The macroeconomic rebound effect and the world economy

Abstract

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.

Public Perceptions and Willingness to Pay for Renewable Energy: A Case Study from Greece

“…Greek national policy must be compatible with relevant European reports. National environmental policy should align with the restructuring of the community framework for the taxation of energy products, which draws the transition from income taxes towards a system based on the principle that payment should burden those who consume more energy and produce more air pollutants [58,59].…”

Greenhouse gas emissions from a Danish riparian wetland before and after restoration

“…Barker et al (2009) additionally defi ne the macroeconomic rebound as the sum of indirect and economy-wide eff ects. We follow this defi nition in our analysis.…”

After 35 Years of Rebound Research in Economics: Where Do We Stand?

“…The studies reviewed there involve a range of different methods and models applied to different types of energy efficiency improvements in a range of countries and geographical regions, with some using CGE simulation models to consider a range of what if type scenarios, while others (e.g. Barker and Foxon, 2007;Barker et al 2009) use econometric methods to project future rebound effects of different policy packages. Moreover, while some studies focus on impacts of pure efficiency improvements, others focus instead (or as well) on the expansionary impacts of investment decisions preceding the implementation of actual efficiency improvements.…”