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New Insights Into Rebound Effects: Theory and Empirical Evidence

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New Insights Into Rebound Effects: Theory and Empirical Evidence New insights into rebound effects: Theory and empirical evidence Cameron Murray Bachelor of Applied Science (Property Economics) A thesis presented in fulfilment of requirements for the degree of Master of Business (Research) Principal Supervisor Dr Clevo Wilson Associate Supervisor Professor Tim Robinson School of Economics and Finance Queensland University of Technology 2009 i ii The work contained in this thesis has not been previously submitted to meet requirements for an award at this or any other higher education institution. To the best of my knowledge and belief, the thesis contains no material previously published or written by another person except where due reference is made. Cameron Murray 25th February 2009 iii iv Abstract The main objective of the thesis is to seek insights into the theory, and provide empirical evidence of rebound effects. Rebound effects reduce the environmental benefits of environmental policies and household behaviour changes. In particular, win-win demand side measures, in the form of energy efficiency and household consumption pattern changes, are seen as ways for households and businesses to save money and the environment. However, these savings have environmental impacts when spent, which are known as rebound effects. This is an area that has been widely neglected by policy makers. This work extends the rebound effect literature in three important ways, (1) it incorporates the potential for variation of rebound effects with household income level, (2) it enables the isolation of direct and indirect effects for cases of energy efficient technology adoption, and examines the relationship between these two component effects, and (3) it expands the scope of rebound effect analysis to include government taxes and subsidies. MACROBUTTON HTMLDirect Using a case study approach it is found that the rebound effect from household consumption pattern changes targeted at electricity is between 5 and 10%. For consumption pattern changes with reduced vehicle fuel use, the rebound effect is in the order of 20 to 30%. Higher income households in general are found to have a lower total rebound effect; however the indirect effect becomes relatively more significant at higher household income levels. In the win-lose case of domestic photovoltaic electricity generation, it is demonstrated that negative rebound effects can occur, which can potentially amplify the environmental benefits of this action. The rebound effect from a carbon tax, which occurs due to the re-spending of raised revenues, was found to be in the range of 11-32%. Taxes and transfers between households of different income levels also have environmental implications. For example, a more progressive tax structure, with increased low income welfare payments is likely to increase greenhouse gas emissions. Subsidies aimed at encouraging environmentally friendly consumption habits are also subject to rebound effects, as they constitute a substitution of government expenditure for household expenditure. For policy makers, these findings point to the need to incorporate rebound effects in the environmental policy evaluation process.’ Keywords Rebound effect, demand side management, direct rebound effect, indirect rebound effect, greenhouse gas emissions, CO2, household consumption patterns, efficiency, energy, conservation, natural resources. v Table of Contents Abstract .............................................................................................................................. v Table of Contents .............................................................................................................. vi List of Figures ................................................................................................................. viii List of Definitions .............................................................................................................. x Preface ................................................................................................................................ 1 Chapter 1 – Considering the rebound effect ...................................................................... 2 Chapter 2 –Political and economic considerations for environmental degradation .......... 5 2.1 INTRODUCTION .................................................................................................... 5 2.2 POLITICAL CONTEXT .......................................................................................... 5 2.3 THE JEVONS CONTROVERSY ........................................................................... 9 2.5 CHAPTER SUMMARY........................................................................................... 14 Chapter 3 – The state of knowledge of the rebound effect .............................................. 16 3.1 INTRODUCTION .................................................................................................. 16 3.2 THEORETICAL FOUNDATIONS ....................................................................... 16 3.3 EVIDENCE OF THE DIRECT EFFECT ............................................................. 26 3.4 EVIDENCE OFTHE INDIRECT EFFECT ......................................................... 31 3.5 GAPS INTHE LITERATURE ............................................................................... 37 3.6 CHAPTER SUMMARY .......................................................................................... 39 Chapter 4 – Designing a rebound effect model ............................................................... 40 4.1 INTRODUCTION ................................................................................................. 40 4.2 ENVIRONMENTAL CONCERN AND OTHER ASSUMPTIONS .................... 41 4.3 HOUSEHOLD EXPENDITUREAND LIFE CYCLE ANALYSIS DATA ........... 43 4.3.1 Household expenditure data ................................................................................ 43 4.3.2 Life cycle analysis data ......................................................................................... 44 4.4 HOUSEHOLD DEMANDMODEL ...................................................................... 49 4.4.1 Household demand system .................................................................................. 49 4.4.2 Household demand model results ........................................................................ 55 4.5 THE REBOUND MODEL .................................................................................... 57 4.6 CHAPTER SUMMARY........................................................................................... 60 Chapter 5 – Win-win cases under the spotlight ............................................................... 61 5.1 INTRODUCTION ................................................................................................. 61 5.2 VEHICLE FUEL .................................................................................................... 62 5.2.1 Vehicle fuel case study details ............................................................................. 62 5.2.2 Results for vehicle fuel conservation case ........................................................... 64 5.2.3 Results for vehicle fuel efficiency case ................................................................ 65 5.3 DOMESTIC ELECTRICITY ................................................................................. 68 5.3.1 Domestic electricity case study details ................................................................. 68 5.3.2 Results for domestic electricity conservation case .............................................. 70 5.3.3 Results for domestic electricity efficiency case .................................................... 71 5.4 COMBINATION OFCASES .................................................................................. 74 5.4.1 Results of combined conservation case ................................................................ 74 vi 5.4.2 Results of combined efficiency case ..................................................................... 75 5.4 CHAPTER SUMMARY ........................................................................................... 78 Chapter 6 – Expanding the scope of rebound effect analysis .......................................... 80 6.1 INTRODUCTION ................................................................................................. 80 6.2 DOMESTIC SOLARELECTRICITY GENERATION ......................................... 80 6.3 REBOUND EFFECTANALYSIS OF TAXES AND TRANSFERS ....................... 86 6.5 CHAPTER SUMMARY ........................................................................................... 89 Chapter 7- Lessons about the rebound effect ................................................................... 90 7.1 INTRODUCTION ................................................................................................. 90 7.2 THEORETICAL LINKS ......................................................................................... 90 7.2.1 Magnitude of rebound effects ............................................................................... 91 7.2.2 Income level variation ........................................................................................... 93 7.2.3 Expanding the scope of rebound effects to include the government sector ........ 93 7.2.4 Methodological matters ........................................................................................ 95 7.3 CONTRIBUTION TO THE ECONOMY-ENVIRONMENT DEBATE
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