Negative rebound and disinvestment effects in response to an improvement in energy efficiency in the UK economy

Research output: Contribution to journalArticle

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Abstract

This paper uses a computable general equilibrium (CGE) framework to investigate the conditions under which rebound effects may occur in response to increases in energy efficiency in the UK national economy. Previous work for the UK has suggested that rebound effects will occur even where key elasticities of substitution in production are set close to zero. The research reported in this paper involves carrying out a systematic sensitivity analysis, where relative price sensitivity is gradually introduced into the system, focusing specifically on elasticities of substitution in production and trade parameters, in order to determine conditions under which rebound effects become a likely outcome. The main result is that, while there is positive pressure for rebound effects even where (direct and indirect) demands for energy are very price inelastic, this may be partially or wholly offset by negative income, competitiveness and disinvestment effects, which also occur in response to falling energy prices. The occurrence of disinvestment effects is of particular interest. These occur where falling energy prices reduce profitability in domestic energy supply sectors, leading to a contraction in capital stock in these sectors, which may in turn lead to rebound effects that are smaller in the long run than in the short run, a result that runs contrary to the predictions of previous theoretical work in this area.
Original languageEnglish
Pages (from-to)648-666
Number of pages18
JournalEnergy Economics
Volume31
Issue number5
DOIs
Publication statusPublished - Sep 2009

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Energy efficiency
Elasticity
Substitution reactions
Sensitivity analysis
Profitability
Rebound
Rebound effect
Elasticity of substitution
Energy prices
Energy

Keywords

  • general equilibrium
  • energy efficiency
  • rebound effects
  • disinvestment

Cite this

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title = "Negative rebound and disinvestment effects in response to an improvement in energy efficiency in the UK economy",
abstract = "This paper uses a computable general equilibrium (CGE) framework to investigate the conditions under which rebound effects may occur in response to increases in energy efficiency in the UK national economy. Previous work for the UK has suggested that rebound effects will occur even where key elasticities of substitution in production are set close to zero. The research reported in this paper involves carrying out a systematic sensitivity analysis, where relative price sensitivity is gradually introduced into the system, focusing specifically on elasticities of substitution in production and trade parameters, in order to determine conditions under which rebound effects become a likely outcome. The main result is that, while there is positive pressure for rebound effects even where (direct and indirect) demands for energy are very price inelastic, this may be partially or wholly offset by negative income, competitiveness and disinvestment effects, which also occur in response to falling energy prices. The occurrence of disinvestment effects is of particular interest. These occur where falling energy prices reduce profitability in domestic energy supply sectors, leading to a contraction in capital stock in these sectors, which may in turn lead to rebound effects that are smaller in the long run than in the short run, a result that runs contrary to the predictions of previous theoretical work in this area.",
keywords = "general equilibrium, energy efficiency, rebound effects, disinvestment",
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Negative rebound and disinvestment effects in response to an improvement in energy efficiency in the UK economy. / Turner, K.

In: Energy Economics, Vol. 31, No. 5, 09.2009, p. 648-666.

Research output: Contribution to journalArticle

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