Abstract
Energy consumption and greenhouse emissions across many countries have increased over time despite widespread energy efficiency improvements. One explanation offered in the literature is the rebound effect (RE), however there is a debate about its magnitude and the appropriate model for estimating it. Using a combined stochastic frontier analysis (SFA) and two-stage dynamic panel data approach, we explore these two issues of magnitude and model for 55 countries over the period 1980 to 2010. Our central estimates indicate that in the short-run, 100% energy efficiency improvement is followed by 90% rebound in energy consumption, but in the long-run it leads to a 136% decrease in energy consumption. Overall, our estimated cross-country RE magnitudes indicate the need to consider or account for RE when energy forecasts and policy measures are derived from potential energy efficiency savings.
Highlights
Energy plays an important role within the production technologies of fast emerging economies, given that a significant proportion of their energy consumption is embedded in the creation of goods and services
In the section ‘Model results’ we present the fitted cost functions and comment on the curvature properties of the estimated models
The elasticity of cost with respect to output gives an important measure of scale economies, such that an output elasticity smaller than one indicates scale economies14
Summary
Energy plays an important role within the production technologies of fast emerging economies, given that a significant proportion of their energy consumption is embedded in the creation of goods and services. The extant literature abounds with empirical econometric studies aimed at estimating industrial energy demand (e.g. Medlock III and Soligo, 2001; Dimitropoulos et al, 2005; Adeyemi and Hunt, 2014). These studies provide estimates of price and income elasticity by estimating single equation models of energy demand as a function of energy price, output and other control variables such as temperature. These short-run models would imply that the demand for energy is independent of the demand for other factor inputs, thereby precluding economic theory’s prescription of factor substitution in the face of changing relative input prices
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