Estimating direct and indirect rebound effects for U.S. households with input–output analysis. Part 2: Simulation

a r t i c l e i n f o Keywords: Direct rebound Indirect rebound Residential energy demand Energy efficiency Input–output model This is the second part of a two-part paper that integrates economic and industrial ecology methods to estimate the indirect rebound effect from residential energy efficiency investments. We apply the model developed in part one to simulate the indirect rebound, given an estimate of the direct rebound, using a 2002 environmentally-extended input–output model and the 2004 Consumer Expenditure Survey (in 2002$) for the U.S. We find an indirect rebound of 5–15% in primary energy and CO 2 e emissions, assuming a 10% direct rebound, depending on the fuel saved with efficiency and household income. The indirect rebound can be as high as 30–40% in NO x or SO 2 emissions for efficiency in natural gas services. The substitution effect modeled in part one is small in most cases, and we discuss appropriate applications for proportional or income elasticity spending assumptions. Large indirect rebound effects occur as the U.S. electric grid becomes less-carbon intensive , in households with large transportation demands, or as energy prices increase. Even in extreme cases, there is limited evidence for backfire, or a rebound effect greater than 100%. Enacting pollution taxes or auctioned permits that internalize the externalities of energy use would ensure that rebound effects unambiguously increase consumers' welfare. This is the second part of a two-part paper focused on the indirect rebound effect, given an estimate of the direct rebound effect, from energy efficiency investments. The rebound effect, simply defined, is equal to the difference between potential energy savings, PES, often obtained from an engineering estimate, and actual energy savings, AES, after accounting for changes in consumer usage in response to the fall in the price of energy services or operating cost with an effi-1− AES PES 1 In part one, we provided a critical review of direct and indirect rebound studies from the economics and industrial ecology literatures that differ in assumptions about the definition of the direct rebound effect, average versus marginal spending patterns, and the importance of supply-chain or embodied energy of spending. Using classical consumer demand theory, we developed a framework that integrates marginal spending patterns as incomes rise or the price of energy services fall with the embodied energy or emissions of that spending. Our analysis demonstrated that the extent of re-spending from the indirect rebound …