REBOUND EFFECT FOR UK RESIDENTIAL SECTOR IAEE Conference, Singapore, June 18-21, 2017 Mona Chitnis (University of Surrey) Roger Fouquet (LSE) Steve Sorrell (University of Sussex)

Outline Rebound mechanisms Data overview Model Results Discussion

Higher room temperature or leaving the heating on for longer Rebound mechanisms for households Total Rebound=Direct Rebound+Indirect Rebound Indirect Rebound Lower heating cost and fuel bills Lighting More or less emissions Less emissions Higher room temperature or leaving the heating on for longer Lower running cost for heating Direct Rebound More emissions

Measuring energy service price and Consumption Data Sources (e.g. DECC, ONS) pE E Energy Price (e.g. pence per kWh) Energy Consumption (e.g. TWh for lighting) Energy Efficiency (e.g. lumen-hours per kWh) Consumer demand is for energy Service (Heating, Cooling, Transport, Light, …) and not energy (fuel) itself. So the right thing is to focus on energy services rather than energy but many papers have focused on energy demand/rebound mainly because the efficiency data are not available. Comparable with new Energy Sources or new Technologies LR Divergences in Price of Energy and of Energy Services So, especially for the Long Run, important to focus on Energy Services Energy Service Price (e.g. £ per lumen-hour) Energy Service Consumption (e.g. millions of lumen-hours)

Energy services in this presentation Lighting Heating Wet and cold appliances Other appliances Cooking Car transport Explain what type of things/fuel they include Heating and Cooking: electricity, gas, petroleum, coal

Average efficiency by energy service in the UK 1964-2015 (index, 1964=100)

Real price of energy services (index, 1964=100) Real price of energy for services (index, 1964=100)

Consumption of energy services per equivalised person (index, 1964=100) Energy consumption per equivalised person (index, 1964=100)

Total rebound estimation (in terms of CO2) where: Direct Indirect : own-price elasticity of service s : cross-price elasticity of service i with respect to service s ui: CO2 intensity of service i us: CO2 intensity of service s wi: budget share of service i ws: budget share of service s

Two stage budgeting model Household expenditure Energy services Lighting Heating Wet and cold appliances Other appliances Cooking Transport Car Other transport Other goods and services Stage 1 Stage 2

Almost Ideal Demand System (AIDS) Stage 1: r, z: 1, 2, 3 where: wr=budget share of category r Pz=price of category z x=total expenditure per equivalised person P=Laspeyres-like price index Adding up: Symmetry: Homogeneity: Explain the implication of each restriction.

Almost Ideal Demand System (AIDS) Stage 2: i, j: 1, …, 4 where: wi=budget share of service i Pj=price of service j xr=total expenditure on services per equivalised person Pr=Laspeyres-like price index Adding up: Symmetry: Homogeneity:

Elasticities for two-stage budgeting model Combined elasticities of stages 1 and 2 to obtain total price and expenditure elasticities for each energy and transport service (Edgerton 1997). Within group elasticities: Income elasticity Uncompensated price elasticity : Kronecker’s delta equal to one when r=s and zero elsewhere. Total/between group elasticities: Income elasticity Uncompensated price elasticity UK household annual time series data 1964-2015 Iterative Seemingly Unrelated Regressions (ISUR) method for system estimation

Estimated average elasticities Total expenditure elasticities for energy services Lighting Heating Wet & cold appliances Other appliances Cooking Car transport Expenditure elasticity 0.96 1.29 1.10 0.99 0.81 0.89 Total price elasticities for energy services   Price elasticity Lighting Heating Wet & cold appliances Other appliances Cooking Car transport -0.936 0.381 0.088 0.059 0.036 -0.037 0.040 -0.696 0.065 0.031 0.044 -0.050 0.050 0.343 -0.922 0.049 -0.043 0.061 0.438 0.098 -0.939 0.064 -0.039 0.037 0.382 0.084 0.048 -0.917 -0.032 -0.004 -0.03 -0.006 -0.003 -0.54 Own-price elasticities except for heating generally look high though there is no other work to compare for appliances and cooking. Similarly, cross-price elasticities look generally high but no work too compare.

Estimated average rebound effects Rebound effects between energy and transport services   Lighting Heating Wet & cold appliances Other appliances Cooking Car transport 93.6% -39.4% -8.0% -5.1% -3.7% 1.8% -3.9% 69.6% -5.7% -3.8% 1.4% -5.5% -39.3% 92.2% -5.2% Other appliance -7.0% -35.6% -8.3% 93.9% 2.0% -3.6% -42.7% 91.7% 1.9% 0.7% 9.7% 0.6% 54.2% Direct, indirect and total rebound effects for energy and transport services   Direct rebound Indirect rebound (energy and transport services only) Total rebound Lighting 93.6% -54.3% 39.31% Heating 69.6% -15.9% 53.68% Wet & cold appliances 92.2% -53.3% 38.92% Other appliances 94.0% -54.5% 39.40% Cooking 91.7% -57.8% 33.91% Car transport 54.2% 13.1% 67.26%

Discussion Data assumptions and limitations No backfire, but rebound is not negligible and should not be neglected Indirect rebound plays an important role Capital cost is within the expenditure on other goods and service/other transport categories Indirect rebound of non-energy goods is neglected Average rebound over the sample period rebound over the sample period Comparison with rebound based on energy/transport fuel demand

REBOUND EFFECT FOR UK RESIDENTIAL SECTOR IAEE Conference, Singapore, June 18-21, 2017 Mona Chitnis (University of Surrey) Roger Fouquet (LSE) Steve Sorrell (University of Sussex)