The Impact of Increased Efficiency in the Transport Sectors Energy Use: A Computable General Equilibrium Analysis for the Botswana Economy

Energy efficiency is viewed as a tool for achieving both sustainable development and environmental sustainability in Botswana and world-wide. This is premised on the standard wisdom that energy-augmenting technical progress reduces aggregate energy consumption. In the energy economics literature, there is disagreement as to whether the beneficial effect of energy efficiency stimulus on energy consumption is partially or wholly counteracted by the negative effect of the response of the economic system to a fall in the relative price of energy services caused by an energy efficiency shock. This paper uses a computable general equilibrium model of energy-economy interactions for Botswana to explore the consequences of energy efficiency enhancement in the transport sectors. These sectors are among those targeted to be energy-efficient by 2016 and are the largest energy-consumers. The evidence shows that efficiency improvement in the transport sectors energy use stimulates economic activity and results in modest conservation of both total energy and petroleum, but increases non-petroleum use, implying that there are large rebound effects on total energy and petroleum consumption of 95 percent and 91 percent, respectively, and a backfire effect of 101 percent for non-petroleum consumption. The results do not undermine a policy of inreasing energy efficiency, but underscore that government needs to design a package of energy policies if it wishes to achieve energy conservation that will substantially reduce carbon emissions.