Rebound Effects of Improved Energy Efficiency in Energy Intensive Industries: An Intertemporal Dynamic General Equilibrium Model

Energy-intensive industries in Iran are responsible for a significant share of energy consumption, especially oil products. Therefore, there is a major focus on promoting energy efficiency in such industries. Energy efficiency improvement results in rebound and backfire effects. In this paper we estimate the effects of fuel oil efficiency improvement in energy intensive industries based on intertemporal general equilibrium model. Simulation for long run period is done for two scenarios, including 3.1% efficiency improvement in energy intensive industries and all sectors of economy. Results show that the rebound effects in chemical industry, food and beverage, basic metal, paper, Rubber and plastic, non- metallic minerals, and wood industries leads to rebound effects in the first scenario. In the long-run, backfire effects are seen in the second scenario in which efficiency improvements for all sectors is considered. In addition, efficiency improvement will result in production cost decrease. Chemical and non- metallic mineral industries experiencing the most decreases of production cost around 1.1% and 0.7%, respectively.