Rebound effect refers to the phenomenon that certain reduction in energy use and emissions expected from energy efficiency improvement is not realized due to various reasons such as price change, substitution between energy and non-energy consumption, and economic growth. The rebound effect is under researched at the global economic level although there are many studies at sectoral and regional level. This study offers an illustrative estimate of the global rebound effect based on a CGE model and expore key factors behind the rebound effect.The illustrative estimate shows that general energy efficiency improvement in economic activities other than energy production leads to limited reduction in energy use and related emissions in the long term due to considerable rebound effect at the global level. However, energy efficiency improvement markedly contributes to economic growth by inducing more inputs of non-energy resources, and reallocation of sectoral inputs of resources.To improve the global rebound effect estimate, we can consider investment costs and sector-specific technology of energy efficiency improvement. The CGE model can be validated by historical data to explore the rebound effect in the past decade. Based on the updated model specifications that capture historical economic development, we can design future scenarios to estimate better the global rebound effect.In this article, we use observed resource producitivity data to estimate yearly average energy efficiency changes by energy source and region (Wei and Liu 2016). This estimation is based on a time series data on value added and energy resources provided by the World Input-output Database 1995-2009 (WIOD, Timmer 2012). We aggregate the time series data of the 40 WIOD regions into 8 regions, i.e., United States, European Union, Japan, Russia, China, India, Brazil, and Rest of the World; and the 35 WIOD sectors into 11 sectors.The estimated yearly average energy efficiency changes are assumed to continue until 2040 in a CGE model GRACE (Aaheim and Rive 2005; Liu and Wei 2016), to produce a business-as-usual (BAU) scenario, where the regional GDP, primary fossil energy consumption, and electricity generation are calibrated roughly to that reported in the New Policies Scenario of World Energy Outlook 2015 (IEA 2015). We assume that the efficiency improvement of energy used by households follows the average of total production activities in a region.To study the impact of energy efficiency changes, we consider alternative energy efficiency scenarios, assuming the energy efficiency in 2040 is 10% higher than the BAU case for all non-energy sectors in all regions. To identify the role of induced labor and capital for the rebound effect, we assume the energy efficiency improvement in 2040 occurs “overnight” just after 2039 in three scenarios. In Scenario “FixLbyS” we force labor inputs by production sector are the same as that in the BAU case. In Scenario “FixLinR” we assume full employment and free allocation of labor inputs among production sectors. In Scenario “VarLinR” we assume the same wage rates as that in BAU and sufficient labor supply for all regions. These three scenarios can be considered as “short-term” since the energy efficiency improvement occurs in only one year when capital stock is not adjustable among production sectors. However, it might be more plausible to assume that the energy efficiency improvement is realized gradually over time. Hence, we consider a “LongTerm” scenario. The “LongTerm” scenario assumes that the energy efficiency increases smoothly from 2015 until 2040 when it becomes 10% higher than the BAU case for all non-energy sectors in all regions. In other words, the yearly energy efficiency in non-energy sectors is 0.38% higher than BAU from 2015 to 2040.Our results show very large rebound effect on energy use (70%) and related emissions (90%) in 2040 at the global level with regional and sectoral differences (Fig. 1). Important determinants, among others, are induced labor movement among economic activities and labor supply, and substitution elasticity between energy and nonenergygoods. The global rebound effect is still considerable even with a low substitution elasticity between energy andnonenergy goods. The effect of capital accumulation over time contributes marginally to the global rebound effect asit is utilized to promote economic growth by using energy input more efficiently.Global rebound effect on energy use and related emissions caused by energy efficiency improvement can beconsiderable in a period of several decades. Hence, energy efficiency improvement in the demand side can serve asan effective policy to promote the economic growth considerably, but probably cannot itself be an effective policy toreduce the global energy use and related emissions in the long term. To improve the global rebound effect estimate,we can further consider investment costs and sector-specific technology of energy efficiency improvement. The CGEmodel can be validated by historical data to explore the rebound effect in the past decade. Based on the updatedmodel specifications that capture historical economic development, we can design future scenarios to estimate betterthe global rebound effect.
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