Costs of Energy Efficiency Mandates Can Reverse the Sign of Rebound

Don Fullerton () and Chi Ta

No 25696, NBER Working Papers from National Bureau of Economic Research, Inc

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 to those from a costly energy efficiency mandate. We decompose each total effect on the use of energy into components that include a direct efficiency effect, direct rebound effect, and indirect rebound effect. We investigate which factors determine the sign and magnitude of each. We show that rebound from a costless technology shock is generally positive, as in prior literature, but we also show how a pre-existing energy efficiency standard can negate the direct energy savings from the costless technology shock – leaving only the positive rebound effect on energy use. Then we analyze increased stringency of energy efficiency standards, 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 easily outweigh the direct effects captured in partial equilibrium models, and that the total rebound from a costly efficiency mandate is negative.

JEL-codes: D58 H23 Q48 (search for similar items in EconPapers)
Date: 2019-03
New Economics Papers: this item is included in nep-ene and nep-reg
Note: EEE PE
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Citations: View citations in EconPapers (10)

Published as Don Fullerton & Chi L. Ta, 2020. "Costs of energy efficiency mandates can reverse the sign of rebound," Journal of Public Economics, vol 188.

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Journal Article: Costs of energy efficiency mandates can reverse the sign of rebound (2020)
Working Paper: Costs of Energy Efficiency Mandates Can Reverse the Sign of Rebound (2019)
Working Paper: Costs of energy efficiency mandates can reverse the sign of rebound (2019)
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