Living up to expectations

Transcription

1 Lvng up to expectaton Etmatng dect and ndect ebound effect fo UK houehold by Mona Chtn* and Steve Soell** * Suey Enegy Economc Cente (SEEC), School of Economc, Unvety of Suey, UK ** Suex Enegy Goup, Scence Polcy Reeach Unt (SPRU), Unvety of Suex, UK SLRG Wokng Pape See ISSN:

2 The Sutanable Lfetyle Reeach Goup (SLRG) a mult-cente eeach netwok collaboatng to futhe undetandng of the oppotunte and contant on utanable lvng n the UK. The SLRG coodnated fom the Unvety of Suey, and bng togethe poject team fom Suey Cente fo Envonmental Stategy (CES) and Depatment of Socology and Pychology. It alo nclude team at othe ntenatonally acclamed eeach cente: the Unvety of Suex Scence Polcy Reeach Unt; the Inttute fo Fcal Stude; the Unvety of Ednbugh; the Unvety of Bath; and Bunel Unvety. SLRG dected by Pofeo Tm Jackon, Pofeo of Sutanable Development at the Unvety of Suey, wth Pofeo Andy Stlng of the Unvety of Suex a deputy decto. The netwok coodnated by Ian Chte, eeach fellow at CES. Funded by the Depatment fo Envonment, Food and Rual Affa (Defa), the Scotth Govenment and the Economc and Socal Reeach Councl (ESRC), SLRG buld on the pathbeakng eeach of the Unvety of Suey pevou Reeach, ESRC-funded pogamme RESOLVE Reeach on value, lfetyle and envonment, alo dected by Pofeo Tm Jackon. SLRG wok n patnehp wth t te pogamme the Sutanable Pactce Reeach Goup (SPRG), funded by the ESRC and coodnated by Pofeo Dale Southeton at the Unvety of Manchete. SLRG and SPRG am to document and analye the complex lnk between lfetyle, conumpton, eveyday pactce, value and the tanton to utanable way of lfe. Whle SPRG focue on patcula conumpton pactce and technologe, SLRG poject examne the lfetyle of houehold and communte and model the mplcaton of conumpton choce and value. The wokng pape n th ee eflect the output, fndng and ecommendaton emegng fom a tuly nte-dcplnay eeach pogamme aanged aound fou thematc eeach tand: Moment of tanton: n-depth quanttatve and qualtatve eeach wth houehold to undetand the value, atttude and habt nfomng the lfetyle, and to ae the mpact of moment of majo change - movng houe, the aval of the ft chld, and etement - on habt and apaton. Communty and lfetyle change: tude of utanable lfetyle change and nnovaton at the level of communte, focung on emote ual localte n Scotland and on cvl ocety ntatve fo food gowng and local elence n England. Economc modellng of lfetyle change: tude focung on the ze and natue of ebound effect n enegy ue that could educe o cancel out the gan fom enegy effcency advance; and on the pce eponvene of conumpton n elaton to enegy and utanably poduced foodtuff. Synthe of eeach and mplcaton fo polcy: wokhop and pape eekng to ntegate fndng and concept aco the ute of SLRG and SPRG poject; and eeach nto the elatonhp of eeach evdence on utanable lvng to polcy development. Fo futhe nfomaton about ou eeach pogamme o the SLRG Wokng Pape ee pleae vt ou webte

3 SLRG Wokng Pape Sutanable Lfetyle Reeach Goup Cente fo Envonmental Stategy (D3) Unvety of Suey Guldfod, GU2 7XH, UK Contact detal Coepondng autho: Steve Soell, Suex Enegy Goup, SPRU (Scence and Polcy Reeach Unt), Unvety of Suex, Bghton, UK Tel. +44 (0) , Acknowledgement The uppot of the Depatment fo Envonment, Food and Rual Affa (Defa), the Economc and Socal Reeach Councl (ESRC) and the Scotth Govenment gatefully acknowledged. Th wok pat of the eeach pogamme of SLRG - the Sutanable Lfetyle Reeach Goup. ISSN: Sutanable Lfetyle Reeach Goup (SLRG), 2015 The vew expeed n th document ae thoe of the autho and not of the SLRG, ESRC, Defa, The Scotth Govenment o the Unvety of SueyA.bRteaacton able effot have been made to publh elable data and nfomaton, but the autho and the publhe cannot aume eponblty fo the valdty of all ma teal. Th publcaton and t content may be epoduced a long a the efeence

4 Abtact Th tudy etmate the combned dect and ndect ebound effect fom vaou type of enegy effcency mpovement by UK houehold. In contat to mot tude of th topc, we bae ou etmate on co-pce elatcte and theefoe captue both the ncome and ubttuton effect of enegy effcency mpovement. Ou appoach nvolve etmatng a houehold demand model to obtan pce and expendtue elatcte of dffeent good and evce, utlng a multegonal nput-output model to etmate the GHG emon ntente of thoe good and evce, combnng the two to etmate dect and ndect ebound effect, and decompong thoe effect to eveal the elatve contbuton of dffeent mechanm and commodte. We etmate that the total ebound effect ae 63% fo meaue that mpove the effcency of dometc ga ue, 53% fo electcty ue and 46% fo vehcle fuel ue. The pmay ouce of th ebound nceaed conumpton of the cheape enegy evce (.e. dect ebound) and th pmaly dven by ubttuton effect. Ou eult ugget that the neglect of ubttuton effect may have led po eeach to undeetmate the total ebound effect. Howeve, we povde a numbe of caveat to th concluon, a well a ndcatng pote fo futue eeach. Keywod: Rebound effect; Income and ubttuton effect; lnea almot deal demand ytem 2

5 1 Intoducton Rebound effect a wdely ued tem fo a vaety of economc epone to mpoved enegy effcency. The net eult of thee effect typcally to nceae enegy conumpton and geenhoue ga (GHG) emon elatve to a countefactual baelne n whch thee epone do not occu. To the extent that ebound effect ae neglected n polcy appaal, the enegy and emon aved by uch meaue may be le than antcpated. Stude of ebound effect fo conume typcally focu upon the dect effect that eult fom nceaed conumpton of cheape enegy evce. Fo example, fuel-effcent ca make dvng cheape o people may dve futhe and/o moe often (Small and Van Dende, 2007; Soell, 2007). But a compehenve accountng of the global envonmental mpact of enegy effcency mpovement mut alo take nto account vaou ndect ebound effect. Fo example, any avng on petol bll may be put towad nceaed conumpton of othe good and evce whoe povon alo nvolve enegy ue and emon at dffeent tage of the global upply chan (Chtn et al., 2013; Duckman et al., 2011b). To quantfy ndect ebound effect, t neceay to combne econometc analy of houehold (e)pendng patten wth etmate of the enegy and emon emboded wthn dffeent categoe of good and evce. The latte, n tun can be deved fom envonmentally extended, multegonal nput-output model (Duckman and Jackon, 2009; Tune et al., 2007; Wedmann et al., 2007). Relatvely few tude etmate both dect and ndect ebound effect and mot of thee ely upon expendtue elatcte athe than co-pce elatcte. A a eult, they captue the ncome effect of enegy effcency mpovement but not the ubttuton effect (Chtn et al., 2014). To appecate the dtncton, conde a houehold that ntall nulaton and 3

