Testing the 'Rebound Effect' in the Transportation Sector Empirical Evidence from China

Recent debates in economic literature highlight the rebound effect, which causes expected gains from energy efficiency to be partially or completely counteracted by increased energy consumption as a result of lower prices. We develop a computable general equilibrium model of China to simulate energy-economy interactions and estimate the consequences of a 10 per cent efficiency improvement in the transportation sector, revealing an 89 per cent rebound effect on total energy consumption. Nonetheless, implied energy efficiency proves to increase economic activity and escalate output growth for numerous sectors of the economy. Results are aimed at creating a solid base for further research.