A microeconomic framework for evaluating energy efficiency rebound and some implications

A microeconomic framework for evaluating energy efficiency rebound and some implications / Severin Borenstein. Energy Institute at Haas, April 2013, 26 p. (EI @ Haas WP 242)


Abstract (© EI @ Haas) :

This paper develops a theoretical framework that parses energy efficiency rebound into the microeconomic concepts of income and substitution effects. The income effect accounts for the fact that a money-saving efficiency improvement frees up income to spend on all goods, while the substitution effect recognizes that the consumer may use the good more when the cost of using it declines. Most analyses of rebound fail to account for the full substitution effect, including the energy saved when the consumer spends less on other goods in order to increase use of the energy efficient good.

The paper also points out the tension between assumptions that consumers overlook beneficial energy efficiency improvements (known as the energy efficiency gap), and yet reoptimize to consume more of a product after it has become more energy efficient. It then explores the implications of this framework for measurement of rebound, examining rebound from improved auto fuel economy and lighting efficiency. The illustrative calculations for these cases suggest that rebound is a substantial factor which, if ignored, would lead to significant overstatement of energy savings. In these two cases, however, it also appears that “backfire” – rebound in excess of 100% of the direct energy efficiency gain – is unlikely.

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