Rebound effects following technological advancement? The case of a global shock in ferrochrome supply

Abstract

Novel recycling technologies aim at increasing material efficiency by turning former waste products into valuable reclaimed resources. A key question is whether such technologies really reduce primary resource consumption or instead stimulate aggregated market demand. In this study the consequences of a positive shock in ferrochrome supply to the global stainless steel value chain is assessed quantitatively. This new source might be unlocked by technology under development for the recovery of chromium from carbon and stainless steel slags. The aim of this study is to quantitatively assess the income and substitution effects of reclaimed ferrochrome along a part of the stainless steel value chain. The impact of the supply shock is analysed by means of a vector autoregression (VAR), a dynamic model where lagged values of all included variables estimate current state of the system. Additionally, the VAR model is extended to a structural vector autoregression (SVAR) to account for contemporary effects as well. Both the VAR and SVAR model indicate that additional ferrochrome supply leads to an increase in aggregated supply of stainless steel, in combination with a substitution effect between ferrochrome and nickel. The extended SVAR model additionally highlights that contemporaneous effects do play an important role as well to capture the direct rebound effect in the ferrochrome market when working with quarterly data. In other words, an additional supply of reclaimed ferrochrome triggers a complex combination of interactions and consequences, yet it does not necessarily lead to a lower overall material consumption. The main contributions of this paper are the assessment of direct rebound effects of supplying reclaimed metals along the value chain and the demonstration that quantifying the effects of circular strategies is feasible.