The Global Rebound Effect Versus California’s Low-Carbon Fuel Standard

Abstract

Displacing gasoline with a new source of biofuel, as California’s low-carbon fuel standard proposes to do, will reduce the global demand for oil. This will reduce the world oil price, which will cause an increase in oil use outside of California - the global rebound effect. Conventional wisdom views this effect as negligible.But the global rebound effect applies to discovering and pumping new oil, just as it applies to producing new biofuel. And if rebound is negligible, this paper shows that pumping new oil harms the environment negligibly, contradicting conventional wisdom.In fact, the global rebound effect is likely to be near 25 percent or greater, and biofuels will likely reduce carbon by that much less than anticipated. Some biofuels may be credited with helping, even while they harm the climate.