6 ecove the captal cot ove ten yea though lowe heatng bll. Snce the bll avng exactly offet the captal cot, thee no nceae n eal ncome ove th peod o the ncome effect zeo. Hence, tude that focu olely upon ncome effect would etmate the dect and ndect ebound effect ove that peod to be zeo a well. But nce the unt cot of heatng ha fallen elatve to that of othe good and evce, the houehold lkely to conume moe heatng and fewe good and evce that ae ubttute to heatng. At the ame tme, the houehold may conume moe of othe good and evce that ae complement to heatng. The net eult wll be a hft n conumpton patten and hence a change n the GHG emon aocated wth that conumpton that may offet the ognal emon avng. Hence, t poble that tude that neglect ubttuton wll undeetmate ebound effect. Th tudy theefoe addee the lmtaton of the extng lteatue by: a) etmatng the magntude of both dect and ndect ebound effect followng the adopton of enegy effcency meaue by houehold; b) dentfyng the elatve contbuton of ncome and ubttuton effect to thee eult; and c) dentfyng the elatve contbuton of ndvdual good and evce. Th the ft tudy to etmate thee effect fo UK houehold, a well a the ft to decompoe them to th level of detal. The pape tuctued a follow. Secton 2 ntoduce the elevant concept, hghlght ome methodologcal tade-off and ummae the extng lteatue. Secton 3 outlne the methodology, ncludng the data ouce ued, the economc model adopted and the econometc technque employed. Secton 4 peent the eult, ncludng the etmate of dect and ndect ebound effect and the contbuton of dffeent mechanm and commodte to thoe effect. Secton 5 dcue the obutne of the eult and hghlght ome mplcaton. Secton 6 conclude. 4

7 2 Concept and pevou wok 2.1 Dect ebound effect Cot-effectve enegy effcency mpovement educe the effectve pce of enegy evce uch a heatng and lghtng, theeby encouagng nceaed conumpton of thoe evce that offet the ntal enegy and emon avng. The magnal change n the enegy ( q e ) equed to povde a gven quantty of enegy evce ( q ) followng a magnal change n enegy effcency ( q / qe ) may be expeed a: ln qe q, e ln 1 A hown by Soell and Dmtopoulo (2007a), th may be wtten a: q, q, p e Whee q, p the own-pce elatcty of demand fo the enegy evce ( q ) wth epect to the enegy cot of that evce ( p p e / ). The negatve of th elatcty commonly taken a a meaue of the dect ebound effect (R D ) (Soell and Dmtopoulo, 2007a): R D q, p 3 1 q Gven qe q / e q q p, q f ( p ) and p p e /, we have: q e, = 2 qe qe p q 1 pe q q pe q p q O: qe, 1. So: q,, 1 e q p qe p qe qe p q p 5

8 If the enegy evce a nomal good ( 0 q, p ) thee wll be a potve dect ebound effect ( R 0 ). Th may be decompoed nto a ubttuton effect and an ncome effect 2 D ung the Slutky equaton: q, p ~ 4 q, p w q, x Whee: w the hae of the enegy evce n total houehold expendtue (x); q, x the expendtue elatcty of the enegy evce; and ~ q, p the compenated own-pce elatcty of demand fo the enegy evce, holdng utlty (u) contant: pq w x ; ln q q, x ln x ; and ~ ln q q, p 5 ln p ucontant In Equaton 4, ~ meaue the ubttuton effect whle w q, x meaue the ncome q, p effect. Thee may offet o enfoce one anothe. Table 1 ummae the nfluence of thee tem on the gn of the dect ebound effect. 2 The fome the change n conumpton that would eult fom the change n elatve pce f eal ncome wee adjuted to keep utlty contant, whle the latte the change n conumpton that would eult excluvely fom th change n eal ncome. 6

9 Table 1 Detemnant of the gn of the dect ebound effect Natue Sgn of Sgn of Relatve ze of Sgn of Sgn of of expendtue compenated ncome and uncompenated dect enegy elatcty own-pce ubttuton own-pce ebound evce elatcty effect elatcty effect Nomal, x 0 ~, 0 Not elevant, 0 R 0 q q p q p D good Infeo good, x 0 ~ 0, q q p ~, 0 R D 0 q, p w q, x q p Gffen good, x 0 ~ 0, q q p ~, 0 R D 0 q, p w q, x q p 2.2 Indect ebound effect Enegy effcency mpovement may alo change the quantty demanded of othe good and evce. Thee nclude both othe enegy evce (e.g. heatng) and othe non-enegy good and evce (e.g. funtue) that embody the enegy and emon equed to manufactue, tanpot and delve them. Thee change n conumpton patten wll mpact enegy ue and emon at each tage of the elevant upply chan. Fom a global pepectve, thee change may ethe offet o add to the enegy and emon avng fom the enegy effcency mpovement dependng on whethe the quantty demanded of the elevant good o evce ha nceaed o fallen. The ndect ebound effect ( R I ) fom an ndvdual commodty () wll be popotonal to th change n enegy and emon, whch n tun wll depend upon: the enegy o emon ntenty of the commodty elatve to that of the 7

10 enegy evce; and the elatcty of demand fo the commodty wth epect to the pce of the enegy evce. The latte defned a: ln q q j, p 6 ln p Agan, th elatcty can be decompoed: q, p ~ w q, p q, x 7 Whee: w the hae of the enegy evce n total houehold expendtue; q, x the expendtue elatcty of commodty ; and commodty wth epect to the enegy cot of the enegy evce: ~ the compenated elatcty of demand fo q, p pq w x ; ln q q, x ln x ; and ~ ln q q, p 8 ln p ucontant Agan, the ubttuton effect fo commodty ( effect ( w q, x ~ ) may offet o enfoce the ncome q, p ). Table 2 ummae the nfluence of thee tem on the gn of the ndect ebound effect aocated wth commodty. Commodte that ae go complement (ubttute) to the enegy evce wll contbute a potve (negatve) ndect ebound effect, wth the oveall effect beng gven by the um of thee ove all commodte ( R R ). I I 8

11 Table 2 Detemnant of the gn of the ndect ebound effect fo commodty j Natue of Sgn of Sgn of Relatve ze of Sgn of Sgn of commodty expendtue compenated ncome and uncompenated ndect elatcty co-pce ubttuton effect co-pce ebound fo elatcty elatcty effect fo commodty commodty Nomal, x 0 ~ 0 q q, p Not elevant 0 q, p R I 0 good Net Go complement complement Nomal good, x 0 ~ 0 q q, p Net ubttute ~ q, p w q, x q, p Go 0 R I 0 complement Nomal good, x 0 ~ 0 q q, p Net ubttute ~ q, p w q, x q, p 0 Go ubttute R I 0 Infeo good, x 0 ~ 0 q q, p Net ~ q, p w q, x q, p Go 0 R I 0 complement complement Infeo good, x 0 ~ 0 q q, p Net ~ q, p w q, x q, p 0 Go ubttute R I 0 complement Infeo, x 0 ~ 0 q q, p Not elevant 0 q, p R I 0 good Net ubttute Go ubttute 9

