEA WEO/IPCC AR4 estimates, is treated as exogenous, based on estimates from the literature, globally about 10%. The total rebound effect, however, is 31% by 2020 rising to 52% by 2030. The total effect includes the direct effect and the effects of (1) the lower cost of energy on energy demand in the three broad sectors as well as of (2) the extra consumers’ expenditure from higher (implicit) real income and (3) the extra energy-efficiency investments. The rebound effects build up over time as the economic system adapts to the higher real incomes from the energy savings and the investments.
KeywordsRebound effect Energy efficiency Macroeconomic modelling Top-down/bottom-up modelling Post-2012 policies
This paper has been prepared as a contribution to the research of the UK Energy Research Centre and the UK Tyndall Centre for Climate Change Research. The authors are grateful for the support of the Centres and their funding from the UK Research Councils.
- Aghion, P., & Howitt, P. (1998). Endogenous Growth Theory. Cambridge: MIT.Google Scholar
- ADAM D-M2.1. (2007). Portfolio of policy and technological options for P3a case study.Google Scholar
- Anderson, D., & Winne, S. (2004). 'Modelling innovation and threshold effects in climate change mitigation', Working Paper No. 59, Tyndall Centre for Climate Change Research. www.tyndall.ac.uk/publications/pub_list_2004.shtml.
- Barker, T. S., Ekins, P., & Johnstone, N. (1995). Global Warming and Energy Demand. London: Routledge.Google Scholar
- Barker, T., Pan, H., Köhler, J., Warren, R., & Winne, S. (2006). Decarbonizing the Global Economy with Induced Technological Change: Scenarios to 2100 using E3MG. In O. Edenhofer, K. Lessmann, K. Kemfert, M. Grubb, & J. Köhler (Eds.), Induced Technological Change: Exploring its Implications for the Economics of Atmospheric Stabilization Energy Journal Special Issue on the International Model Comparison Project.Google Scholar
- BERR ER (2006). Energy review. Overarching initial regulatory impact assessment, Department for Business & Regulatory Reform, http://www.berr.gov.uk/files/file32177.pdf.
- BERR EWP (2007). Meeting the energy challenge. A white paper on energy, Department for Business & Regulatory Reform, http://www.berr.gov.uk/files/file39387.pdf.
- Franzén, M., & Sterner, T. (1995). Long-run Demand Elasticities for Gasoline. In T. Barker, N. Johnstone & P. Ekins (Eds.), Global Warming and Energy Elasticities. London: Routledge.Google Scholar
- Herring, H. (2004). The rebound effect and energy conservation. In C. Cleveland (Ed.), The Encyclopedia of Energy. Academic Press/Elsevier Science.Google Scholar
- Herring, H., & Sorrell, S. (2009). Energy efficiency and sustainable consumption. The Rebound Effect, Macmillan Publishers Limited.Google Scholar
- Holt, R. (2007). What is Post Keynesian economics? In M. Forstater, G. Mongiovi & S. Pressman (Eds.), Post Keynesian macroeconomics. London: Routledge.Google Scholar
- International Energy Agency (Ed.) (2005). The Experience with Energy Efficiency Policies and Programmes in IEA Countries. Paris: IEA.Google Scholar
- International Energy Agency (Ed.) (2006). World Energy Outook 2006 (IEA WEO 2006). Paris: IEAGoogle Scholar
- International Energy Agency (Ed.) (2007). World Energy Outook 2007 (IEA WEO 2007). Paris: IEAGoogle Scholar
- IPCC AR4. (2007). IPCC Fourth Assessment Report, http://www.ipcc.ch/.
- Jevons, W. S. (1865/1905). The Coal Question: An Inquiry Concerning the Progress of the Nation, and the Probable Exhaustion of our Coal-mines. In A. W. Flux, & A. M. Kelley (Eds.), 3rd Edition 1905. ed. New York.Google Scholar
- Johansson, O., & Schipper, L. (1997). Measuring the long-run fuel demand of cars. Journal of Transport Economics and Policy, XXXI(3), 277–292.Google Scholar
- Kaldor, N. (1985). Economics without Equilibrium. UK: Cardiff.Google Scholar
- Khazzoom, J. D. (1980). Economic implications of mandated efficiency in standards for household appliances. Energy Journal, 1(4), 21–40.Google Scholar
- McCombie, J. M., & Thirlwall, A. P. (1994). Economic Growth and the Balance of Payments Constraint. New York: St Martin’s.Google Scholar
- McCombie, J. M., & Thirlwall, A. P. (2004). Essays on Balance of Payments Constrained Growth: Theory and Evidence. London: Routledge.Google Scholar
- Saunders, H. (1992). The Khazzoom-Brookes postulate and neoclassical growth. Energy Journal, 13, 131–149.Google Scholar
- Scott, M. (1989). A New View of Economic Growth. Oxford: Clarendon.Google Scholar
- Serletis, A. (1992). Unit root behaviour in energy future prices. The Economic Journal, 13(2), 119–128.Google Scholar
- Setterfield, M. (ed). (2002). The Economics of Demand-led Growth—Challenging the Supply-side Vision of the Long Run. Cheltenham: Edward Elgar.Google Scholar
- Small, K. A., & Van Dender, K. (2007). Fuel efficiency and motor vehicle travel: the declining rebound effect. The Energy Journal, 28(1), 25–52.Google Scholar
- Sorrell, S. (2007). The rebound effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency. London: UK Energy Research Centre.Google Scholar
- Treasury, H. M. (2006). Stern Review on the Economics of Climate Change. London: HM Treasury.Google Scholar
- US DfT. (2008). Preliminary regulatory impact analysis: corporate average fuel economy for my 2011–2015 passenger cars and light trucks. Washington, DC: Department of Transportation, National Highway Safety Administration, Office of Regulatory Analysis and Evaluation, National Centre for Statistics and Analysis.Google Scholar
- Vikström, P. (2004). Energy efficiency and energy demand: A historical CGE Investigation on the rebound effect in the Swedish economy 1957. Umeå: Umeå University.Google Scholar