Quantifying the Rebound Effects of Energy Efficiency and Energy Conserving Behaviour in Sweden

Doubts have recurrently been raised on the extent to which energy efficiency can reduce the demand for energy since efficiency improvements may “rebound” due to decreasing prices of energy services (the price effect) as well as by increasing the budget for consumption of other goods and services (the income effect). The magnitude of such effects is crucial to whether energy efficiency should be a strategy for environmental policy or not. This paper aims to derive a general expression of the rebound effects of household consumption in a parameterized form where available data can be tested. The paper analyzes how different parameter assumptions affect the quantification of rebound effects and what may be reasonable ranges. Income effects are quantified using data from the Swedish Household Budget Survey of different goods and services split on income classes. The changes in consumption with increasing income are used to establish the composition of marginal consumption. Combined with energy intensities derived from input-output analysis, this gives a model of how money saved on energy use in one sector may lead to increased energy use in other sectors. The total rebound effects of energy efficiency appear to be in the range 5-15% in most cases, but these results are fairly sensitive to assumptions of energy service price elasticities. Cases with low or negative investment costs for energy efficiency may also result in much higher rebound effects as the income effects become more important. Energy conserving behaviour (reduced energy service demand) affecting direct energy use such as heating and transport fuels gives rise to rebound effects in the order of 10-20%, depending on the price per primary energy for different fuels and energy carriers.