An estimation of macroeconomic energy rebound, intensity, and output effect: An evidence from Pakistan

Abstract

The outcomes of energy efficiency are conditional on the size of energy rebound effect, which further promotes energy consumption instead of reducing it. Therefore, evaluating the energy rebound effect is a crucial constituent for environmental sustainability. In that perspective, the present paper examines macroeconomic rebound, intensity, and output effects of exogenous energy efficiency improvements for Pakistan using time series data from 1980 to 2018. For this, constant elasticity of substitution (CES) production function is estimated with two non-linear estimation techniques Nelder and Mead (NM) and Broyden Fletcher Goldfarb Shanno (BFGS). Moreover, three effects of energy efficiency are calculated for long run and short run with both constant returns to scale and variable returns to scale. The study finds about 65% partial energy rebound effect in both cases of NM method while BFGS method provides partial rebound effect (27%) in case of constant returns to scale and backfire (136%) in case of variable returns to scale. Moreover, the magnitudes of three effects in the long run are relatively high as compared to the short run effects. As anticipated, energy efficiency is relatively less effective; therefore, energy and environment policies should incorporate the energy rebound effect to achieve a sustainable economic growth path.