A theoretical analysis of the direct rebound effect caused by energy efficiency improvement of private consumers

Abstract

This study systematically examines, with the aid of modern microeconomic theory, the theoretical foundations of the direct rebound effect caused by energy efficiency improvement of private consumers. It establishes a utility maximization problem for the private consumer and analyses consumer behaviors under different classical functional forms of household production, such as Cobb–Douglas, Leontief and Constant Elasticity of Substitution (CES) when energy efficiency improves at the household level. Furthermore, it builds upon existing knowledge of the rebound effect and proposes a generalized nested functional form of household production behavior allowing for understanding the energy efficiency improves of an appliance where energy is not the only input to produce a certain service, such as kilometers traveled. This study contributes to the theoretical literature in direct rebound effect and provides insights on the rebound break-even condition of the household production function. The backfire condition is also discussed under different functional forms of the household production function. It shows that under certain circumstances, where elasticity of substation is large, backfire will be unavoidable when energy efficiency improves.