Revisiting Jevons's paradox of energy rebound: Policy implications and empirical evidence in consumer-oriented financial incentives from the Japanese automobile market, 2006-2016

While the fuel economy of Japanese automobiles has improved by 40% in the past decade, gasoline consumption in the transportation sector from 2007 to 2016 only decreased by 4%. We seek to explain this discrepancy by investigating Japanese fuel economy standards and the financial incentives given to consumers of fuel-efficient cars. To do so, this study explores whether Japanese policies caused such a rebound effect, by employing the difference-in-difference framework. We find that these policies contribute to energy rebound effect, by enabling higher fuel consumption at lower costs and thus causing higher energy usages. We provide evidence that policies can increase not only fuel usage but also fuel costs. The main driving force behind the rebound effect is the increase in the sales of hybrid vehicles, induced by financial incentives.