12 2.3 Tade-off n etmatng dect and ndect ebound effect To etmate dect and ndect ebound effect we need the own- and co-pce elatcte fo the elevant enegy evce. Th eque the etmaton of a houehold demand model - namely, a ytem of n equaton epeentng houehold demand fo n commodte a a functon of total expendtue, commodty pce and othe vaable, wth one of thee commodte beng the enegy evce (). A gowng numbe of tude etmate own-pce elatcte fo ndvdual enegy evce ( ), but to ou knowledge no tudy ha etmated co pce elatcte ( q, p q j, p ) owng the dffculte of pecfyng enegy evce a a commodty wthn a houehold demand model (Soell, 2010). Snce enegy evce ae poduced fom a combnaton of enegy commodte (e.g. ga) and duable good (e.g. bole), pecfyng the enegy cot ( p ) and quantty demanded ( q ) nvolve combnng data on enegy commodty puchae wth addtonal data on the ownehp and enegy effcency of the elevant duable (Conad and Schöde, 1991). Snce th data may not be avalable, a mple altenatve to etmate a model fo puchaed commodte () and to mulate enegy effcency mpovement by a educton n the pce of the elevant enegy commodte (l) (e.g. 2007). So, fo example, moe effcent bole may be mulated by a educton n the unt pce of natual ga (p l ), nce both wll educe the enegy cot of heatng (p ). Elatcte may then be etmated wth epect to enegy commodty pce ( p l ), athe than enegy evce pce ( p ) and ued to etmate both dect and ndect ebound effect. Th appoach mple to mplement but, a dcued below, may potentally lead to baed etmate of ebound effect. 10

13 It common to fomulate houehold demand model n tem of expendtue ( x ) athe than quantty demanded ( q ) nce expendtue ae eae to meaue. The followng elatonhp may be deved: x, p 1q, p ; ~ 1 ~ ; 9 x, p q, p j x, p q, p j ~ ~ x, p q, p 10 j j j ; 11 x, x q, x Houehold demand model can be etmated fom pooled co-ectonal data on houehold expendtue and commodty pce. But the numbe of coeffcent to be etmated lmt the degee of feedom 3, wth the eult that expendtue need to be aggegated nto a lmted numbe of commodty goup. Fo the ame eaon, uch model povde lmted cope fo ncludng covaate and typcally eque etcton to be mpoed upon the paamete value to nceae the degee of feedom. A common tategy to aume epaablty of pefeence between aggegate commodty goup uch a food and tanpot, mplyng that decon on how much to pend on one goup (e.g. tanpot) ae epaate fom decon on how to allocate th expendtue between the good and evce wthn that goup (e.g. bu, 3 Fo example, uppoe the demand equaton took the fom: lnq lnx j ln p j ; whee the expendtue elatcty fo commodty and j ae the pce elatcte. In th ytem of n equaton thee ae n ntecept ( 1, 2... n ), n expendtue elatcte ( 1, 2... n ) and n 2 pce elatcte ( j, j 1,... n ), leadng to a total of n(2+n) coeffcent. So fo example, f thee wee ten commodty goup (n=10) thee would be 120 coeffcent to etmate, mplyng the need fo long tme ee. 11 j1, n

14 ca o tan tavel) (Deaton and Muellbaeu, 1980). 4 Th a etctve aumpton, but t can wok eaonably well f the categoe ae well choen An altenatve appoach to ue co-ectonal data on houehold expendtue to etmate Engel cuve fo each commodty goup ndcatng how expendtue on each commodty vae wth total expendtue (Deaton and Muellbaeu, 1980). Engel cuve allow expendtue elatcte to be etmated but not pce elatcte - nce the data povde no vaaton n commodty pce. A a eult, they only allow the ncome effect of enegy effcency mpovement to be etmated and not the ubttuton effect. Howeve, Engel cuve ae mple to etmate than full houehold demand model and pemt the daggegaton of houehold expendtue nto a lage numbe of commodty goup. Snce thee ae typcally moe degee of feedom, they alo make t eae to nclude covaate and eque fewe etcton. The choce of methodologcal appoach theefoe nvolve ome tade-off and wll depend upon the objectve of the tudy (Soell, 2010). We etmate a full houehold demand model n what follow, becaue we ae patculaly nteeted n the elatve ze of ncome and ubttuton effect. 2.4 Pevou wok Table 3 and 4 clafy the lmted numbe of tude that etmate both dect and ndect ebound effect fo houehold - wth thoe n Table 3 ung expendtue elatcte (ncome effect) and thoe n Table 4 ung co-pce elatcte (ncome and ubttuton effect). Whle mot tude focu upon mpoved enegy effcency n electcty, heatng o ca 4 Weak epaablty mple that the magnal ate of ubttuton between commodte n one goup ndependent of the quantte of othe commodte n othe goup. Th allow the demand fo commodte wthn a goup to be wtten olely a a functon of the expendtue on the goup and the pce of commodte wthn the goup, wth the pce of othe commodte only affectng the goup expendtue and not the allocaton of expendtue wthn the goup. 12

15 tavel, othe examne uffcency meaue uch a educng ca tavel o food wate. 5 Dffeent tude etmate ebound effect n enegy, cabon and GHG tem, but no tudy etmate and compae all thee. Th dvety, combned wth the methodologcal lmtaton of each tudy (Soell, 2010) make t dffcult to daw obut concluon.. 5 Snce uffcency meaue do not change the effectve pce of the enegy evce, thee ae no aocated ubttuton effect. 13

16 Table 3: Stude etmatng combned dect and ndect ebound effect fo houehold ncome effect only Autho Regon No. of commodty categoe Meaue Aea Metc Enegy/ emon Lenzen and Day Autala 150 Effcency & Food; heatng GHG Dect and (2002) uffcency emboded Alfeddon Sweden 300 Suffcency Food; tavel; utlte CO 2 Dect and (2004) emboded Duckman et al UK 16 Suffcency Tanpot, heatng, GHG Dect and (2011a) food emboded Thoma and US 13 Effcency Tanpot, electcty Enegy and Dect and Azevedo CO 2 emboded (2013) Muay Autala 36 Effcency & Tanpot, lghtng GHG Dect and (2013) uffcency emboded Chtn et al UK 16 Effcency Heatng, lghtng GHG Dect and (2013) emboded Chtn et al UK 16 Effcency and Tanpot, heatng, GHG Dect and (2014) uffcency lghtng, food emboded Etmated ebound effect (%) % 7-300% 7-51% 7-25% 4 24% 5 15% 5-106% 14

