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Energy Efficiency and Energy Demand: Structural Analysis of Rebound Effects

Summary
Energy efficient technologies help individuals to reduce their energy consumption but may also induce them to demand more energy. The so-called ‘rebound effect’ might arise due to lower costs of using energy-efficient devices but also to more disposable income thanks to those savings.
What are the expected impacts of technological progress in particular efficiency improvements, on energy consumption? Could the rebound effect be as important as to counter a considerable part of the intended energy savings, or sufficiently large to warrant an adjustment in energy and environmental policies? What are the principal characteristics of the consumer’s behavior in response to an energy-efficient innovation? What are the economic factors that characterize the adoption decisions and to what extent can these decisions be traced back to individual preferences?
This project attempts to find answers to the above questions. The project will seek methodological developments in quantifying the effects but also in identifying the underlying causes among behavioral and economic factors. Without excluding any specific consumption context à priori, the project’s primary focus will be on energy demand for heating and transportation.

Background
Energy is unlike any other commodity purchased in the market in that the ‘consumption’ of energy requires a prior transformation to a useful service. Whether used for heating, transport, lighting or any other purpose, the energy consumption depends largely on the adopted type of equipment used to deliver the service to the consumer. Over time, the energy using systems have become increasingly efficient thus using less energy for providing a given service, but the energy consumption has substantially increased. Both the historical evidence and the economic theory tend to suggest that the rise in energy demand is partly due to higher efficiency. This paradoxical rebound tends to offset the beneficial effects of technological improvements in energy efficiency. The rebound effect of new technologies has a crucial role in identifying energy demand and its evolution.
Identification of the rebound effect is a challenging empirical problem because of the possibility of reverse causality: The observed changes in energy consumption might be related to the factors underlying the adoption decision rather than the new technology itself. In this context, an adequate assessment of causality requires a careful empirical analysis beyond statistical correlations. To date, there is no comprehensive study of the rebound effect that roots empirical analysis to the economic theory. Moreover, despite the great importance of rebound effects in energy consumption there is little research based on micro-level data. In particular in the case of Switzerland there is hardly any economic research on energy rebounds.

Aim and significance
The project’s objectives can be described in three stages. First, by applying econometric methods to the available individual and aggregate data, the rebound effects will be estimated for the case of transport and travel behavior in Switzerland. Secondly, an experimental survey will be conducted to record the revealed and stated preferences of a sample of Swiss consumers. The collected data will be analyzed with a variety of econometric models. Finally, by extending on existing methodologies, the project intends to develop a structural identification method adapted for the analysis of the rebound effect and its various behavioral and economic features. The proposed method will be applied to the available data.
The identification of rebound effects is crucial for formulating effective energy and environmental policies. Moreover, given the primordial role of technological advances in future energy needs, an adequate analysis of energy demand relies upon a reasonable understanding of rebound effects. As a first attempt in the econometric analysis of energy rebounds in Switzerland, this project will contribute to the knowledge of the behavioral as well as economic aspects of the rebound effect. The results can be used by policy makers as well as business managers and investors in energy technologies. The project will also provide a methodological contribution by the application of structural models in energy demand.
 

Personnes et institutions

Project Leader Senior Researcher PhD student
Prof. Mehdi Farsi
Institut de recherches économiques
Université de Neuchâtel
 

Dr. Sylvain Weber
Institut de recherches économiques
Université de Neuchâtel

Ms. Cécile Hediger
Institut de recherches économiques
Université de Neuchâtel