Do increases in energy efficiency improve environmental quality and sustainability?

N. Hanley, P.G. McGregor, J.K. Swales, K. Turner

    Research output: Contribution to journalArticlepeer-review

    124 Citations (Scopus)

    Abstract

    Governments world-wide increasingly see energy efficiency as an important aspect of sustainability. However, there is a debate in the literature as to whether the impact of improved energy efficiency on reducing energy use might be partially, or more than wholly, offset through "rebound" and "backfire" effects. This paper clarifies the theoretical conditions under which such effects would occur and explores their likely significance using a computable general equilibrium (CGE) model of the Scottish economy. We find that for Scotland a general improvement in energy efficiency in the production sectors of the economy initially produces rebound effects that eventually grow into backfire. Energy use ultimately increases in response to an efficiency gain and the ratio of GDP to CO emissions falls. The economic factors underpinning rebound effects are straightforward: energy efficiency improvements result in an effective cut in energy prices, which produces output, substitution, competitiveness and income effects that stimulate energy demands. However, the presence of strong rebound or even backfire does not mean that efficiency-enhancing policies are irrelevant: rather it suggests that such policies operating alone are insufficient to generate environmental improvements. The implication is that a co-ordinated portfolio of energy policies is required.
    Original languageEnglish
    Pages (from-to)692-709
    Number of pages18
    JournalEcological Economics
    Volume68
    Issue number3
    DOIs
    Publication statusPublished - 15 Jan 2009

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