17 Table 4: Stude etmatng combned dect and ndect ebound effect fo houehold ncome and ubttuton effect Autho Regon No. of commodty categoe Meaue Aea Metc Enegy/ emon Etmated ebound effect (%) Bannlund et al (2007) Sweden 13 Effcency Tanpot; utlte CO 2 Dect and emboded % Mzobuch (2008) Japan 13 Effcency Tanpot; utlte CO 2 Dect and 12-38% emboded Ln et al (2013) Chna 10 Effcency Tanpot; utlte CO 2 Dect and 37% Katena and Wuge (2008) Auta 6 Effcency Tanpot; heatng; electcty emboded Enegy Dect only 37-86% 15

18 Bannlund et al (2007) wa the ft tudy to ue co-pce elatcte to etmate combned dect and ndect ebound effect. Ung uvey data fo Swedh houehold ove the peod , Bannlund et al etmate a houehold demand model 6 fo 13 categoe of nonduable expendtue. Sepaablty aumpton ae ued to: ft, allocate expendtue between duable and non-duable; econd, allocate non-duable expendtue between fou aggegate goup (food, tanpot, dometc enegy and othe); and thd, dtbute the goup expendtue between ndvdual commodte wthn each goup (e.g. dometc enegy ubdvded nto ol, electcty and dtct heatng). Bannlund et al then mulate a 20% enegy effcency mpovement n tanpot and dometc enegy by educng the pce of each commodty n popoton to the etmated contbuton of enegy to total cot, and then ecalculate the model to etmate the mpact on global cabon emon. The eult ugget a ebound effect of 121% fo tanpot effcency mpovement, 175% fo dometc enegy and 140% fo both combned. 7 Bannlund et al do not epaately nvetgate effcency mpovement n electcty and heatng fuel, do not dtnguh between dect and emboded emon and do not calculate the elatve contbuton of ncome and ubttuton effect to the eult - depte etmatng the elevant elatcte. Moe mpotantly, the etmated ebound effect ae emakably lage and ugget that dect ebound effect alone exceed 100%. Th contadct the eult of a gowng body of wok that etmate dect ebound effect fo thee enegy evce n OECD houehold (Soell et al., 2009), togethe wth a lage body of wok that etmate the coepondng enegy pce elatcte (Soell and Dmtopoulo, 2007b). 6 All thee of the tude decbed hee etmate the lnea Lnea Almot Ideal Demand Sytem (LAIDS) ntoduced by Deaton and Muellbaue (1980). 7 The peentaton of eult mleadng. Fo example, tanpot effcency etmated to educe cabon emon by 6.2% n the abence of ebound effect but to nceae cabon emon by 1.3% once ebound effect ae accounted fo. Bannlund et al. epot th a a ebound effect of 7.5%, wheea the coect value 121%. 16

19 Mzobuch (2008) take a mla appoach to Bannlund et al, ung monthly expendtue data fo Japanee houehold ove the peod He alo employ multtage budgetng, but n contat to Bännlund et al, the 13 commodte epeent expendtue on both duable and non-duable (e.g. both ca and oad fuel) and hence cove all houehold emon. Mzobuch mulate multaneou educton n the pce of dometc enegy and oad fuel, but the pecentage mpovement ae dffeent fom thoe n Bannlund et al and vay fom one commodty to anothe. Two cenao ae nvetgated: one whee the effcency mpovement ae cotle, and a econd whee adjutment ae made to eflect the addtonal captal cot of enegy-effcent equpment. 9 Th lead to an etmated ebound effect of 115% n the ft cenao (mla to Bannlund et al) and 27% n the econd. Mzobuch ague that allowng fo captal cot educe the cot avng and hence the etmated ebound effect. But the manne n whch th cenao mplemented alo change the elatve cot avng between electcty, ga, heatng ol and vehcle fuel, leadng to ubttuton between them that modfe the etmated ebound effect. Snce Mzobuch doe not epot the ebound effect fo each ndvdual effcency mpovement, the dve of the eult ae obcued. Ln and Lu (2013) alo follow Bannlund et al appoach, ung annual data fo Chnee uban houehold ove the peod The focu a 30% mpovement n enegy effcency fo tanpot and dometc enegy, but the aumed pce educton n each 8 Methodologcal nnovaton nclude Bayean etmaton method and the ue of an teatve pocedue to etmate ebound effect. 9 Mzobuch aume 20% mpovement n the effcency of electcty and oad fuel ue, 10% n ga ue and 3% n heatng ol ue. Achevng thee aumed to eque a 22% nceae n expendtue on duable fo electcty, 35% fo ga, 12% fo heatng ol and 28% fo vehcle. The fnal pecentage change n the pce of the elevant ubcategoy (e.g. ca tanpot) then depend upon the elatve popoton of duable and nonduable expendtue wthn that categoy. The method of calculatng addtonal captal cot cude and lead, fo example, to the odd eult that fuel-effcent ca ae moe expenve than neffcent ca. Th becaue newe and moe fuel-effcent ca of a patcula model type ae moe expenve than olde and le effcent ca of the ame type. But th neglect the dffeence n cot and fuel effcency between model type n the ame yea and between dffeent ze of vehcle. 17

20 ubcategoy ae not pecfed. They etmate a total ebound effect of 37%, of whch 12.6% dect and 24.4% ndect. 10 But they do not epaately etmate the ebound effect fo tanpot and dometc enegy, and do not pecfy the elatve contbuton of ncome and ubttuton effect to the eult. Fnally, Katena and Wuge (2008) povde only a patal pctue nce they confne attenton to a ubet of commodty goup and neglect emboded emon. They fnd lage ebound effect (37-86%), but th tudy ha not been pee-evewed and ha a numbe of weaknee (Soell, 2010). In um, the extng evdence bae lmted and nadequately explaned. The etmated ebound effect fom both the Bannlund and Mzobuch tude appea lage than thoe n Table 3 and ncontent wth the gowng lteatue on dect ebound effect. Alo, none of the tude n Table 4 clafy the elatve contbuton of ncome and ubttuton effect to the eult, o the elatve contbuton of dect and emboded emon. Ou analy addee thee lmtaton. 3 Methodology Ou appoach nvolve etmatng a houehold demand model to deve pce and expendtue elatcte of dffeent good and evce, utlng a multegonal nput-output model to etmate the GHG emon ntente of thoe good and evce, combnng the two to etmate dect and ndect ebound effect, and decompong thoe effect to eveal the elatve contbuton of dffeent mechanm and commodte. Secton 3.1 develop 10 The numbe n the ummay and abtact of Ln and Lu (2013) ae ncoect, whle thoe n the body of the pape ae coect. 18

21 analytcal expeon fo thee effect, Secton 3.2 decbe the econometc model and Secton 3.3 ummae the data. 3.1 Rebound model Aume a houehold make a cotle nvetment that nceae the enegy effcency ( ) of povdng an enegy evce () by / ( 0), theeby educng the enegy cot ( p ) of that evce by p / p ( 0 ). Let Q epeent the houehold baelne GHG emon (dect plu emboded), H the change n emon that would occu wthout any behavoual epone to the lowe cot enegy evce (the engneeng effect ), G the change n emon that eult fom thoe behavoual epone (the e-pendng effect ), and Q H G the net change n GHG emon. The total ebound effect (R T ) then gven by: R T H Q G 12 H H A dcued above, th comped of dect and ndect effect ( R T R D R ) whch I may each be decompoed nto ncome and ubttuton effect ( R D ~ Rˆ R and D D R I ~ Rˆ R ). I I The baelne GHG emon fo the houehold may be wtten a: x Q xu u x 13 ( ) x 19

