The Rebound Effects from Industrial Energy Efficiency Improvements

In energy policy, energy efficiency constitutes a central element in reducing domestic and, specifically, industrial en-ergy use. Unfortunately, the effectiveness of energy efficiency improvements in achieving its targets is known to be limited by rebound effects. Rebound effects follow from economic and behavioral adjustments to the efficiency improvements themselves. This thesis investigates such rebound effects in the case of annual industrial energy effi-ciency improvements in Switzerland. To this end, we develop a recursively dynamic computable general equilibrium model, which takes special account of the relationship between energy and capital in perpetuating rebound effects. Chapter 2 provides the first assessment of economy-wide rebound effects for Switzerland. We show that industrial energy efficiency improvements are only partially effective in reducing energy use, as we find substantial rebound effects, both domestically and for all non-energy good sectors. The sector-specific results crucially depend on the energy and capital intensities of the respective sectors. Moreover, we find that our more sophisticated representation of capital lowers the simulated rebound effects. Conversely, existing traditional rebound assessments with a homoge-nous capital stock may overestimate rebound effects.Chapter 3 adds to the scarce knowledge on the rebound mechanisms that actually cause energy efficiency to be less efficient than anticipated. It illustrates that industrial energy efficiency improvements in Switzerland lead to economy-wide rebound effects in equal parts via partial equilibrium and general equilibrium channels. We find this by undertak-ing a decomposition analysis of rebound effects. We show composition and trade effects (i.e. general equilibrium effects) to be the main rebound mechanisms for energy-intensive industries. Sectors with a high share of value added, however, primarily rebound due to substitution away from capital towards energy. Chapter 4 analyses the mitigation of rebound effects with economic instruments in order to maximize the energy savings from efficiency improvements. We explore the suitability of uniform taxes to increase the efficacy of energy efficiency in reducing energy use and investigate the economic impact of such taxes. The tax rates are endogenously determined to fully offset economy-wide rebound effects in Switzerland. We demonstrate that the economic gains from the energy efficiency improvements still outweigh the costs of the taxation if revenue is recycled by reducing pre-existing taxes. The more energy carriers are taxed simultaneously, the more efficient the tax scheme is, as unwant-ed substitution effects can be avoided. We demonstrate that rewarding energy-reducing sectors in a bonus-malus scheme proves the most efficient way to mitigate rebound effects, as it retains most of the economic gains of the energy efficiency improvements.In conclusion, we show that it is essential to evaluate the expected rebound effects and to compensate for them with complementary policies, such as energy taxes. Such economic policy instruments could mitigate rebound effects for sectors with strong partial equilibrium rebound mechanisms, while for energy-intensive sectors a more holistic ap-proach using multiple policy instruments needs to be pursued. Finally, we highlight the potential for rebound mitiga-tion to increase energy savings from energy efficiency improvements.