General Equilibrium Rebound from Energy Efficiency Innovation

Abstract

Energy efficiency improvements when economic responses undercut their direct energy savings. I show that general equilibrium channels typically amplify rebound by making consumption goods cheaper but typically dampen rebound by increasing the cost of non-energy inputs to production. Improvements in energy efficiency are especially likely to increase total energy use when they arise in the energy supply sector because they make energy inputs cheaper in all other sectors. When energy and non-energy inputs are substitutes (complements), innovators often direct research efforts towards those consumption good sectors where improvements in efficiency are especially likely to increase (decrease) total energy use.