The
Global Rebound Effect
Warning, math ahead. This box derives the 0.26 gallons
value.
1. First, the IEA tells us that a 1 percent reduction, O,
in oil demand causes a 1.5 percent reduction, P, in the world
oil price.
P = 1.5 O.
2. Nordhaus tells us that a 1 percent reduction in oil
price causes a 0.24 percent increase, F, in fuel demand:
F = –0.24 P.
3. Combining these two gives:
F = –0.36 O.
4. The change in oil use caused by ethanol is given by:
O = F – E.
5. Combining 3 and 4 gives:
O = –0.36 O – E.
O = –0.74 E.
6. Add the increase in ethanol to the global reduction
in oil to find the effect on total liquid fuel use:
F = E + O = 0.26 E.
If alternative fuel or conservation cuts oil demand by 1
unit, the world liquid-fuel price will fall and cause a Global
Rebound Effect of 0.26 units more fuel demand.
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