Economy-wide rebound makes UK’s electric car subsidy fall short of expectations

Environmental policies often underperform due to so-called rebound effects, namely behavioural and systemic responses to technical change leading to additional consumption and environmental damage. While evidence of rebound is abundant, studies generally focus on technical changes that are neither associated with specific technologies nor their production costs, making it difficult to connect these changes with the policies governing them. To overcome this limitation, this study proposes to combine a technology-rich model based on life cycle assessment and a behaviour-optimising model for the global economy based on computable general equilibrium modelling. This approach allows to quantify policy-induced economy-wide rebound effects for four relevant environmental impacts: climate change, acidification, photochemical ozone formation, and particulate matter. We apply this approach to evaluate the effectiveness of the United Kingdom’s subsidy on electric cars. The results show notable economy-wide rebound effects associated with this subsidy: over or close to 100% (no environmental benefits) for acidification and particulate matter impacts, and a lower, yet notable, magnitude for climate change (~20-50%) and photochemical ozone formation (~30-80%) impacts. The results also show the important role of macro-economic effects from price changes, particularly how the shift from petrol to electricity triggered additional demand for cheaper petrol.