Decomposing the South African CO2 Emissions within a BRICS Countries Context: The Energy Rebound Hypothesis

Roula Inglesi-Lotz, September, 2017
In the energy literature, the rebound effect is the reason why energy saving and energy efficiency policies do not have necessarily and always the expected impact on the reduction of CO2 emissions. A new energy-saving technology (which can be a programme, a tax or an actual tangible technology) aims at lowering the energy bill of the consumers and hence, eventually, a reduction in emissions. However, such a “lowering of the bill” may be perceived as a reduction of the real price of energy services and hence, a tendency of the consumers to eventually increase their demand for energy which partially offsets the energy-saving potential of the initial technology. Also, by this reduction in energy prices, the real incomes of consumers increase, and the consumers spend the increases in consuming other goods and services, offsetting here once more the emission reduction prospects of the initial technology. In the literature, technologies that were evaluated for their rebound effects were the carbon tax and technologies that directly increase the energy efficiency of consumers.

The main purpose of this study is to test the hypothesis of the rebound effect for the South African case in the years between 1990 to 2014 by firstly, decomposing the driving forces of the changes in CO2 emissions of the country and secondly, comparing with the behaviors of other emerging economies such as BRICS. From a policy perspective, it is important not only to comprehend the factors that intensify the CO2 emissions of the country but since energy efficiency is globally promoted as a significant tool to control emissions from a demand-side, to examine whether energy efficiency improvements have indeed reduced CO2 emissions. The overall results of the decomposition exercise for the BRICS countries for the whole studies period suggest that the changes in CO2 intensity and energy intensity had a negative impact to the changes in CO2 emissions: in other words, as the energy intensity (energy consumption per unit of economic output) decreased for all the countries (possible technological developments), the emissions kept rising.
For South Africa specifically, the energy intensity was a negative contributor to CO2 emissions only for the last period examined (2008-2014). So for the last period, although the energy intensity was decreasing, the emissions kept increasing. This is an indication of the rebound effect from an improvement in the energy savings from a new technology or a policy. In South Africa, the period of 2008/09 was characterized by a mismatch between the electricity supply and demand in the country resulting in load shedding with serious consequences for the economy. As a result of this, various energy efficiency policies have been proposed and implemented since then but most importantly the price restructuring of 2008/09 with increases of up to 25% annually for the following years was a high incentive for consumers to save energy or adopt technologies with lower intensity of energy use. This might be a primary reason why the rebound effect as described in previous sections might have occurred.
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Decomposing the South African CO₂ Emissions within a BRICS Countries Context: The Energy Rebound Hypothesis