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The Rebound Effect in Energy-Intensive Industries:A Factor Demand Model with Asymmetric Price Response

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  • Anna Dahlqvist
  • Tommy Lundgren
  • Per-Olov Marklund

Abstract

The purpose of this paper is to estimate industry-specific direct rebound effects and to relate these effects to industry energy efficiency programs. The rebound effect represents economic behavior that will offset energy savings from energy efficiency improvements. The paper focuses on four energy intense sectors in Sweden; pulp and paper, iron and steel, chemical, and mining, during 2001-2012. We apply a factor demand model that allows for asymmetric energy price responses, i.e. that firms respond differently to increasing and decreasing energy prices. The results show considerable rebound effects. For electricity and non-fossil fuels, efficiency improvements could even ‘backfire’. To mitigate this effect, policies, such as voluntary energy efficiency programs, should be combined with an increase in energy taxes if the ambition is to reduce overall energy use.

Suggested Citation

  • Anna Dahlqvist & Tommy Lundgren & Per-Olov Marklund, 2021. "The Rebound Effect in Energy-Intensive Industries:A Factor Demand Model with Asymmetric Price Response," The Energy Journal, , vol. 42(3), pages 177-204, May.
    • Handle: RePEc:sae:enejou:v:42:y:2021:i:3:p:177-204
    DOI: 10.5547/01956574.42.3.adah
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    References listed on IDEAS

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    4. Dermot Gately & Hiliard G. Huntington, 2002. "The Asymmetric Effects of Changes in Price and Income on Energy and Oil Demand," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 19-55.
    5. Orea, Luis & Llorca, Manuel & Filippini, Massimo, 2015. "A new approach to measuring the rebound effect associated to energy efficiency improvements: An application to the US residential energy demand," Energy Economics, Elsevier, vol. 49(C), pages 599-609.
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