22 Whee x the expendtue on commodty (n ), x u the GHG ntenty of that expendtue (n tco 2e / ) and x and x u ae the coepondng value of thee vaable fo the enegy evce. The GHG ntente nclude both dect and emboded emon To etmate the engneeng effect ( H ), we aume the conumpton of all commodte eman unchanged whle the enegy cot of the enegy evce fall. The change n expendtue on the enegy evce a a conequence of the engneeng effect then gven by H x q p. Gven that p p and x H H u x we obtan the followng expeon fo the engneeng effect: H u x x 14 To etmate the e-pendng effect ( G ), we mut allow fo the change n expendtue on each commodty goup ( x ).The change n expendtue on the enegy evce telf a a conequence of the engneeng effect gven by x G p q. 11 Addng n the change of expendtue on othe commodty goup we obtan the followng expeon fo the ependng effect: G u x x G x u ( ) x 15 Aumng magnal change, we can ue elatcte to ubttute fo and x n th G x equaton: 11 Fo the enegy evce telf, the total change n expendtue the um of the engneeng and e-pendng effect: H x x x G 20

23 G u x x ( x, p 1) u ( ) x x x, p 16 Subttutng the expeon fo H (Equaton 14) and G (Equaton 16) nto Equaton 12 and notng that w x / x, we ave at the followng expeon fo the total ebound effect: R T (1 x, p ) ( ) x, p 17 Whee: x u w 18 x u w Ung Equaton 9 to 11, the total ebound effect can alo be expeed a: R T q, p ( ) q, p 19 The ft tem n Equaton 19 the dect ebound effect (R D ) and the econd the ndect effect (R I ). The ft depend olely upon the own-pce elatcty of enegy evce demand ( q, p ), whle the econd depend upon the elatcty of demand fo commodty wth epect to the enegy evce ( q, p ) and the GHG ntenty and expendtue hae of that commodty elatve to that of the enegy evce ( ). Hence, commodte wth a mall co pce elatcty may nevethele contbute a lage ndect ebound effect f they ae elatvely GHG ntenve and/o have a lage expendtue hae (and vce vea). Ung the Slutky equaton, we decompoe Equaton 19 a follow: 21

24 R T w ~,, ~ q x w q x 20 q, p q, p ( ) A noted, the challenge of ncopoatng enegy evce wthn a houehold demand model make t dffcult to mplement th appoach dectly. Hence, n what follow we etmate the equed elatcte wth epect to enegy commodte (l) athe than enegy evce (). Table 5 ummae the equed expeon. Table 5 Analytcal expeon fo the component of the ebound effect Dect ebound effect Indect ebound effect fo commodty Income effect ˆ R D wl xl, x R I wl x, x ˆ Subttuton effect ~ R D 1~ x l, p l ~ R I ~ x, p l 3.2 Econometc model A wth the othe tude n Table 4, we bae ou houehold demand model on the Lnea Appoxmaton to the Almot Ideal Demand Sytem (LAIDS). Th ha become the model of choce n houehold demand analy nce t ha numbe of advantage ove competng appoache (Deaton and Muellbaue, 1980). A a compome between eoluton and degee of feedom, we plt houehold expendtue nto 12 ubcategoe (Table 6) and aume epaablty to gve a two-tage budgetng famewok (Fgue 1). Houehold ae aumed to ft allocate expendtue between fou aggegate goup (), and then dtbute the goup expendtue between ndvdual commodte wthn each goup (). Th famewok allow expendtue on commodte wthn a goup to be pecfed a a functon of 22

25 goup expendtue and the pce of commodte wthn the goup alone. A wth Mzobuch (2008), the commodty categoe nclude both duable and nonduable. Table 6 Categoe of good and evce Aggegate Goup () Categoy () COICOP Decpton Stage 1 Stage 2 categoy 1. Food and beveage 1 1 Food and non-alcoholc beveage 2 2 Alcoholc beveage, tobacco, nacotc 2. Tanpot Vehcle fuel and lubcant 4 Ret of 7 Othe tanpot 3. Enegy Electcty Ga and Othe fuel 4. Othe good and evce 8 9 Receaton & cultue 9 11 Retauant & hotel Educaton 11 8 Communcaton 12 Othe to Clothng and footwea Othe houng Funhng, houehold equpment & houehold mantenance Health Mcellaneou good and evce Note: COICOP - Clafcaton of Indvdual Conumpton Accodng to Pupoe. Othe houng nclude ent, motgage payment, mantenance, epa and wate upply. Othe tanpot nclude publc tanpot, nonfuel expendtue on pvate vehcle and ome avaton although a tavel fo package holday ncluded wthn eceaton and cultue. Othe fuel nclude old and lqud. 23

26 Fgue 1 Two-tage budgetng model Houehold expendtue Food & beveage Tanpot Enegy Othe good and evce Food & nonalcoholc beveage Vehcle fuel & lubcant Electcty Receaton & cultue Alcoholc beveage & tobacco Othe tanpot Ga Retauant & hotel Othe fuel Educaton Communcaton Othe Let x t epeent the expendtue on aggegate commodty goup n peod t and w t the factonal hae of that goup n total houehold expendtue ( x t ): t x w t 21 x t In the ft tage of the AIDS model, th pecfed a: w t pt ln( xt / Pt ) 1,..4 1,.. 3 t1 ln w 22 t Whee: and ndex ove the aggegate commodty goup; p t the pce of the aggegate commodty goup n peod t; x t total expendtue pe houehold n that peod; P t the Stone pce ndex fo the aggegate commodte; wt 1 the lagged expendtue hae of commodty goup ;,, and tem. The Stone' pce ndex defned a: ae the unknown paamete and t the eo 24

27 wt 1,..4 ln Pt ln pt 23 Gven the contant on degee of feedom, we do not nclude addtonal covaate. Howeve, ou model depat fom tandad applcaton of LAIDS by ncludng lagged expendtue hae ( wt 1 ) to captue the neta n pce epone - fo example a a eult of habt fomaton. The ncluon of lag alo educe poblem of eal coelaton (Edgeton, 1997; Klona and Hallam, 2003; Ray, 1983; Ryan and Ploude, 2009; Shuku, 2002). Snce the lagged expendtue hae um to unty, we only nclude thee n each equaton to avod mult-collneaty. 12 Retcton ae often mpoed upon the paamete value to enue the eult ae compatble wth conume demand theoy. Specfcally, addng up eque that expendtue on each commodty add up to total expendtue; homogenety eque that quantty demanded eman unchanged f pce and total expendtue change by an equal popoton; and ymmety eque that the compenated co-pce elatcte between two commodte ae equal. Thee may be mplemented a follow: Addng up: 1; 0 ; 0 =1,..4; and 0 =1,..3; Homogenety: 0 =1,..4; Symmety: 12 An altenatve to doppng the lagged budget hae of one commodty would be to mpoe the etcton: 0. Th would not affect the etmated coeffcent. 25

