This seminar is based on a paper co-authored by Elena Verdolini and Michele Maurizio Malpede.

The term "rebound effect" indicates a reduction in the expected gains associated with increases the energy efficiency due to behavioural or other systemic responses. Specifically, increased energy efficiency can be seen as a reduction in the relative price of using energy. As a result, demand for energy would increase, partly offsetting the benefits of the energy efficiency improvement. In this paper, we apply the methodology of Saunders (2013) to estimate the rebound effect for 5 major European economies (Germany, France, Italy, the UK and Spain) over the years 1995-2009. We show that computing rebound estimates only accounting for improvements in the efficiency of energy use gives rise to estimated in the range of 50-60%. Conversely, if the methodology accounts for improvements in all factors of production (labor, capital, energy and material), results consistently indicate historic back-fire. This analysis suggests that the emission reduction potential of energy efficiency improvements should be carefully assessed, as it may currently be overstated.