Energy efficiency and Energy Demand: A Historical CGE Investigation on the Rebound Effect in the Swedish Economy 1957

Abstract

The improvement in energy efficiency is one major strategy for fulfilling the goal concern-ing reduction in the emissions of greenhouse gases. However, the efficiency improvements at the micro or plant level are seldom fully realised on the macro level, which means that the use of energy and, subsequently, the reduction of greenhouse gases are not reduced in the same proportion on the aggregate level. The effect where energy efficiency improve-ments on the micro level are not realised to the full extent on the aggregate level is denoted the rebound effect in the literature and can under certain conditions be of significant mag-nitude. The aim of this paper is to examine the rebound effect in historical perspective as a mecha-nism that can explain the appearance of the Swedish Environmental Kuznets Curve (EKC). From the basis of a simple EKC model incorporating technological change and preference change, it is argued that the rebound effect is an integrated part of the time path between chosen consumption bundles of good and bad outputs. It is also argued that the rebound effect and its impact on the EKC performance can be analysed using a CGE approach. This is exemplified in the paper by the implementation of a CGE model for the Swedish economy in 1957. JEL classification: Q43.