In environmental and energy economics, rebound effects may influence the energy savings from improvements in energy efficiency. When the energy efficiency of a product or service improves, it becomes less expensive to use, income is freed-up for use on other goods and services, markets re-equilibrate and there may even be induced innovation. These effects typically reduce the direct energy savings from energy efficiency improvements, but lead to improved social welfare as long as there are not sufficiently large externality costs. There is strong empirical evidence that rebound effects exist, yet estimates of the different effects range widely depending on context and location.
KeywordsBackfire Climate policy Derived demand Emissions Energy efficiency Greenhouse gases Take-back effect Welfare
The author would like to acknowledge Roger Fouquet, Karen Turner and an anonymous reviewer for very helpful comments on this draft and Matthew Kotchen, David Rapson and Gernot Wagner for many useful conversations on this topic.
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