Catching on the Rebound: Why Price Elasticities are Generally Inappropriate Measures of Rebound Effects

Lester Hunt and David Ryan

No 148, Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) from Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey

Abstract: Rebound effects occur when, due to behavioural responses by consumers to the resulting fall in the implicit price of energy services, energy efficiency improvements result in energy savings that are often less than those suggested by engineering calculations. In the absence of data on energy efficiency or on the energy services (such as heating or lighting) provided by the energy that is used to produce them, rebound effects are often estimated as the negative of own-price elasticities obtained from standard energy demand equations. Using a recently developed model of demand for energy services, which facilitates estimation of a much wider range of rebound effects than has been previously considered, this approach is shown to be inappropriate unless the energy demand equations are specified in a certain way, and even in that case, often only under somewhat heroic assumptions. Illustrative empirical analysis using UK time-series data indicates the extent to which rebound effects can differ from price elasticities.

Keywords: Energy Services Demand; Modelling Rebound Effects. (search for similar items in EconPapers)
JEL-codes: C51 Q41 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2014-06
New Economics Papers: this item is included in nep-ene
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Citations: View citations in EconPapers (12)

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