The added value from a general equilibrium analysis of increased efficiency in household energy use

a r t i c l e i n f o JEL classification: C68 D57 D58 Q41 Q43 Q48 Keywords: Energy efficiency Indirect rebound effects Economy-wide rebound effects Household energy consumption CGE models This paper investigates the economic impact of a 5% improvement in the UK household energy efficiency, focussing specifically on total energy rebound effects. The impact is measured through simulations using models that have increasing degrees of endogeneity but are calibrated on a common data set, moving from a basic partial equilibrium approach to a fully specified general equilibrium treatment. The size of the rebound effect is shown to depend on changes in household income, aggregate economic activity and relative prices that can only be captured through a general equilibrium model. There has been extensive investigation of the economy-wide rebound effects resulting from energy efficiency improvements in production. This analysis often uses a computable general equilibrium (CGE) modelling approach (see Dimitropoulos, 2007; Sorrell, 2007; Turner, 2013 for a review). However, very few studies have attempted to measure the economy-wide impacts of energy efficiency improvements in the household sector. Following the work of Khazzoom (1980, 1987) there have been a number of partial equilibrium studies give a detailed and extensive summary of the extent of rebound on household consumption of different types of energy services. These studies assume that there are no changes in prices or nominal incomes following the efficiency improvement, and that the impacts are limited to the direct market for household energy use. This approach gives an extreme partial equilibrium figure, which is generally known as the direct rebound effect. To our knowledge, Dufournaud et al. (1994) is the only study that investigates full general equilibrium economy-wide rebound effects from increased energy efficiency in the household sector. It examines the impacts of increasing efficiency in domestic wood stoves in Sudan. use a fixed price input–output model to consider indirect rebound effects resulting from household income freed up by energy efficiency improvements and spent on non-energy commodities. This work includes changes in energy use in production, as well as household consumption. However, we still treat this as a partial equilibrium approach as it fails to incorporate endogenous prices, incomes or factor supply effects. The aim of the present paper is to identify the added value from using general equilibrium techniques to consider the economy-wide impacts of increased efficiency in household energy use. We take as an illustrative …