28 The econd tage of the AIDS model dtbute the goup expendtue ( x t ) between ndvdual commodte wthn each goup. Let x t epeent expendtue on commodty n aggegate goup dung peod t ( ) and w t epeent the factonal hae of that commodty n the expendtue on goup ( x t ): t t x wt 24 x Th pecfed a: w t j pj ln( xt / Pt ) jw jt 1 j 1,.. k j1,..( k 1) ln 25 t Whee: and j ndex ove the commodte wthn aggegate goup (, j ); k the numbe of commodte n aggegate goup ; p t the pce of commodty n peod t; x t expendtue on goup n that peod; P t the Stone pce ndex fo goup ;, j and j ae the unknown paamete and goup defned a: t the eo tem. The Stone' pce ndex fo t ln P 1,.. k w t ln p t 26 Agan, the addng up, ymmety and homogenety etcton can be mpoed a follow: Addng up: ; ; 0 ; j = 1,..k and j = 1,.(k -1) 1 0 j j 0 26

29 Homogenety: j 0 j = 1,..k Symmety: j j Altenatvely, an unetcted model can be etmated fo both ft and econd tage and the homogenety and ymmety etcton teted. It common fo thee etcton to be ejected n empcal tude (Keuzenkamp and Baten, 1995). 13 The addng up etcton, howeve, alway atfed by doppng one of the equaton. Godad (1983) deve equaton fo etmatng the hot un expendtue and pce elatcte fo a ngle tage LAIDS model 14, whle Edgeton (1997) deve expeon fo a two-tage model. In the latte, total elatcte ae calculated fom etmate of the between-goup and wthn-goup elatcte. The ntepetaton of thee ummaed n Box 1 whle the elevant fomulae ae ummaed n Table 7 (Edgeton, 1997). Hee, (Konecke delta) equal to unty when = (.e. own-pce elatcty) and zeo othewe. Smlaly, j unty when =j and zeo othewe. 13 Fo example, the foundatonal AIDS tudy by Deaton and Muellbaue (1980) ejected thee etcton. 14 Bue (1994) evaluate eveal elatcty expeon fo LAIDS model and fnd thee expeon ae magnally the bet. 27

30 Box 1 Intepetaton of the between-goup, wthn-goup and total elatcte 1. Between-goup expendtue ( x, x ) and pce ( and x, p ~ x, p ) elatcte fo the aggegate commodty goup () epectvely ndcate how expendtue on aggegate goup change followng: a) a change n total expendtue; and b) a change n the pce of aggegate goup holdng total expendtue fxed. x, x x, p j 2. Wthn-goup expendtue ( ) and pce ( and ~ ) elatcte fo each x, p j commodty wthn aggegate goup epectvely ndcate how expendtue on th commodty change followng: a) a change n expendtue on goup ; and b) a change n the pce of commodty j wthn aggegate goup holdng expendtue on goup fxed. Hee, both and j ae wthn the ame aggegate goup. 3. Total expendtue ( ) and pce ( x, x and x, p j ~ x, p ) elatcte fo each j commodty wthn aggegate goup epectvely ndcate how expendtue on th commodty change followng: a) a change n total expendtue; and b) a change n the pce of commodty j holdng total expendtue fxed but allowng expendtue on goup to vay. Hee, and j may be wthn the ame o dffeent aggegate goup. 28

31 Table 7: Analytcal expeon fo the between-goup, wthn-goup and total elatcte wthn a two-tage LAIDS model Elatcty Between-goup Wthn-goup (, j ) Total Expendtue x, x 1 x x 1, x x x, x x, x, w w Uncompenated pce x, p w w x, p j j j w w j x, p x, p j x, x ( x, p j ) w j Compenated pce ~ x p w ~ j, x p w, j j j w w ~ x, p x, p j x, x ( x, p j ~ ~ ) w j Souce: Edgeton (1997); Goddad (1983) 29

32 The fomulae n Table 7 deeve ome explanaton. The fomula fo the total expendtue elatcty fo the th commodty n the th goup (Table 7, lne 2) mply the poduct of the wthn-goup elatcty fo that commodty and the expendtue elatcty of the goup. The fomula fo the total uncompenated pce elatcty (Table 7, lne 3) moe complex. Note ft that when commodte and j ae n dffeent goup, 0 and the expeon educe to: x, p x, x x, p j w 27 j Hee, the ft tem ( x x, ) epeent the change n expendtue on commodty followng a change n expendtue on goup ; the econd tem epeent the change n expendtue on goup followng a change n the pce of goup ; and the thd tem epeent the hae of commodty j n the expendtue on goup. A hown by Edgeton (1997), the latte equvalent to the change n the pce of goup followng a change n the pce of commodty j ( w j ln p / ln p ). j When and j ae n the ame goup (=), the expeon become: x, p x, p j x, x ( 1 x, p j j ) w 28 Hee, the total co pce elatcty equal the wthn-goup co pce elatcty ( ), plu a poduct of thee facto. The ft of thee ( on commodty followng a change n expendtue on goup ; the econd meaue the change n expendtue on goup followng a change n the pce of goup ; and the thd epeent the change n the pce of goup followng a change n the pce of commodty j 30 x, x x, p j ) meaue the change n expendtue

33 ( w j ln p / ln p j ).The malle each of thee tem ae, the malle the dffeence between the wthn-goup and total pce elatcty. The fomula fo the total compenated pce elatcty (Table 7, lne 4) follow a mla patten. Followng tandad pactce, we etmate the elatcte ung the mean value of the expendtue hae ove the full tme ee. The total elatcte ae ued fo etmatng ebound effect. 3.3 Data Data fo the pce of dffeent commodty goup and houehold expendtue on thoe goup taken fom Conume Tend, publhed by the UK Offce of Natonal Stattc (ONS). The peod choen 1964 to 2013 and the value ae conveted to cuent pce ung a bae yea of Data on total houehold numbe fo elected yea taken fom DGLC (2014), wth data on ntemedate yea etmated by lnea ntepolaton. 15 Fgue 2 ndcate the change n expendtue hae ove th peod both between and wthn-goup. Dung th peod, the hae of food n total expendtue almot halved, the hae of tanpot nceaed by 50% and the hae of enegy fell by 30%. Wthn the enegy goup, ubttuton by ga educed the expendtue hae of othe fuel (coal and ol) fom 42% n 1964 to 6% n Two et of tme ee data fo expendtue and mpled deflato ae avalable: a) 1964 to 2010 content wth the UK Natonal Account fo 2010 (ONS, 2010) and b) 1997 to 2013 content wth the Natonal Account fo 2011 (ONS, 2011). To ceate a content tme ee ove the full peod, we take the annual gowth ate of expendtue and deflato dung fom ONS (2010) and ue thee to adjut the 1997 data fom ONS (2011). 16 Snce ou analy ue mean value of expendtue hae, the etmated contbuton of othe fuel lage, and the etmated contbuton of tanpot lowe, than would be the cae f we had ued 2013 value of expendtue hae. 31

