Energy Efficiency and Local Macro Rebound Effects: Theory and Experimental Evidence from Rwanda

Abstract Energy efficiency is a key component of climate policy. The rebound effect, namely the increases in demand in response to efficiency-induced price reductions, potentially nullifies some of the energy savings from energy-efficiency improvements. This paper examines macro rebound effects following the introduction of energy-efficient biomass cookstoves (EEBCs) in rural Sub-Saharan Africa. It presents a model of biomass supply and demand, and empirically evaluates a government pilot project in Rwanda that randomly subsidized EEBCs at the village level, leading to exogenous variation in adoption rates. The paper explores consumption spillovers to nonadopters through price reactions on local village markets, referred to as the “local macro rebound effect.” The theoretical model and empirical results show that equilibrium response effects can take different forms, depending on the local context. The paper identifies conditions that determine the shape and size of such effects.