Further theory on the rebound effect
If there is a price difference between different product alternatives at the end consumer level, and you wish to model the environmental impacts of this situation correctly, the reference flow of the cheaper alternatives have to be adjusted to include the alternative spending of the money saved. This addition should ideally model the marginal spending by utilising information on what products increase their market volume when the spending increases. The needed information may be found in specific studies on cross-elasticities or more generally in national statistics on the private consumption of different consumer groups.
The price rebound effect is generally only relevant for price differences at the end consumers, since at the level of enterprises the price differences seldom have any lasting effects due to the tendency of marginal profits and wages to level out across all industries.
A similar adjustment of the reference flows may be required if the there is a large difference between the product alternatives in terms of time consumption at the end consumer level. In this case, the timesaving alternatives have to be adjusted to include the changes in overall behaviour as a result of the additional time available in these alternatives.
Formally, rebound effects are defined as the derived changes in production and consumption when the implementation of an improvement liberates or binds a scarce production or consumption factor, such as:
- Money (when the improvement is more or less costly than the current technology).
- Time (when the improvement is more or less time consuming than the current technology).
- Space (when the improvement takes up more or less space than the current technology).
The consequences of such rebound effects should be reported separately from the result without rebound effects, to make their importance explicit.
For some goods it may be necessary to define the functional unit in terms of average customer behaviour (such as “average transport behaviour during one year” for a study of different work-related transport modes or “average diapering behaviour” for a study of disposable versus reusable diapers) to avoid neglecting differences in performance such as that implied by the rebound effect.
Ignoring rebound effects will lead to either under- or over-estimation of the effects of new technologies.