The Rebound Effect of Energy Efficiency Policy in the Presence of Energy Theft

Introduction: Estimating the effectiveness of energy efficiency policy in reducing energy use requires a full understanding of the energy efficiency rebound effect, where energy use reductions differ from engineering expectations. Prior models that estimate the size of the total rebound effect ignore energy theft, which is a common feature in developing economies. Objectives: The primary objective of this study was to evaluate the role that energy theft plays in determination of the size of the rebound effect of energy efficiency policy in developing countries, using the Turkish economy and the specific Turkish regulation regarding compensation for energy theft as an example. Methods: We construct two energy-economy computable general equilibrium (CGE) models for Turkey that do and do not incorporate energy theft. Costs of energy theft are passed on to consumers through a recovery surcharge. Two energy efficiency policies are modeled; one leading to a 42% energy efficiency increment for the service sector and another leading to a 48% energy efficiency increment for households. Results: Without energy theft, rebound effects for both policies are small: between -1.4% and 3.1% for the service sector and between 0.4% and 2.1% for households. With energy theft, we see a -7.9% to -19.7% rebound for the service sector and a 10.4% to 40.7% rebound for households. The recovery surcharge on energy sales rises when energy efficiency gains affect the service sector but fall when they affect households. Conclusions: The interaction between energy efficiency and energy theft may be critical in accurate estimation of rebound effects where energy theft is prevalent. Where energy efficiency gains disproportionately reduce electricity sales rather than theft, the rising recovery surcharge leads to a negative rebound or super-conservation. However, where theft is disproportionately reduced rebound will be higher.