Energy Efficiency and the Rebound Dilemma

Energy Efficiency and the Rebound Dilemma

Regulations that mandate improvements in energy efficiency now affect markets that range from insulation to motor vehicles, with a commonly held expectation that they will significantly reduce energy consumption.  This paper shows that even if improved energy efficiency “pays for itself,” the savings promised by efficiency advocates will often fall short of expectations.  In some cases, researchers have found that higher efficiency actually increases rather than reduces energy consumption.  Predictions of high energy savings are often based on simple arithmetic that fails to consider economic motives to increase those activities whose costs have fallen because they use energy more efficiently.

Although largely disregarded by policymakers and media, literally hundreds of studies made over the past two decades have shown that this “rebound” effect is significant, particularly when we look at entire economies rather than individual industries.

This report summarizes the findings of recent research on rebound and puts its findings into a policy perspective.  If rebounds are significant, important aspects of energy policy will require rethinking.  Even if the developed world is “saturated” with appliances and light, the rebounds that are taking place in less developed nations may often bring “backfires,” where improved energy efficiency actually increases energy consumption.

The growing evidence on the significance of rebounds imposes important constraints on future energy and climate policies, and has shown that the promise of significant savings says nothing about its ultimate impact on overall energy use in the economy.  That impact has become an important research topic, and the bulk of findings on it indicate that important amounts of energy are “taken back.”  Greater fuel economy, for example, lowers the cost of each mile driven and may ultimately lead to less fuel savings than a simple calculation that assumes miles remain constant.

This paper summarizes what is known about such “rebound” effects, and available data indicate that they carry major policy consequences.  In some documented cases, greater energy efficiency can and has led to actual increases in energy consumption.    Properly accounting for the impact of rebounds is essential to obtaining an accurate picture of how the efficiency policy in question may impact consumption levels, and will also better inform the cost-savings estimates associated with decreasing consumption.  Improving the accuracy of cost-savings estimates will allow policymakers to better evaluate whether the benefits of energy efficiency programs outweigh the problems associated with limiting the choices available to consumers.

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