Scandinavian Working Papers in Economics

Working Papers,
National Institute of Economic Research

No 150: Assessing the Rebound Effect in Energy Intensive Industries: A Factor Demand Model Approach with Asymmetric Price Response

Anna Dahlqvist (), Tommy Lundgren () and Per-Olov Marklund ()
Additional contact information
Anna Dahlqvist: National Institute of Economic Research, Postal: National Institute of Economic Research, P.O. Box 3116, SE-103 62 Stockholm, Sweden
Tommy Lundgren: Centre for Environmental and Resource Economics, Umeå University and Swedish University of Agricultural Science
Per-Olov Marklund: National Institute of Economic Research, Postal: National Institute of Economic Research, P.O. Box 3116, SE-103 62 Stockholm, Sweden

Abstract: The purpose of this paper is to analyze the direct rebound effect poten-tially prevailing in energy intense industries. The rebound effect repre-sents economic mechanisms that will offset energy savings from energy efficiency improvements. For this purpose, a factor demand model is applied incorporating an asymmetric energy price response. Asymmetric prices imply that firms respond more strongly to energy price increases than to energy price decreases. In the empirical model we use a firm level, unbalanced panel covering the years 2001 to 2012 and four major Swedish energy-intensive industries; pulp and paper, iron and steel, chemical, and mining. The result indicates that the rebound effect is considerable in these industries. To mitigate this effect, the results sug-gest that policies stimulating an increase in energy efficiency should be combined with a raise in energy taxes.

Keywords: Asymmetric price response; Energy efficiency; Factor de-mand model; Own-price elasticities; Voluntary Energy Efficiency Pro-grams; Rebound effect

JEL-codes: Q41; Q48

34 pages, December 18, 2017

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