2021/20 | LEM Working Paper Series | ||||||||||||||||
Do Energy Efficiency Improvements Reduce Energy Use? Empirical Evidence on the Economy-Wide Rebound Effect in Europe and the United States |
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Anne Berner, Stephan Bruns, Alessio Moneta and David I. Stern |
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Keywords | |||||||||||||||||
Energy efficiency; economy-wide rebound effect; climate change; climate policy; Structural FAVAR; Independent Component Analysis.
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JEL Classifications | |||||||||||||||||
C32, Q43
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Abstract | |||||||||||||||||
Improving energy efficiency is often considered to be one of the keys to reducing greenhouse gas
emissions. However, efficiency gains also reduce the cost of energy services and may even reduce
the price of energy, resulting in energy use rebounding and potential energy use savings being eaten
up. There is only limited empirical research quantifying the economy-wide rebound effect that
takes the dynamic economic responses to energy efficiency improvements into account. We use
a Structural Factor-Augmented Vector Autoregressive model (S-FAVAR) that allows us to track
how energy use changes in response to an energy efficiency improvement while accounting for a
vast range of potential confounders. Our findings point to economy-wide rebound effects of 78%
to 101% after two years in France, Germany, Italy, the U.K., and the U.S. These findings imply
that energy efficiency innovations alone may be of limited help in reducing future energy use and
emphasize the importance of tackling carbon emissions directly.
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