Using latent variable approach to estimate China׳s economy-wide energy rebound effect over 1954-2010

The energy rebound effect has been a significant issue in China, which is undergoing economic transition, since it reflects the effectiveness of energy-saving policy relying on improved energy efficiency. Based on the IPAT equation and Brookes׳ explanation of the rebound effect, this paper develops an alternative estimation model of the rebound effect. By using the estimation model and latent variable approach, which is achieved through a time-varying coefficient state space model, we estimate China׳s economy-wide energy rebound effect over 1954-2010. The results show that the rebound effect evidently exists in China as a result of the annual average of 39.73% over 1954-2010. Before and after the implementation of China׳s reform and opening-up policy in 1978, the rebound effects are 47.24% and 37.32%, with a strong fluctuation and a circuitously downward trend, respectively, indicating that a stable political environment and the development of market economy system facilitate the effectiveness of energy-saving policy. Although the energy-saving effect of improving energy efficiency has been partly realised, there remains a large energy-saving potential in China.