Rebound effect with energy efficiency determinants: a two-stage analysis of residential electricity consumption in Indonesia

Abstract

This study aims to estimate the economy-wide rebound effect using the determinants of household energy demand in Indonesia. Identifying the size of the rebound effect is essential for the government's energy efficiency and carbon emission reduction programs. The estimation of the rebound effect uses a two-stage analysis with panel data of every province in Indonesia from 2002 to 2018. We employ the Input Demand Function of the Stochastic Frontier Analysis to measure the energy efficiency of residential aggregate in Indonesia. In the second stage, we adopt the dynamic panel data model to estimate the economy-wide rebound effect. The estimated dynamic panel data model reveals that the magnitudes of the short-run and long-run rebound effects were 87.2% and -45.5%, respectively. In other words, a 1% increase in household energy efficiency results in a reduction in energy consumption of 0.13% in the short term and 1.45% in the long term. Our research also discovers that a backfire rebound effect exists in provinces with high energy efficiency. Therefore, we prove to backfire claims that improving energy efficiency will increase energy use. Henceforth, energy efficiency programs in the household sector still need to be implemented, followed by increasing technological innovation and improving housing policy.