34 Fgue 2 Tend n UK houehold expendtue hae between 1964 and 2013 Total expendtue 80% 70% 60% 50% 40% 30% 20% 10% 0% Food & beveage Enegy Tanpot Othe good & evce Food and non-alcoholc beveage Enegy 80% 60% 70% 60% 50% 50% 40% 40% 30% 30% 20% 10% 0% Food and non-alcoholc beveagc Tanpot Alcoholc beveagc and tobacco 20% 10% 0% Electcty ga Othe fuel Othe good and evce % 70% 80% 60% 70% 60% 50% 50% 40% 40% 30% 20% 10% 0% Vehcle fuel & lubcant 1997 Othe tanpot % 20% 10% 0% Receaton and cultue Retauant & hotel Educaton Communcaton Othe

35 Ou data ouce fo the GHG emon aocated wth dffeent categoe of good and evce the Suey Envonmental Lfetyle Mappng Famewok (SELMA). Th a qua-mult-egonal, envonmentally extended nput-output model that povde etmate of the GHG ntenty of UK houehold expendtue n each categoy (n tco 2 e/ ) fo 2004 (Duckman and Jackon, 2008). 17 Thee fgue nclude both the dect emon fom the conumpton of electcty 18, heatng fuel and vehcle fuel, and the emboded emon fom each tage of the upply chan fo good and evce whch may occu ethe n the UK o oveea. We adjut thee etmate to allow fo the emon aocated wth govenment expendtue of poduct taxaton evenue. 19 Fgue 3 (top) how that expendtue on electcty, ga and othe fuel appoxmately twce a GHG ntenve a expendtue on vehcle fuel and appoxmately fou tme a GHG ntenve a expendtue on othe tanpot whch the next mot GHG ntenve categoy. Oveall, expendtue on enegy commodte appoxmately fve tme a GHG ntenve a the hae-weghted mean. But the hgh GHG ntenty of enegy commodte offet by the mall hae of total expendtue (7% - Fgue 3, mddle), wth the eult that dect enegy conumpton only account fo 27% of an aveage houehold GHG footpnt 17 The GHG ntenty of a categoy etmated fom the GHG emon aocated wth that categoy n 2004 (obtaned fom SELMA) dvded by eal expendtue on that categoy n 2004 (efeence yea 2013). The excepton electcty whee emon ae etmated fom 2012 electcty conumpton (n kwh) multpled by an emon facto fo 2012 (kgco 2 e/kwh). Th adjutment degned to eflect the lage educton n the GHG ntenty of electcty 18 Emon fom electcty conumpton ae commonly labelled a dect, although they occu at the powe taton. 19 Envonmentally-Extended Input-Output (IO) model uch a SELMA only nclude the GHG emon aocated wth each expendtue categoy. But expendtue on dffeent commodte nclude vaou taxe (uch a Value Added Tax - VAT) whch n tun ae ued to fund govenment expendtue. Snce govenment pendng a epaate categoy n the natonal account, the aocated GHG emon ae nomally excluded fom the etmated GHG ntente of houehold expendtue. Excluon of thee emon could ba etmate of ebound effect, n patcula becaue dffeng level of poduct taxaton ae appled to dffeent good and evce. Fo example, n the UK thee 20% VAT on mot good and evce; 5% VAT on electcty, ga and othe fuel; zeo ate VAT on mot food poduct; and aound 65% taxaton on vehcle fuel. To elmnate th potental ba we: ft, etmate the GHG ntenty of UK govenment expendtue n 2004; econd, ue th to etmate the GHG emon aocated wth taxaton n each categoy; and thd, add thee to the emon povded by SELMA fo each expendtue categoy. Th n tun lead to an adjuted GHG ntenty of expendtue fo each categoy whch ued n the calculaton of ebound effect. A the GHG ntenty of govenment expendtue elatvely low, th adjutment doe not gnfcantly change ou eult. 33

36 (Fgue 3, bottom), plt between 19% dometc enegy (.e. electcty, ga and othe fuel) and 8% vehcle fuel. The categoy povdng the laget ngle contbuton (25%) to total emon othe good and evce whch nclude expendtue on clothng, houng mantenance, wate and funhng and account fo 45% of expendtue. The next hghet othe tanpot (12%) whch nclude non-fuel cot fo pvate ca, publc tanpot and ome a tavel. Snce thee categoe have both a elatvely hgh expendtue hae and a elatvely hgh GHG ntenty they povde a gnfcant contbuton to total emon (42%). Ou etmate of GHG ntente allow fo the vaaton of poduct taxaton between categoe: namely VAT exempton fo food and non-alcoholc beveage, lowe ate VAT fo dometc enegy and hgh taxaton of vehcle fuel (~60% of etal pce). The latte contbute to the compaatvely low GHG ntenty of vehcle fuel compaed to dometc enegy. 34

37 Shae of expendtue tco2e/ Fgue 3 GHG ntenty of expendtue, hae of total expendtue and hae of total GHG emon by categoy fo an aveage houehold % 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 35

38 Shae of GHG emon 30% 25% 20% 15% 10% 5% 0% 4 Reult 4.1 Econometc eult The two-tage budgetng aumpton model n Fgue 1 lead to a total of 16 equaton n fve goup. The equaton n each goup ae etmated a a ytem ung the Iteatve Seemngly Unelated Regeon (ISUR) method whch utable fo mpong coequaton etcton and coect the etmate fo any coelaton of the eo tem between equaton. The addng up etcton mpoed by doppng one of the equaton n each goup. The equaton n each goup ae ft etmated wthout mpong homogenety and ymmety etcton. A Wald tet then ued to tet fo thee etcton both ndvdually and n combnaton. If homogenety and/o ymmety ae not ejected then they ae mpoed on the elevant goup. 36

39 Annex 1 ummae the paamete etmate fo each goup of equaton and the eult of the etcton. Annex 2 ummae the between-goup elatcty etmate, and Annex 3 ummae the wthn-goup etmate. The mot elevant eult ae the total elatcty etmate fo the enegy and tanpot goup whch ae ummaed n Table 8 to 10. Fo eae of ntepetaton, all elatcte ae expeed fo quantte (q) athe than expendtue hae (w). Lookng ft at Annex 1 (Table A.1 to A.5), we ee that the oveall ft of the equaton good, wth moe than two thd of the paamete etmate beng tattcally gnfcant at the 5% level and wth mot of the equaton havng an adjuted R 2 exceedng 90%. Fom Table A.6 we ee that both homogenety and ymmety etcton ae ejected fo the enegy goup, hence we ue the non-etcted eult fo th goup. Fo all othe goup only the homogenety etcton cannot be ejected. Hence, we mpoe homogenety n all non-enegy goup, but we do not mpoe ymmety on any goup. We alo ue the Potmanteau eal coelaton tet fo each goup and fnd no evdence of eal coelaton. Lookng at the total elatcty etmate (Table 8-10), we make eveal obevaton. Ft, the expendtue elatcte fo dometc enegy ae elatvely low 0.07 fo electcty and 0.15 fo ga. Thee value ae boadly compaable wth thoe etmated fom co-ectonal data n ou pevou wok (Chtn et al., 2014) whee we howed that hgh-ncome goup have vey low expendtue elatcte fo thee commodte whch n tun ha a dpopotonate nfluence on the oveall mean. In contat, the etmated expendtue elatcte fo vehcle fuel, othe tanpot and the ub-categoe of othe good and evce all exceed unty, ndcatng that they ae luxuy good. 37

