General Equilibrium Rebound from Improved Energy Efficiency

Energy efficiency improvements “rebound” when economic responses undercut their direct energy savings. I develop an analytic general equilibrium framework that allows improvements in energy efficiency to affect output prices and factor prices. I show that general equilibrium channels typically amplify rebound and make it more likely that improvements in efficiency end up increasing total energy use. General equilibrium channels are likely to be especially significant when efficiency improvements occur in sectors with a large value share of energy.