Leapfrog or Backfire?

Wharton Economist on the Rebound Effect in Developing Economies

Arthur van Benthem is an Assistant Professor of Business Economics and Public Policy at Wharton. His research specializes in environmental and energy economics. His recent work focuses on unintended consequences of environmental legislation and natural resource taxation.

What motivated you to write your article “Has Leapfrogging Occurred on a Large Scale?”

I worked for a couple of years in the long-term energy scenarios team at Shell in my home country of the Netherlands. We made assumptions on tech leap-frogging occurring. The assumption was energy-efficient technologies would result in China’s future growth in energy consumption being lower than that of rich countries during their development.

How did a low-energy future get thought about at Shell?

One thing we know is that about once in every 10 years, there’s a big development in the energy system that changes the market. It was OPEC in the 1970s, it’s shale gas today. I can’t speak for what Shell thought then or now, but some people have argued that another trend break might put us on a low-energy growth path.

What did you find?

Because all these energy-efficient technologies are also available in China and Asia today, you might expect to find lower growth in energy consumption than you had in the United States or Europe when they were at the same GDP levels.

But I found no evidence for that over the period from 1960 to today. If anything, I found it slightly the other way around, that developing countries exhibit more energy-intensive growth at the same levels of GDP than developed countries did.

Can you give an example?

Let’s say I’m comparing two countries with a $5,000 GDP per capita, say China today and Spain around 1960. The energy intensity of growth is the amount of energy to achieve another dollar or percentage of growth. When growth increases by a dollar, how much does energy consumption increase?

If developing countries had more efficient technologies, you’d think they could achieve same level of growth with lower energy consumption, but they don’t.

Why is that?

I think there are two reasons. First, what we call “consumption bundles” are changing a lot. What percent of their disposable income do people spend on energy-related goods or services? That number has gone up considerably over time. Compare the United States or Europe in the early 19th century to developing countries today. Even though direct rebound effects are small, more energy-efficient technologies may re-direct technological change towards new products that use the cheaper energy services, whether air conditioning, ice cream machines, or LED screens, which are more efficient but used everywhere to advertise the latest movie or public lecture.

Second, outsourcing. When the United States was poor, there were not that many richer countries where the United States could send heavier production. The point is that China will produce a lot of heavy industrial goods and will see a fair bit of energy consumption growth in Chinese industry, even though a lot is exported. We then attribute a lot of energy growth to China while many products are consumed somewhere else.

If you look at India today, one high-selling car is a $3,500, very energy efficient vehicle that gets 40 mpg. That’s way more efficient than cars used in the United States a century ago. But prices for cars have gone down a lot over time. A Ford Model T was an extreme luxury product for the US upper class in the 1920s. The Suzuki Maruti Alto’s much lower price and its higher efficiency allows a greater number of poorer Indians to use it.

Such trends are very hard to model, because you have to model new products, which is too complex. In order to capture these long-term trends you have to make predictions of new uses of energy.