Energy-biased technology and the economy-wide energy rebound: A normalized supply-side system approach

Category: Quantitative Economic Policy Seminar
When: 04 July 2024
, 14:00
 - 15:15
Where: RuW 4.202

The "energy rebound," a concept introduced already by William Jevons in 1865, has gained increasing attention world-wide due to its potential adverse implications for current strategies of energy decoupling. A fraction of efficiency-induced energy savings is offset by changes in relative prices leading to unintended substitution and output effects. Despite its significance, the magnitude of the rebound effect remains uncertain, particularly at the national level where studies focus on the so-called "economy-wide rebound" (see Brockway et al., 2021 for a recent and extensive overview). One promising empirical approach for identifying the economy-wide rebound relies on parameter estimates of a normalized energy-extended CES (Constant Elasticity of Substitution) production function with time-varying technical progress. Adopting the “supply-side system approach” introduced by Klump et al. (2007) for a country sample, that includes Japan, the US and France between 1978 and 2019, our study is based on the estimation of a normalized Gross-Output production function with a nested CES-in-CES structure. We also perform a battery of robustness checks that have proven beneficial in the conventional CES literature. Accounting for structural breaks, filtering cyclical components from the data and analyzing the parameter precision via bootstrapping resampling provides more information on the long-term dynamics. We find a "long-term" economic-wide rebound of about 40% in all countries of our sample. Finally, we check the impact of the substitution between non-electric and electric form of energy that can be regarded as a rough proxy for fossil versus non-fossil carriers.