How Large is the Economy-Wide Rebound Effect in Middle Income Countries? Evidence from Iran

The issue of whether energy efficiency improvements will lower energy use or not is
contentious. We estimate the economy-wide rebound effect for Iran using a structural
vector autoregressive model estimated with quarterly data from 1988:3 to 2018:1. The
structural shocks are identified by independent component analysis, a statistical
identification technique that does not require us to impose restrictions based on economic
theory on the model. The results show that in response to an energy efficiency shock
energy use falls initially, but returns to near its original level over time. The economy-wide
rebound effect in Iran is 84% after 6 years and its confidence interval includes 100%
implying that policies that encourage energy efficiency innovation will have limited longterm
impact on energy use.