Decomposition of rebound effect of improving gasoline consumption efficiency into substitution and output effects with emphasis on transportation sector: CGE model

The consumption of gasoline, as an important oil product, is very high in Iran in comparison with the regional and global average. Hence, serious provisions should be made for improving gasoline consumption efficiency along with other economic policies including price policies. Since the improvement of energy efficiency is associated with the formation of a rebound effect, the ignorance of the rebound effect may lead to ineffectiveness or low effectiveness of efficiency improvement policies. The main objective of this paper is to explain quantitatively the factors affecting the rebound effect of "gasoline" and "other petroleum products" and to decompose the rebound effect into substitution and output effects. The results of simulation a computable general equilibrium (CGE) model shows that, first, the rebound effect of "gasoline" and "other petroleum products" is positive in all sectors of the economy including transport sub-sectors. Second, the manufacturing sectors accounting for the largest share of total gasoline consumption have large shares of the rebound effect in the country. Third, the decomposition of the rebound effect in the level of production activities indicates the dominance of substitution effect on the output effect in the short run.