40 Second, the own-pce elatcte fo enegy commodte have the expected gn wth value of fo electcty, fo ga and fo vehcle fuel. Fo compaon, a evew of tude by Epey and Epey (2004) found a mean hot-un elatcty of (medan -0.28) fo electcty; a tudy by Ache et al. (2008)found hot un elatcte of houehold natual ga demand to be o le; and a evew of tude by Goodwn et al. (2004) found a mean hot-un elatcty fo vehcle fuel of Hence, ou etmate appea to be at the hgh end of the ange found n the lteatue - epecally fo ga and vehcle fuel. Snce the expendtue elatcte fo thee commodte ae elatvely mall, the own-pce epone pmaly dven by ubttuton effect a ndcated by the nea equvalence of the compenated and uncompenated elatcte fo thee commodte (Table 9 and 10). Thd, electcty and ga ae found to be ubttute, and both of thee ae etmated to be ubttute fo vehcle fuel when the pce of the latte change, but complement when the own-pce change (ymmety not mpoed). In addton, both othe tanpot and all ubcategoe wthn othe good and evce ae etmated to be complement to enegy commodte and wll theefoe contbute a negatve ndect ebound effect. In contat, food and dnk poduct ae etmated to be ubttute and wll contbute a (mall) potve ndect ebound effect. Oveall, the eult ugget that the ubttuton effect fo enegy commodte outwegh the ncome effect, and change n the pce of one o moe enegy commodte wll have the laget mpact on the quantty of enegy commodte demanded. Snce enegy commodte ae alo GHG ntenve, they ae lkely to domnate the total ebound effect. Th demontated below, whee we epot the ebound eult. 38

41 Table 8 Total expendtue elatcte ( ) x q Expendtue elatcty Table 9 Total compenated co pce elatcte- enegy goup ( ~ ) q p j Enegy Tanpot Food and beveage Othe good and evce Electcty Ga Othe fuel Vehcle fuel Othe tanpot Food and Enegy Tanpot Food and beveage Othe good and evce Electcty Ga Othe fuel Vehcle fuel Othe tanpot Food & nonalcoholc beveage Alcoholc beveage & tobacco Receaton and cultue Retauant and hotel Educaton Communcaton Othe nonalcoholc beveage Alcoholc beveage & tobacco Receaton and cultue Retauant and hotel Educaton Communcaton Othe Electcty Ga Othe fuel Vehcle fuel

42 Table 10 Total uncompenated co pce elatcte-enegy goup ( ) q p j Enegy Tanpot Food and beveage Othe good and evce Electcty Ga Othe Vehcle Othe Food and nonalcoholc Alcoholc Receaton Retauant Educaton Comm Othe fuel fuel tanpot beveage beveage & tobacco and cultue and hotel Electcty Ga Othe fuel Vehcle fuel

43 4.2 Etmate of ebound effect The etmated ebound effect ae peented n fou way to llutate both the magntude and the undelyng dve. Specfcally, we ndcate the elatve contbuton of: a) ncome and ubttuton effect; b) dect and ndect ebound effect; c) dect and emboded emon; and d) ndvdual commodte. Ou etmate of the total ebound effect ae 63% fo ga, 53% fo electcty and 46% fo vehcle fuel, (Fgue 4). Thee etmate ae lage than many n the lteatue, although malle than thoe by Bannlund et al (2007) and Mzobuch (2008). Net ubttuton aco all commodte account fo between two thd and thee quate of the total ebound fo electcty and ga, but only one ffth fo vehcle fuel. Th demontate the mpotance of captung ubttuton effect and ugget that tude that only etmate ncome effect could undeetmate the total ebound - patculaly fo electcty and ga. Ou etmate of dect ebound effect ae 59% fo vehcle fuel, 58% fo ga and 41% fo electcty (Fgue 5) - ndcatng that they account fo the majoty of the total ebound. Fo vehcle fuel, the dect ebound effect exceed the total ebound effect, nce the ndect ebound effect negatve. Thee etmate ae at the hgh end of the ange n the lteatue, patculaly fo vehcle fuel whee mot (pmaly US) tude etmate dect ebound effect of 20% o le (Soell and Dmtopoulo, 2007b). Fgue 6 demontate that the ncome effect motly deve fom othe commodte (ndect ebound) whle the ubttuton effect motly deve fom the enegy evce telf (dect ebound). Agan, tude that only etmate ncome effect could eoneouly conclude that the ndect ebound effect account fo the majoty of the total ebound - wheea thee eult how the oppote. 41

44 Dect emon fom enegy commodte account fo between two thd and thee quate of the total ebound (Fgue 7). Th follow dectly fom the above, nce t the dect ebound effect that domnate the oveall ebound effect and th wholly dect emon. Reduced conumpton of othe enegy commodte lghtly educe the total ebound effect fo electcty and ga but ha a geate mpact on the total ebound fo vehcle fuel. Income effect ae domnated by emboded emon (.e. non-enegy commodte) whle ubttuton effect ae domnated by dect emon (.e. enegy commodte) (Fgue 8). Snce the latte lage than the fome, ubttuton both wthn and between enegy commodte have the domnant nfluence on the oveall eult. Agan, tude that neglect ubttuton effect could eoneouly conclude that the total ebound effect cont pmaly of emboded emon - wheea thee eult how the oppote. Fnally, Fgue 9 llutate the elatve contbuton of dffeent commodte to the total ebound (nomaled to 100%). Th agan how the domnance of own-pce effect. Subttuton between electcty and ga dampen the ebound effect fo thee two commodte, a doe ubttuton away fom food and beveage. In contat, the complementay elatonhp between enegy commodte and both othe tanpot and othe good and evce contbute a potve ebound effect. Fo vehcle fuel, ubttuton away fom electcty and ga gnfcantly educe the total ebound. 42

45 Fgue 4 Etmated ebound effect plt by net ncome and ubttuton effect 70% 60% 50% 40% 30% 20% 10% 0% Ga Electcty Vehcle fuel 1, 2 and 3 n combnaton (equal %) Subttuton effect Income effect Fgue 5 Etmated ebound effect - plt by dect and ndect ebound effect 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% Ga Electcty Vehcle fuel 1, 2 and 3 n combnaton (equal %) Dect ebound Indect ebound 43

46 Fgue 6 Net ncome and ubttuton effect - plt by dect and ndect ebound Income effect Subttuton effect Fgue 7 Etmated ebound effect - plt by dect and emboded emon 44