Discussing the rebound effect from energy efficiency

On January 24^th and 25^th, there was an excellent roundtable at the IEA discussing the Macroeconomic Benefits of Energy Efficiency.  There was an extensive discussion on the rebound effect with no real conclusion other than it must be analysed.  How the results are used is up for debate.  By coincidence, that very day there were articles relating to a new study published in Nature on the topic.

 EiD found two of the articles of particular interest. The first one dealing with cars is from R&D Magazine and the source of the article was University of California, Davis.

 The second article is from The Energy Collective and by one of the authors of the main report, Gernot Wagner.

The “rebound” effect of energy-efficient cars overplayed

The argument that those who have fuel-efficient cars drive them more and hence use more energy is overplayed and inaccurate, a University of California, Davis economist and his co-authors say in a comment article published in Nature.

Critics of energy-efficiency programs in public policy debates have cited the “rebound effect” as a reason that hybrid cars and plug-in electric vehicles, for example, don’t really save energy in the long run.

The “backfire” concept, a more extreme version of “rebound,” actually stems from a 19th-century analysis in a book titled “The Coal Question,” by Stanley Jevons. The book hypothesized that energy use rises as industry becomes more efficient because people produce and consume more goods, according to the Nature article. But the article’s co-authors found that in the modern economy, the effect is not supported empirically.

“If a technology is cheaper to run, people may use it more. If they don’t, they can use their savings to buy other things that required energy to make. But evidence points to these effects being small—too small to erase energy savings from energy efficiency standards, for example,” says David S. Rapson, assistant professor of economics at UC Davis.

Rebound effects are therefore “no excuse for inaction,” the article states.

Energy-efficiency standards will once again be a topic of debate—and a potential target for attack—with the renewed focus on climate change and the possibility of federal regulatory action, Rapson explains, “From an economic perspective, a carbon tax or well-functioning cap-and-trade market is still optimal. But if the political reality doesn’t allow these, efficiency standards should be evaluated based on the balance of costs and benefits. Rebounds are an important consideration, but are often overblown and misunderstood.

“Even though increased efficiency may prompt changes in behavior, energy is still saved overall,” says Rapson. “Energy-efficiency policies should therefore continue to be considered as a way to address greenhouse gas emissions.”

Second article by Gernot Wagner

Energy Efficiency and Energy Use: The Rebound Effect is Overplayed

Trying to put the rebound effect for energy efficiency in its rightful place is like playing a game of wack-a-mole. Predictably every couple of years, someone new discovers the counter-intuitive appeal of showing how more efficient energy policies may lead to more energy use. Wham! Told you there’s something wrong with those clean-car standards. Well, not so fast.

Yes, the rebound effect is real. But it’s also small. And what’s there is actually positive! Why shouldn’t people who can now afford to due to more efficient energy technologies be able to improve theirs lives?

Together with three co-authors (Ken Gillingham at Yame, Dave Rapson at the University of California, Davis, and Matt Kotchen, currently on leave from Yale to serve as Deputy Assistant Secretary for Environment and Energy at the U.S. Treasury), I surveyed a bajillion+1 energy efficiency rebound studies. Nature then made us cut down those references to 6. We settled at 9.

We couldn’t find a single study that has the rebound be above 100% or anything close to it, what’s necessary to nix energy efficiency savings. The maximum number you can get is 60%, and that’s already quite a stretch. Think 30% as the upper bound for actual behavioral responses. Yes, we are more efficient today than we were a hundred years ago, and we also use more energy today. But that’s far from talking about the rebound effect. It’s simply economic growth.

Establishing a causal link between efficiency and energy use isn’t quite as simple. In the end, the rebound effect comes in four forms. Buy a more fuel-efficient car, and driving that next mile just became cheaper. The result: a bit more driving, to the tune of 5 to a maximum of 30%, although most likely much closer to 5-10% of the initial fuel savings. Then there’s the indirect effect: Drivers may now use some of the savings to buy other products that consume energy.

You can already see that we can’t just add these two effects. If you spend some of the gas money on driving more, you have less to spend on that plane ticket, and vice versa.

Then there are two macroeconomic effects: one via the price and one via technological advances. They are the trickiest to pin down and could, in theory, be the largest. But theory lends a helping hand in getting an upper bound: the basic demand-and-supply relationship tells us that the macroeconomic price effect can’t be more than 100%.

And once again, all these effects aren’t anywhere near that threshold. 60% is as high as it gets for the combined effect, and only in rare circumstances. For the most part, it’s much closer to 5 to perhaps 30%.

So where does that leave us?

When designing energy efficiency policies like clean-car standards, consider the rebound effect, much like the government already does. The Department of Energy’s model uses a highly appropriate 10% rebound figure for the car standards. And that’s about it. Not much else to see here.

If you did want to take it a step further — full disclosure: a step I couldn’t convince my three co-authors to take in the Nature piece itself — everything else equal, the existence of the rebound effect may prompt us to use even stricter energy efficiency standards. If you have an overall target in mind, and the rebound effect shaves off a bit, you ought to consider using a slightly stricter target to get back to where you wanted to be.

For more, check out the full Nature piece. Well worth the $32 to put the rebound effect in its rightful place once and for all.